Canadian Pacific announces second-quarter results

CALGARY, July 28 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE: CP) today announced second-quarter net income of $166.6 million. Diluted earnings per share were $0.98, up 23 per cent from $0.80 in the second-quarter 2009 which included a $0.41 per share gain from an asset sale.

"We leveraged volume growth in the quarter to deliver a solid financial performance through a keen focus on cost management," said Fred Green, President and CEO. "Our emphasis on safety, productivity and asset velocity is improving service reliability for our customers."

    
    SECOND-QUARTER 2010 COMPARED WITH SECOND-QUARTER 2009

    -   Adjusted diluted earnings per share increased 96 per cent to $0.92
    -   Total revenues were up 20 per cent to $1.23 billion
    -   Operating income increased 48 per cent to $274.1 million
    -   Adjusted earnings increased 97 per cent to $156.2 million
    -   Operating ratio improved 430 basis points to 77.8 per cent
    

"Markets are likely to remain volatile," added Green. "Our proven track record of quickly adjusting our resources to meet changing volume demands position us well for the second half."

Presentation of non-GAAP earnings measures

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

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

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

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 gain on long-term debt of $9.4 million after tax in the second-quarter of 2010, compared with a loss of $15.7 million after tax in second-quarter of 2009.

As part of a consolidated financing strategy, CP structures its U.S. dollar long-term debt in different taxing jurisdictions. As well, a portion of this debt is designated as a net investment hedge against 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.

In the second quarter of 2010 the Company recorded an unrealized gain of $1.0 million after tax as a result of the change in the market assumptions used to estimate the fair value of our investment in long-term floating rate notes. Other specified items in the second-quarter of 2009 included an after tax gain on the sale of a portion of CP's interest in the Detroit River Tunnel Partnership of $68.7 million. There was also a gain in 2009 in the fair value of long-term floating rates of $3.2 million after tax as a result of the change in the market assumptions.

For the first six months of 2010, CP had a foreign exchange gain on long- term debt of $6.3 million after tax, compared to a loss of $9.2 million after tax in the first half of 2009. CP also had a gain on long-term floating rate notes of $1.9 million after tax, down from $3.2 million after tax in the first half of 2009.

CP began reporting its financial results in accordance with U.S. GAAP as of January 1, 2010. All prior period comparative numbers contained in this release 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, anticipated financial performance and business prospects. Undue reliance should not be placed on forward-looking information as actual results may differ materially.

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

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. Our combined ingenuity makes Canadian Pacific a better place to work, rail a better way to ship, and North America a better place to live. Come and visit us at www.cpr.ca to see how we can put our ingenuity to work for you.

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

                                For the three months      For the six months
                                    ended June 30           ended June 30
                                   2010       2009         2010       2009

                                            Restated                Restated
                                         (see Note 2)            (see Note 2)
                              ----------------------- -----------------------

    Revenues
      Freight                 $  1,202.2  $  1,001.4  $  2,340.4  $  2,077.4
      Other                         32.0        29.9        60.6        63.5
                              ----------------------- -----------------------
                                 1,234.2     1,031.3     2,401.0     2,140.9

    Operating expenses
      Compensation and
       benefits                    349.7       324.5       703.5       667.5
      Fuel                         177.9       117.7       359.6       288.7
      Materials                     51.0        53.5       115.0       130.2
      Equipment rents               54.9        55.1       103.9       121.5
      Depreciation and
       amortization                123.3       123.2       244.5       239.4
      Purchased services and
       other                       203.3       172.4       393.8       373.9
                              ----------------------- -----------------------
                                   960.1       846.4     1,920.3     1,821.2
                              ----------------------- -----------------------
    Operating income               274.1       184.9       480.7       319.7
    Gain on sale of partnership
     interest (Note 4)                 -        81.2           -        81.2
    Less:
      Other (income) and charges    (3.4)        9.6        (8.3)       18.1
      Interest expense              64.8        72.6       131.5       144.2
                              ----------------------- -----------------------

    Income before income tax
     expense                       212.7       183.9       357.5       238.6

    Income tax expense
     (Note 5)                       46.1        48.4        89.9        44.1
                              ----------------------- -----------------------
    Net income                $    166.6  $    135.5  $    267.6  $    194.5
                              ----------------------- -----------------------
                              ----------------------- -----------------------

    Earnings per share
     (Note 6)
      Basic earnings per
       share                  $     0.99  $     0.81  $     1.59  $     1.18

      Diluted earnings per
       share                  $     0.98  $     0.80  $     1.58  $     1.18

    Weighted average number
     of shares (millions)
      Basic                        168.6       168.0       168.6       164.5
      Diluted                      169.2       168.4       169.0       164.7

    Dividends declared per
     share                    $   0.2700  $   0.2475  $   0.5175  $   0.4950

    See notes to consolidated financial statements.



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

                                                         June 30 December 31
                                                            2010        2009

                                                                    Restated
                                                                 (see Note 2)
                                                     ------------------------
    Assets
    Current assets
      Cash and cash equivalents                       $    373.6  $    679.1
      Accounts receivable, net                             441.2       655.1
      Materials and supplies                               136.8       132.7
      Deferred income taxes                                137.6       128.1
      Other current assets                                  62.2        46.5
                                                     ------------------------
                                                         1,151.4     1,641.5

    Investments                                            167.9       156.7
    Net properties                                      12,044.5    11,978.5
    Goodwill and intangible assets                         204.0       202.3
    Other assets                                           171.2       175.8

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

    Total assets                                      $ 13,739.0  $ 14,154.8

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


    Liabilities and shareholders' equity
    Current liabilities
      Accounts payable and accrued liabilities        $    897.7  $    927.1
      Income and other taxes payable                        36.1        31.9
      Dividends payable                                     45.5        41.7
      Long-term debt maturing within one year               40.2       605.3

                                                     ------------------------
                                                         1,019.5     1,606.0

    Pension and other benefit liabilities                1,252.2     1,453.9
    Other long-term liabilities                            486.8       479.9
    Long-term debt                                       4,160.4     4,138.2
    Deferred income taxes                                1,938.1     1,818.7
                                                     ------------------------

    Total liabilities                                    8,857.0     9,496.7

    Shareholders' equity
      Share capital                                      1,780.8     1,771.1
      Additional paid-in capital                            29.4        30.8
      Accumulated other comprehensive loss              (1,709.5)   (1,744.7)
      Retained earnings                                  4,781.3     4,600.9

                                                     ------------------------
                                                         4,882.0     4,658.1
                                                     ------------------------

    Total liabilities and shareholders' equity        $ 13,739.0  $ 14,154.8
                                                     ------------------------
                                                     ------------------------

    Commitments and contingencies (Note 12)

    See notes to consolidated financial statements.



