Canadian Pacific announces first quarter results

CALGARY, April 28 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE: CP) announced its first-quarter results today. Net income in the first-quarter was $100 million, an increase of 74 per cent from $57 million in first-quarter 2009 and diluted earnings per share were $0.59, up from $0.36 in first-quarter 2009.

"We put in a solid performance this quarter and our results reflect both improvements in the economy and CP's proven ability to rapidly adjust to changes in our customers' demands," said Fred Green, President and CEO. "Our ongoing commitment to service reliability, safety and managing our productivity objectives will continue to drive shareholder value."

    
    FIRST-QUARTER 2010 COMPARED WITH FIRST-QUARTER 2009:

    -   Total revenues were $1.2 billion, up five per cent from $1.1 billion
    -   Operating expenses were $962 million, down two per cent from
        $977 million
    -   Operating income increased to $205 million from $132 million, or
        55 per cent
    -   Operating ratio improved 570 basis points to 82.4 per cent
    -   Diluted earnings per share increased to $0.59 from $0.36, or
        64 per cent
    -   Adjusted diluted earnings per share increased to $0.60 from $0.32, or
        88 per cent
    

Presentation of non-GAAP earnings

Diluted earnings per share, excluding foreign exchange gains and losses on long-term debt and other specified items, is also referred to in this news release as "adjusted diluted earnings per share".

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 become non-GAAP measures. Capital program is a non-GAAP measure.

These non-GAAP earnings measures exclude foreign currency translation effects on long-term debt and the tax thereon, which can be volatile and short term. The impact of volatile short-term exchange rate fluctuations on foreign-denominated debt is only realized when long-term debt matures or is settled. 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. 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.

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

CP had a net foreign exchange loss after tax of $3 million on long-term debt in the first quarter of 2010, compared with a gain of $7 million after tax in first-quarter 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 the 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.

Other specified items in the first quarter of 2010 include an increase to the estimated fair value of the investment in Long-Term Floating Rate Notes of $1.0 million ($0.9 million after tax). There were no similar other specified items in the first quarter of 2009.

CP began reporting its financial results in accordance with U.S. GAAP as at January 1, 2010. All prior period comparative numbers contained in this release are 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, pension obligations and tax rates. 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; and various events that could disrupt operations, including severe weather conditions, security threats and governmental response to them, and technological changes.

There are factors that could cause actual results to differ from those described in the forward-looking statements contained in this news release. These more specific factors are identified and discussed elsewhere in this news release with the particular forward-looking statement in question.

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, through the ingenuity of its employees located across Canada and in the United States, remains committed to being the safest, most fluid railway in North America. Our people are the key to delivering innovative transportation solutions to our customers and to ensuring the safe operation of our trains through the more than 1,100 communities where we operate. Come and visit us at www.cpr.ca to see how we can put our ingenuity to work for you.

    
    CANADIAN PACIFIC RAILWAY LIMITED

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

                                                       For the three months
                                                          ended March 31
                                                        2010         2009
                                                   --------------------------
    Revenues
      Freight                                        $  1,138.2   $  1,076.0
      Other                                                28.6         33.6
                                                   --------------------------
                                                        1,166.8      1,109.6
    Operating expenses
      Compensation and benefits                           353.5        342.9
      Fuel                                                181.7        171.0
      Materials                                            63.9         76.6
      Equipment rents                                      49.0         66.4
      Depreciation and amortization                       125.0        119.7
      Purchased services and other                        188.7        200.8
                                                   --------------------------

                                                          961.8        977.4

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

    Operating income                                      205.0        132.2

    Less:
      Other income and charges                             (4.9)         8.5
      Interest expense                                     66.7         71.6
                                                   --------------------------

    Income before income tax expense                      143.2         52.1

    Income tax expense (recovery) (Note 4)                 43.4         (5.2)
                                                   --------------------------

    Net income                                       $     99.8   $     57.3

                                                   --------------------------
                                                   --------------------------
    Earnings per share (Note 5)

      Basic earnings per share                       $     0.59   $     0.36

      Diluted earnings per share                     $     0.59   $     0.36

    Weighted average number of shares (millions)

      Basic                                               168.5        160.9

      Diluted                                             169.1        161.2

    Dividends declared per share                     $   0.2475   $   0.2475

    See notes to Consolidated Financial Statements.


    CONSOLIDATED BALANCE SHEET
    (in millions of Canadian dollars)
    (unaudited)
                                                      March 31   December 31
                                                        2010         2009
                                                   --------------------------

    Assets
    Current assets
      Cash and cash equivalents                      $    723.8   $    679.1
      Accounts receivable, net                            705.8        655.1
      Materials and supplies                              122.7        132.7
      Deferred income taxes                               133.6        128.1
      Other current assets                                 57.6         46.5
                                                   --------------------------

                                                        1,743.5      1,641.5

    Investments                                           160.5        156.7
    Net properties                                     11,902.6     12,067.5
    Goodwill and intangible assets                        195.1        202.3
    Other assets                                          172.6        175.8

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

    Total assets                                     $ 14,174.3   $ 14,243.8

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


    Liabilities and shareholders' equity
    Current liabilities
      Accounts payable and accrued liabilities       $    900.6   $    927.1
      Income and other taxes payable                       40.3         31.9
      Dividends payable                                    41.7         41.7
      Long-term debt maturing within one year             611.9        605.3

