CANADIAN PACIFIC ANNOUNCES THIRD-QUARTER RESULTS

Oct 27, 2010, 07:30 ET from Canadian Pacific

CALGARY, Oct. 27 /PRNewswire-FirstCall/ - Canadian Pacific Railway Limited (TSX/NYSE: CP) announced a 15 per cent increase in third-quarter revenues with gains across most lines of business. Reported net income was $197.3 million and diluted earnings per share were $1.17, both down 6 per cent over third-quarter 2009 which included other specified items of $0.41 per share principally from significant real estate sales. Adjusted diluted earnings per share increased 27 per cent to $1.21.

"CP delivered another strong quarter of financial performance on double digit revenue growth and an improved operating ratio," said Fred Green, President and Chief Executive Officer. "We are building a solid foundation based on safety, service reliability and operational efficiencies that continue to drive value to our employees, customers and shareholders."

THIRD-QUARTER 2010 COMPARED WITH THIRD-QUARTER 2009

    -   Total revenues increased 15 per cent from $1.1 billion to
        $1.3 billion
    -   Adjusted operating income increased 28 per cent from $263.8 million
        to $337.7 million
    -   Adjusted operating ratio improved 270 basis points to 73.7 per cent
    -   Adjusted earnings increased 27 per cent from $160.9 million
        to $204.7 million
    -   Adjusted diluted earnings per share increased 27 per cent from $0.95
        per share to $1.21 per share

Presentation of non-GAAP earnings measures

CP presents non-GAAP earnings measures in this news release to provide an additional basis for evaluating underlying earnings and liquidity trends in its business that can be compared with prior periods' results of operations. When foreign exchange gains and losses on long-term debt and other specified items are excluded from diluted earnings per share, income and income tax expense, these are non-GAAP measures.

These non-GAAP earnings measures exclude foreign currency translation effects on long-term debt and related income taxes, which can be volatile and short term. The impact of volatile short-term rate fluctuations on foreign-denominated debt is only realized when long-term debt matures or is settled. A reconciliation of income, excluding foreign exchange gains and losses on long-term debt and other specified items, to net income as presented in the financial statements is detailed in the attached Summary of Rail Data. In addition, these non-GAAP measures exclude other specified items (described below) that are not a part of CP's normal ongoing revenues and operating expenses.

Income, diluted earnings per share, operating expense and operating ratio, excluding foreign exchange gains and losses on long-term debt and other specified items, are referred to in this news release as "Adjusted earnings", "Adjusted diluted earnings per share", "Adjusted operating expense" and "Adjusted operating ratio".

Other specified items are material transactions that may include, but are not limited to, restructuring and asset impairment charges, gains and losses on non-routine sales of assets, unusual income tax adjustments, and other items that do not typify normal business activities.

The non-GAAP earnings measures described in this news release have no standardized meanings and are not defined by accounting principles generally accepted in the United States and, therefore, are unlikely to be comparable to similar measures presented by other companies.

Foreign exchange gain and loss on long-term debt and other specified items

In the third quarter of 2009 the Company recorded other specified items totaling $69.4 million, after tax. This was largely comprised of the after tax gain of $68.1 million on significant real estate sales.

CP had a foreign exchange loss on long-term debt of $7.7 million after tax in the third quarter of 2010, compared with a foreign exchange loss on long-term debt of $21.0 million after tax in the third quarter of 2009.

As part of a consolidated financing strategy, CP structures its U.S. dollar long-term debt in different taxing jurisdictions. As well, a portion of this debt is designated as a net investment hedge against net investment in foreign subsidiaries. Although the taxes on foreign exchange gains and losses on long-term debt generally offset one another, because they may be in different tax jurisdictions, the resulting net tax can vary significantly.

CP began reporting its financial results in accordance with U.S. GAAP as of January 1, 2010. All prior period comparative numbers contained in this release conform to U.S. GAAP. Additional historical U.S. GAAP financial reports can be found at www.cpr.ca.

Note on forward-looking information

This news release contains certain forward-looking statements relating but not limited to our operations, anticipated financial performance and business prospects. Undue reliance should not be placed on forward-looking information as actual results may differ materially.

By its nature, CP's forward-looking information involves numerous assumptions, inherent risks and uncertainties, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods, timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and investments, including long-term floating rate notes; and various events that could disrupt operations, including severe weather conditions, security threats and governmental response to them, and technological changes.

Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

About Canadian Pacific

Canadian Pacific (CP: TSX/NYSE) operates a North American transcontinental railroad providing freight transportation services, logistics solutions and supply chain expertise. Incorporating best-in-class technology and environmental practices, CP is re-defining itself as a modern 21st century transportation company built on safety, service reliability and operational efficiency. Visit cpr.ca and see how Canadian Pacific is Driving the Digital Railway.

    CONSOLIDATED STATEMENT OF INCOME
    (in millions of Canadian dollars, except per share data)
    (unaudited)

                                For the three months     For the nine months
                                  ended September 30      ended September 30
                                   2010       2009         2010       2009

                                            Restated                Restated
                                         (see Note 2)            (see Note 2)
                             ------------------------ -----------------------
    Revenues
      Freight                 $  1,250.8  $  1,086.6  $  3,591.2  $  3,164.0
      Other                         35.4        31.5        96.0        95.0
                             ------------------------ -----------------------
                                 1,286.2     1,118.1     3,687.2     3,259.0
    Operating expenses
      Compensation and
       benefits                    365.2       322.4     1,068.7       989.9
      Fuel                         166.1       134.0       525.7       422.7
      Materials                     43.2        45.3       158.2       175.5
      Equipment rents               53.6        51.5       157.5       173.0
      Depreciation and
       amortization                123.9       121.6       368.4       361.0
      Purchased services and
       other                       196.5       179.5       590.3       553.4
      Gain on sale of
       significant
       properties (Note 4)             -       (79.1)          -       (79.1)
                             ------------------------ -----------------------
                                   948.5       775.2     2,868.8     2,596.4
                             ------------------------ -----------------------
    Operating income               337.7       342.9       818.4       662.6
    Gain on sale of
     partnership
     interest (Note 5)                 -           -           -        81.2

    Less:
      Other (income) and
       charges                       1.0         1.3        (7.3)       19.4
      Interest expense              60.6        55.0       192.1       199.2
                             ------------------------ -----------------------
    Income before income tax
     expense                       276.1       286.6       633.6       525.2

    Income tax expense
     (Note 6)                       78.8        77.3       168.7       121.4
                             ------------------------ -----------------------
    Net income                $    197.3  $    209.3  $    464.9  $    403.8
                             ------------------------ -----------------------
                             ------------------------ -----------------------

    Earnings per share
     (Note 7)
      Basic earnings per
       share                  $     1.17  $     1.25  $     2.76  $     2.44
      Diluted earnings per
       share                  $     1.17  $     1.24  $     2.75  $     2.43
    Weighted average number
     of shares (millions)
      Basic                        168.8       168.1       168.6       165.7
      Diluted                      169.3       168.7       169.0       166.0
    Dividends declared per
     share                    $   0.2700  $   0.2475  $   0.7875  $   0.7425

    See notes to interim consolidated financial statements.



    CONSOLIDATED BALANCE SHEET
    (in millions of Canadian dollars)
    (unaudited)

                                                    September 30 December 31
                                                         2010        2009
                                                                   Restated
                                                                 (see Note 2)
                                                     ------------------------
    Assets
    Current assets
      Cash and cash equivalents                       $    267.8  $    679.1
      Accounts receivable, net                             533.3       655.1
      Materials and supplies                               124.5       132.7
      Deferred income taxes                                103.8       128.1
      Other current assets                                  54.8        46.5
                                                     ------------------------
                                                         1,084.2     1,641.5

    Investments                                            154.6       156.7
    Net properties                                      11,957.2    11,978.5
    Goodwill and intangible assets                         196.8       202.3
    Other assets                                           138.0       175.8
                                                     ------------------------
    Total assets                                      $ 13,530.8  $ 14,154.8
                                                     ------------------------
                                                     ------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Accounts payable and accrued liabilities        $  1,038.7  $  1,000.7
      Long-term debt maturing within one year               41.4       605.3
                                                     ------------------------
                                                         1,080.1     1,606.0

    Pension and other benefits liabilities (Note 11)       585.3     1,453.9
    Other long-term liabilities                            472.4       479.9
    Long-term debt  (Note 10)                            4,389.0     4,138.2
    Deferred income taxes                                1,932.2     1,818.7
                                                     ------------------------
    Total liabilities                                    8,459.0     9,496.7

    Shareholders' equity
      Share capital                                      1,805.9     1,771.1
      Additional paid-in capital                            25.5        30.8
      Accumulated other comprehensive loss              (1,692.5)   (1,744.7)
      Retained earnings                                  4,932.9     4,600.9
                                                     ------------------------
                                                         5,071.8     4,658.1
                                                     ------------------------
    Total liabilities and shareholders' equity        $ 13,530.8  $ 14,154.8
                                                     ------------------------
                                                     ------------------------

    Commitments and contingencies (Note 14)

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF CASH FLOWS
    (in millions of Canadian dollars)
    (unaudited)

                                For the three months     For the nine months
                                  ended September 30      ended September 30
                                   2010       2009         2010       2009

                              ----------------------- -----------------------
    Operating activities
      Net income              $    197.3  $    209.3  $    464.9  $    403.8
      Reconciliation of net
       income to cash provided
       by operating activities:
        Depreciation and
         amortization              123.9       121.6       368.4       361.0
        Deferred income taxes
         (Note 6)                   75.4       114.8       160.4       158.6
        Gain on sale of
         partnership interest          -           -           -       (81.2)
        Gain on sale of
         significant properties        -       (79.1)          -       (79.1)
        Pension funding in
         excess of expense
         (Note 11)                (645.6)      (15.0)     (805.6)      (47.6)
        Other operating
         activities, net            (0.6)       (9.6)        5.7       (41.0)
        Change in non-cash
         working capital
         balances related to
         operations                 (0.5)       59.6       (72.5)       (3.5)
                              ----------------------- -----------------------
    Cash (used in) provided
     by operating activities      (250.1)      401.6       121.3       671.0
                              ----------------------- -----------------------
    Investing activities
      Additions to properties     (185.1)     (195.5)     (443.9)     (564.1)
      Proceeds from the sale
       of properties and other
       assets                       19.8       122.9        46.2       287.5
                              ----------------------- -----------------------
      Cash used in investing
       activities                 (165.3)      (72.6)     (397.7)     (276.6)
                              ----------------------- -----------------------
    Financing activities
      Dividends paid               (45.5)      (41.6)     (128.9)     (121.3)
      Issuance of CP
       Common Shares                20.0         5.3        26.9       504.5
      Collection of receivable
       from financial
       institution                     -           -       219.8           -
      Net decrease in
       short-term borrowing            -         2.1           -       (92.4)
      Issuance of long-term
       debt                        355.2           -       355.2       409.5
      Repayment of long-term
       debt                        (14.2)       (6.8)     (604.5)     (613.3)
      Other financing
       activities                    2.9         4.9         3.1        34.1
                              ----------------------- -----------------------
      Cash provided by (used
       in) financing activities    318.4       (36.1)     (128.4)      121.1
                              ----------------------- -----------------------
    Effect of foreign exchange
     fluctuations on U.S.
     dollar-denominated cash
     and cash equivalents           (8.8)      (11.3)       (6.5)      (17.1)
                              ----------------------- -----------------------
    Cash position
      (Decrease) increase in
       cash and cash
       equivalents                (105.8)      281.6      (411.3)      498.4
      Cash and cash
       equivalents at
       beginning of period         373.6       334.3       679.1       117.5
                              ----------------------- -----------------------
    Cash and cash equivalents
     at end of period         $    267.8  $    615.9  $    267.8  $    615.9
                              ----------------------- -----------------------
                              ----------------------- -----------------------
    Supplemental disclosures
     of cash flow information
      Income taxes paid
       (refunded)             $      0.3  $    (40.1) $      6.5  $    (36.5)
                              ----------------------- -----------------------
                              ----------------------- -----------------------
      Interest paid (Note 12) $     33.2  $     36.6  $    252.3  $    196.9
                              ----------------------- -----------------------
                              ----------------------- -----------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
    (in millions of Canadian dollars, except common share amounts)
    (unaudited)

                 ---------- -------------------------------------------------
                                                Accumulated
                   Common                          other              Total
                   shares            Additional   compre-             share-
                    (in       Share    paid-in    hensive  Retained  holders'
                  millions)  capital   capital     loss    earnings   equity
                 ---------- -------------------------------------------------
    Balance at
     December 31,
     2009, as
     previously
     reported        168.5  $1,771.1  $  30.8  $(1,746.3) $4,665.2  $4,720.8
    Cumulative
     adjustment
     for change
     in accounting
     policy (Note 2)     -         -        -        1.6     (64.3)    (62.7)
                 ---------- -------------------------------------------------
    Balance at
     December 31,
     2009, as
     restated        168.5   1,771.1     30.8   (1,744.7)  4,600.9   4,658.1
                 ---------- -------------------------------------------------
    Net income           -         -        -          -     464.9     464.9
    Other
     comprehensive
     income              -         -        -       52.2         -      52.2
                 ---------- -------------------------------------------------
    Comprehensive
     income              -         -        -       52.2     464.9     517.1
                 ---------- -------------------------------------------------
    Dividends
     declared            -         -        -          -    (132.9)   (132.9)
    Stock
     compensation
     expense             -         -      1.1          -         -       1.1
    Shares issued
     under stock
     option plans      0.6      34.8     (6.4)         -         -      28.4
                 ---------- -------------------------------------------------
    Balance at
     September
     30, 2010        169.1  $1,805.9  $  25.5  $(1,692.5) $4,932.9  $5,071.8
                 ---------- -------------------------------------------------
                 ---------- -------------------------------------------------


                                              -------------------------------
                                                   Other
                                                 compre-             Compre-
                                                 hensive       Net   hensive
                                                  income    income    income
                                              -------------------------------
    Comprehensive income  -
     three months ended
     September 30, 2010                        $    17.0  $  197.3  $  214.3
                                              -------------------------------
                                              -------------------------------

    See notes to interim consolidated financial statements.