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

                                For the three months      For the six months
                                    ended June 30           ended June 30
                                   2010       2009         2010       2009

                                            Restated                Restated
                                         (see Note 2)            (see Note 2)
                              ----------------------- -----------------------

    Operating activities
      Net income              $    166.6  $    135.5  $    267.6  $    194.5
      Reconciliation of net
       income to cash provided
       by operating activities:
        Depreciation and
         amortization              123.3       123.2       244.5       239.4
        Deferred income taxes
         (Note 5)                   43.5        53.3        85.1        43.8
        Gain on sale of
         partnership interest          -       (81.2)          -       (81.2)
        Restructuring and
         environmental
         payments                   (6.0)      (10.5)      (11.6)      (19.0)
        Pension funding in
         excess of expense        (150.7)      (17.3)     (160.0)      (32.6)
        Other operating
         activities, net             0.4       (16.7)       17.8       (12.4)
        Change in non-cash
         working capital
         balances related to
         operations                 10.0       (51.2)      (72.0)      (63.1)
                              ----------------------- -----------------------
      Cash provided by
       operating activities        187.1       135.1       371.4       269.4
                              ----------------------- -----------------------
    Investing activities
      Additions to properties     (168.0)     (246.4)     (258.8)     (368.6)
      Proceeds from the sale
       of properties and other
       assets                       17.4       144.3        26.4       152.3
      Proceeds from sale of
       long-term floating rate
       notes                           -        12.3           -        12.3
                              ----------------------- -----------------------
      Cash used in investing
       activities                 (150.6)      (89.8)     (232.4)     (204.0)
                              ----------------------- -----------------------
    Financing activities
      Dividends paid               (41.7)      (41.7)      (83.4)      (79.7)
      Issuance of CP Common
       Shares                        3.9         3.4         6.9       499.2
      Collection of receivable
       from financial
       institution                 219.8           -       219.8           -
      Net decrease in
       short-term borrowing            -       (76.4)          -       (94.5)
      Issuance of long-term
       debt                            -       409.5           -       409.5
      Repayment of long-term
       debt                       (581.2)     (593.3)     (590.3)     (606.5)
      Other financing
       activities                    0.2        29.2         0.2        29.2
                              ----------------------- -----------------------
      Cash (used in) provided
       by financing activities    (399.0)     (269.3)     (446.8)      157.2
                              ----------------------- -----------------------
    Effect of foreign exchange
     fluctuations on U.S.
     dollar-denominated cash
     and cash equivalents           12.3        (8.2)        2.3        (5.8)
                              ----------------------- -----------------------
    Cash position
      (Decrease) increase in
       cash and cash
       equivalents                (350.2)     (232.2)     (305.5)      216.8
      Cash and cash
       equivalents at
       beginning of period         723.8       566.5       679.1       117.5
                              ----------------------- -----------------------
    Cash and cash equivalents
     at end of period         $    373.6  $    334.3  $    373.6  $    334.3
                              ----------------------- -----------------------
                              ----------------------- -----------------------

    Supplemental disclosures
     of cash flow information
      Income taxes paid       $      3.2  $      0.3  $      5.0  $      3.7
                              ----------------------- -----------------------
                              ----------------------- -----------------------
      Interest paid (see
       Note 10)               $    174.0  $    101.7  $    219.1  $    160.3
                              ----------------------- -----------------------
                              ----------------------- -----------------------

    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, as
     previously
     reported        168.5  $1,771.1  $  30.8  $(1,746.3) $4,665.2  $4,720.8
    Cumulative
     adjustment
     for change
     in accounting
     policy (see
     Note 2)             -         -        -        1.6     (64.3)    (62.7)
                  --------- -------------------------------------------------

    Balance at
     December 31,
     2009, as
     restated        168.5   1,771.1     30.8   (1,744.7)  4,600.9   4,658.1
                  --------- -------------------------------------------------
    Net income           -         -        -          -     267.6     267.6

    Other
     comprehensive
     income              -         -        -       35.2         -      35.2
                  --------- -------------------------------------------------
    Comprehensive
     income              -         -        -       35.2     267.6     302.8
                  --------- -------------------------------------------------
    Dividends
     declared            -         -        -          -     (87.2)    (87.2)
    Stock
     compensation
     expense             -         -      0.8          -         -       0.8
    Shares issued
     under stock
     option plans      0.2       9.7     (2.2)         -         -       7.5
                  --------- -------------------------------------------------
    Balance at
     June 30, 2010   168.7  $1,780.8  $  29.4  $(1,709.5) $4,781.3  $4,882.0
                  --------- -------------------------------------------------
                  --------- -------------------------------------------------
    Comprehensive
     income -
     three months
     ended
     June 30, 2010       -         -        -  $    25.1  $  167.8  $  192.9
                  --------- -------------------------------------------------

    See notes to consolidated financial statements.



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

    1   Basis of presentation

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

        CP's operations can be affected by seasonal fluctuations such as
        changes in customer demand and weather-related issues. This
        seasonality could impact quarter-over-quarter comparisons. The 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 continued recovery of the economy and the related
        impact on the Company's customers.

    2   Accounting changes

        Consolidations

        In June 2009, the Financial Accounting Standards Board ("FASB")
        issued Amendments to Consolidation of Variable Interest Entities. The
        guidance retains the scope of the previous guidance and removes the
        exemption of entities previously considered qualifying special
        purpose entities. In addition, it replaces the previous quantitative
        approach with a qualitative analysis approach for determining whether
        the enterprise's variable interest or interests give it a controlling
        financial interest in a variable interest entity. The guidance is
        further amended to require ongoing reassessments of whether an
        enterprise is the primary beneficiary of a variable interest entity
        and requires enhanced disclosures about an enterprise's involvement
        in a variable interest entity. The guidance is applicable to all
        variable interest entities that existed at January 1, 2010, the date
        of adoption, or are created thereafter. The Company has variable
        interests in variable interest entities, however, the adoption of the
        new guidance did not change the previous assessment that the Company
        is not the primary beneficiary and as such does not consolidate the
        variable interest entities. Additional note disclosure regarding the
        nature of the Company's variable interests and where judgment was
        required to assess the primary beneficiary of these variable interest
        entities has been provided in Note 11.

        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 7).

        Rail Grinding

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


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

                       For the three     For the six
                        months ended    months ended         For the year
                           June 30         June 30        ended December 31
                        2010    2009    2010    2009    2009    2008    2007
                      -------------------------------------------------------
    Changes to Consolidated Statement of Income and Comprehensive Income

      Depreciation and
       amortization   $ (3.8) $ (3.5) $ (7.6) $ (7.0) $(14.0) $ (8.9) $ (9.5)

      Compensation and
       benefits          0.3     0.7     0.6     0.8     2.8     2.7     2.0
      Fuel                 -       -       -       -     0.1     0.1     0.1
      Materials          0.1     0.4     0.2     0.5     1.8     1.7     1.3
      Purchased services
       and other         2.1     4.1     3.9     4.8    15.9    15.4    11.3

                      -------------------------------------------------------
    Total operating
     expenses           (1.3)    1.7    (2.9)   (0.9)    6.6    11.0     5.2

    Income tax
     expense             0.2    (0.6)    0.6     0.3    (1.2)   (3.2)    0.4
                      -------------------------------------------------------
    Net income        $  1.1  $ (1.1) $  2.3  $  0.6  $ (5.4) $ (7.8) $ (5.6)
                      -------------------------------------------------------

      Basic earnings
       per share      $ 0.01  $(0.01) $ 0.01  $    -  $(0.03) $(0.05) $(0.04)
      Diluted
       earnings per
       share          $ 0.01  $(0.01) $ 0.01  $    -  $(0.03) $(0.05) $(0.04)

      Other
       comprehensive
       income (loss)    (0.8)    1.3    (0.3)    0.7     2.4    (2.8)    2.0
                      -------------------------------------------------------
    Comprehensive
     income           $  0.3  $  0.2  $  2.0  $  1.3  $ (3.0) $(10.6) $ (3.6)
                      -------------------------------------------------------

    Changes to Consolidated Statement of Cash Flows

      Cash provided by
       operating
       activities
       (decrease)     $ (2.5) $ (5.2) $ (4.7) $ (6.1) $(20.6) $(19.9) $(14.7)
      Cash used in
       investing
       activities
       (decrease)     $ (2.5) $ (5.2) $ (4.7) $ (6.1) $(20.6) $(19.9) $(14.7)



    Changes to Consolidated Balance Sheet

                                               As at       As at       As at
                                             June 30 December 31 December 31
                                                2010        2009        2008
                                          -----------------------------------
      Net properties                       $   (86.4)  $   (89.0)  $   (86.2)
      Deferred income tax liability            (25.7)      (26.3)      (26.5)
      Accumulated other comprehensive
       loss (income)                             1.3         1.6        (0.8)
      Retained earnings                        (62.0)      (64.3)      (58.9)