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

                                                        1,594.5      1,606.0

    Pension and other benefit liabilities               1,417.7      1,453.9
    Other long-term liabilities                           477.3        479.9
    Long-term debt                                      4,023.3      4,138.2
    Deferred income taxes                               1,869.0      1,845.0
                                                   --------------------------

    Total liabilities                                   9,381.8      9,523.0

    Shareholders' equity
      Share capital                                     1,775.9      1,771.1
      Additional paid-in capital                           29.5         30.8
      Accumulated other comprehensive loss             (1,736.2)    (1,746.3)
      Retained earnings                                 4,723.3      4,665.2

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

                                                        4,792.5      4,720.8

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

    Total liabilities and shareholders' equity       $ 14,174.3   $ 14,243.8
                                                   --------------------------
                                                   --------------------------

    Commitments and contingencies (Note 10)

    See notes to Consolidated Financial Statements.


    CONSOLIDATED STATEMENT OF CASH FLOWS
    (in millions of Canadian dollars)
    (unaudited)
                                                       For the three months
                                                          ended March 31
                                                        2010         2009
                                                   --------------------------
    Operating activities
      Net income                                     $     99.8   $     57.3
      Reconciliation of net income to cash provided
       by operating activities:
        Depreciation and amortization                     125.0        119.7
        Deferred income taxes (Note 4)                     41.1        (10.4)
        Foreign exchange (gain) loss on long-term debt     (4.1)         2.4
        Restructuring and environmental payments           (5.6)        (8.5)
        Pension funding in excess of expense               (9.3)       (15.3)
        Other operating activities, net                    21.6          1.9
        Change in non-cash working capital balances
         related to operations                            (82.0)       (11.9)
                                                   --------------------------

      Cash provided by operating activities               186.5        135.2

                                                   --------------------------
    Investing activities
      Additions to properties                             (93.0)      (123.1)
      Proceeds from the sale of properties and
       other assets                                         9.0          8.0
                                                   --------------------------

      Cash used in investing activities                   (84.0)      (115.1)
                                                   --------------------------
    Financing activities
      Dividends paid                                      (41.7)       (38.0)
      Issuance of CP Common Shares                          3.0        495.8
      Net decrease in short-term borrowing                    -        (18.1)
      Repayment of long-term debt                          (9.1)       (13.2)
                                                   --------------------------

      Cash (used in) provided by financing activities     (47.8)       426.5
                                                   --------------------------

    Effect of foreign currency fluctuations on
     U.S. dollar-denominated cash and cash
     equivalents                                          (10.0)         2.4
                                                   --------------------------
    Cash position
      Increase in cash and cash equivalents                44.7        449.0
      Cash and cash equivalents at beginning
       of period                                          679.1        117.5
                                                   --------------------------

    Cash and cash equivalents at end of period       $    723.8   $    566.5
                                                   --------------------------
                                                   --------------------------

    Supplemental disclosures of cash flow
     information:
      Income taxes paid                              $      1.9   $      3.3
                                                   --------------------------
                                                   --------------------------

      Interest paid                                  $     45.1   $     58.6
                                                   --------------------------
                                                   --------------------------

    See notes to 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            168.5  $1,771.1   $  30.8 $(1,746.3) $4,665.2  $4,720.8
    Net income           -         -         -         -      99.8      99.8
    Other
     comprehensive
     income              -         -         -      10.1         -      10.1
                  --------- -------------------------------------------------
    Comprehensive
     income              -         -         -      10.1      99.8     109.9
                  --------- -------------------------------------------------
    Dividends
     declared            -         -         -         -     (41.7)    (41.7)
    Stock
     compensation
     expense             -         -       0.4         -         -       0.4
    Shares issued
     under stock
     option plans      0.1       4.8      (1.7)        -         -       3.1
                  --------- -------------------------------------------------
    Balance at
     March 31,
     2010            168.6  $1,775.9   $  29.5 $(1,736.2) $4,723.3  $4,792.5
                  --------- -------------------------------------------------
                  --------- -------------------------------------------------

    See notes to Consolidated Financial Statements.


    CANADIAN PACIFIC RAILWAY LIMITED

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    March 31, 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 2009
        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 prior years
        will depend on the recovery of the economy and 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 with the addition
        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 9.

        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. 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 (Note 6).

    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   Income taxes

                                                       For the three months
                                                          ended March 31
        (in millions of Canadian dollars)                2010        2009
                                                      -----------------------

        Current income tax expense                      $   2.3      $   5.2
        Deferred income tax expense (recovery)             41.1        (10.4)

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

        Income tax expense (recovery)                   $  43.4      $  (5.2)
                                                      -----------------------
                                                      -----------------------

        During the first quarter of 2009, legislation was enacted to reduce
        British Columbia provincial income tax rates. As a result, the
        Company recorded 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 first quarter of 2009 the Company had
        non-taxable foreign exchange gains which reduced expected income tax
        expense by approximately $8 million. In the first quarter of 2010,
        non-taxable foreign exchange losses increased expected income tax
        expense by approximately $6 million.