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    SEPTEMBER 30, 2010
    (unaudited)


    1   Basis of presentation

        These unaudited consolidated financial statements of Canadian Pacific
        Railway Limited ("CP", "the Company" or "Canadian Pacific Railway")
        reflect management's estimates and assumptions that are necessary for
        their fair presentation in conformity with accounting principles
        generally accepted in the United States ("GAAP"). They do not include
        all disclosures required under GAAP for annual financial statements
        and should be read in conjunction with the 2009 U.S. GAAP
        consolidated financial statements. The policies used are consistent
        with the policies used in preparing the 2009 U.S. GAAP consolidated
        financial statements, except as discussed in Note 2. The Company's
        investments in which CP has significant influence, which are not
        consolidated, are accounted for using the equity method.

        CP's operations can be affected by seasonal fluctuations such as
        changes in customer demand and weather-related issues. This
        seasonality could impact quarter-over-quarter comparisons. The
        irregular pace of the recovery in 2010 from the global recession has
        affected financial results such that seasonal fluctuations may not be
        consistent with those in prior years. The timing of a return to
        seasonal trends consistent with years prior to 2009 will depend on
        the continued recovery of the economy and the related impact on the
        Company's customers.

    2   Accounting changes

        Consolidations

        In June 2009, the Financial Accounting Standards Board ("FASB")
        issued Amendments to Consolidation of Variable Interest Entities. The
        guidance retains the scope of the previous guidance and removes the
        exemption of entities previously considered qualifying special
        purpose entities. In addition, it replaces the previous quantitative
        approach with a qualitative analysis approach for determining whether
        the enterprise's variable interest or interests give it a controlling
        financial interest in a variable interest entity. The guidance is
        further amended to require ongoing reassessments of whether an
        enterprise is the primary beneficiary of a variable interest entity
        and requires enhanced disclosures about an enterprise's involvement
        in a variable interest entity. The guidance is applicable to all
        variable interest entities that existed at January 1, 2010, the date
        of adoption, or are created thereafter. The Company has variable
        interests in variable interest entities, however, the adoption of the
        new guidance did not change the previous assessment that the Company
        is not the primary beneficiary and as such does not consolidate the
        variable interest entities. Additional note disclosure regarding the
        nature of the Company's variable interests and where judgment was
        required to assess the primary beneficiary of these variable interest
        entities has been provided in Note 13.

        Accounting for transfers of financial assets

        The FASB has released additional guidance with respect to the
        accounting and disclosure of transfers of financial assets such as
        securitized accounts receivable. Although the Company currently does
        not have an accounts receivable securitization program, the guidance,
        which includes revisions to the derecognition criteria in a transfer
        and the treatment of qualifying special purpose entities, would be
        applicable to any future securitization. The new guidance is
        effective for the Company from January 1, 2010. The adoption of this
        guidance had no impact to the Company's financial statements.

        Fair value measurement and disclosure

        In January 2010, the FASB amended the disclosure requirements related
        to fair value measurements. The update provides for new disclosures
        regarding transfers in and out of Level 1 and Level 2 financial asset
        and liability categories and expanded disclosures in the Level 3
        reconciliation (see Note 8 for a definition of Level 1, 2 and 3
        financial asset and liability categories). The update also provides
        clarification that the level of disaggregation should be at the class
        level and that disclosures about inputs and valuation techniques are
        required for both recurring and nonrecurring fair value measurements
        that fall in either Level 2 or Level 3. New disclosures and
        clarifications of existing disclosures are effective for interim and
        annual reporting periods beginning after December 15, 2009, except
        for the expanded disclosures in the Level 3 reconciliation, which are
        effective for fiscal years beginning after December 15, 2010. The
        Company has adopted this guidance resulting in expanded note
        disclosure in Note 8.

        Rail grinding

        During the second quarter of 2010, the Company changed its accounting
        policy for the treatment of rail grinding costs. In prior periods, CP
        had capitalized such costs and depreciated them over the expected
        economic life of the rail grinding. The Company concluded that,
        although the accounting treatment was within acceptable accounting
        standards, it is preferable to expense the costs as incurred, given
        the subjectivity in determining the expected economic life and the
        associated depreciation methodology. The accounting policy change has
        been accounted for on a retrospective basis. The effects of the
        adjustment to January 1, 2010 resulted in an adjustment to decrease
        net properties by $89.0 million, deferred income taxes by $26.3
        million, and shareholders equity by $62.7 million. As a result of the
        change the following increases (decreases) to financial statement
        line items occurred:

        (in millions of Canadian dollars, except per share data)

                       For the three    For the nine
                        months ended    months ended         For the year
                        September 30    September 30       ended December 31
                        2010    2009    2010    2009    2009    2008    2007
                      -------------------------------------------------------

    Changes to Consolidated Statement of Income and Comprehensive Income

      Depreciation
       and amortiz-
       ation          $ (3.8) $ (3.5) $(11.4) $(10.5) $(14.0) $ (8.9) $ (9.5)

      Compensation
       and benefits      0.9     1.0     1.5     1.8     2.8     2.7     2.0
      Fuel                 -       -       -       -     0.1     0.1     0.1
      Materials          0.3     0.6     0.5     1.1     1.8     1.7     1.3
      Purchased
       services
       and other         5.4     5.9     9.3    10.7    15.9    15.4    11.3
                      -------------------------------------------------------
    Total operating
     expenses            2.8     4.0    (0.1)    3.1     6.6    11.0     5.2

    Income tax
     expense            (0.8)   (1.3)   (0.2)   (1.0)   (1.2)   (3.2)    0.4
                      -------------------------------------------------------
    Net income        $ (2.0) $ (2.7) $  0.3  $ (2.1) $ (5.4) $ (7.8) $ (5.6)
                      -------------------------------------------------------
      Basic earnings
       per share      $(0.01) $(0.02) $    -  $(0.01) $(0.03) $(0.05) $(0.04)
      Diluted earnings
       per share      $(0.01) $(0.02) $    -  $(0.01) $(0.03) $(0.05) $(0.04)

      Other
       comprehensive
       income (loss)     0.6     1.4     0.3     2.1     2.4    (2.8)    2.0
                      -------------------------------------------------------
    Comprehensive
     income           $ (1.4) $ (1.3) $  0.6  $    -  $ (3.0) $(10.6) $ (3.6)
                      -------------------------------------------------------

    Changes to Consolidated Statement of Cash Flows

      Cash provided
       by operating
       activities
       (decrease)     $ (6.6) $ (7.5) $(11.3) $(13.6) $(20.6) $(19.9) $(14.7)
      Cash used in
       investing
       activities
       (decrease)     $ (6.6) $ (7.5) $(11.3) $(13.6) $(20.6) $(19.9) $(14.7)


        Changes to Consolidated Balance Sheet

                                            As at       As at       As at
                                        September 30 December 31 December 31
                                             2010        2009        2008
                                        -------------------------------------
          Net properties                   $   (88.2)  $   (89.0)  $   (86.2)
          Deferred income tax liability        (26.1)      (26.3)      (26.5)
          Accumulated other
           comprehensive loss (income)           1.9         1.6        (0.8)
          Retained earnings                    (64.0)      (64.3)      (58.9)

    3   Future accounting changes

        There have been no new accounting pronouncements issued that are
        expected to have a significant impact to the Company's financial
        statements.

    4   Gain on sale of significant properties

        During the third quarter of 2009, the Company completed two
        significant real estate sales, resulting in gains of $79.1 million
        ($68.1 million after tax).

        The Company sold Windsor Station, its former head office in Montreal,
        for proceeds of $80.0 million, including the assumption of a mortgage
        of $16 million due in 2011. CP will continue to occupy a portion of
        Windsor Station through a lease for a 10-year period after the sale.
        As a result, part of the transaction is considered to be a sale-
        leaseback and consequently a gain of $19.5 million related to this
        part of the transaction has been deferred and is being amortized over
        the remainder of the lease term.

        The Company sold land in Western Canada for transit purposes for
        proceeds of $43.0 million.

    5   Gain on sale of partnership interest

        During the second quarter of 2009, the Company completed a sale of a
        portion of its investment in the Detroit River Tunnel Partnership
        ("DRTP") to its existing partner, reducing the Company's ownership
        from 50% to 16.5%. The proceeds received in the quarter from the
        transaction were $110 million. Additional proceeds of $22 million are
        contingent on achieving certain future freight volumes through the
        tunnel, and have not been recognized. The gain on this transaction
        was $81.2 million ($68.7 million after tax).

    6   Income taxes

                                For the three months     For the nine months
        (in millions of           ended September 30      ended September 30
         Canadian dollars)          2010        2009        2010        2009
                                            Restated                Restated
                                         (see Note 2)            (see Note 2)
                              ----------------------- -----------------------
        Current income tax
         expense (recovery)   $      3.4  $    (37.5) $      8.3  $    (37.2)
        Deferred income
         tax expense                75.4       114.8       160.4       158.6
                              ----------------------- -----------------------
        Income tax expense    $     78.8  $     77.3  $    168.7  $    121.4
                              ----------------------- -----------------------
                              ----------------------- -----------------------

        During the first quarter of 2009, legislation was enacted to reduce
        British Columbia provincial income tax rates. As a result, the
        Company recorded in the first quarter of 2009 a $6.2 million income
        tax benefit related to the revaluation of its deferred income tax
        balances as at December 31, 2008. In addition, during the three and
        nine months ended September 30, 2009, the tax impact of foreign
        exchange losses increased expected income tax expense, based on the
        expected annual effective tax rate, by approximately $18 million and
        $27 million, respectively. Also, for the nine months ended September
        30, 2009, the tax impact of a gain on sale of partnership interest
        reduced expected income tax expense by approximately $9 million.
        Additionally, for the three and nine months ended September 30, 2009,
        the tax impact of gains on sales of significant properties reduced
        expected income tax expense by approximately $10 million. In the
        three and nine months ended September 30, 2010, the tax impact of
        foreign exchange losses and gains increased expected income tax
        expense by approximately $7 million and $4 million, respectively.

    7   Earnings per share

        At September 30, 2010, the number of shares outstanding was 169.1
        million (September 30, 2009 - 168.2 million).

        Basic earnings per share have been calculated using net income for
        the period divided by the weighted average number of Canadian Pacific
        Railway Limited shares outstanding during the period.

        Diluted earnings per share have been calculated using the treasury
        stock method, which assumes that any proceeds received from the
        exercise of in-the-money options would be used to purchase Common
        Shares at the average market price for the period.

        The number of shares used in earnings per share calculations is
        reconciled as follows:

                                For the three months     For the nine months
                                  ended September 30      ended September 30
        (in millions)               2010        2009        2010        2009
                              ----------------------- -----------------------
        Weighted average
         shares outstanding        168.8       168.1       168.6       165.7
        Dilutive effect of
         stock options               0.5         0.6         0.4         0.3
                              ----------------------- -----------------------

        Weighted average
         diluted shares
         outstanding               169.3       168.7       169.0       166.0
                              ----------------------- -----------------------
                              ----------------------- -----------------------

        For the three and nine months ended September 30, 2010, 1,416,783 and
        1,885,875 options, respectively, were excluded from the computation
        of diluted earnings per share because their effects were not dilutive
        (three and nine months ended September 30, 2009 - 2,542,300 and
        2,540,740, respectively).

    8   Financial instruments

        A. Fair values of financial instruments

        The Company categorizes its financial assets and liabilities measured
        at fair value into one of three different levels depending on the
        observability of the inputs employed in the measurement.

           -  Level 1: Unadjusted quoted prices for identical assets and
              liabilities in active markets that are accessible at the
              measurement date.

           -  Level 2: Directly or indirectly observable inputs other than
              quoted prices included within Level 1 or quoted prices for
              similar assets and liabilities. Derivative instruments in this
              category are valued using models or other industry standard
              valuation techniques derived from observable market data.

           -  Level 3: Valuations based on inputs which are less observable,
              unavailable or where the observable data does not support a
              significant portion of the instruments' fair value. Generally,
              Level 3 valuations are longer dated transactions, occur in less
              active markets, occur at locations where pricing information is
              not available or have no binding broker quote to support
              Level 2 classifications.

        When possible, the estimated fair value is based on quoted market
        prices and, if not available, estimates from third party brokers. For
        non exchange traded derivatives classified in Level 2, the Company
        uses standard valuation techniques to calculate fair value. These
        methods include discounted mark to market for forwards, futures and
        swaps. Primary inputs to these techniques include observable market
        prices (interest, foreign exchange and commodity) and volatility,
        depending on the type of derivative and nature of the underlying
        risk. The Company uses inputs and data used by willing market
        participants when valuing derivatives and considers its own credit
        default swap spread as well as those of its counterparties in its
        determination of fair value. Wherever possible the Company uses
        observable inputs. All derivatives are classified as Level 2. A
        detailed analysis of the techniques used to value long-term floating
        rate notes, which are classified as Level 3, is discussed below.

        Gain/loss in fair value of long-term floating rate notes

        At September 30, 2010 and December 31, 2009, the Company held
        long-term floating rate notes with a total settlement value of
        $129.0 million and $129.1 million, respectively, and carrying values
        of $76.8 million and $69.3 million, respectively. The carrying
        values, being the estimated fair values, are reported in
        "Investments".