    3   Future accounting changes

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

    4   Gain on sale of partnership interest

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

    5   Income taxes

                                For the three months      For the six months
        (in millions of              ended June 30           ended June 30
        Canadian dollars)           2010        2009        2010        2009
                                            Restated                Restated
                                         (see Note 2)            (see Note 2)
                              ----------------------- -----------------------

        Current income tax
         expense              $      2.6  $     (4.9) $      4.8  $      0.3
        Deferred income tax
         expense                    43.5        53.3        85.1        43.8
                              ----------------------- -----------------------

        Income tax expense    $     46.1  $     48.4  $     89.9  $     44.1
                              ----------------------- -----------------------
                              ----------------------- -----------------------

        During the first quarter of 2009, legislation was enacted to reduce
        British Columbia provincial income tax rates. As a result, the
        Company recorded in the first quarter of 2009 a $6.2 million income
        tax benefit related to the revaluation of its deferred income tax
        balances as at December 31, 2008. In addition, during the three and
        six months ended June 30, 2009, the tax impact of foreign exchange
        losses increased expected income tax expense, based on the expected
        annual effective tax rate, by approximately $17 million and
        $9 million, respectively. Also, for the three and six months ended
        June 30, 2009, the tax impact of a gain on sale of partnership
        interest reduced expected income tax expense by approximately
        $9 million. In the three and six months ended June 30, 2010, the tax
        impact of foreign exchange gains decreased expected income tax
        expense by approximately $9 million and $3 million, respectively.

    6   Earnings per share

        At June 30, 2010, the number of shares outstanding was 168.7 million
        (June 30, 2009 - 168.1 million).

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

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

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

                                For the three months      For the six months
                                     ended June 30           ended June 30
        (in millions)               2010        2009        2010        2009
                              ----------------------- -----------------------
        Weighted average
         shares outstanding        168.6       168.0       168.6       164.5
        Dilutive effect of
         stock options               0.6         0.4         0.4         0.2
                              ----------------------- -----------------------
        Weighted average
         diluted shares
         outstanding               169.2       168.4       169.0       164.7
                              ----------------------- -----------------------
                              ----------------------- -----------------------

        For the three and six months ended June 30, 2010, 1,711,200 and
        2,120,421 options, respectively, were excluded from the computation
        of diluted earnings per share because their effects were not dilutive
        (three and six months ended June 30, 2009 - 2,809,967 and 3,101,592,
        respectively).

    7   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 June 30, 2010 and December 31, 2009, the Company held long-term
        floating rate notes with a total settlement value of $129.0 million
        and $129.1 million, respectively, and carrying values of $74.9
        million and $69.3 million, respectively. The carrying values, being
        the estimated fair values, are reported in "Investments".

        During the three and six months ended June 30, 2010, the Company
        received $nil and $0.1 million, respectively, in partial redemption
        of certain of the notes held. At June 30, 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 MAV 2 Class A-1 notes have received a rating of A Under Review
        with Positive Implications from DBRS. The MAV 2 Class A-2 notes have
        received a BBB (low) rating from DBRS.

        The valuation technique used by the Company to estimate the fair
        value of its investment in long-term floating rate notes at June 30,
        2010 and December 31, 2009 incorporates probability weighted
        discounted cash flows considering the best available public
        information regarding market conditions and other factors that a
        market participant would consider for such investments. The above
        noted redemption of notes, accretion and other minor changes in
        assumptions have resulted in gains of $3.1 million and $5.6 million
        in the three and six months ended June 30, 2010, respectively (three
        and six months ended June 30, 2009 - $5.3 million and $5.3 million,
        respectively). The interest rates and maturities of the various long-
        term floating rate notes, discount rates and credit losses modelled
        at June 30, 2010 and December 31, 2009, respectively, are:


                               June 30, 2010          December 31, 2009

        Probability weighted   0.4%                   Nil
         average coupon
         interest rate

        Weighted average       7.5%                   7.9%
         discount rate

        Expected repayments    Three to 19 years      Three and a half
         of long-term                                  to 19 years
         floating 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 $74.9 million at June 30, 2010 (December 31, 2009 - $69.3
        million). The change in the original cost and estimated fair value of
        the Company's long-term floating rate notes is as follows
        (representing a roll-forward of assets measured at fair value using
        Level 3 inputs):


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

        As at January 1, 2010                         $    129.1  $     69.3

        Redemption of notes                                 (0.1)          -
        Accretion                                              -         2.9
        Change in market assumptions                           -         2.7
                                                      -----------------------

        As at June 30, 2010                           $    129.0  $     74.9
                                                      -----------------------
                                                      -----------------------

        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 was not designated as a hedge and changes in
        fair value are recognized in net income in the period in which the
        change occurs. During the first quarter of 2009, CP unwound and
        settled US$25 million of the US$400 million currency forward for
        total proceeds of $4.5 million received in the second quarter. In the
        second quarter of 2009, a further US$275 million of the currency
        forward was unwound and settled for total proceeds of $26.6 million.
        During the remainder of 2009, CP unwound a further US$30 million for
        total proceeds of $3.0 million. During the three months ended June
        30, 2010, CP unwound the remaining US$70 million for total proceeds
        of $0.2 million.

        During the three months ended June 30, 2010, the Company recognized a
        foreign exchange gain on long-term debt of $1.9 million recorded to
        "Other income and charges" related to the currency forward comprised
        of unrealized and realized gains. For the six months ended June 30,
        2010, no gain or loss was reported. For the same periods in 2009, the
        Company recorded a net loss of $30.9 million and $16.8 million,
        respectively, inclusive of both realized and unrealized losses.

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

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

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

        Interest rate swaps

        During the three months ended June 30, 2010, the Company entered into
        interest rate swaps, classified as fair value hedges, for a notional
        amount of US$101.4 million. The swap agreements converted the
        Company's outstanding fixed interest rate liability into variable
        rate liability for the 5.75% Notes due in May 2013. During the three
        months ended June 30, 2010, accounting for the associated debt at the
        floating interest rate decreased "Interest expense" by $0.1 million.
        At June 30, 2010, the unrealized gain derived from the fair value of
        these swap agreements was $1.6 million of which $0.5 million was
        reflected in "Other current assets" and $1.1 million in "Other
        assets" with an offset reflected in "Long-term debt". At December 31,
        2009, the Company had no outstanding interest rate swaps.

        During the second quarter of 2009, CP unwound its outstanding fixed-
        to-floating interest rate swap, which converted a portion of its
        US$400 million 6.250% Notes to floating-rate debt, for a gain of
        $16.8 million. The gain was deferred as a fair value adjustment to
        the underlying debt that was hedged and will be amortized to
        "Interest expense" until such time the 6.250% Notes are repaid.
        Subsequently, in the second quarter of 2009, CP repurchased a portion
        of the underlying debt as part of a tender offer and recognized $6.5
        million of the deferred gain to "Other income and charges" offsetting
        part of the loss on repurchase of debt recognized in the second
        quarter of 2009. During the three and six months ended June 30, 2010,
        the Company amortized $1.1 million and $2.1 million, respectively, of
        the remaining deferred gain to "Interest expense". Prior to the
        unwind, accounting for the associated debt at the floating interest
        rate decreased "Interest expense" by $1.7 million and $3.1 million
        for the three and six months ended June 30, 2009, respectively.

        The combined impact of current and previously settled interest rate
        swaps reduced interest expense in the three months ended June 30,
        2010 by $1.2 million and $2.2 million for the six months ended June
        30, 2010 (three and six months ended June 30, 2009 - $1.7 million and
        $3.1 million, respectively).