    5   Earnings per share

        At March 31, 2010, the number of shares outstanding was 168.6 million
        (March 31, 2009 - 168.0 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
                                                          ended March 31
        (in millions)                                    2010        2009
                                                      -----------------------

        Weighted average shares outstanding                168.5       160.9
        Dilutive effect of stock options                     0.6         0.3
                                                      -----------------------

        Weighted average diluted shares outstanding        169.1       161.2
                                                      -----------------------
                                                      -----------------------

        For the three months ended March 31, 2010, 2,529,642 options were
        excluded from the computation of diluted earnings per share because
        their effects were not dilutive (three months ended March 31, 2009 -
        3,393,217).

    6   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 March 31, 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
        $71.8 million and $69.3 million, respectively. The carrying values,
        being the estimated fair values, are reported in "Investments".

        The Company received the long-term floating rate notes as part of a
        Canadian Court sanctioned restructuring plan completed on January 21,
        2009. The notes were in replacement for previously held Canadian
        third-party asset backed commercial paper ("ABCP").

        During the first quarter of 2010 the Company received $0.1 million in
        partial redemption, at par, of certain of the notes held. At March
        31, 2010 the Company held long-term floating rate notes with
        settlement value, as follows:

        -  $116.7 million Master Asset Vehicle ("MAV") 2 notes with eligible
           assets;
        -  $12.1 million MAV 2 Ineligible Asset ("IA") Tracking notes; and
        -  $0.2 million MAV 3 Class 9 Traditional Asset ("TA") Tracking
           notes.

        The valuation technique used by the Company to estimate the fair
        value of its investment in long-term floating rate notes at March 31,
        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 a gain of $2.5 million in the first
        quarter of 2010 (first quarter 2009 - no gain or loss). The interest
        rates and maturities of the various long-term floating rate notes,
        discount rates and credit losses modelled at March 31, 2010 and
        December 31, 2009, respectively, are:

                               March 31, 2010         December 31, 2009

        Probability weighted   0.1%                   Nil
         average coupon
         interest rate

        Weighted average       7.6%                   7.9%
         discount rate

        Expected repayments    Three to 19 years      Three and a half to
         of long-term floating                        19 years
         rate notes

        Credit losses          MAV 2 eligible asset   MAV 2 eligible asset
                               notes: nil 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: nil    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 $71.8 million at March 31, 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                                              -         1.5
        Change in market assumptions                           -         1.0
                                                      -----------------------

        As at March 31, 2010                           $   129.0   $    71.8
                                                      -----------------------
                                                      -----------------------

        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, 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 net 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 mitigating volatility on 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 is 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 three months ended March 31, 2009, CP
        unwound US$25 million of the US$400 million for total proceeds of
        $4.5 million, which was settled in the second quarter of 2009. During
        the remainder of 2009, CP unwound a further US$305 million for total
        proceeds of $29.6 million.

        During the three months ended March 31, 2010, the Company recorded an
        unrealized foreign exchange loss on long-term debt of $1.9 million to
        "Other income and charges" related to the currency forward. For the
        same period in 2009, the Company recorded a net gain of
        $14.1 million, which was inclusive of both realized and unrealized
        gains.

        At March 31, 2010, the unrealized loss of $1.7 million on the
        remaining FX forward of US$70 million was included in "Other long-
        term liabilities". At December 31, 2009, the unrealized gain on the
        remaining FX forward of $0.2 million was included in "Other assets".

        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. The Company does not currently hold any
        derivative financial instruments to manage its interest rate risk.

        Interest rate swaps

        During the three months ended March 31, 2010 the Company amortized
        $1.1 million of a deferred gain to "Interest expense" relating to an
        interest rate swap previously unwound.

        Prior to the unwind, accounting for the associated debt at the
        floating interest rate decreased "Interest expense" by $1.4 million
        for the three months ended March 31, 2009.

        At March 31, 2010 and December 31, 2009, the Company had no
        outstanding interest rate swaps.

        Treasury rate locks

        At March 31, 2010, the Company had net unamortized losses related to
        interest rate locks settled in previous years totalling $24.0 million
        (December 31, 2009 - $23.9 million), which are reflected in
        "Accumulated other comprehensive loss". This amount is composed of
        various unamortized gains and losses related to specific debts. These
        unamortized gains and losses 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 March 31, 2010 (three months ended March
        31, 2009 - $0.1 million).

        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 $0.8 million for the three months ended March 31,
        2010. For the same period in 2009, the Company recorded a net loss of
        $10.7 million for the quarter, which was inclusive of both realized
        losses and unrealized gains. During the three months ended March 31,
        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 March 31,
        2010, the unrealized loss on the TRS of $17.4 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 crude
        oil and diesel. 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 March 31, 2010, the Company had diesel futures contracts, which
        are accounted for as cash flow hedges, to purchase approximately
        13.5 million US gallons during the period April 2010 to March 2011 at
        an average price of US$2.05 per US gallon. This represents
        approximately 5% of estimated fuel purchases for this period. At
        March 31, 2010, the unrealized gain on these futures contracts was
        $2.8 million (December 31, 2009 - $2.5 million) and was reflected in
        "Other current assets" with the offset, net of tax, reflected in
        "Accumulated other comprehensive loss".

        At March 31, 2010 and December 31, 2009, the Company had no remaining
        crude futures and associated FX forward contracts.

        During the three months ended March 31, 2010, the impact of settled
        commodity swaps benefited "Fuel" expense by $0.9 million as a result
        of realized gains on diesel swaps. For the same period in 2009, the
        net impact of settled commodity swaps increased "Fuel" expense in the
        quarter by $5.7 million as a result of realized losses on diesel
        swaps, offset in part by gains on West Texas Intermediate ("WTI")
        swaps.