        During the three and nine months ended September 30, 2010, the
        Company received $nil and $0.1 million, respectively, in partial
        redemption of certain of the notes held. At September 30, 2010, the
        Company held long-term floating rate notes with settlement value, as
        follows:

        - $116.8 million Master Asset Vehicle ("MAV") 2 notes with eligible
          assets;
        - $12.0 million MAV 2 Ineligible Asset ("IA") Tracking notes; and
        - $0.2 million MAV 3 Class 9 Traditional Asset ("TA") Tracking notes.

        During the third quarter of 2010, DBRS upgraded the rating of the MAV
        2 Class A-1 notes from A Under Review with Positive Implications to A
        (high). The MAV 2 Class A-2 notes have received a BBB (low) rating
        from DBRS, unchanged from the second quarter of 2010.

        The valuation technique used by the Company to estimate the fair
        value of its investment in long-term floating rate notes at September
        30, 2010 and December 31, 2009 incorporates probability weighted
        discounted cash flows considering the best available public
        information regarding market conditions and other factors that a
        market participant would consider for such investments. The above
        noted redemption of notes, accretion and other minor changes in
        assumptions have resulted in gains of $2.0 million and $7.6 million
        in the three and nine months ended September 30, 2010, respectively
        (three and nine months ended September 30, 2009 - $2.8 million and
        $8.1 million, respectively). The interest rates and maturities of the
        various long-term floating rate notes, discount rates and credit
        losses modelled at September 30, 2010 and December 31, 2009,
        respectively, are:

                               September 30, 2010     December 31, 2009

        Probability weighted   0.8%                   Nil
         average coupon
         interest rate

        Weighted average       7.0%                   7.9%
         discount rate

        Expected repayments    2 3/4 to 18 1/2 years  3 1/2 to 19 years
         of long-term
         floating rate notes

        Credit losses          MAV 2 eligible asset   MAV 2 eligible asset
                                notes: 1% to 100%      notes: nil to 100%

                               MAV 2 IA Tracking      MAV 2 IA Tracking
                                notes: 25%             notes: 25%

                               MAV 3 Class 9 TA       MAV 3 Class 9 TA
                                Tracking notes: 1%     Tracking notes: nil

        The probability weighted discounted cash flows resulted in an
        estimated fair value of the Company's long-term floating rate notes
        of $76.8 million at September 30, 2010 (December 31, 2009 -
        $69.3 million). The change in the original cost and estimated fair
        value of the Company's long-term floating rate notes is as follows
        (representing a roll-forward of assets measured at fair value using
        Level 3 inputs):

                                                        Original   Estimated
        (in millions of Canadian dollars)                 cost    fair value
                                                     ------------------------

        As at January 1, 2010                         $    129.1  $     69.3

        Redemption of notes                                 (0.1)          -
        Accretion                                              -         4.4
        Change in market assumptions                           -         3.1
                                                     ------------------------

        As at September 30, 2010                      $    129.0  $     76.8
                                                     ------------------------
                                                     ------------------------

        Accretion and gains and losses from the redemption of notes and
        change in market assumptions are reported in "Other income and
        charges".

        B. Financial risk management

        The Company's policy with respect to using derivative financial
        instruments is to selectively reduce volatility associated with
        fluctuations in interest rates, foreign exchange ("FX") rates, and
        the price of fuel and stock-based compensation expense. Where
        derivatives are designated as hedging instruments, the relationship
        between the hedging instruments and their associated hedged items is
        documented, as well as the risk management objective and strategy for
        the use of the hedging instruments. This documentation includes
        linking the derivatives that are designated as fair value or cash
        flow hedges to specific assets or liabilities on the Consolidated
        Balance Sheet, commitments or forecasted transactions. At the time a
        derivative contract is entered into, and at least quarterly
        thereafter, an assessment is made whether the derivative item is
        effective in offsetting the changes in fair value or cash flows of
        the hedged items. The derivative qualifies for hedge accounting
        treatment if it is effective in substantially mitigating the risk it
        was designed to address.

        Financial derivatives or commodity instruments are used to mitigate
        financial risk and are not for trading or speculative purposes.

        Foreign exchange management
        ---------------------------

        The Company is exposed to fluctuations of financial commitments,
        assets, liabilities, income or cash flows due to changes in FX rates.
        The Company conducts business transactions and owns assets in Canada,
        the United States and other countries; as a result, revenues and
        expenses are incurred in both Canadian and U.S. dollars. The Company
        enters into foreign exchange risk management transactions primarily
        to manage fluctuations in the exchange rate between Canadian and
        U.S. currencies. In terms of income, excluding FX on long-term debt,
        mitigation of U.S. dollar FX exposure is provided primarily through
        offsets created by revenues and expenses incurred in the same
        currency.

        The FX gains and losses on long-term debt are mainly unrealized and
        can only be realized when U.S. dollar denominated long-term debt
        matures or is settled. The Company also has long-term FX exposure on
        its investment in U.S. affiliates. A portion of the Company's U.S.
        dollar denominated long-term debt has been designated as a hedge of
        the net investment in foreign subsidiaries. This designation has the
        effect of partially mitigating volatility in net income by offsetting
        long-term FX gains and losses on long-term debt against gains and
        losses on its net investment. In addition, the Company may enter into
        FX forward contracts to lock in the amount of Canadian dollars it has
        to pay on its U.S. denominated debt maturities.

        Occasionally the Company will enter into short-term FX forward
        contracts as part of its cash management strategy.

        Foreign exchange forward contracts

        In 2007, the Company entered into a FX forward contract to fix the
        exchange rate on US$400 million 6.250% Notes due 2011. This
        derivative guaranteed the amount of Canadian dollars that the Company
        will repay when its US$400 million 6.250% Notes mature in October
        2011. This derivative was not designated as a hedge and changes in
        fair value are recognized in net income in the period in which the
        change occurs. During the first quarter of 2009, CP unwound and
        settled US$25 million of the US$400 million currency forward for
        total proceeds of $4.5 million received in the second quarter of
        2009. In the second quarter of 2009, a further US$275 million of the
        currency forward was unwound and settled for total proceeds of
        $26.6 million. During the the third quarter of 2009, CP unwound a
        further US$30 million for total proceeds of $3.0 million. During the
        second quarter of 2010, CP unwound the remaining US$70 million for
        total proceeds of $0.2 million.

        For the three and nine months ended September 30, 2010, no gain or
        loss was reported. For the same periods in 2009, the Company recorded
        a net loss of $5.0 million and $21.8 million, respectively, inclusive
        of both realized and unrealized losses.

        Interest rate management
        ------------------------

        The Company is exposed to interest rate risk, which is the risk that
        the fair value or future cash flows of a financial instrument will
        vary as a result of changes in market interest rates. In order to
        manage funding needs or capital structure goals, the Company enters
        into debt or capital lease agreements that are subject to either
        fixed market interest rates set at the time of issue or floating
        rates determined by on-going market conditions. Debt subject to
        variable interest rates exposes the Company to variability in
        interest expense, while debt subject to fixed interest rates exposes
        the Company to variability in the fair value of debt.

        To manage interest rate exposure, the Company accesses diverse
        sources of financing and manages borrowings in line with a targeted
        range of capital structure, debt ratings, liquidity needs, maturity
        schedule, and currency and interest rate profiles. In anticipation of
        future debt issuances, the Company may enter into forward rate
        agreements such as treasury rate locks, bond forwards or forward
        starting swaps, designated as cash flow hedges, to substantially lock
        in all or a portion of the effective future interest expense. The
        Company may also enter into swap agreements to manage the mix of
        fixed and floating rate debt.

        Interest rate swaps

        During the second quarter of 2010, the Company entered into interest
        rate swaps, classified as fair value hedges, for a notional amount of
        US$101.4 million. The swap agreements converted the Company's
        outstanding fixed interest rate liability into variable rate
        liability for the 5.75% Notes due in May 2013. During the three
        months ended September 30, 2010, these swap agreements were unwound
        for a gain of $2.9 million. The gain was deferred as a fair value
        adjustment to the underlying debt that was hedged and will be
        amortized to "Interest expense" until such time the 5.75% Notes are
        repaid. At September 30, 2010 and December 31, 2009, the Company had
        no outstanding interest rate swaps.

        During the second quarter of 2009, CP unwound its outstanding fixed-
        to-floating interest rate swap, which converted a portion of its US
        $400 million 6.250% Notes to floating-rate debt, for a gain of $16.8
        million. The gain was deferred as a fair value adjustment to the
        underlying debt that was hedged and will be amortized to "Interest
        expense" until such time the 6.250% Notes are repaid. Subsequently,
        in the second quarter of 2009, CP repurchased a portion of the
        underlying debt as part of a tender offer and recognized $6.5 million
        of the deferred gain to "Other income and charges" offsetting part of
        the loss on repurchase of debt recognized in the second quarter of
        2009.

        During the three and nine months ended September 30, 2010, the impact
        of settled interest rate swaps reduced interest expense in the three
        months ended September 30, 2010 by $1.4 million and $3.6 million for
        the nine months ended September 30, 2010 (three and nine months ended
        September 30, 2009 - $1.4 million and $4.5 million, respectively).

        Treasury rate locks

        At September 30, 2010, the Company had net unamortized losses related
        to interest rate locks, which are accounted for as cash flow hedges,
        settled in previous years totalling $22.3 million (December 31, 2009
        - $23.9 million). This amount is composed of various unamortized
        gains and losses related to specific debts which are reflected in
        "Accumulated other comprehensive loss" and are amortized to "Interest
        expense" in the period that interest on the related debt is charged.
        The amortization of these gains and losses resulted in a decrease in
        "Interest expense" and "Other comprehensive income" of $0.1 million
        for the three months ended September 30, 2010 and an increase of
        $1.6 million for the nine months ended September 30, 2010 (three and
        nine months ended September 30, 2009 - $0.1 million and $1.7 million,
        respectively).

        Stock-based compensation expense management
        -------------------------------------------

        The Company is exposed to stock-based compensation risk, which is the
        probability of increased compensation expense due to the increase in
        the Company's share price.

        The Company's compensation expense is subject to volatility due to
        the movement of CP's share price and its impact on the value of
        certain management and director stock-based compensation programs.
        These programs include tandem share appreciation rights ("TSARs"),
        deferred share units ("DSUs"), restricted share units ("RSUs"), and
        performance share units ("PSUs"). As the share price appreciates,
        these instruments create increased compensation expense.

        The Company entered into a Total Return Swap ("TRS") to reduce the
        volatility to the Company over time on three types of stock-based
        compensation programs: TSARs, DSUs and RSUs. The TRS is a derivative
        that provides price appreciation and dividends, in return for a
        charge by the counterparty. The swaps were intended to minimize
        volatility to "Compensation and benefits" expense by providing a gain
        to offset increased compensation expense as the share price increased
        and a loss to offset reduced compensation expense when the share
        price falls. If stock-based compensation share units fall out of the
        money after entering the program, the loss associated with the swap
        would no longer be fully offset by compensation expense reductions,
        which would reduce the effectiveness of the swap. During 2009, the
        Company decided not to expand its TRS program.

        "Compensation and benefits" expense included an unrealized gain on
        these swaps of $8.8 million for the three months ended September 30,
        2010, and an unrealized gain of $9.2 million for the nine months
        ended September 30, 2010. For the same periods in 2009, the Company
        recorded an unrealized gain of $5.5 million and a net gain of
        $8.4 million which was inclusive of both realized losses and
        unrealized gains, respectively. During the first quarter of 2009, in
        order to improve the effectiveness of the TRS in mitigating the
        volatility of stock-based compensation programs, CP unwound a portion
        of the program for a total cost of $31.1 million. This cost had
        previously been recognized in "Compensation and benefits" expense and
        was settled in the second quarter of 2009. At September 30, 2010, the
        unrealized loss on the TRS of $9.0 million was included in "Accounts
        payable and accrued liabilities" (December 31, 2009 - $18.2 million).

        Fuel price management
        ---------------------

        The Company is exposed to potential volatility in net income due to
        increases or decreases in the price of diesel. Volatility in diesel
        fuel prices can have a significant impact on the Company's income.

        The impact of variable fuel expense is mitigated substantially
        through fuel cost recovery programs. While these programs provide
        effective and meaningful coverage, residual exposure remains as the
        fuel expense risk cannot be completely recovered from shippers due to
        timing and volatility in the market. The Company continually monitors
        residual exposure, and where appropriate, may enter into derivative
        instruments.

        Derivative instruments used by the Company to manage fuel expense
        risk may include, but are not limited to, swaps and options for
        diesel and crude oil. In addition, the Company may combine FX forward
        contracts with fuel derivatives to effectively hedge the risk
        associated with FX variability on fuel purchases and commodity
        hedges.

        At September 30, 2010, the Company had diesel futures contracts,
        which are accounted for as cash flow hedges, to purchase
        approximately 14.0 million US gallons during the period October 2010
        to September 2011 at an average price of US$2.18 per US gallon. This
        represents approximately 5% of estimated fuel purchases for this
        period. At September 30, 2010, the unrealized gain on these futures
        contracts was $1.8 million and was reflected in "Other current
        assets" with the offset, net of tax, reflected in "Accumulated other
        comprehensive loss". At December 31, 2009, the unrealized gain on
        these futures contracts was $2.5 million and was reflected in "Other
        current assets" with the offset, net of tax, reflected in
        "Accumulated other comprehensive loss".

        During the three months ended September 30, 2010, the impact of
        settled commodity swaps increased "Fuel" expense by $0.2 million as a
        result of realized losses on diesel swaps. During the nine months
        ended September 30, 2010, the impact of settled commodity swaps
        decreased "Fuel" expense by $1.4 million as a result of realized
        gains on diesel swaps.