        Treasury rate locks

        At June 30, 2010, the Company had net unamortized losses related to
        interest rate locks, which are accounted for as cash flow hedges,
        settled in previous years totalling $22.2 million (December 31, 2009
        - $23.9 million). This amount is composed of various unamortized
        gains and losses related to specific debts which are reflected in
        "Accumulated other comprehensive loss" and are amortized to "Interest
        expense" in the period that interest on the related debt is charged.
        The amortization of these gains and losses resulted in an increase in
        "Interest expense" and "Other comprehensive income" of $1.8 million
        and $1.7 million for the three and six months ended June 30, 2010,
        respectively (three and six months ended June 30, 2009 - $1.9 million
        and $1.8 million, respectively).

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

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

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

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

        "Compensation and benefits" expense included an unrealized loss on
        these swaps of $0.4 million for the three months ended June 30, 2010,
        and an unrealized gain of $0.4 million for the six months ended June
        30, 2010. For the same periods in 2009, the Company recorded an
        unrealized gain of $13.6 million and a net gain of $2.9 million which
        was inclusive of both realized losses and unrealized gains,
        respectively. During the first quarter of 2009, in order to improve
        the effectiveness of the TRS in mitigating the volatility of stock-
        based compensation programs, CP unwound a portion of the program for
        a total cost of $31.1 million. This cost had previously been
        recognized in "Compensation and benefits" expense and was settled in
        the second quarter of 2009. At June 30, 2010, the unrealized loss on
        the TRS of $17.8 million was included in "Accounts payable and
        accrued liabilities" (December 31, 2009 - $18.2 million).

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

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

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

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

        At June 30, 2010, the Company had diesel futures contracts, which are
        accounted for as cash flow hedges, to purchase approximately 14.7
        million US gallons during the period July 2010 to June 2011 at an
        average price of US$2.16 per US gallon. This represents approximately
        5% of estimated fuel purchases for this period. At June 30, 2010, the
        unrealized loss on these futures contracts was $0.9 million and was
        reflected in "Accounts payable and accrued liabilities" with the
        offset, net of tax, reflected in "Accumulated other comprehensive
        loss". At December 31, 2009, the unrealized gain on these futures
        contracts was $2.5 million and was reflected in "Other current
        assets" with the offset, net of tax, reflected in "Accumulated other
        comprehensive loss".

        At June 30, 2010 and December 31, 2009, the Company had no remaining
        crude futures and associated FX forward contracts.

        During the three and six months ended June 30, 2010, the impact of
        settled commodity swaps benefited "Fuel" expense by $0.7 million and
        $1.6 million, respectively, as a result of realized gains on diesel
        swaps. For the three months ended June 30, 2009, the net impact of
        settled commodity swaps decreased "Fuel" expense by $0.9 million as a
        result of realized gains on diesel swaps and crude oil swaps. For the
        six months ended June 30, 2009, the net impact of settled commodity
        swaps increased "Fuel" expense by $4.8 million, as a result of
        realized losses on diesel swaps, offset in part by gains on crude oil
        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 and six months ended June 30, 2010 and 2009:

                                                                  Amount of
                                                                 gain (loss)
                              Location of       Amount of        recognized
                              gain (loss)      gain (loss)        in other
        (in millions          recognized       recognized      comprehensive
         of Canadian         in income on     in income on       income on
         dollars)             derivatives      derivatives      derivatives
                        -----------------------------------------------------
                                                 For the           For the
                                              three months      three months
                                                  ended             ended
                                                 June 30           June 30
                                             2010     2009     2010     2009
                                          -----------------------------------
        Derivatives
         designated
         as hedging
         instruments
          Effective
           portion
          Crude oil
           swaps            Fuel expense  $     -  $   0.8  $     -  $   0.9
          Diesel future
           contracts        Fuel expense      0.7      0.1     (3.7)     1.6
          FX contracts
           on fuel          Fuel expense        -        -        -     (0.4)
          Interest
           rate swap    Interest expense      1.2      1.7        -        -
                            Other income
                             and charges        -      6.5        -        -
          Treasury rate
           locks        Interest expense     (1.8)    (1.9)     1.8      1.9

        Derivatives
         not designated
         as hedging
         instruments
          Total return      Compensation
           swap             and benefits     (0.4)    13.6        -        -
          FX forward        Other income
           contracts         and charges      1.9    (30.9)       -        -
          Treasury rate
           locks        Interest expense        -     (0.7)       -        -
                                          -----------------------------------
                                          $   1.6  $ (10.8) $  (1.9) $   4.0
                                          -----------------------------------
                                          -----------------------------------



                                                                  Amount of
                                                                 gain (loss)
                              Location of       Amount of        recognized
                              gain (loss)      gain (loss)        in other
        (in millions          recognized       recognized      comprehensive
         of Canadian         in income on     in income on       income on
         dollars)             derivatives      derivatives      derivatives
                        -----------------------------------------------------
                                                 For the           For the
                                                six months       six months
                                                  ended             ended
                                                 June 30           June 30
                                             2010     2009     2010     2009
                                          -----------------------------------
        Derivatives
         designated
         as hedging
         instruments
          Effective
           portion
          Crude oil
           swaps            Fuel expense  $     -  $   1.0  $     -  $   0.3
          Diesel future
           contracts        Fuel expense      1.6     (5.8)    (3.4)     6.0
          FX contracts
           on fuel          Fuel expense        -        -        -     (0.2)
          Interest rate
           swap         Interest expense      2.2      3.1        -        -
                            Other income
                             and charges        -      6.5        -        -
          Treasury rate
           locks        Interest expense     (1.7)    (1.8)     1.7      1.8

        Derivatives
         not designated
         as hedging
         instruments
          Total return
           swap             Compensation
                            and benefits      0.4      2.9        -        -
          FX forward
           contracts        Other income
                             and charges        -    (16.8)       -        -
          Treasury rate
           locks         Interest expense       -     (0.7)       -        -
                                          -----------------------------------

                                          $   2.5  $ (11.6) $  (1.7) $   7.9
                                          -----------------------------------
                                          -----------------------------------

        At June 30, 2010, the Company expected that, during the next 12
        months, $0.9 million of unrealized holding losses on diesel future
        contracts will be realized and recognized in the consolidated
        statement of income, reported in "Fuel" expense as a result of these
        derivatives being settled.

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

                                                                   Effective
                                 Location of                         portion
                                 ineffective     Ineffective   recognized in
                                     portion         portion           other
        (in millions of        recognized in      recognized   comprehensive
         Canadian dollars)            income       in income          income
                           --------------------------------------------------
                                               For the three   For the three
                                                months ended    months ended
                                                     June 30         June 30
                                                2010    2009    2010    2009
                                              -------------------------------

        FX on LTD within net
         investment hedge       Other income
                                 and charges  $  0.6  $ (1.3) $(75.4) $143.5
                                              -------------------------------
                                              -------------------------------

                                                                   Effective
                                 Location of                         portion
                                 ineffective     Ineffective   recognized in
                                     portion         portion           other
        (in millions of        recognized in      recognized   comprehensive
         Canadian dollars)            income       in income          income
                        -----------------------------------------------------
                                                 For the six     For the six
                                                months ended    months ended
                                                     June 30         June 30
                                                2010    2009    2010    2009
                                              -------------------------------

        FX on LTD within net
         investment hedge       Other income
                                 and charges  $  2.6  $ (4.9) $(25.2) $ 85.6
                                              -------------------------------
                                              -------------------------------


    8   Stock-based compensation

        At June 30, 2010, the Company had several stock-based compensation
        plans, including stock option plans, various cash settled liability
        plans and an employee stock savings plan. These plans resulted in an
        expense for the three and six months ended June 30, 2010 of $12.9
        million and $30.8 million, respectively (three and six months ended
        June 30, 2009 - $41.8 million and $37.8 million, respectively).

        Tandem stock appreciation rights ("TSARs")

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

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

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

                                                          For the six months
                                                             ended June 30
                                                            2010        2009
                                                     ------------------------
        Grant price                                   $    51.81  $    36.29

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

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


        Regular options

        In the first six months of 2010, under CP's stock option plans, the
        Company issued 29,800 regular options at the weighted average
        exercise price of $56.69 per share, based on the closing price on the
        grant date.