        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 months ended March 31, 2010 and 2009:

                                                              Amount of gain
                                                            (loss) recognized
                        Location of gain    Amount of gain       in other
        (in millions   (loss) recognized  (loss) 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
                                                March 31          March 31
                                             2010     2009     2010     2009
                                         ------------------------------------
        Derivatives
         designated
         as hedging
         instruments
          Effective
           portion
          Crude oil
           swaps            Fuel expense  $     -  $   0.2  $     -  $  (0.6)
          Diesel future
           contracts        Fuel expense      0.9     (5.9)     0.3      4.4
          FX contracts
           on fuel          Fuel expense        -        -        -      0.2
          Interest
           rate swap    Interest expense      1.1      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      0.8    (10.7)       -        -
          FX forward        Other income
           contracts         and charges     (1.9)    14.1        -        -
                                         ------------------------------------
                                          $   1.0  $  (0.8) $   0.2  $   3.9
                                         ------------------------------------
                                         ------------------------------------

        At March 31, 2010, the Company expected that, during the next
        12 months, $2.8 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 months ended March 31, 2010 and 2009:

                                                                 Effective
                            Location of                           portion
                            ineffective       Ineffective       recognized
        (in millions          portion           portion          in other
         of Canadian        recognized        recognized       comprehensive
         dollars)            in income         in income          income
                       ------------------------------------------------------
                                                For the           For the
                                              three months      three months
                                                 ended             ended
                                                March 31          March 31
                                             2010     2009     2010     2009
                                         ------------------------------------
        FX on LTD
         within net
         investment         Other income
         hedge               and charges  $   2.0  $  (3.6) $  50.2  $ (57.9)
                                         ------------------------------------
                                         ------------------------------------

    7   Stock-based compensation

        At March 31, 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 months ended March 31, 2010 of $17.9 million
        (three months ended March 31, 2009 - recovery of $4.0 million).

        Regular options and TSARs
        -------------------------

        In the first three months of 2010, under CP's stock option plans, the
        Company issued 758,400 TSARs at the weighted average price of $51.17
        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 of the TSARs at the grant
        date was $10.6 million (2009 - $5.4 million). The weighted average
        fair value assumptions were approximately:

                                                      For the three months
                                                         ended March 31
                                                     2010              2009
                                                  ---------------------------
        Grant price                                 $51.17            $36.29
        Expected life (years)(1)                      6.25              5.00
        Risk-free interest rate(2)                   2.72%             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                  $14.02             $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) Determined by the current annual dividend divided by the current
            stock price. The Company does not employ different dividend
            yields throughout the year.


        Performance share unit ("PSU") plan
        -----------------------------------

        In the first three months of 2010, the Company issued 314,820 PSUs
        with a grant date fair value of $14.5 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 Black-Scholes option-pricing model
        and 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.

    8   Pensions and other benefits

        At March 31, the elements of net periodic benefit cost for defined
        benefit pension plans and other benefits recognized in the quarter
        included the following components:

                                                 For the three months
                                                    ended March 31

                                             Pensions         Other benefits
                                     ----------------------------------------
        (in millions of
         Canadian dollars)                2010      2009      2010      2009
                                     ----------------------------------------
        Current service cost
         (benefits earned by
         employees in the period)     $   21.6  $   16.9  $    3.9  $    4.2
        Interest cost on benefit
         obligation                      116.1     120.7       7.0       7.9
        Expected return on fund
         assets                         (149.6)   (139.5)     (0.2)     (0.3)
        Recognized net actuarial loss     17.8       1.9       1.3       0.9
        Amortization of prior
         service costs                     3.3       5.7      (0.4)     (0.4)
                                     ----------------------------------------
        Net periodic benefit cost     $    9.2  $    5.7  $   11.6  $   12.3
                                     ----------------------------------------
                                     ----------------------------------------

    9   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.

        The Company is responsible for maintaining and operating the leased
        assets according to specific contractual obligations outlined in the
        terms of the lease agreements and industry standards. 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 Company's financial exposure 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
        $9.3 million. Future minimum lease payments, before tax, of $246
        million will be payable over the next 20 years (Note 10). 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 have the most
        significant effect on 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.


    10  Commitments and contingencies

        In the normal course of its operations, the Company becomes involved
        in various legal actions, including claims relating to injuries and
        damages 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 March 31, 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 March 31, 2010, the Company had committed to total future capital
        expenditures amounting to $195.4 million and operating expenditures
        amounting to $1,722.1 million for the years 2010-2028.

        Operating lease commitments

        At March 31, 2010, minimum payments under operating leases were
        estimated at $881.3 million in aggregate, with annual payments in
        each of the next five years of: balance of 2010 - $105.4 million;
        2011 - $127.8 million; 2012 - $117.3 million; 2013 - $103.3 million;
        2014 - $77.2 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 include 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 months ended March 31, 2010 was $1.6 million (three months
        ended March 31, 2009 - $1.0 million).

        Guarantees

        At March 31, 2010, the Company had residual value guarantees on
        operating lease commitments of $163.5 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 has accrued for all guarantees that it expects
        to pay. At March 31, 2010, these accruals amounted to $9.1 million.