        For the three months ended September 30, 2009, the net impact of
        settled commodity swaps decreased "Fuel" expense by $1.5 million due
        to a combination of realized gains of $1.7 million from settled
        swaps, partially offset by realized losses of $0.2 million from
        settled FX forward contracts. For the nine months ended September 30,
        2009, the net impact of settled commodity swaps increased "Fuel"
        expense by $3.3 million due to a combination of realized losses of
        $3.1 million from settled swaps and $0.2 million from settled FX
        forward contracts. Included in the settled swaps for the three and
        nine months ended September 30, 2009 were $0.1 million in realized
        gains from settled derivatives that were not designated as hedges.

        The following table summarizes information on the location and
        amounts of gains and losses, before tax, related to derivatives on
        the Consolidated Statement of Income and in comprehensive income for
        the three and nine months ended September 30, 2010 and 2009:

                                                                  Amount of
                                                                 gain (loss)
                              Location of       Amount of        recognized
                              gain (loss)      gain (loss)        in other
        (in millions          recognized       recognized      comprehensive
         of Canadian         in income on     in income on       income on
         dollars)             derivatives      derivatives      derivatives
                        -----------------------------------------------------
                                                 For the           For the
                                              three months      three months
                                                  ended             ended
                                              September 30      September 30
                                             2010     2009     2010     2009
                                         ------------------------------------
        Derivatives
         designated
         as hedging
         instruments
          Effective
           portion
          Crude oil
           swaps            Fuel expense  $     -  $   1.5  $     -  $  (1.9)
          Diesel future
           contracts        Fuel expense     (0.2)     0.1      2.7     (0.5)
          FX contracts
           on fuel          Fuel expense        -     (0.2)       -        -
          Interest
           rate swap    Interest expense      1.4      1.4        -        -
          Treasury rate
           locks        Interest expense      0.1      0.1     (0.1)    (0.1)

        Derivatives
         not designated
         as hedging
         instruments
          Total return      Compensation
           swap             and benefits      8.8      5.5        -        -
          Heating oil
           crack spreads    Fuel expense        -      0.1        -        -
          FX forward        Other income
           contracts         and charges        -     (5.0)       -        -
                                         ------------------------------------
                                          $  10.1  $   3.5  $   2.6  $  (2.5)
                                         ------------------------------------
                                         ------------------------------------

                                                                  Amount of
                                                                 gain (loss)
                              Location of       Amount of        recognized
                              gain (loss)      gain (loss)        in other
        (in millions          recognized       recognized      comprehensive
         of Canadian         in income on     in income on       income on
         dollars)             derivatives      derivatives      derivatives
                        -----------------------------------------------------
                                                 For the           For the
                                               nine months       nine months
                                                  ended             ended
                                              September 30      September 30
                                             2010     2009     2010     2009
                                         ------------------------------------

        Derivatives
         designated
         as hedging
         instruments
          Effective
           portion
          Crude oil
           swaps            Fuel expense  $     -  $   2.5  $     -  $  (1.6)
          Diesel
           future
           contracts        Fuel expense      1.4     (5.7)    (0.7)     5.5
          FX contracts
           on fuel          Fuel expense        -     (0.2)       -     (0.2)
          Interest rate
           swap         Interest expense      3.6      4.5        -        -
                            Other income
                             and charges        -      6.5        -        -
          Treasury rate
           locks        Interest expense     (1.6)    (1.7)     1.6      1.7

        Derivatives
         not designated
         as hedging
         instruments
          Total return      Compensation
           swap             and benefits      9.2      8.4        -        -
          Heating oil
           crack spreads    Fuel expense        -      0.1
          FX forward        Other income
           contracts         and charges        -    (21.8)       -        -
          Treasury rate
           locks        Interest expense        -     (0.7)       -        -
                                         ------------------------------------

                                          $  12.6  $  (8.1) $   0.9  $   5.4
                                         ------------------------------------
                                         ------------------------------------

        At September 30, 2010, the Company expected that, during the next
        12 months, $1.8 million of unrealized holding gains on diesel future
        contracts will be realized and recognized in the consolidated
        statement of income, reported in "Fuel" expense as a result of these
        derivatives being settled.

        The following table summarizes information on the effective and
        ineffective portions, before tax, of the Company's net investment
        hedge on the Consolidated Statement of Income and in comprehensive
        income for the three and nine months ended September 30, 2010 and
        2009:

                                                                 Effective
                                                                  portion
                            Location of       Ineffective      recognized in
                            ineffective         portion            other
        (in millions          portion        recognized in     comprehensive
         of Canadian       recognized in     income - gain     income - gain
         dollars)              income            (loss)            (loss)
                         ----------------------------------------------------
                                             For the three     For the three
                                              months ended      months ended
                                              September 30      September 30
                                              2010    2009      2010    2009
                                         ------------------------------------
        FX on LTD within
         net investment     Other income
         hedge               and charges  $     -  $  (1.4) $  56.6  $ 135.6
                                         ------------------------------------
                                         ------------------------------------


                                                                 Effective
                            Location of                           portion
                            ineffective       Ineffective      recognized in
        (in millions          portion           portion            other
         of Canadian       recognized in     recognized in     comprehensive
         dollars)              income           income            income
                         ----------------------------------------------------
                                              For the nine      For the nine
                                              months ended      months ended
                                              September 30      September 30
                                              2010    2009      2010    2009
                                         ------------------------------------
        FX on LTD within
         net investment     Other income
         hedge               and charges  $   2.6  $  (6.3) $  31.4  $ 221.2
                                         ------------------------------------
                                         ------------------------------------

    9   Stock-based compensation

        At September 30, 2010, the Company had several stock-based
        compensation plans, including stock option plans, various cash
        settled liability plans and an employee stock savings plan. These
        plans resulted in an expense for the three and nine months ended
        September 30, 2010 of $27.5 million and $58.3 million, respectively
        (three and nine months ended September 30, 2009 - $12.6 million and
        $50.4 million, respectively).

        Tandem stock appreciation rights ("TSARs")

        In the first nine months of 2010, under CP's stock option plans, the
        Company issued 812,900 TSARs at the weighted average exercise price
        of $51.81 per share, based on the closing price on the grant date.

        Pursuant to the employee plan, these TSARs may be exercised upon
        vesting, which is between 24 months and 36 months after the grant
        date, and will expire after 10 years.

        Under the fair value method, the fair value at the grant date was
        $11.6 million for TSARs issued in the first nine months of 2010
        (first nine months of 2009 - $5.4 million). The weighted average fair
        value assumptions were approximately:

                                                         For the nine months
                                                          ended September 30
                                                            2010        2009
                                                     ------------------------
        Grant price                                   $    51.81  $    36.29

        Expected life (years)(1)                            6.25        5.00
        Risk-free interest rate(2)                         2.74%       2.14%
        Expected stock price volatility(3)                   30%         30%
        Expected annual dividends per share(4)        $     0.99  $     0.99
        Weighted average fair value of TSARs
         granted during the period                    $    14.27  $     7.24
                                                     ------------------------

        (1) Represents the period of time that awards are expected to be
            outstanding. Historical data on exercise behaviour was used to
            estimate the expected life of the option.
        (2) Based on the implied yield available on zero-coupon government
            issues with an equivalent remaining term at the time of the
            grant.
        (3) Based on the historical stock price volatility of the Company's
            stock over a period commensurate with the expected term of the
            option.
        (4) Based on the annualized dividend rate on the date of grant.


        Regular options

        In the first nine months of 2010, under CP's stock option plans, the
        Company issued 31,900 regular options at the weighted average
        exercise price of $57.10 per share, based on the closing price on the
        grant date.

        Under the fair value method, the fair value at the grant date was
        $0.5 million for options issued in the first nine months of 2010
        (first nine months of 2009 - $nil).

        Performance share unit ("PSU") plan

        In the first nine months of 2010, the Company issued 328,020 PSUs
        with a grant date fair value of $15.4 million. These units attract
        dividend equivalents in the form of additional units based on the
        dividends paid on the Company's Common Shares. PSUs vest and are
        settled in cash approximately three years after the grant date
        contingent upon CP's performance (performance factor). The fair value
        of PSUs are measured, both on the grant date and each subsequent
        quarter until settlement, using a Monte Carlo simulation model. The
        model utilizes multiple input variables that determine the
        probability of satisfying the performance and market condition
        stipulated in the grant.

    10  Long-term debt

        During the third quarter of 2010, the Company issued US$350 million
        of 4.45% Notes due March 15, 2023. Net proceeds from this offering
        were $355.2 million and were used to make a voluntary prepayment to
        the Company's main Canadian defined benefit pension plan. The notes
        are unsecured and carry a negative pledge.

    11  Pensions and other benefits

        In the three months and nine months ended September 30, 2010, the
        Company made contributions of $654.8 million and $833.2 million,
        respectively (2009 - $20.6 million and $64.3 million, respectively)
        to its defined benefit pension plans. The contributions made in the
        third quarter of 2010 included, at the Company's option, a
        $650 million prepayment to the Company's main Canadian defined
        benefit pension plan.

        Net periodic benefit cost for defined benefit pension plans and other
        benefits recognized in the three and nine months ended September 30,
        2010, included the following components:

                                                 For the three months
                                                  ended September 30
                                             Pensions         Other benefits
                                     ----------------------------------------
        (in millions of
         Canadian dollars)                2010      2009      2010      2009
                                     ----------------------------------------
        Current service cost
         (benefits earned by
         employees in the period)     $   21.6  $   16.8  $    3.9  $    3.5
        Interest cost on benefit
         obligation                      116.1     120.5       7.0       7.2
        Expected return on fund
         assets                         (149.6)   (139.3)     (0.2)     (0.2)
        Recognized net actuarial
         loss                             17.8       1.7       1.3       0.7
        Amortization of prior
         service costs                     3.3       5.7      (0.4)     (0.3)
                                     ----------------------------------------
        Net periodic benefit cost     $    9.2  $    5.4  $   11.6  $   10.9
                                     ----------------------------------------
                                     ----------------------------------------


                                                 For the nine months
                                                  ended September 30
                                             Pensions         Other benefits
                                     ----------------------------------------
        (in millions of
         Canadian dollars)                2010      2009      2010      2009
                                     ----------------------------------------
        Current service cost
         (benefits earned by
         employees in the period)     $   64.8  $   50.6  $   11.7  $   10.8
        Interest cost on benefit
         obligation                      348.3     361.8      21.0      21.9
        Expected return on fund
         assets                         (448.8)   (418.3)     (0.6)     (0.7)
        Recognized net actuarial
         loss                             53.4       5.5       3.9       2.6
        Amortization of prior
         service costs                     9.9      17.1      (1.2)     (1.1)
        Settlement gain(1)                   -         -         -      (8.7)
                                     ----------------------------------------
        Net periodic benefit cost     $   27.6  $   16.7  $   34.8  $   24.8
                                     ----------------------------------------
                                     ----------------------------------------

        (1) Settlement gains resulted from certain post-retirement benefit
            obligations being assumed by a U.S. national multi-employer
            benefit plan.


    12  Interest paid

        Interest paid in the nine months ended September 30, 2010, included
        an amount previously accrued of $71.7 million in relation to a
        long-term debt that matured in June 2010.

    13  Variable interest entities

        The Company leases equipment from certain trusts, which have been
        determined to be variable interest entities financed by a combination
        of debt and equity provided by unrelated third parties. The lease
        agreements, which are classified as operating leases, have a fixed
        price purchase option which create the Company's variable interest
        and result in the trusts being considered variable interest entities.
        These fixed price purchase options are set at the estimated fair
        market value as determined at the inception of the lease and could
        provide the Company with potential gains. These options are
        considered variable interests, however, they are not expected to
        provide a significant benefit to the Company.

        Responsibility for maintaining and operating the leased assets
        according to specific contractual obligations outlined in the terms
        of the lease agreements and industry standards is the Company's. The
        rigor of the contractual terms of the lease agreements and industry
        standards are such that the Company has limited discretion over the
        maintenance activities associated with these assets. As such the
        Company concluded these terms do not provide the Company with the
        power to direct the activities of the variable interest entities in a
        way that has a significant impact on the entities' economic
        performance.

        The financial exposure to the Company as a result of its involvement
        with the variable interest entities is equal to the fixed lease
        payments due to the trusts. In 2010 lease payments after tax will
        amount to $9.8 million. Future minimum lease payments, before tax, of
        $245.8 million will be payable over the next 20 years (Note 14).

        The Company does not guarantee the residual value of the assets to
        the lessor, however, it must deliver to the lessor the assets in good
        operating condition, subject to normal wear and tear, at the end of
        the lease term.

        As the Company's actions and decisions do not significantly effect
        the variable interest entities' performance, and the Company's fixed
        purchase price option is not considered to be potentially significant
        to the variable interest entities, the Company is not considered to
        be the primary beneficiary, and does not consolidate these variable
        interest entities. As the leases are considered to be operating
        leases, the Company does not recognize any balances in the
        Consolidated Balance Sheet in relation to the variable interest
        entities.

    14  Commitments and contingencies

        In the normal course of its operations, the Company becomes involved
        in various legal actions, including claims relating to injuries and
        damage to property. The Company maintains provisions it considers to
        be adequate for such actions. While the final outcome with respect to
        actions outstanding or pending at September 30, 2010, cannot be
        predicted with certainty, it is the opinion of management that their
        resolution will not have a material adverse effect on the Company's
        financial position or results of operations.

        At September 30, 2010, the Company had committed to total future
        capital expenditures amounting to $231.8 million and operating
        expenditures amounting to $1,639.6 million for the years 2010-2028.