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

        Performance share unit ("PSU") plan

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

    9   Pensions and other benefits

        At June 30, the elements of net periodic benefit cost for defined
        benefit pension plans and other benefits recognized in the three and
        six months ended June 30, 2010, included the following components:

                                                 For the three months
                                                    ended June 30
                                             Pensions         Other benefits
                                     ----------------------------------------
        (in millions of
         Canadian dollars)                2010      2009      2010      2009
                                     ----------------------------------------
        Current service cost
         (benefits earned by
          employees in the period)    $   21.6  $   16.8  $    3.9  $    3.1
        Interest cost on benefit
         obligation                      116.1     120.6       7.0       6.8
        Expected return on fund
         assets                         (149.6)   (139.4)     (0.2)     (0.2)
        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)
        Settlement gain(1)                   -         -         -      (8.7)
                                     ----------------------------------------
        Net periodic benefit cost     $    9.2  $    5.6  $   11.6  $    1.5
                                     ----------------------------------------
                                     ----------------------------------------


                                                 For the six months
                                                   ended June 30
                                             Pensions         Other benefits
                                     ----------------------------------------
        (in millions of
         Canadian dollars)                2010      2009      2010      2009
                                     ----------------------------------------
        Current service cost
         (benefits earned by
         employees in the period)     $   43.2  $   33.7  $    7.8  $    7.3
        Interest cost on benefit
         obligation                      232.2     241.3      14.0      14.7
        Expected return on fund
         assets                         (299.2)   (278.9)     (0.4)     (0.5)
        Recognized net actuarial
         loss                             35.6       3.8       2.6       1.9
        Amortization of prior
         service costs                     6.6      11.4      (0.8)     (0.8)
        Settlement gain(1)                   -         -         -      (8.7)
                                     ----------------------------------------
        Net periodic benefit cost     $   18.4  $   11.3  $   23.2  $   13.9
                                     ----------------------------------------
                                     ----------------------------------------

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

        In the three months ended June 30, 2010, the Company made
        contributions of $159.7 million and $178.4 million, respectively
        (2009 - $21.4 million and $43.7 million, respectively) to its defined
        benefit pension plans. The contributions made in the second quarter
        of 2010 included, at the Company's option, amounts equivalent to the
        estimated current and past service contribution requirements for the
        Company's main Canadian defined benefit plan for the balance of 2010.

    10  Interest paid

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

    11  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
        $256.2 million will be payable over the next 20 years (Note 12).

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

        As the Company's actions and decisions do not significantly effect 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.

    12  Commitments and contingencies

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

        At June 30, 2010, the Company had committed to total future capital
        expenditures amounting to $177.7 million and operating expenditures
        amounting to $1,750.1 million for the years 2010-2028.

        Operating lease commitments

        At June 30, 2010, minimum payments under operating leases were
        estimated at $876.8 million in aggregate, with annual payments in
        each of the next five years of: balance of 2010 - $72.7 million;
        2011 - $131.9 million; 2012 - $121.0 million; 2013 - $106.4 million;
        2014 - $79.9 million.

        Environmental remediation accruals

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

        The accruals for environmental remediation represent CP's best
        estimate of its probable future obligation and includes both asserted
        and unasserted claims, without reduction for anticipated recoveries
        from third parties. Although the recorded accruals include CP's best
        estimate of all probable costs, CP's total environmental remediation
        costs cannot be predicted with certainty. Accruals for environmental
        remediation may change from time to time as new information about
        previously untested sites becomes known, environmental laws and
        regulations evolve and advances are made in environmental remediation
        technology. The accruals may also vary as the courts decide legal
        proceedings against outside parties responsible for contamination.
        These potential charges, which cannot be quantified at this time, are
        not expected to be material to CP's financial position, but may
        materially affect income in the particular period in which a charge
        is recognized. Costs related to existing, but as yet unknown, or
        future contamination will be accrued in the period in which they
        become probable and reasonably estimable. Changes to costs are
        reflected as changes to "Other long-term liabilities" or "Accounts
        payable and accrued liabilities" and to "Purchased services and
        other" within operating expenses. The amount credited to income in
        the three months ended June 30, 2010 was $0.1 million and charged to
        income in the six months ended June 30, 2010 was $1.5 million (three
        and six months ended June 30, 2009 - charges of $0.6 million and $1.6
        million, respectively).

        Guarantees

        At June 30, 2010, the Company had residual value guarantees on
        operating lease commitments of $169.9 million. The maximum amount
        that could be payable under these and all of the Company's other
        guarantees cannot be reasonably estimated due to the nature of
        certain of the guarantees. All or a portion of amounts paid under
        certain guarantees could be recoverable from other parties or through
        insurance. The Company accrues for all guarantees that it expects to
        pay. At June 30, 2010, these accruals amounted to $9.4 million.

    13  Reconciliation of U.S. GAAP to Canadian GAAP

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

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

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

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

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

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

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

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

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

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

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

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

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

        (k) Investment tax credits: Under U.S. GAAP investment tax credits
            are credited against income tax expense whereas under Canadian
            GAAP these tax credits are offset against the related operating
            expense. There is no impact to net income as a result of this
            GAAP difference.

        (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
        below.


        (in millions of Canadian
         dollars, except per
         share data)                           Three months ended June 30
                                                          2010
                                           ----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                              GAAP    adjustments     GAAP

        Revenues
        Freight (h)                         $1,202.2    $      -    $1,202.2
        Other (h)                               32.0           -        32.0
                                           ----------------------------------
                                             1,234.2           -     1,234.2

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       349.1         0.6       349.7
        Fuel                                   177.9           -       177.9
        Materials (f)                           48.5         2.5        51.0
        Equipment rents (j)                     54.6         0.3        54.9
        Depreciation and amortization
         (f, g, h, j, k)                       122.7         0.6       123.3
        Purchased services and other
         (c, f, h, k)                          207.7        (4.4)      203.3
                                           ----------------------------------
                                               960.5        (0.4)      960.1

        Operating income                       273.7         0.4       274.1

        Gain on sale of partnership
         interest                                  -           -           -
        Less:
          Other (income) and charges (a)        (2.6)       (0.8)       (3.4)
          Interest expense (g, j)               67.3        (2.5)       64.8
                                           ----------------------------------
        Income before income tax expense       209.0         3.7       212.7

        Income tax expense
         (recovery) (k)(2)                      46.0         0.1        46.1
                                           ----------------------------------
        Net income                          $  163.0    $    3.6    $  166.6
                                           ----------------------------------
                                           ----------------------------------
        Basic earnings per share            $   0.97    $    0.2    $   0.99

        Diluted earnings per share          $   0.96    $    0.2    $   0.98


        (in millions of Canadian
         dollars, except per
         share data)                           Three months ended June 30
                                                          2009
                                           ----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                             GAAP(1)  adjustments     GAAP

        Revenues
        Freight (h)                         $1,000.8    $    0.6    $1,001.4
        Other (h)                               56.3       (26.4)       29.9
                                           ----------------------------------
                                             1,057.1       (25.8)    1,031.3

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       302.5        22.0       324.5
        Fuel                                   117.7           -       117.7
        Materials (f)                           52.4         1.1        53.5
        Equipment rents (j)                     54.7         0.4        55.1
        Depreciation and amortization
         (f, g, h, j, k)                       120.8         2.4       123.2
        Purchased services and other
         (c, f, h, k)                          183.3       (10.9)      172.4
                                           ----------------------------------
                                               831.4        15.0       846.4

        Operating income                       225.7       (40.8)      184.9

        Gain on sale of partnership
         interest                               81.2           -        81.2
        Less:
          Other (income) and charges (a)        14.0        (4.4)        9.6
          Interest expense (g, j)               73.4        (0.8)       72.6
                                           ----------------------------------
        Income before income tax expense       219.5       (35.6)      183.9