    11  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, as described in Canadian Institute
            of Chartered Accountants ("CICA") accounting standards Section
            3855 "Financial Instruments, Recognition and Measurement",
            Section 3862 "Financial Instruments - Disclosures", Section 3865
            "Hedging", Section 1530 "Comprehensive Income" and Section 3251
            "Equity", 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 only 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, 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.

            Under U.S. GAAP compensation expense must be recorded if the
            intrinsic value of stock options is not exactly the same
            immediately before and after an equity restructuring. As a result
            of the Canadian Pacific Limited ("CPL") corporate reorganization
            in 2001, CPL underwent an equity restructuring, which resulted in
            replacement options in CP stock having a different intrinsic
            value after the restructuring than prior to it. Canadian GAAP did
            not require the revaluation of these options. The Company adopted
            on a prospective basis effective January 2003 the CICA Section
            3870 "Stock-based Compensation and Other Stock-based Payments",
            which requires companies to account for stock options at their
            fair value. Concurrently, the Company elected to also account for
            stock options at their fair value under U.S. GAAP.

        (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 Detroit River Tunnel
            Partnership ("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.

        (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 a contract with a financial
            institution resulting in a receivable amount and long-term debt
            payable.

            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.

        (l) 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 in
        the following manner.

        (in millions of Canadian dollars,
         except per share data)
        (unaudited)                           Three months ended March 31

                                                          2010
                                            Canadian   U.S. GAAP      U.S.
                                              GAAP    adjustments     GAAP

        Revenues
        Freight (h)                         $1,138.2    $      -    $1,138.2
        Other (h)                               28.6           -        28.6
                                          -----------------------------------
                                             1,166.8           -     1,166.8

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       345.0         8.5       353.5
        Fuel                                   181.7           -       181.7
        Materials (f)                           62.0         1.9        63.9
        Equipment rents (j)                     48.7         0.3        49.0
        Depreciation and amortization
         (f, g, h, j, k)                       124.3         0.7       125.0
        Purchased services and other
         (c, f, h, k)                          193.3        (4.6)      188.7
                                          -----------------------------------
                                               955.0         6.8       961.8

        Operating income                       211.8        (6.8)      205.0
        Less:
          Other income and charges (a)          (3.0)       (1.9)       (4.9)
          Interest expense (g, j)               69.2        (2.5)       66.7
                                          -----------------------------------
        Income before income tax expense       145.6        (2.4)      143.2

        Income tax expense
         (recovery) (k)(2)                      41.7         1.7        43.4
                                          -----------------------------------
        Net income                          $  103.9    $   (4.1)   $   99.8
                                          -----------------------------------
                                          -----------------------------------
        Basic earnings per share            $   0.62    $  (0.03)   $   0.59
        Diluted earnings per share          $   0.61    $  (0.02)   $   0.59


        (in millions of Canadian dollars,
         except per share data)
        (unaudited)                           Three months ended March 31

                                                          2009
                                           Canadian    U.S. GAAP      U.S.
                                            GAAP(1)   adjustments     GAAP

        Revenues
        Freight (h)                         $1,079.1    $   (3.1)   $1,076.0
        Other (h)                               30.0         3.6        33.6
                                          -----------------------------------
                                             1,109.1         0.5     1,109.6

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       341.2         1.7       342.9
        Fuel                                   171.0           -       171.0
        Materials (f)                           76.1         0.5        76.6
        Equipment rents (j)                     66.1         0.3        66.4
        Depreciation and amortization
         (f, g, h, j, k)                       121.5        (1.8)      119.7
        Purchased services and other
         (c, f, h, k)                          196.3         4.5       200.8
                                          -----------------------------------
                                               972.2         5.2       977.4

        Operating income                       136.9        (4.7)      132.2
        Less:
          Other income and charges (a)           7.7         0.8         8.5
          Interest expense (g, j)               72.3        (0.7)       71.6
                                          -----------------------------------
        Income before income tax expense        56.9        (4.8)       52.1

        Income tax expense
         (recovery) (k)(2)                      (3.2)       (2.0)       (5.2)
                                          -----------------------------------
        Net income                          $   60.1    $   (2.8)   $   57.3
                                          -----------------------------------
                                          -----------------------------------
        Basic earnings per share            $   0.37    $  (0.01)   $   0.36
        Diluted earnings per share          $   0.37    $  (0.01)   $   0.36


        (1) Restated for the Company's change in accounting policies in
            relation to the accounting for locomotive overhauls and
            amortization of pension plan amendments for unionized employees,
            discussed in Note 2 to 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 the 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 in the following manner:

                                                    March 31, 2010
        (in millions of Canadian dollars)   Canadian   U.S. GAAP      U.S.
        (unaudited)                           GAAP    adjustments     GAAP

        Assets
        Current assets
          Cash and cash equivalents        $   723.8   $       -   $   723.8
          Accounts receivable, net (i)         488.6       217.2       705.8
          Materials and supplies               122.7           -       122.7
          Deferred income taxes                133.6           -       133.6
          Other current assets                  57.6           -        57.6
                                          -----------------------------------
                                             1,526.3       217.2     1,743.5