        Operating lease commitments

        At September 30, 2010, minimum payments under operating leases were
        estimated at $827.5 million in aggregate, with annual payments in
        each of the next five years of: balance of 2010 - $37.8 million;
        2011 - $132.4 million; 2012 - $120.2 million; 2013 - $104.6 million;
        2014 - $78.2 million.

        Environmental remediation accruals

        Environmental remediation accruals cover site-specific remediation
        programs. Environmental remediation accruals are measured on an
        undiscounted basis and are recorded when the costs to remediate are
        probable and reasonably estimable. The estimate of the probable costs
        to be incurred in the remediation of properties contaminated by past
        railway use reflects the nature of contamination at individual sites
        according to typical activities and scale of operations conducted. CP
        has developed remediation strategies for each property based on the
        nature and extent of the contamination, as well as the location of
        the property and surrounding areas that may be adversely affected by
        the presence of contaminants, considering available technologies,
        treatment and disposal facilities and the acceptability of site-
        specific plans based on the local regulatory environment. Site-
        specific plans range from containment and risk management of the
        contaminants through to the removal and treatment of the contaminants
        and affected soils and ground water. The details of the estimates
        reflect the environmental liability at each property. Provisions for
        environmental remediation costs are recorded in "Other long-term
        liabilities", except for the current portion which is recorded in
        "Accounts payable and accrued liabilities". Payments are expected to
        be made over 10 years to 2020.

        The accruals for environmental remediation represent CP's best
        estimate of its probable future obligation and includes both asserted
        and unasserted claims, without reduction for anticipated recoveries
        from third parties. Although the recorded accruals include CP's best
        estimate of all probable costs, CP's total environmental remediation
        costs cannot be predicted with certainty. Accruals for environmental
        remediation may change from time to time as new information about
        previously untested sites becomes known, environmental laws and
        regulations evolve and advances are made in environmental remediation
        technology. The accruals may also vary as the courts decide legal
        proceedings against outside parties responsible for contamination.
        These potential charges, which cannot be quantified at this time, are
        not expected to be material to CP's financial position, but may
        materially affect income in the particular period in which a charge
        is recognized. Costs related to existing, but as yet unknown, or
        future contamination will be accrued in the period in which they
        become probable and reasonably estimable. Changes to costs are
        reflected as changes to "Other long-term liabilities" or "Accounts
        payable and accrued liabilities" and to "Purchased services and
        other" within operating expenses. The amount charged to income in the
        three and nine months ended September 30, 2010 was $1.2 million and
        $2.7 million respectively (three and nine months ended September 30,
        2009 - charges of $0.8 million and $2.4 million, respectively).

        Guarantees

        At September 30, 2010, the Company had residual value guarantees on
        operating lease commitments of $166.7 million. The maximum amount
        that could be payable under these and all of the Company's other
        guarantees cannot be reasonably estimated due to the nature of
        certain of the guarantees. All or a portion of amounts paid under
        certain guarantees could be recoverable from other parties or through
        insurance. The Company accrues for all guarantees that it expects to
        pay. At September 30, 2010, these accruals amounted to $8.8 million.

    15  Reconciliation of U.S. GAAP to Canadian GAAP

        The unaudited consolidated financial statements of the Company have
        been prepared in accordance with U.S. GAAP. The material differences
        between U.S. GAAP and Canadian generally accepted accounting
        principles ("Canadian GAAP") as they relate to the Company are
        explained and quantified below, along with their effect on the
        Company's Consolidated Statement of Income and Consolidated Balance
        Sheet.

        (a) Accounting for derivative instruments and hedging: The
            measurement and recognition rules for derivative instruments and
            hedging under Canadian GAAP are largely harmonized with U.S.
            GAAP. However, under Canadian GAAP, only the ineffective portion
            of a net investment hedge that represents an over hedge is
            recognized in income, whereas under U.S. GAAP, any ineffective
            portion is recognized in income immediately.

        (b) Pensions and post-retirement benefits: The Company is required to
            recognize the over or under funded status of defined benefit
            pension and other post-retirement benefit plans on the balance
            sheet under U.S. GAAP. The over or under funded status is
            measured as the difference between the fair value of the plan
            assets and the benefit obligation, being the projected benefit
            obligation for pension plans and the accumulated benefit
            obligation for other post-retirement benefit plans. In addition,
            any previously unrecognized actuarial gains and losses and prior
            service costs and credits that arise during the period will be
            recognized as a component of other comprehensive income ("OCI"),
            net of tax. Under Canadian GAAP the over or under funded status
            of defined benefit pension and post-retirement benefit plans is
            not recognized in the balance sheet. Canadian GAAP recognizes an
            asset for contributions made in excess of amounts recognized as
            expense in the Consolidated Statement of Income and a liability
            when contributions are less than amounts recognized as expense.

            Prior service costs are amortized under Canadian GAAP and U.S.
            GAAP. However, the period over which costs related to events
            before 2000 are amortized differs between Canadian GAAP and
            U.S. GAAP.

        (c) Post-employment benefits: Post-employment benefits are covered by
            the CICA Section 3461 "Employee Future Benefits". Consistent with
            accounting for post-retirement benefits, the policy permits
            amortization of actuarial gains and losses if they fall outside
            of the corridor. Under U.S. GAAP, such gains and losses on post-
            employment benefits that do not vest or accumulate are included
            immediately in income.

        (d) Termination and severance benefits: Termination and severance
            benefits are covered by the CICA Section 3461 "Employee Future
            Benefits" and the CICA Emerging Issues Committee Abstract 134
            "Accounting for Severance and Termination Benefits" ("EIC 134").
            Upon transition to the CICA Section 3461 effective January 1,
            2000, a net transitional asset was created and was being
            amortized to income. During the first quarter of 2009 this
            transitional asset was fully amortized. Under U.S. GAAP, the
            expected benefits were not accrued and are expensed when paid.

        (e) Stock-based compensation: U.S. GAAP requires the use of an
            option-pricing model to fair value, at the grant date, share-
            based awards issued to employees, including stock options, TSARs,
            PSUs, RSUs, and DSUs. TSARs, PSUs, RSUs, and DSUs are
            subsequently re-measured at fair value each reporting period.
            Under Canadian GAAP, liability awards that are settled, such as
            TSARs, PSUs, RSUs and DSUs, are accounted for using the intrinsic
            method. U.S. GAAP also requires that CP accounts for forfeitures
            on an estimated basis. Under Canadian GAAP, CP has elected to
            account for forfeitures on an actual basis as they occur.

        (f) Internal use software: Under U.S. GAAP certain costs, including
            preliminary project phase costs, are expensed as incurred. These
            costs are capitalized and depreciated under Canadian GAAP.

        (g) Capitalization of interest: U.S. GAAP requires interest costs to
            be capitalized for all qualifying capital programs. Under
            Canadian GAAP capitalization of interest is a policy choice and
            the Company expenses interest related to capital projects
            undertaken during the year unless specific debt is attributed to
            a capital program. Differences in GAAP result in additional
            capitalization of interest under U.S. GAAP and subsequent related
            depreciation.

        (h) Joint venture: The CICA Section 3055 "Interest in Joint
            Ventures" requires the proportionate consolidation method to be
            applied to the recognition of interests in joint ventures in
            consolidated financial statements. Until April 1, 2009, the
            Company accounted for its joint-venture interest in the DRTP
            under Canadian GAAP using the proportionate consolidation method.
            During the second quarter of 2009, the Company completed a sale
            of a portion of its investment in the DRTP to its existing
            partner, reducing the Company's ownership from 50% to 16.5%.
            Effective April 1, 2009, the Company discontinued proportionate
            consolidation and accounts for its remaining investment in the
            DRTP under the equity method of accounting. U.S. GAAP requires
            the equity method of accounting to be applied to interests in
            joint ventures. This had no effect on net income as it represents
            a classification difference within the Consolidated Statement of
            Income and Consolidated Balance Sheet for periods prior to April,
            2009.

        (i) Long-term debt: Under Canadian GAAP, offsetting amounts with the
            same party and with a legal right to offset are netted against
            each other. U.S. GAAP does not allow netting of assets and
            liabilities among three parties. In 2003, the Company and one of
            its subsidiaries entered into contracts with a financial
            institution resulting in a receivable amount and long-term debt
            payable. In the second quarter of 2010, these contracts were
            unwound eliminating this difference.

            As well, transaction costs have been added to the fair value of
            the "Long-term debt" under Canadian GAAP whereas under U.S. GAAP
            such costs are recorded separately with "Other assets".

        (j) Capital leases: Under U.S. GAAP, certain leases, which are
            recorded as capital leases under Canadian GAAP, do not meet the
            criteria for capital leases and are recorded as operating leases.
            These relate to equipment leases, previously recorded as
            operating leases under Canadian and U.S. GAAP, which were renewed
            within the last 25 percent of the equipment's useful life.

        (k) Investment tax credits: Under U.S. GAAP investment tax credits
            are credited against income tax expense whereas under Canadian
            GAAP these tax credits are offset against the related operating
            expense. There is no impact to net income as a result of this
            GAAP difference. In addition, U.S. GAAP includes investment tax
            credit carryforwards within "Deferred income taxes" on the
            balance sheet while these are included in "Other assets" under
            Canadian GAAP.

        (l) Gain on sale of significant properties: Under U.S. GAAP these
            gains are credited against operating expenses while Canadian GAAP
            permits recognition of these gains after operating income.

        (m) Cash flows: There are no material differences between cash flows
            under U.S. GAAP and Canadian GAAP.

        Comparative income statement

        Consolidated net income is reconciled from Canadian to U.S. GAAP
        below:

        (in millions of Canadian dollars,
         except per share data)
                                            Three months ended September 30
                                                          2010
                                          -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                              GAAP    adjustments     GAAP
        Revenues
        Freight (h)                        $ 1,250.8    $      -   $ 1,250.8
        Other (h)                               35.4           -        35.4
                                          -----------------------------------
                                             1,286.2           -     1,286.2

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       366.6        (1.4)      365.2
        Fuel                                   166.1           -       166.1
        Materials (f)                           38.9         4.3        43.2
        Equipment rents (j)                     53.2         0.4        53.6
        Depreciation and amortization
         (f, g, h, j, k)                       123.5         0.4       123.9
        Purchased services and other
         (c, f, h, k)                          200.9        (4.4)      196.5
        Gain on sale of significant
         properties (l)                            -           -           -
                                          -----------------------------------
                                               949.2        (0.7)      948.5

        Operating income                       337.0         0.7       337.7

        Gain on sale of significant
         properties (l)                            -           -           -
        Less:
          Other (income) and charges (a)         3.2        (2.2)        1.0
          Interest expense (g, j)               59.9         0.7        60.6
                                          -----------------------------------
        Income before income tax expense       273.9         2.2       276.1

        Income tax expense (recovery)
         (k)(2)                                 79.8        (1.0)       78.8
                                          -----------------------------------
        Net income                         $   194.1   $     3.2   $   197.3
                                          -----------------------------------
                                          -----------------------------------
        Basic earnings per share           $    1.15   $    0.02   $    1.17

        Diluted earnings per share         $    1.15   $    0.02   $    1.17



        (in millions of Canadian dollars,
         except per share data)
                                            Three months ended September 30
                                                          2009
                                          -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                            GAAP(1)   adjustments     GAAP
        Revenues
        Freight (h)                        $ 1,086.6   $       -   $ 1,086.6
        Other (h)                               34.9        (3.4)       31.5
                                          -----------------------------------
                                             1,121.5        (3.4)    1,118.1

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       321.4         1.0       322.4
        Fuel                                   134.0           -       134.0
        Materials (f)                           46.5        (1.2)       45.3
        Equipment rents (j)                     51.2         0.3        51.5
        Depreciation and amortization
         (f, g, h, j, k)                       118.3         3.3       121.6
        Purchased services and other
         (c, f, h, k)                          185.6        (6.1)      179.5
        Gain on sale of significant
         properties (l)                            -       (79.1)      (79.1)
                                          -----------------------------------
                                               857.0       (81.8)      775.2

        Operating income                       264.5        78.4       342.9

        Gain on sale of significant
         properties (l)                         79.1       (79.1)          -
        Less:
          Other (income) and charges (a)         0.1         1.2         1.3
          Interest expense (g, j)               64.7        (9.7)       55.0
                                          -----------------------------------
        Income before income tax expense       278.8         7.8       286.6

        Income tax expense (recovery)
         (k)(2)                                 80.4        (3.1)       77.3
                                          -----------------------------------
        Net income                         $   198.4   $    10.9   $   209.3
                                          -----------------------------------
                                          -----------------------------------
        Basic earnings per share           $    1.19   $    0.06   $    1.25

        Diluted earnings per share         $    1.18   $    0.06   $    1.24

        (1) Restated for the Company's changes in accounting policies in
            relation to the accounting for rail grinding, discussed in Note 2
            to these consolidated financial statements, and for locomotive
            overhauls and amortization of pension plan amendments for
            unionized employees, discussed in Note 2 of the Company's 2009
            annual consolidated financial statements. In addition, certain
            revenue and operating expense items have been reclassified in
            order to be consistent with U.S. GAAP presentation.

        (2) Adjustment for income tax expense (recovery) includes the tax
            effect of other U.S. to Canadian GAAP differences, in addition to
            the impact of difference (k) Investment tax credits.