        Income tax expense
         (recovery) (k)(2)                      64.3       (15.9)       48.4
                                           ----------------------------------
        Net income                          $  155.2    $  (19.7)   $  135.5
                                           ----------------------------------
                                           ----------------------------------
        Basic earnings per share            $   0.92    $  (0.11)   $   0.81

        Diluted earnings per share          $   0.92    $  (0.12)   $   0.80


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


        Comparative income statement

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

        (in millions of Canadian
         dollars, except per
         share data)                            Six months ended June 30
                                                          2010
                                           ----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                              GAAP    adjustments     GAAP

        Revenues
        Freight (h)                         $2,340.4    $      -    $2,340.4
        Other (h)                               60.6           -        60.6
                                           ----------------------------------
                                             2,401.0           -     2,401.0

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       694.4         9.1       703.5
        Fuel                                   359.6           -       359.6
        Materials (f)                          110.6         4.4       115.0
        Equipment rents (j)                    103.3         0.6       103.9
        Depreciation and amortization
         (f, g, h, j, k)                       243.2         1.3       244.5
        Purchased services and other
         (c, f, h, k)                          402.8        (9.0)      393.8
                                           ----------------------------------
                                             1,913.9         6.4     1,920.3

        Operating income                       487.1        (6.4)      480.7

        Gain on sale of partnership
         interest                                  -           -           -
        Less:
          Other (income) and charges (a)        (5.6)       (2.7)       (8.3)
          Interest expense (g, j)              136.5        (5.0)      131.5
                                           ----------------------------------
        Income before income tax expense       356.2         1.3       357.5

        Income tax expense
         (recovery) (k)(2)                      88.3         1.6        89.9
                                           ----------------------------------
        Net income                          $  267.9    $   (0.3)   $  267.6

                                           ----------------------------------
                                           ----------------------------------
        Basic earnings per share            $   1.59    $      -    $   1.59
        Diluted earnings per share          $   1.59    $  (0.01)   $   1.58


        (in millions of Canadian
         dollars, except per
         share data)                            Six months ended June 30
                                                          2009
                                           ----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                             GAAP(1)  adjustments     GAAP

        Revenues
        Freight (h)                         $2,079.9    $   (2.5)   $2,077.4
        Other (h)                               86.3       (22.8)       63.5
                                           ----------------------------------
                                             2,166.2       (25.3)    2,140.9

        Operating expenses
        Compensation and benefits
         (b, c, d, e, f)                       643.8        23.7       667.5
        Fuel                                   288.7           -       288.7
        Materials (f)                          128.6         1.6       130.2
        Equipment rents (j)                    120.8         0.7       121.5
        Depreciation and amortization
         (f, g, h, j, k)                       238.8         0.6       239.4
        Purchased services and other
         (c, f, h, k)                          380.3        (6.4)      373.9
                                           ----------------------------------
                                             1,801.0        20.2     1,821.2

        Operating income                       365.2       (45.5)      319.7

        Gain on sale of partnership
         interest                               81.2           -        81.2
        Less:
          Other (income) and charges (a)        21.7        (3.6)       18.1
          Interest expense (g, j)              145.7        (1.5)      144.2
                                           ----------------------------------
        Income before income tax expense       279.0       (40.4)      238.6

        Income tax expense
         (recovery) (k)(2)                      62.0       (17.9)       44.1
                                           ----------------------------------
        Net income                          $  217.0    $  (22.5)   $  194.5

                                           ----------------------------------
                                           ----------------------------------
        Basic earnings per share            $   1.32    $  (0.14)   $   1.18
        Diluted earnings per share          $   1.32    $  (0.14)   $   1.18


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


        Consolidated balance sheet

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

        (in millions of
         Canadian dollars)                           June 30, 2010
                                          -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                              GAAP    adjustments     GAAP

        Assets
        Current assets
          Cash and cash equivalents        $   373.6   $       -   $   373.6
          Accounts receivable, net (i)         441.2           -       441.2
          Materials and supplies               136.8           -       136.8
          Deferred income taxes                137.6           -       137.6
          Other current assets                  62.2           -        62.2
                                          -----------------------------------
                                             1,151.4           -     1,151.4

        Investments                            167.9           -       167.9
        Net properties (e, f, g, j)         11,946.0        98.5    12,044.5
        Goodwill and intangible assets         204.0           -       204.0
        Other assets (b, i)                  2,013.2    (1,842.0)      171.2
                                          -----------------------------------
        Total assets                       $15,482.5   $(1,743.5)  $13,739.0
                                          -----------------------------------
                                          -----------------------------------

        Liabilities and shareholders'
         equity
        Current liabilities
          Accounts payable and accrued
           liabilities (e)                 $   882.6   $    15.1   $   897.7
          Income and other taxes payable        36.1           -        36.1
          Dividends payable                     45.5           -        45.5
          Long-term debt maturing within
           one year (i, j)                      41.1        (0.9)       40.2
                                          -----------------------------------
                                             1,005.3        14.2     1,019.5

        Pension and other benefit
         liabilities (b, c)                        -     1,252.2     1,252.2
        Other long-term liabilities
         (b, c, e)                             803.9      (317.1)      486.8
        Long-term debt (i, j)                4,210.5       (50.1)    4,160.4
        Future/deferred income taxes
         (b, c, e, f, g, j)                  2,628.6      (690.5)    1,938.1
                                          -----------------------------------
        Total liabilities                    8,648.3       208.7     8,857.0

        Shareholders' equity
          Share capital (e)                  1,755.0        25.8     1,780.8
          Contributed surplus/Additional
           paid-in capital (e)                  33.4        (4.0)       29.4
          Accumulated other comprehensive
           income (loss) (a, b)                 52.9    (1,762.4)   (1,709.5)
          Retained income/earnings
           (a, b, c, e, f, g, j)             4,992.9      (211.6)    4,781.3
                                          -----------------------------------
                                             6,834.2    (1,952.2)    4,882.0
                                          -----------------------------------
        Total liabilities and
         shareholders' equity              $15,482.5   $(1,743.5)  $13,739.0
                                          -----------------------------------
                                          -----------------------------------


        (in millions of
         Canadian dollars)                         December 31, 2009
                                          -----------------------------------
                                            Canadian   U.S. GAAP      U.S.
                                             GAAP(1)  adjustments     GAAP

        Assets
        Current assets
          Cash and cash equivalents        $   679.1   $       -   $   679.1
          Accounts receivable, net (i)         441.0       214.1       655.1
          Materials and supplies               132.7           -       132.7
          Deferred income taxes                128.1           -       128.1
          Other current assets                  46.5           -        46.5
                                          -----------------------------------
                                             1,427.4       214.1     1,641.5

        Investments                            156.7           -       156.7
        Net properties (e, f, g, j)         11,878.8        99.7    11,978.5
        Goodwill and intangible assets         202.3           -       202.3
        Other assets (b, i)                  1,777.2    (1,601.4)      175.8
                                          -----------------------------------
        Total assets                       $15,442.4   $(1,287.6)  $14,154.8
                                          -----------------------------------
                                          -----------------------------------

        Liabilities and shareholders'
         equity
        Current liabilities
          Accounts payable and accrued
           liabilities (e)                 $   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)                  2,523.2      (704.5)    1,818.7
                                          -----------------------------------
        Total liabilities                    8,799.1       697.6     9,496.7

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

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

        Disclosures required by Canadian GAAP

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

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

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

        Business combinations, consolidated financial statements and non-
        controlling interests

        In January 2009, the CICA issued three new standards:

        Business Combinations, Section 1582

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

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

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

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

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

        The Company's objectives when managing its capital are:

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

        The Company defines its capital as follows:

        -   shareholders' equity;
        -   long-term debt, including the current portion thereof; and
        -   short-term borrowing.