        Investments                            160.5           -       160.5
        Net properties (e, f, g, j)         11,803.7        98.9    11,902.6
        Goodwill and intangible assets         195.1           -       195.1
        Other assets (b, i)                  1,866.5    (1,693.9)      172.6
                                          -----------------------------------
        Total assets                       $15,552.1   $(1,377.8)  $14,174.3
                                          -----------------------------------
                                          -----------------------------------

        Liabilities and shareholders'
         equity
        Current liabilities
          Accounts payable and accrued
           liabilities (e)                 $   883.9   $    16.7   $   900.6
          Income and other taxes payable        40.3           -        40.3
          Dividends payable                     41.7           -        41.7
          Long-term debt maturing within
           one year (i, j)                     395.6       216.3       611.9
                                          -----------------------------------
                                             1,361.5       233.0     1,594.5

        Pension and other benefit
         liabilities (b, c)                        -     1,417.7     1,417.7
        Other long-term liabilities
         (b, c, e)                             786.5      (309.2)      477.3
        Long-term debt (i, j)                4,074.2       (50.9)    4,023.3
        Future/deferred income taxes
         (b, c, e, f, g, j)                  2,566.6      (697.6)    1,869.0
                                          -----------------------------------
        Total liabilities                    8,788.8       593.0     9,381.8

        Shareholders' equity
          Share capital (e)                  1,750.1        25.8     1,775.9
          Contributed surplus/Additional
           paid-in capital (e)                  33.5        (4.0)       29.5
          Accumulated other comprehensive
           income (loss) (a, b)                 41.0    (1,777.2)   (1,736.2)
          Retained income/earnings
           (a, b, c, e, f, g, j)             4,938.7      (215.4)    4,723.3
                                          -----------------------------------
                                             6,763.3    (1,970.8)    4,792.5
                                          -----------------------------------
        Total liabilities and
         shareholders' equity              $15,552.1   $(1,377.8)  $14,174.3
                                          -----------------------------------
                                          -----------------------------------


                                                   December 31, 2009
        (in millions of Canadian dollars)   Canadian   U.S. GAAP      U.S.
        (unaudited)                           GAAP    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)         11,967.8        99.7    12,067.5
        Goodwill and intangible assets         202.3           -       202.3
        Other assets (b, i)                  1,777.2    (1,601.4)      175.8
                                          -----------------------------------
        Total assets                       $15,531.4   $(1,287.6)  $14,243.8
                                          -----------------------------------
                                          -----------------------------------

        Liabilities and shareholders'
         equity
        Current liabilities
          Accounts payable and accrued
           liabilities (e)                 $   917.3   $     9.8   $   927.1
          Income and other taxes payable        31.9           -        31.9
          Dividends payable                     41.7           -        41.7
          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 benefit
         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)                  2,549.5      (704.5)    1,845.0
                                          -----------------------------------
        Total liabilities                    8,825.4       697.6     9,523.0

        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)                 49.5    (1,795.8)   (1,746.3)
          Retained income/earnings
           (a, b, c, e, f, g, j)             4,876.6      (211.4)    4,665.2
                                          -----------------------------------
                                             6,706.0    (1,985.2)    4,720.8
                                          -----------------------------------
        Total liabilities and
         shareholders' equity              $15,531.4   $(1,287.6)  $14,243.8
                                          -----------------------------------
                                          -----------------------------------

        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, 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/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                       March 31,    March 31,
         dollars, U.S. GAAP)            Guidelines       2010         2009
        ---------------------------------------------------------------------
        Long-term debt                               $  4,023.3   $  5,024.4
        Long-term debt maturing
         within one year                                  611.9         64.4
        Short-term borrowing                                  -        132.0
        ---------------------------------------------------------------------
        Total debt                                   $  4,635.2   $  5,220.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Shareholders' equity                         $  4,792.5   $  4,847.2
        Total debt                                      4,635.2      5,220.8
        ---------------------------------------------------------------------
        Total debt plus equity                       $  9,427.7   $ 10,068.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Operating income                             $    909.5   $    970.8
        Less:
          Other income and charges                         (1.0)        38.8
        Plus:
          (Gain) loss in long-term
           floating rate notes/ABCP                        (7.3)        28.1
          Foreign exchange (gain)
           loss on long-term debt                         (10.1)        (7.2)
          Equity income in DM&E                               -         39.9
          Gain on sales of
           significant properties                         (79.1)           -
          Loss on termination of lease
           with shortline railway                          54.5            -
        ---------------------------------------------------------------------
        Adjusted EBIT(1)(2)                          $    868.5   $    992.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Total debt                                   $  4,635.2   $  5,220.8
        Total debt plus equity                       $  9,427.7   $ 10,068.0
        ---------------------------------------------------------------------
        Total debt to total               No more
         capitalization(1)              than 50.0%        49.2%        51.9%
        ---------------------------------------------------------------------

        Adjusted EBIT(1)(2)                          $    868.5   $    992.8
        Interest expense(2)                          $    262.7   $    258.1
        ---------------------------------------------------------------------
                                          No less
        Interest coverage ratio(1)(2)    than 4.0           3.3          3.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (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 decreased during the twelve-month period
        ended March 31, 2010 due to a reduction in year-over-year earnings.
        The interest coverage ratio for the period is below the management
        target provided in the above table, due to lower volumes as a result
        of the global recession that occurred during the period.

        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.