        Comparative income statement

        Consolidated net income is reconciled from Canadian to U.S. GAAP
        below:

        (in millions of Canadian dollars,
         except per share data)
                                             Nine months ended September 30
                                                          2010
                                          -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                              GAAP    adjustments     GAAP
        Revenues
        Freight (h)                        $ 3,591.2   $       -   $ 3,591.2
        Other (h)                               96.0           -        96.0
                                          -----------------------------------
                                             3,687.2           -     3,687.2

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                     1,061.0         7.7     1,068.7
        Fuel                                   525.7           -       525.7
        Materials (f)                          149.5         8.7       158.2
        Equipment rents (j)                    156.5         1.0       157.5
        Depreciation and amortization
         (f, g, h, j, k)                       366.7         1.7       368.4
        Purchased services and other
         (c, f, h, k)                          603.7       (13.4)      590.3
        Gain on sale of significant
         properties (l)                            -           -           -
                                          -----------------------------------
                                             2,863.1         5.7     2,868.8

        Operating income                       824.1        (5.7)      818.4

        Gain on sale of significant
         properties (l)                            -           -           -
        Gain on sale of partnership
         interest                                  -           -           -
        Less:
          Other (income) and charges (a)        (2.4)       (4.9)       (7.3)
          Interest expense (g, j)              196.4        (4.3)      192.1
                                          -----------------------------------
        Income before income tax expense       630.1         3.5       633.6

        Income tax expense (recovery)
         (k)(2)                                168.1         0.6       168.7
                                          -----------------------------------
        Net income                         $   462.0   $     2.9   $   464.9
                                          -----------------------------------
                                          -----------------------------------
        Basic earnings per share           $    2.74   $    0.02   $    2.76

        Diluted earnings per share         $    2.73   $    0.02   $    2.75



        (in millions of Canadian dollars,
         except per share data)
                                             Nine months ended September 30
                                                          2009
                                          -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                             GAAP(1)  adjustments     GAAP
        Revenues
        Freight (h)                        $ 3,166.5   $    (2.5)  $ 3,164.0
        Other (h)                              121.2       (26.2)       95.0
                                          -----------------------------------
                                             3,287.7       (28.7)    3,259.0

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       965.2        24.7       989.9
        Fuel                                   422.7           -       422.7
        Materials (f)                          175.1         0.4       175.5
        Equipment rents (j)                    172.0         1.0       173.0
        Depreciation and amortization
         (f, g, h, j, k)                       357.1         3.9       361.0
        Purchased services and other
         (c, f, h, k)                          565.9       (12.5)      553.4
        Gain on sale of significant
         properties (l)                            -       (79.1)      (79.1)
                                          -----------------------------------
                                             2,658.0       (61.6)    2,596.4

        Operating income                       629.7        32.9       662.6

        Gain on sale of significant
         properties (l)                         79.1       (79.1)          -
        Gain on sale of partnership
         interest                               81.2           -        81.2
        Less:
          Other (income) and charges (a)        21.8        (2.4)       19.4
          Interest expense (g, j)              210.4       (11.2)      199.2
                                          -----------------------------------
        Income before income tax expense       557.8       (32.6)      525.2

        Income tax expense (recovery)
         (k)(2)                                142.4       (21.0)      121.4
                                          -----------------------------------
        Net income                         $   415.4   $   (11.6)  $   403.8
                                          -----------------------------------
                                          -----------------------------------
        Basic earnings per share           $    2.51   $   (0.07)  $    2.44

        Diluted earnings per share         $    2.50   $   (0.07)  $    2.43

        (1) Restated for the Company's changes in accounting policies in
            relation to the accounting for rail grinding, discussed in Note 2
            to these consolidated financial statements, and for locomotive
            overhauls and amortization of pension plan amendments for
            unionized employees, discussed in Note 2 of the Company's 2009
            annual consolidated financial statements. In addition, certain
            revenue and operating expense items have been reclassified in
            order to be consistent with U.S. GAAP presentation.

        (2) Adjustment for income tax expense (recovery) includes the tax
            effect of other U.S. to Canadian GAAP differences, in addition to
            the impact of difference (k) Investment tax credits.


        Consolidated balance sheet

        The Consolidated Balance Sheet is reconciled from Canadian to U.S.
        GAAP below:

        (in millions of                           September 30, 2010
         Canadian dollars)                -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                              GAAP    adjustments     GAAP
        Assets
        Current assets
          Cash and cash equivalents        $   267.8   $       -   $   267.8
          Accounts receivable, net (i)         533.3           -       533.3
          Materials and supplies               124.5           -       124.5
          Deferred income taxes                103.8           -       103.8
          Other current assets                  54.8           -        54.8
                                          -----------------------------------
                                             1,084.2           -     1,084.2

        Investments                            154.6           -       154.6
        Net properties (e, f, g, j)         11,861.3        95.9    11,957.2
        Goodwill and intangible assets         196.8           -       196.8
        Other assets (b, i, k)               2,676.3    (2,538.3)      138.0
                                          -----------------------------------
        Total assets                       $15,973.2   $(2,442.4)  $13,530.8
                                          -----------------------------------
                                          -----------------------------------
        Liabilities and shareholders'
         equity
        Current liabilities
          Accounts payable and accrued
           liabilities (e)                 $ 1,025.2   $    13.5   $ 1,038.7
          Long-term debt maturing within
           one year (i, j)                      42.3        (0.9)       41.4

                                          -----------------------------------
                                             1,067.5        12.6     1,080.1

        Pension and other benefits
         liabilities (b, c)                        -       585.3       585.3
        Other long-term liabilities
         (b, c, e)                             795.0      (322.6)      472.4
        Long-term debt (i, j)                4,439.1       (50.1)    4,389.0
        Future/deferred income taxes
         (b, c, e, f, g, j, k)               2,668.7      (736.5)    1,932.2
                                          -----------------------------------

        Total liabilities                    8,970.3      (511.3)    8,459.0

        Shareholders' equity
          Share capital (e)                  1,779.8        26.1     1,805.9
          Contributed surplus/Additional
           paid-in capital (e)                  29.8        (4.3)       25.5
          Accumulated other comprehensive
           income (loss) (a, b)                 52.0    (1,744.5)   (1,692.5)
          Retained income/earnings
           (a, b, c, e, f, g, j)             5,141.3      (208.4)    4,932.9
                                          -----------------------------------
                                             7,002.9    (1,931.1)    5,071.8
                                          -----------------------------------
        Total liabilities and
         shareholders' equity              $15,973.2   $(2,442.4)  $13,530.8
                                          -----------------------------------
                                          -----------------------------------


        (in millions of                            December 31, 2009
         Canadian dollars)                -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                             GAAP(1)  adjustments     GAAP
        Assets
        Current assets
          Cash and cash equivalents        $   679.1   $       -   $   679.1
          Accounts receivable, net (i)         441.0       214.1       655.1
          Materials and supplies               132.7           -       132.7
          Deferred income taxes                128.1           -       128.1
          Other current assets                  46.5           -        46.5
                                          -----------------------------------
                                             1,427.4       214.1     1,641.5

        Investments                            156.7           -       156.7
        Net properties (e, f, g, j)         11,878.8        99.7    11,978.5
        Goodwill and intangible assets         202.3           -       202.3
        Other assets (b, i, k)               1,777.2    (1,601.4)      175.8
                                          -----------------------------------
        Total assets                       $15,442.4   $(1,287.6)  $14,154.8
                                          -----------------------------------
                                          -----------------------------------
        Liabilities and shareholders'
         equity
        Current liabilities
          Accounts payable and accrued
           liabilities (e)                 $   990.9   $     9.8   $ 1,000.7
          Long-term debt maturing within
           one year (i, j)                     392.1       213.2       605.3

                                          -----------------------------------
                                             1,383.0       223.0     1,606.0

        Pension and other benefits
         liabilities (b, c)                        -     1,453.9     1,453.9
        Other long-term liabilities
         (b, c, e)                             790.2      (310.3)      479.9
        Long-term debt (i, j)                4,102.7        35.5     4,138.2
        Future/deferred income taxes
         (b, c, e, f, g, j, k)               2,523.2      (704.5)    1,818.7
                                          -----------------------------------

        Total liabilities                    8,799.1       697.6     9,496.7

        Shareholders' equity
          Share capital (e)                  1,746.4        24.7     1,771.1
          Contributed surplus/Additional
           paid-in capital (e)                  33.5        (2.7)       30.8
          Accumulated other comprehensive
           income (loss) (a, b)                 51.1    (1,795.8)   (1,744.7)
          Retained income/earnings
           (a, b, c, e, f, g, j)             4,812.3      (211.4)    4,600.9
                                          -----------------------------------
                                             6,643.3    (1,985.2)    4,658.1
                                          -----------------------------------
        Total liabilities and
         shareholders' equity              $15,442.4   $(1,287.6)  $14,154.8
                                          -----------------------------------
                                          -----------------------------------

        (1) Restated for the Company's changes in accounting policies in
            relation to the accounting for rail grinding, discussed in Note 2
            to these consolidated financial statements, and for locomotive
            overhauls and amortization of pension plan amendments for
            unionized employees, discussed in Note 2 of the Company's 2009
            annual consolidated financial statements. In addition, certain
            items have been reclassified in order to be consistent with U.S.
            GAAP presentation.

        Disclosures required by Canadian GAAP

        Future accounting changes
        -------------------------

        U.S. GAAP/International Financial Reporting Standards ("IFRS")

        On February 13, 2008, the Canadian Accounting Standards Board
        ("AcSB") confirmed that publicly accountable enterprises will be
        required to adopt IFRS in place of Canadian GAAP for interim and
        annual reporting purposes for fiscal years beginning on or after
        January 1, 2011, unless, as permitted by Canadian securities
        regulations, SEC registrants were to adopt U.S. GAAP on or before
        this date. Commencing on January 1, 2010, CP adopted U.S. GAAP for
        its financial reporting, which is consistent with the reporting of
        other North American Class I railways. As a result, CP will not be
        adopting IFRS in 2011.

        Business combinations, consolidated financial statements and
        non-controlling interests

        In January 2009, the CICA issued three new standards:

        Business Combinations, Section 1582

        This section which replaces the former Section 1581 "Business
        Combinations" and provides the Canadian equivalent to IFRS 3
        "Business Combinations" (January 2008). The new standard requires
        the acquiring entity in a business combination to recognize most of
        the assets acquired and liabilities assumed in the transaction at
        fair value including contingent assets and liabilities; and to
        recognize and measure the goodwill acquired in the business
        combination or a gain from a bargain purchase. Acquisition-related
        costs are also to be expensed.

        Consolidated Financial Statements, Section 1601 and Non-controlling
        Interests, Section 1602

        These two sections replace Section 1600 "Consolidated Financial
        Statements". Section 1601 "Consolidated Financial Statements" carries
        forward guidance from Section 1600 "Consolidated Financial
        Statements" with the exception of non-controlling interests which are
        addressed in a separate section. Section 1602 "Non-controlling
        Interests", requires the Company to report non-controlling interests
        within equity, separately from the equity of the owners of the
        parent, and transactions between an entity and non-controlling
        interests as equity transactions.

        All three standards are effective January 1, 2011 and therefore will
        not impact the Company as it has adopted U.S. GAAP for financial
        reporting.

        Capital disclosures
        -------------------

        The Company's objectives when managing its capital are:
        -  to maintain a flexible capital structure which optimizes the cost
           of capital at acceptable risk while providing an appropriate
           return to its shareholders;
        -  to manage capital in a manner which balances the interests of
           equity and debt holders;
        -  to manage capital in a manner that will maintain compliance with
           its financial covenants;
        -  to manage its long-term financing structure to maintain its
           investment grade rating; and
        -  to maintain a strong capital base so as to maintain investor,
           creditor and market confidence and to sustain future development
           of the business.

        The Company defines its capital as follows:
        -  shareholders' equity;
        -  long-term debt, including the current portion thereof; and
        -  short-term borrowing.

        The Company manages its capital structure and makes adjustments to
        it in accordance with the aforementioned objectives, as well as in
        light of changes in economic conditions and the risk characteristics
        of the underlying assets. In order to maintain or adjust its capital
        structure, the Company may, among other things, adjust the amount of
        dividends paid to shareholders, purchase shares for cancellation
        pursuant to normal course issuer bids, issue new shares, issue new
        debt, and/or issue new debt to replace existing debt with different
        characteristics.

        The Company monitors capital using a number of key financial metrics,
        including:
        -  debt to total capitalization; and
        -  interest coverage ratio.

        The calculations for the aforementioned key financial metrics are as
        follows:

        Debt to total capitalization
        ----------------------------
        Debt is the sum of long-term debt, long-term debt maturing within
        one year and short-term borrowing. This sum is divided by debt plus
        total shareholders' equity as presented on our Consolidated Balance
        Sheet.

        Interest coverage ratio
        -----------------------
        Interest coverage ratio is measured, on a twelve month rolling basis,
        as adjusted EBIT divided by interest expense. Adjusted EBIT excludes
        changes in the estimated fair value of the Company's investment in
        long-term floating rate notes/asset-backed commercial paper ("ABCP"),
        the gains on sales of partnership interest and significant properties
        and the loss on termination of a lease with a shortline railway as
        these are not in the normal course of business and foreign exchange
        gains and losses on long-term debt, which can be volatile and short
        term. The interest coverage ratio and adjusted EBIT are non-GAAP
        measures and do not have standardized meanings prescribed by GAAP
        and, therefore, are unlikely to be comparable to similar measures of
        other companies.