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

        The Company monitors capital using a number of key financial metrics,
        including:

        -  debt to total capitalization; and
        -  interest coverage ratio.

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

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

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

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

        ---------------------------------------------------------------------
        (in millions of Canadian        Guidelines     June 30,    June 30,
         dollars, U.S. GAAP)                             2010        2009
                                                                   Restated
                                                                 (See Note 2)
        ---------------------------------------------------------------------
        Long-term debt                               $  4,160.4   $  4,218.1
        Long-term debt maturing
         within one year                                   40.2        385.7
        Short-term borrowing                                  -         55.6
        ---------------------------------------------------------------------
        Total debt                                   $  4,200.6   $  4,659.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Shareholders' equity                         $  4,882.0   $  4,887.5
        Total debt                                      4,200.6      4,659.4
        ---------------------------------------------------------------------
        Total debt plus equity                       $  9,082.6   $  9,546.9
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Operating income for the
         twelve months ended June 30                 $    966.5   $    910.6

          Other income and charges                          1.2        (30.5)
          (Gain) loss in long-term
           floating rate notes/ABCP                        (4.3)        23.4
          Foreign exchange (gain)
           loss on long-term debt                          (8.5)        (3.1)
          Equity income in DM&E                               -         26.8
          Gain on sales of
           significant properties                         (79.1)           -
          Loss on termination of lease
           with shortline railway                          54.5            -
        ---------------------------------------------------------------------
        Adjusted EBIT(1)(2) for the
         twelve months ended June 30                 $    930.3   $    927.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Total debt                                   $  4,200.6   $  4,659.4
        Total debt plus equity                       $  9,082.6   $  9,546.9
        ---------------------------------------------------------------------
        Total debt to total                No more
         capitalization(1)               than 50.0%       46.2%        48.8%
        ---------------------------------------------------------------------

        Adjusted EBIT(1)(2)                          $    930.3   $    927.2
        Interest expense(2)                          $    254.9   $    272.7
        ---------------------------------------------------------------------
                                            No less
        Interest coverage ratio(1)(2)      than 4.0         3.6          3.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) These earnings measures have no standardized meanings prescribed
            by GAAP and, therefore, are unlikely to be comparable to similar
            measures of other companies.
        (2) The amount is calculated on a twelve month rolling basis.


        The Company's financial objectives and strategy as described above
        have remained substantially unchanged over the last two fiscal years.
        The objectives are reviewed on an annual basis and financial metrics
        and their management targets are monitored on a quarterly basis. The
        interest coverage ratio has improved during the twelve-month period
        ended June 30, 2010 due to an increase in year-over-year adjusting
        earnings and a reduction in year-over- year interest expense. 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 pages 2 and 3)
     -----------------------------------------------------------------------

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

    Revenues
    --------
      Freight revenue             $ 1,202.2  $ 1,001.4  $   200.8       20.1
      Other revenue                    32.0       29.9        2.1        7.0
                                  --------------------------------
                                    1,234.2    1,031.3      202.9       19.7
                                  --------------------------------
    Operating expenses
    ------------------
      Compensation and benefits       349.7      324.5      (25.2)      (7.8)
      Fuel                            177.9      117.7      (60.2)     (51.1)
      Materials                        51.0       53.5        2.5        4.7
      Equipment rents                  54.9       55.1        0.2        0.4
      Depreciation and
       amortization                   123.3      123.2       (0.1)      (0.1)
      Purchased services
       and other                      203.3      172.4      (30.9)     (17.9)
                                  --------------------------------
                                      960.1      846.4     (113.7)     (13.4)
                                  --------------------------------

    Operating income                  274.1      184.9       89.2       48.2
      Gain on sale of
       partnership interest               -       81.2      (81.2)    (100.0)

    Less:
      Other (income) and
       charges                         (3.4)       9.6       13.0      135.4
      Interest expense                 64.8       72.6        7.8       10.7
                                  --------------------------------
    Income before income tax
     expense                          212.7      183.9       28.8       15.7
      Income tax expense               46.1       48.4        2.3        4.8
                                  --------------------------------

    Net income                    $   166.6  $   135.5  $    31.1       23.0
                                  --------------------------------
                                  --------------------------------

    Basic earnings per share      $    0.99  $    0.81  $    0.18       22.2
                                  --------------------------------
                                  --------------------------------

    Diluted earnings per share    $    0.98  $    0.80  $    0.18       22.5
                                  --------------------------------
                                  --------------------------------

    Operating ratio (%)                77.8       82.1        4.3          -

    Shares Outstanding
    ------------------
      Weighted average (avg)
       number of shares
       outstanding (millions)         168.6      168.0        0.6        0.4
      Weighted avg number
       of diluted shares
       outstanding (millions)         169.2      168.4        0.8        0.5

    Foreign Exchange
    ----------------
      Average foreign exchange
       rate (US$/Canadian$)            0.98       0.85      (0.13)     (15.3)
      Average foreign exchange
       rate (Canadian$/US$)            1.02       1.18      (0.16)     (13.6)


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

    Revenues
    --------
      Freight revenue             $ 2,340.4  $ 2,077.4  $   263.0       12.7
      Other revenue                    60.6       63.5       (2.9)      (4.6)
                                  --------------------------------
                                    2,401.0    2,140.9      260.1       12.1
                                  --------------------------------
    Operating expenses
    ------------------
      Compensation and benefits       703.5      667.5      (36.0)      (5.4)
      Fuel                            359.6      288.7      (70.9)     (24.6)
      Materials                       115.0      130.2       15.2       11.7
      Equipment rents                 103.9      121.5       17.6       14.5
      Depreciation and
       amortization                   244.5      239.4       (5.1)      (2.1)
      Purchased services
       and other                      393.8      373.9      (19.9)      (5.3)
                                  --------------------------------
                                    1,920.3    1,821.2      (99.1)      (5.4)
                                  --------------------------------

    Operating income                  480.7      319.7      161.0       50.4
      Gain on sale of
       partnership interest               -       81.2      (81.2)    (100.0)

    Less:
      Other (income) and
       charges                         (8.3)      18.1       26.4      145.9
      Interest expense                131.5      144.2       12.7        8.8
                                  --------------------------------
    Income before income tax
     expense                          357.5      238.6      118.9       49.8
      Income tax expense               89.9       44.1      (45.8)    (103.9)
                                  --------------------------------

    Net income                    $   267.6  $   194.5  $    73.1       37.6
                                  --------------------------------
                                  --------------------------------

    Basic earnings per share      $    1.59  $    1.18  $    0.41       34.7
                                  --------------------------------
                                  --------------------------------

    Diluted earnings per share    $    1.58  $    1.18  $    0.40       33.9
                                  --------------------------------
                                  --------------------------------

    Operating ratio (%)                80.0       85.1        5.1          -

    Shares Outstanding
    ------------------
      Weighted average (avg)
       number of shares
       outstanding (millions)         168.6      164.5        4.1        2.5
      Weighted avg number
       of diluted shares
       outstanding (millions)         169.0      164.7        4.3        2.6

    Foreign Exchange
    ----------------
      Average foreign exchange
       rate (US$/Canadian$)            0.97       0.83      (0.14)     (16.9)
      Average foreign exchange
       rate (Canadian$/US$)            1.03       1.21      (0.18)     (14.9)


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



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

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

                                       Second Quarter 2010
    In millions, except        ----------------------------------
    -------------------                                 Adjusted
     per share data             Reported  Adjustments  (Non-GAAP)
     --------------              (GAAP)   Fav/(Unfav)      (2)
                               ----------------------------------
    Operating income              $274.1      $ -         $274.1

    Gain on sale of
     partnership interest              -        -              -

    Less:

    Other (income) and
     charges                        (3.4)    (1.8)(3)       (1.6)

    Interest expense                64.8        -           64.8
    ----------------           ----------------------------------