                           Summary of Rail Data
                           -----------------------
      (Reconciliation of GAAP earnings to non-GAAP earnings on page 2)
      ----------------------------------------------------------------

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

    Revenues
    --------
      Freight revenue             $ 1,138.2  $ 1,076.0  $    62.2        5.8
      Other revenue                    28.6       33.6       (5.0)     (14.9)
                                  --------------------------------
                                    1,166.8    1,109.6       57.2        5.2
                                  --------------------------------
    Operating expenses
    ------------------
      Compensation and benefits       353.5      342.9      (10.6)      (3.1)
      Fuel                            181.7      171.0      (10.7)      (6.3)
      Materials                        63.9       76.6       12.7       16.6
      Equipment rents                  49.0       66.4       17.4       26.2
      Depreciation and
       amortization                   125.0      119.7       (5.3)      (4.4)
      Purchased services and other    188.7      200.8       12.1        6.0
                                  --------------------------------
                                      961.8      977.4       15.6        1.6
                                  --------------------------------

    Operating income                  205.0      132.2       72.8       55.1

    Less:
      Other income and charges         (4.9)       8.5       13.4      157.6
      Interest expense                 66.7       71.6        4.9        6.8
                                  --------------------------------

    Income before income tax
     expense                          143.2       52.1       91.1      174.9
      Income tax expense
       (recovery)                      43.4       (5.2)     (48.6)         -
                                  --------------------------------

    Net income                    $    99.8  $    57.3  $    42.5       74.2
                                  --------------------------------
                                  --------------------------------

    Basic earnings per share      $    0.59  $    0.36  $    0.23       63.9
                                  --------------------------------
                                  --------------------------------

    Diluted earnings per share    $    0.59  $    0.36  $    0.23       63.9
                                  --------------------------------
                                  --------------------------------



                        Summary of Rail Data (Page 2)
                        -----------------------------
            Reconciliation of GAAP earnings to non-GAAP earnings
            ----------------------------------------------------

                                                First Quarter
                                  -------------------------------------------
                                     2010        2009   Fav/(Unfav)     %
                                  -------------------------------------------
    Financial (millions)
    --------------------

    Net income                    $    99.8  $    57.3  $    42.5       74.2
    Exclude:

    Foreign exchange (gain)
    ------------------------
     loss on long-term debt
     -----------------------
     (FX on LTD)
     -----------
      FX on LTD                        (4.1)       2.4        6.5          -
      Income tax expense
       (recovery) on FX on LTD(1)       7.2       (8.9)     (16.1)         -
                                  --------------------------------
      FX on LTD (net of tax)            3.1       (6.5)      (9.6)         -

    Other specified items
    ---------------------
      Gain in fair value of
       long-term floating rate
       notes                           (1.0)         -        1.0          -
      Income tax expense                0.1          -       (0.1)         -
                                  --------------------------------
      Gain in fair value of
       long-term floating rate
       notes (net of tax)              (0.9)         -        0.9          -
                                  --------------------------------
    Income before FX on LTD and
     other specified items(2)     $   102.0  $    50.8  $    51.2      100.8
                                  --------------------------------
                                  --------------------------------
    Earnings per share (EPS)
    ------------------------
      Diluted EPS                 $    0.59  $    0.36  $    0.23       63.9
      Exclude (gain) loss:
        Diluted EPS, related to
         FX on LTD, net of tax(2)      0.02      (0.04)     (0.06)         -
        Diluted EPS, related to
         other specified items,
         net of tax(2)                (0.01)         -       0.01          -
                                  --------------------------------
      Diluted EPS, before FX
       on LTD and other
       specified items(2)         $    0.60  $    0.32  $    0.28       87.5
                                  --------------------------------
                                  --------------------------------

      Operating ratio (%)(3)           82.4       88.1        5.7          -

    Shares Outstanding
    ------------------
      Weighted average number
       of shares outstanding
       (millions)                     168.5      160.9        7.6        4.7
      Weighted average number
       of diluted shares
       outstanding (millions)         169.1      161.2        7.9        4.9

    Foreign Exchange
    ----------------
      Average foreign exchange
       rate (US$/Canadian$)            0.96       0.81      (0.15)     (18.5)
      Average foreign exchange
       rate (Canadian$/US$)            1.04       1.24      (0.20)     (16.1)


    (1) Income tax on FX on LTD is discussed in the MD&A in the "Other Income
        Statement Items" section - "Income Taxes".

    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies. See note on non-GAAP earnings measures attached to
        commentary.

    (3) Operating ratio is the percentage derived by dividing operating
        expenses by total revenues.



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

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

    Operating income              $   205.0  $   132.2  $    72.8       55.1

      Other income and charges,
       before FX on LTD and
       other specified items(1)         0.2        6.1        5.9       96.7
      Interest expense                 66.7       71.6        4.9        6.8
      Income tax expense,
       before income tax on FX
       on LTD and other
       specified items(1)              36.1        3.7      (32.4)         -
                                  --------------------------------
    Income before FX on LTD and
     other specified items(1)     $   102.0  $    50.8  $    51.2      100.8
                                  --------------------------------
                                  --------------------------------

    Operating ratio (%)(2)             82.4       88.1        5.7          -

    Diluted EPS, before FX on LTD
     and other specified items(1) $    0.60  $    0.32  $    0.28       87.5

    (1) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies. See note on non-GAAP earnings measures attached to
        commentary.