        The following table illustrates the financial metrics and their
        corresponding guidelines currently in place:

        ---------------------------------------------------------------------
        (in millions of Canadian          Guidelines   September   September
         dollars, U.S. GAAP)                            30, 2010    30, 2009
                                                                    Restated
                                                                 (See Note 2)
        ---------------------------------------------------------------------
        Long-term debt                                 $ 4,389.0   $ 3,732.6
        Long-term debt maturing
         within one year                                    41.4       600.0
        Short-term borrowing                                   -        57.7
        ---------------------------------------------------------------------
        Total debt                                     $ 4,430.4   $ 4,390.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Shareholders' equity                           $ 5,071.8   $ 5,065.5
        Total debt                                       4,430.4     4,390.3
        ---------------------------------------------------------------------
        Total debt plus equity                         $ 9,502.2   $ 9,455.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Operating income for the
         twelve months ended September 30              $   985.9   $   949.8

          Gain on sale of significant
           properties                                          -       (79.1)
          Loss on termination of lease
           with shortline railway                           54.5           -
          Other income and charges                          14.3       (22.2)
          Gain in long-term floating
           rate notes/ABCP                                  (3.1)       (6.3)
          Foreign exchange gain on
           long-term debt                                  (10.8)       (0.5)
          Equity income in DM&E                                -        10.4
        ---------------------------------------------------------------------
        Adjusted EBIT(1)(2) for the
         twelve months ended September 30              $ 1,040.8   $   852.1
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Total debt                                     $ 4,430.4   $ 4,390.3
        Total debt plus equity                         $ 9,502.2   $ 9,455.8
        ---------------------------------------------------------------------
        Total debt to total                No more         46.6%       46.4%
         capitalization                   than 50.0%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Adjusted EBIT(1)(2)                            $ 1,040.8   $   852.1
        Interest expense(2)                            $   260.5   $   272.3
        ---------------------------------------------------------------------
        Interest coverage ratio(1)(2)      No less           4.0         3.1
                                           than 4.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) These earnings measures have no standardized meanings prescribed
            by GAAP and, therefore, are unlikely to be comparable to similar
            measures of other companies.
        (2) The amount is calculated on a twelve month rolling basis.


        The Company's financial objectives and strategy as described above
        have remained substantially unchanged over the last two fiscal years.
        The objectives are reviewed on an annual basis and financial metrics
        and their management targets are monitored on a quarterly basis. The
        interest coverage ratio has improved during the twelve-month period
        ended September 30, 2010 due to an increase in year-over-year
        adjusting earnings and a reduction in year-over-year interest
        expense.

        The Company is subject to a financial covenant of funded debt to
        total capitalization in the revolver loan agreement. Performance to
        this financial covenant is well within permitted limits.

    16  Reclassification of comparative figures

        Certain comparative figures have been reclassified in order to be
        consistent with the 2010 presentation.


                             Summary of Rail Data
                             --------------------

      (Reconciliation of GAAP earnings to non-GAAP earnings on pages 2 and 3)
      -----------------------------------------------------------------------

                                                 Third Quarter
                                 --------------------------------------------
                                     2010      2009(1)  Fav/(Unfav)      %
                                 --------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue             $ 1,250.8  $ 1,086.6  $   164.2       15.1
      Other revenue                    35.4       31.5        3.9       12.4
                                 ---------------------------------
                                    1,286.2    1,118.1      168.1       15.0
                                 ---------------------------------

    Operating expenses
    ------------------
      Compensation and benefits       365.2      322.4      (42.8)     (13.3)
      Fuel                            166.1      134.0      (32.1)     (24.0)
      Materials                        43.2       45.3        2.1        4.6
      Equipment rents                  53.6       51.5       (2.1)      (4.1)
      Depreciation and amortization   123.9      121.6       (2.3)      (1.9)
      Purchased services and other    196.5      179.5      (17.0)      (9.5)
      Gain on sale of significant
       properties                         -      (79.1)     (79.1)    (100.0)
                                 ---------------------------------
                                      948.5      775.2     (173.3)     (22.4)
                                 ---------------------------------
    Operating income                  337.7      342.9       (5.2)      (1.5)

    Gain on sale of partnership
     interest                             -          -          -          -

    Less:

      Other (income) and charges        1.0        1.3        0.3       23.1
      Interest expense                 60.6       55.0       (5.6)     (10.2)
                                 ---------------------------------

    Income before income tax
     expense                          276.1      286.6      (10.5)      (3.7)
      Income tax expense               78.8       77.3       (1.5)      (1.9)
                                 ---------------------------------
    Net income                    $   197.3  $   209.3  $   (12.0)      (5.7)
                                 ---------------------------------
                                 ---------------------------------

    Basic earnings per share      $    1.17  $    1.25  $   (0.08)      (6.4)
                                 ---------------------------------
                                 ---------------------------------
    Diluted earnings per share    $    1.17  $    1.24  $   (0.07)      (5.6)
                                 ---------------------------------
                                 ---------------------------------

    Shares Outstanding
    ------------------

    Weighted average (avg)
     number of shares outstanding
     (millions)                       168.8      168.1        0.7        0.4

    Weighted avg number of
     diluted shares outstanding
     (millions)                       169.3      168.7        0.6        0.4

    Foreign Exchange
    ----------------

    Average foreign exchange
     rate (US$/Canadian$)              0.96       0.90      (0.06)      (6.7)

    Average foreign exchange
     rate (Canadian$/US$)              1.04       1.11      (0.07)      (6.3)


                                                  Year-to-date
                                 --------------------------------------------
                                     2010      2009(1)  Fav/(Unfav)      %
                                 --------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue             $ 3,591.2  $ 3,164.0  $   427.2       13.5
      Other revenue                    96.0       95.0        1.0        1.1
                                 ---------------------------------
                                    3,687.2    3,259.0      428.2       13.1
                                 ---------------------------------
    Operating expenses
    ------------------
      Compensation and benefits     1,068.7      989.9      (78.8)      (8.0)
      Fuel                            525.7      422.7     (103.0)     (24.4)
      Materials                       158.2      175.5       17.3        9.9
      Equipment rents                 157.5      173.0       15.5        9.0
      Depreciation and amortization   368.4      361.0       (7.4)      (2.0)
      Purchased services and other    590.3      553.4      (36.9)      (6.7)
      Gain on sale of significant
       properties                         -      (79.1)     (79.1)    (100.0)
                                 ---------------------------------
                                    2,868.8    2,596.4     (272.4)     (10.5)
                                 ---------------------------------
    Operating income                  818.4      662.6      155.8       23.5

    Gain on sale of partnership
     interest                             -       81.2      (81.2)    (100.0)

    Less:

      Other (income) and charges       (7.3)      19.4       26.7      137.6
      Interest expense                192.1      199.2        7.1        3.6
                                 ---------------------------------

    Income before income tax
     expense                          633.6      525.2      108.4       20.6
      Income tax expense              168.7      121.4      (47.3)     (39.0)
                                 ---------------------------------
    Net income                    $   464.9  $   403.8  $    61.1       15.1
                                 ---------------------------------
                                 ---------------------------------

    Basic earnings per share      $    2.76  $    2.44  $    0.32       13.1
                                 ---------------------------------
                                 ---------------------------------
    Diluted earnings per share    $    2.75  $    2.43  $    0.32       13.2
                                 ---------------------------------
                                 ---------------------------------

    Shares Outstanding
    ------------------

    Weighted average (avg)
     number of shares outstanding
     (millions)                      168.6       165.7        2.9       1.8

    Weighted avg number of
     diluted shares outstanding
     (millions)                      169.0       166.0        3.0       1.8

    Foreign Exchange
    ----------------

    Average foreign exchange
     rate (US$/Canadian$)             0.96        0.85      (0.11)    (12.9)

    Average foreign exchange
     rate (Canadian$/US$)             1.04        1.18      (0.14)    (11.9)

    (1) Restated for the Company's change in accounting policy in relation
        to the accounting for rail grinding.



                        Summary of Rail Data (Page 2)
                        -----------------------------

                   Adjusted Earnings Performance - Quarter
                   ---------------------------------------
                              Non-GAAP Measures
                              -----------------

                                        Third Quarter 2010
                              -----------------------------------
                                                        Adjusted
    In millions, except         Reported  Adjustments  (Non-GAAP)
     per share data              (GAAP)   Fav/(Unfav)      (2)
    ------------------------- -----------------------------------

    Revenues                   $ 1,286.2   $       -   $ 1,286.2

    Expenses                       948.5           -       948.5
    ------------------------- -----------------------------------

    Operating income               337.7           -       337.7

    Less:
    Other (income) and charges       1.0        0.6(3)       0.4

    Interest expense                60.6           -        60.6
    ------------------------- -----------------------------------

    Income before income
     tax expense                   276.1         0.6       276.7

    Income tax expense              78.8         6.8(4)     72.0
                              -------------------------------------
    Net income                 $   197.3   $     7.4   $   204.7(5)
    ------------------------- -------------------------------------
    ------------------------- -------------------------------------

    Operating ratio (%)             73.7           -        73.7

    Basic earnings per share   $    1.17   $    0.04   $    1.21

    Diluted earnings per share $    1.17   $    0.04   $    1.21



                                       Third Quarter 2009(1)         %
                              -----------------------------------  Adjusted
                                                        Adjusted  (Non-GAAP)
    In millions, except         Reported  Adjustments  (Non-GAAP)     (2)
     per share data              (GAAP)   Fav/(Unfav)      (2)    Fav/(Unfav)
    ------------------------- -----------------------------------------------

    Revenues                   $ 1,118.1   $       -   $ 1,118.1        15.0

    Expenses                       775.2       (79.1)(6)   854.3       (11.0)
    ------------------------- -----------------------------------

    Operating income               342.9       (79.1)      263.8        28.0

    Less:
    Other (income) and charges       1.3         1.7(7)     (0.4)          -

    Interest expense                55.0           -        55.0       (10.2)
    ------------------------- -----------------------------------

    Income before income
     tax expense                   286.6       (77.4)      209.2        32.3

    Income tax expense              77.3        29.0(8)     48.3       (49.1)
                              -------------------------------------
    Net income                 $   209.3   $   (48.4)    $ 160.9(5)     27.2
    ------------------------- -------------------------------------
    ------------------------- -------------------------------------

    Operating ratio (%)             69.3        (7.1)       76.4      270 bps

    Basic earnings per share   $    1.25   $   (0.29)  $    0.96        26.0

    Diluted earnings per share $    1.24   $   (0.29)  $    0.95        27.4

    (1) Restated for the Company's change in accounting policy in relation
        to the accounting for rail grinding.
    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and are unlikely to be comparable to similar measures of other
        companies.
    (3) To exclude the gain in fair value of long-term floating rate notes
        of $0.4 million due to short-term market changes and a loss in
        foreign exchange on long-term debt (FX on LTD) of $1.0 million in
        order to eliminate the impact of volatile short-term exchange rate
        fluctuations.
    (4) To exclude the tax expense associated with the gain in fair value of
        long-term floating rate notes of $0.1 million and the tax expense
        associated with the loss on FX on LTD of $6.7 million.
    (5) These adjusted figures are also referred to as "Income, before FX on
        LTD and other specified items".
    (6) To exclude the gain of $79.1 million before tax which arose from the
        sale of significant properties.
    (7) To exclude the gain in fair value of long-term floating rate notes
        of $1.6 million due to short-term market changes and a loss in FX on
        LTD of $3.3 million in order to eliminate the impact of volatile
        short-term exchange rate fluctuations.
    (8) To exclude the tax expense associated with the gain on sale of
        significant properties of $11.0 million, the tax expense associated
        with the gain in fair value of long-term floating rate notes of
        $0.3 million and the tax expense associated with the loss on FX on
        LTD of $17.7 million.

    -------------------------------------------------------------------------

                        Summary of Rail Data (Page 3)
                        -----------------------------

                 Adjusted Earnings Performance - Year-to-date
                 --------------------------------------------
                              Non-GAAP Measures
                              -----------------

                                        Year-to-date 2010
                              -----------------------------------
                                                        Adjusted
    In millions, except         Reported  Adjustments  (Non-GAAP)
     per share data              (GAAP)   Fav/(Unfav)      (2)
    ------------------------- -----------------------------------

    Revenues                   $ 3,687.2   $       -   $ 3,687.2

    Expenses                     2,868.8           -     2,868.8
    ------------------------- -----------------------------------

    Operating income               818.4           -       818.4

    Gain on sale of
     partnership interest              -           -           -

    Less:
    Other (income) and charges      (7.3)       (6.3)(3)    (1.0)

    Interest expense               192.1           -       192.1
    ------------------------- -----------------------------------

    Income before income
     tax expense                   633.6        (6.3)      627.3

    Income tax expense             168.7         5.5(4)    163.2
                              -------------------------------------
    Net income                 $   464.9   $    (0.8)  $   464.1(5)
    ------------------------- -------------------------------------
    ------------------------- -------------------------------------

    Operating ratio (%)             77.8           -        77.8

    Basic earnings per share   $    2.76   $   (0.01)  $    2.75

    Diluted earnings per share $    2.75   $       -   $    2.75


                                        Year-to-date  2009(1)         %
                              -----------------------------------  Adjusted
                                                        Adjusted  (Non-GAAP)
    In millions, except         Reported  Adjustments  (Non-GAAP)     (2)
     per share data              (GAAP)   Fav/(Unfav)      (2)    Fav/(Unfav)
    ------------------------- -----------------------------------------------

    Revenues                   $ 3,259.0   $     -     $ 3,259.0        13.1

    Expenses                     2,596.4     (79.1)(6)   2,675.5        (7.2)
    ------------------------- -----------------------------------

    Operating income               662.6     (79.1)        583.5        40.3

    Gain on sale of
     partnership interest           81.2     (81.2)(7)         -           -

    Less:
    Other (income) and charges      19.4      (2.3)(8)      21.7           -

    Interest expense               199.2         -         199.2         3.6
    ------------------------- -----------------------------------

    Income before income
     tax expense                   525.2    (162.6)        362.6        73.0

    Income tax expense             121.4      51.5(9)       69.9      (133.5)
                              -------------------------------------
    Net income                 $   403.8  $ (111.1)      $ 292.7(5)     58.6
    ------------------------- -------------------------------------
    ------------------------- -------------------------------------

    Operating ratio (%)             79.7      (2.4)         82.1      430 bps

    Basic earnings per share   $    2.44  $  (0.67)     $   1.77        55.4

    Diluted earnings per share $    2.43  $  (0.67)     $   1.76        56.3

    (1) Restated for the Company's change in accounting policy in relation
        to the accounting for rail grinding.
    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and are unlikely to be comparable to similar measures of other
        companies.
    (3) To exclude the gain in fair value of long-term floating rate notes
        of $3.1 million due to short-term market changes and a gain in
        foreign exchange on long-term debt (FX on LTD) of $3.2 million in
        order to eliminate the impact of volatile short-term exchange rate
        fluctuations.
    (4) To exclude the tax expense associated with the gain in fair value of
        long-term floating rate notes of $0.9 million and the tax expense
        associated with the gain on FX on LTD of $4.6 million.
    (5) These adjusted figures are also referred to as "Income, before FX on
        LTD and other specified items".
    (6) To exclude the gain of $79.1 million before tax which arose from the
        sale of significant properties.
    (7) To exclude the gain of $81.2 million before tax which arose from the
        partial sale of the investment in the Detroit River Tunnel
        Partnership ("DRTP").
    (8) To exclude the gain in fair value of long-term floating rate notes
        of $6.3 million due to short-term market changes and a loss in FX on
        LTD of $4.0 million in order to eliminate the impact of volatile
        short-term exchange rate fluctuations.
    (9) To exclude the tax expense associated with the partial sale of the
        investment in DRTP of $12.5 million, the tax expense associated with
        the sale of significant properties of $11.0 million, the tax expense
        associated with the gain in fair value of long-term floating rate
        notes of $1.8 million and the tax expense associated with the loss
        on FX on LTD of $26.2 million.