    (2) Operating ratio is the percentage derived by dividing operating
        expenses by total revenues.



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

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

    Freight Revenues (millions)
      - Grain                     $   271.3  $   287.7  $   (16.4)      (5.7)
      - Coal                          110.5      116.5       (6.0)      (5.2)
      - Sulphur and fertilizers       117.8       76.2       41.6       54.6
      - Forest products                43.2       45.4       (2.2)      (4.8)
      - Industrial and consumer
         products                     205.5      205.8       (0.3)      (0.1)
      - Automotive                     77.6       51.9       25.7       49.5
      - Intermodal                    312.3      292.5       19.8        6.8
                                  --------------------------------
    Total Freight Revenues        $ 1,138.2  $ 1,076.0  $    62.2        5.8
                                  --------------------------------

    Millions of Revenue Ton-Miles
     (RTM)
      - Grain                         8,636      8,528        108        1.3
      - Coal                          4,308      3,832        476       12.4
      - Sulphur and fertilizers       4,392      2,180      2,212      101.5
      - Forest products               1,378      1,064        314       29.5
      - Industrial and consumer
         products                     4,887      4,350        537       12.3
      - Automotive                      545        363        182       50.1
      - Intermodal                    6,057      5,608        449        8.0
                                  --------------------------------
    Total RTMs                       30,203     25,925      4,278       16.5
                                  --------------------------------

    Freight Revenue per RTM (cents)
      - Grain                          3.14       3.37      (0.23)      (6.8)
      - Coal                           2.56       3.04      (0.48)     (15.8)
      - Sulphur and fertilizers        2.68       3.50      (0.82)     (23.4)
      - Forest products                3.13       4.27      (1.14)     (26.7)
      - Industrial and consumer
         products                      4.21       4.73      (0.52)     (11.0)
      - Automotive                    14.24      14.30      (0.06)      (0.4)
      - Intermodal                     5.16       5.22      (0.06)      (1.1)

    Total Freight Revenue per RTM      3.77       4.15      (0.38)      (9.2)

    Carloads (thousands)
      - Grain                         113.2      111.5        1.7        1.5
      - Coal                           76.0       70.8        5.2        7.3
      - Sulphur and fertilizers        44.3       24.9       19.4       77.9
      - Forest products                17.6       17.5        0.1        0.6
      - Industrial and consumer
         products                      91.8       86.6        5.2        6.0
      - Automotive                     33.5       21.0       12.5       59.5
      - Intermodal                    248.6      244.0        4.6        1.9
                                  --------------------------------
    Total Carloads                    625.0      576.3       48.7        8.5
                                  --------------------------------

    Freight Revenue per Carload
      - Grain                     $   2,397  $   2,580  $    (183)      (7.1)
      - Coal                          1,454      1,645       (191)     (11.6)
      - Sulphur and fertilizers       2,659      3,060       (401)     (13.1)
      - Forest products               2,455      2,594       (139)      (5.4)
      - Industrial and consumer
         products                     2,239      2,376       (137)      (5.8)
      - Automotive                    2,316      2,471       (155)      (6.3)
      - Intermodal                    1,256      1,199         57        4.8

    Total Freight Revenue per
     Carload                      $   1,821  $   1,867  $     (46)      (2.5)


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

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

    Total operating expenses
     per GTM (cents)                   1.64       1.92       0.28       14.6

    Freight gross ton-miles
     (GTM) (millions)                58,524     50,933      7,591       14.9
    Train miles (000)                 9,557      8,907        650        7.3

    Average number of active
     employees - Total               14,431     15,051        620        4.1
    Average number of active
     employees - Expense             13,824     14,384        560        3.9

    Number of employees at end
     of the period - Total           14,530     14,970        440        2.9
    Number of employees at end
     of the period - Expense         13,840     14,125        285        2.0

    U.S. gallons of locomotive
     fuel consumed per 1,000 GTMs
     - freight & yard                  1.23       1.34       0.11        8.2
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(2)                     71.5       67.7       (3.8)      (5.6)
    Average fuel price (U.S.
     dollars per U.S. gallon)          2.44       2.04      (0.40)     (19.6)

    Fluidity Data (excluding DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                24.1       23.2       (0.9)      (3.9)
    Average train speed - AAR
     definition (mph)                  24.2       25.0       (0.8)      (3.2)
    Car miles per car day             144.2      140.0        4.2        3.0
    Average daily active cars
     on-line (000)                     52.5       48.7       (3.8)      (7.8)
    Average daily active road
     locomotives on-line                860        833        (27)      (3.2)

    Safety
    ------
    FRA personal injuries per
     200,000 employee-hours            2.07       1.80      (0.27)     (15.0)
    FRA train accidents per
     million train-miles               1.36       1.97       0.61       31.0

    (1) Certain prior period figures have been revised to conform with
        current presentation or have been updated to reflect new information.

    (2) Includes gallons of fuel consumed from freight, yard and commuter
        service but excludes fuel used in capital projects and other non-
        freight activities.

    

SOURCE Canadian Pacific

For further information: For further information: Media: Mike LoVecchio, Senior Manager - Media Relations, Tel.: (778) 772-9636, email: mike_lovecchio@cpr.ca; Investment Community: Janet Weiss, Assistant Vice-President, Investor Relations, Tel.: (403) 319-3591, email: investor@cpr.ca


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