    -------------------------------------------------------------------------

                        Summary of Rail Data (Page 4)
                        -----------------------------

                                                 Third Quarter
                                 --------------------------------------------
                                     2010       2009    Fav/(Unfav)      %
                                 --------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                       $   300.2  $   281.2  $    19.0        6.8
    - Coal                            118.4      119.7       (1.3)      (1.1)
    - Sulphur and fertilizers         110.1       81.4       28.7       35.3
    - Forest products                  47.1       45.8        1.3        2.8
    - Industrial and consumer
       products                       240.3      195.5       44.8       22.9
    - Automotive                       74.5       59.6       14.9       25.0
    - Intermodal                      360.2      303.4       56.8       18.7
                                 ---------------------------------
    Total Freight Revenues        $ 1,250.8  $ 1,086.6  $   164.2       15.1
                                 ---------------------------------

    Millions of Revenue Ton-Miles
     (RTM)
    - Grain                           8,842      8,458        384        4.5
    - Coal                            4,631      4,784       (153)      (3.2)
    - Sulphur and fertilizers         3,997      2,747      1,250       45.5
    - Forest products                 1,241      1,216         25        2.1
    - Industrial and consumer
       products                       5,897      4,570      1,327       29.0
    - Automotive                        461        417         44       10.6
    - Intermodal                      6,848      5,829      1,019       17.5
                                 ---------------------------------
    Total RTMs                       31,917     28,021      3,896       13.9
                                 ---------------------------------

    Freight Revenue per RTM (cents)
    - Grain                            3.40       3.32       0.08        2.4
    - Coal                             2.56       2.50       0.06        2.4
    - Sulphur and fertilizers          2.75       2.96      (0.21)      (7.1)
    - Forest products                  3.80       3.77       0.03        0.8
    - Industrial and consumer
       products                        4.07       4.28      (0.21)      (4.9)
    - Automotive                      16.16      14.29       1.87       13.1
    - Intermodal                       5.26       5.21       0.05        1.0
    Total Freight Revenue per RTM      3.92       3.88       0.04        1.0

    Carloads (thousands)
    - Grain                           119.9      117.6        2.3        2.0
    - Coal                             83.2       84.2       (1.0)      (1.2)
    - Sulphur and fertilizers          41.8       29.7       12.1       40.7
    - Forest products                  18.2       17.4        0.8        4.6
    - Industrial and consumer
       products                       106.4       86.6       19.8       22.9
    - Automotive                       32.3       27.2        5.1       18.8
    - Intermodal                      283.9      239.7       44.2       18.4
                                 ---------------------------------
    Total Carloads                    685.7      602.4       83.3       13.8
                                 ---------------------------------

    Freight Revenue per Carload
    - Grain                       $   2,504  $   2,391  $     113        4.7
    - Coal                            1,423      1,422          1        0.1
    - Sulphur and fertilizers         2,634      2,741       (107)      (3.9)
    - Forest products                 2,588      2,632        (44)      (1.7)
    - Industrial and consumer
       products                       2,258      2,258          -          -
    - Automotive                      2,307      2,191        116        5.3
    - Intermodal                      1,269      1,266          3        0.2
    Total Freight Revenue per
     Carload                      $   1,824  $   1,804  $      20        1.1



                                                  Year-to-date
                                 --------------------------------------------
                                     2010       2009    Fav/(Unfav)      %
                                 --------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                       $   835.9  $   843.5  $    (7.6)      (0.9)
    - Coal                            365.6      331.5       34.1       10.3
    - Sulphur and fertilizers         342.8      224.2      118.6       52.9
    - Forest products                 134.7      133.3        1.4        1.1
    - Industrial and consumer
       products                       662.8      580.9       81.9       14.1
    - Automotive                      241.1      161.4       79.7       49.4
    - Intermodal                    1,008.3      889.2      119.1       13.4
                                 ---------------------------------
    Total Freight Revenues        $ 3,591.2  $ 3,164.0  $   427.2       13.5
                                 ---------------------------------

    Millions of Revenue Ton-Miles
     (RTM)
    - Grain                          25,781     25,682         99        0.4
    - Coal                           14,207     12,504      1,703       13.6
    - Sulphur and fertilizers        12,724      6,646      6,078       91.5
    - Forest products                 3,894      3,372        522       15.5
    - Industrial and consumer
       products                      15,950     12,891      3,059       23.7
    - Automotive                      1,566      1,127        439       39.0
    - Intermodal                     19,423     17,256      2,167       12.6
                                 ---------------------------------
    Total RTMs                       93,545     79,478     14,067       17.7
                                 ---------------------------------

    Freight Revenue per RTM (cents)
    - Grain                            3.24       3.28      (0.04)      (1.2)
    - Coal                             2.57       2.65      (0.08)      (3.0)
    - Sulphur and fertilizers          2.69       3.37      (0.68)     (20.2)
    - Forest products                  3.46       3.95      (0.49)     (12.4)
    - Industrial and consumer
       products                        4.16       4.51      (0.35)      (7.8)
    - Automotive                      15.40      14.32       1.08        7.5
    - Intermodal                       5.19       5.15       0.04        0.8
    Total Freight Revenue per RTM      3.84       3.98      (0.14)      (3.5)

    Carloads (thousands)
    - Grain                           349.0      348.4        0.6        0.2
    - Coal                            253.8      221.2       32.6       14.7
    - Sulphur and fertilizers         129.3       76.9       52.4       68.1
    - Forest products                  53.0       50.4        2.6        5.2
    - Industrial and consumer
       products                       294.8      253.3       41.5       16.4
    - Automotive                      103.3       70.8       32.5       45.9
    - Intermodal                      803.9      721.9       82.0       11.4
                                 ---------------------------------
    Total Carloads                  1,987.1    1,742.9      244.2       14.0
                                 ---------------------------------

    Freight Revenue per Carload
    - Grain                       $   2,395  $   2,421  $     (26)      (1.1)
    - Coal                            1,441      1,499        (58)      (3.9)
    - Sulphur and fertilizers         2,651      2,915       (264)      (9.1)
    - Forest products                 2,542      2,645       (103)      (3.9)
    - Industrial and consumer
       products                       2,248      2,293        (45)      (2.0)
    - Automotive                      2,334      2,280         54        2.4
    - Intermodal                      1,254      1,232         22        1.8
    Total Freight Revenue per
     Carload                      $   1,807  $   1,815  $      (8)      (0.4)



                        Summary of Rail Data (Page 5)
                        -----------------------------

                                                 Third Quarter
                                  -------------------------------------------
                                      2010     2009(1)   Fav/(Unfav)     %
                                  -------------------------------------------
    Operations Performance
    ----------------------

    Total operating expenses per
     GTM (cents)(2)                    1.56       1.44      (0.12)      (8.3)
    Adjusted operating expenses
     exclusive of land sales per
     GTM (cents)(2)(3)                 1.56       1.60       0.04        2.5

    Freight gross ton-miles (GTM)
     (millions)                      60,969     53,709      7,260       13.5
    Train miles (000)                 9,967      8,562      1,405       16.4

    Average number of active
     employees - Total               16,046     15,420       (626)      (4.1)
    Average number of active
     employees - Expense             13,961     13,352       (609)      (4.6)

    Number of employees at end of
     period - Total                  16,042     15,416       (626)      (4.1)
    Number of employees at end of
     period - Expense                13,950     13,371       (579)      (4.3)

    U.S. gallons of locomotive
     fuel per 1,000 GTMs -
     freight & yard                    1.12       1.09      (0.03)      (2.8)
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(4)                     67.9       58.1       (9.8)     (16.9)
    Average fuel price (U.S.
     dollars per U.S. gallon)          2.34       2.07      (0.27)     (13.0)

    Fluidity Data (including DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                19.6        n/a          -          -
    Average train speed - AAR
     definition (mph)                  23.0        n/a          -          -
    Car miles per car day             146.8        n/a          -          -
    Average daily active cars
     on-line (000)                     55.1        n/a          -          -
    Average daily active road
     locomotives on-line              1,002        n/a          -          -

    Fluidity Data (excluding DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                19.6       20.7        1.1        5.3
    Average train speed - AAR
     definition (mph)                  24.1       25.7       (1.6)      (6.2)
    Car miles per car day             159.2      147.1       12.1        8.2
    Average daily active cars
     on-line (000)                     48.3       44.5       (3.8)      (8.5)
    Average daily active road
     locomotives on-line                887        694       (193)     (27.8)

    Safety
    ------
    FRA personal injuries per
     200,000 employee-hours            1.58       2.13       0.55       25.8
    FRA train accidents per
     million train-miles               1.73       1.80       0.07        3.9


                                                  Year-to-date
                                  -------------------------------------------
                                      2010     2009(1)   Fav/(Unfav)     %
                                  -------------------------------------------
    Operations Performance
    ----------------------

    Total operating expenses per
     GTM (cents)(2)                    1.59       1.68       0.09        5.4
    Adjusted operating expenses
     exclusive of land sales per
     GTM (cents)(2)(3)                 1.59       1.75       0.16        9.1

    Freight gross ton-miles (GTM)
     (millions)                     180,259    154,277     25,982       16.8
    Train miles (000)                29,444     25,860      3,584       13.9

    Average number of active
     employees - Total               15,401     15,209       (192)      (1.3)
    Average number of active
     employees - Expense             13,866     13,669       (197)      (1.4)

    Number of employees at end of
     period - Total                  16,042     15,416       (626)      (4.1)
    Number of employees at end of
     period - Expense                13,950     13,371       (579)      (4.3)

    U.S. gallons of locomotive
     fuel per 1,000 GTMs -
     freight & yard                    1.16       1.19       0.03        2.5
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(4)                    207.7      181.9      (25.8)     (14.2)
    Average fuel price (U.S.
     dollars per U.S. gallon)          2.44       1.97      (0.47)     (23.9)

    Fluidity Data (including DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                21.2        n/a          -          -
    Average train speed - AAR
     definition (mph)                  23.1        n/a          -          -
    Car miles per car day             141.7        n/a          -          -
    Average daily active cars
     on-line (000)                     56.9        n/a          -          -
    Average daily active road
     locomotives on-line              1,005        n/a          -          -

    Fluidity Data (excluding DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                21.2       21.5        0.3        1.4
    Average train speed - AAR
     definition (mph)                  24.3       25.7       (1.4)      (5.4)
    Car miles per car day             154.4      144.0       10.4        7.2
    Average daily active cars
     on-line (000)                     49.6       45.2       (4.4)      (9.7)
    Average daily active road
     locomotives on-line                886        750       (136)     (18.1)

    Safety
    ------
    FRA personal injuries per
     200,000 employee-hours            1.58       1.85       0.27       14.6
    FRA train accidents per
     million train-miles               1.67       1.90       0.23       12.1

    (1) Certain prior period figures have been revised to conform with
        current presentation or have been updated to reflect new information.
    (2) Restated for the Company's change in accounting policy in relation to
        the accounting for rail grinding.
    (3) These earnings measures have no standardized meanings prescribed by
        GAAP and are unlikely to be comparable to similar measures of other
        companies. Adjusted operating expenses exclusive of land sales per
        GTM is calculated consistently with total operating expenses per GTM
        except for the exclusion of a gain on sale of significant properties
        for the three and nine months ended September 30, 2009 of
        $79.1 million and the exclusion of net gains on land sales of
        $2.8 million and $3.3 million for the three months ended
        September 30, 2010 and 2009, respectively, and $6.0 million and
        $27.8 million for the nine months ended September 30, 2010 and 2009,
        respectively. Please refer to pages 2 and 3, Adjusted Earnings
        Performance, Quarter and Year-to-date, Non-GAAP measures.
    (4) Includes gallons of fuel consumed from freight, yard and commuter
        service but excludes fuel used in capital projects and other
        non-freight activities.
    n/a - not available

SOURCE Canadian Pacific