    Income before tax             $212.7    $(1.8)        $210.9

    Income tax expense              46.1     (8.6)(4)       54.7
                               ----------------------------------

    Net income                    $166.6   $(10.4)        $156.2(8)
    ----------                 ----------------------------------
    ----------                 ----------------------------------

    Basic earnings per share       $0.99   $(0.06)         $0.93

    Diluted earnings per share     $0.98   $(0.06)         $0.92


                                       Second Quarter 2009(1)         %
    In millions, except        ----------------------------------  Adjusted
    -------------------                                 Adjusted  (Non-GAAP)
     per share data             Reported  Adjustments  (Non-GAAP)     (2)
     --------------              (GAAP)   Fav/(Unfav)      (2)    Fav/(Unfav)
                               ----------------------------------------------
    Operating income              $184.9         $ -      $184.9        48.2

    Gain on sale of
     partnership interest           81.2    (81.2)(5)          -           -

    Less:

    Other (income) and
     charges                         9.6     (6.4)(6)       16.0       110.0

    Interest expense                72.6           -        72.6        10.7
    ----------------           ----------------------------------

    Income before tax             $183.9      $(87.6)      $96.3       119.0

    Income tax expense              48.4      31.4(7)       17.0      (221.8)
                               ----------------------------------

    Net income                    $135.5      $(56.2)      $79.3(8)     97.0
    ----------                 ----------------------------------
    ----------                 ----------------------------------

    Basic earnings per share       $0.81      $(0.34)      $0.47        97.9

    Diluted earnings per share     $0.80      $(0.33)      $0.47        95.7


    2010:

    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies.
    (3) To exclude the gain in fair value of long-term floating rate notes of
        $1.7 million and a gain in foreign exchange on long-term debt (FX on
        LTD) of $0.1 million in order to eliminate the impact of volatile
        short-term exchange rate fluctuations.
    (4) A tax adjustment to exclude the tax expense associated with the gain
        in fair value of long-term floating rate notes of $0.7 million and
        the tax recovery on FX on LTD of $9.3 million.
    (8) These adjusted figures are also referred to as "Income, before FX on
        LTD and other specified items".

    2009:

    (1) Restated for the Company's change in accounting policy in relation to
        the accounting for rail grinding.
    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies.
    (5) To exclude the gain of $81.2 million before tax which arose from the
        partial sale of the investment in the Detroit River Tunnel
        Partnership.
    (6) To exclude the gain in fair value of long-term floating rate notes of
        $4.7 million and a gain in FX on LTD of $1.7 million in order to
        eliminate the impact of volatile short-term exchange rate
        fluctuations.
    (7) A tax adjustment to exclude the tax expense of the sale of the
        partnership interest of $12.5 million, the tax expense associated
        with the gain in fair value of long-term floating rate notes of
        $1.5 million and the tax expense on FX on LTD of $17.4 million.
    (8) These adjusted figures are also referred to as "Income, before FX on
        LTD and other specified items".



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

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


                                       Year-to-date 2010
    In millions, except        ----------------------------------
    -------------------                                Adjusted
     per share data             Reported  Adjustments (Non-GAAP)
     --------------              (GAAP)   Fav/(Unfav)     (2)
                               ----------------------------------
    Operating income              $480.7      $ -        $480.7

    Gain on sale of
     partnership interest              -        -             -

    Less:

    Other (income) and
     charges                        (8.3)    (6.9)(3)      (1.4)

    Interest expense               131.5        -         131.5
    ----------------           ----------------------------------

    Income before tax             $357.5    $(6.9)       $350.6

    Income tax expense              89.9     (1.3)(4)      91.2
                               ----------------------------------

    Net income                    $267.6    $(8.2)       $259.4(8)
    ----------                 ----------------------------------
    ----------                 ----------------------------------

    Basic earnings per share        $1.59  $(0.05)        $1.54

    Diluted earnings per share      $1.58  $(0.05)        $1.53


                                       Year-to-date 2009(1)            %
    In millions, except        ----------------------------------  Adjusted
    -------------------                                 Adjusted  (Non-GAAP)
     per share data             Reported  Adjustments  (Non-GAAP)     (2)
     --------------              (GAAP)   Fav/(Unfav)     (2)     Fav/(Unfav)
                               ----------------------------------------------
    Operating income              $319.7         $ -     $319.7         50.4

    Gain on sale of
     partnership interest           81.2    (81.2)(5)         -            -

    Less:

    Other (income) and
     charges                        18.1     (4.0)(6)      22.1        106.3

    Interest expense               144.2           -      144.2          8.8
    ----------------           ----------------------------------

    Income before tax             $238.6      $(85.2)    $153.4        128.6

    Income tax expense              44.1      22.5(7)      21.6       (322.2)
                               ----------------------------------

    Net income                    $194.5      $(62.7)    $131.8(8)      96.8
    ----------                 ----------------------------------
    ----------                 ----------------------------------

    Basic earnings per share       $1.18      $(0.38)      $0.80        92.5

    Diluted earnings per share     $1.18      $(0.38)      $0.80        91.3


    2010:

    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies.
    (3) To exclude the gain in fair value of long-term floating rate notes of
        $2.7 million and a gain in foreign exchange on long-term debt (FX on
        LTD) of $4.2 million in order to eliminate the impact of volatile
        short-term exchange rate fluctuations.
    (4) A tax adjustment to exclude the tax expense associated with the gain
        in fair value of long-term floating rate notes of $0.8 million and
        the tax recovery on FX on LTD of $2.1 million.
    (8) These adjusted figures are also referred to as "Income, before FX on
        LTD and other specified items".

    2009:

    (1) Restated for the Company's change in accounting policy in relation to
        the accounting for rail grinding.
    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies.
    (5) To exclude the gain of $81.2 million before tax which arose from the
        partial sale of the investment in the Detroit River Tunnel
        Partnership.
    (6) To exclude the gain in fair value of long-term floating rate notes of
        $4.7 million, and a loss in FX on LTD of $0.7 million in order to
        eliminate the impact of volatile short-term exchange rate
        fluctuations.
    (7) A tax adjustment to exclude the tax expense of the sale of the
        partnership interest of $12.5 million, the tax expense associated
        with the gain in fair value of long-term floating rate notes of $1.5
        million and the tax expense on FX on LTD of $8.5 million.
    (8) These adjusted figures are also referred to as "Income, before FX on
        LTD and other specified items".



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

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

    Freight Revenues (millions)
      - Grain                     $   264.4  $   274.6  $   (10.2)      (3.7)
      - Coal                          136.7       95.3       41.4       43.4
      - Sulphur and fertilizers       114.9       66.6       48.3       72.5
      - Forest products                44.4       42.1        2.3        5.5
      - Industrial and consumer
         products                     217.0      179.6       37.4       20.8
      - Automotive                     89.0       49.9       39.1       78.4
      - Intermodal                    335.8      293.3       42.5       14.5
                                  --------------------------------
    Total Freight Revenues        $ 1,202.2  $ 1,001.4  $   200.8       20.1
                                  --------------------------------

    Millions of Revenue
     Ton-Miles (RTM)
      - Grain                         8,303      8,696       (393)      (4.5)
      - Coal                          5,268      3,888      1,380       35.5
      - Sulphur and fertilizers       4,335      1,719      2,616      152.2
      - Forest products               1,275      1,092        183       16.8
      - Industrial and consumer
         products                     5,166      3,971      1,195       30.1
      - Automotive                      560        347        213       61.4
      - Intermodal                    6,518      5,819        699       12.0
                                  --------------------------------
    Total RTMs                       31,425     25,532      5,893       23.1
                                  --------------------------------

    Freight Revenue per RTM (cents)
      - Grain                          3.18       3.16       0.02        0.6
      - Coal                           2.59       2.45       0.14        5.7
      - Sulphur and fertilizers        2.65       3.87      (1.22)     (31.5)
      - Forest products                3.48       3.86      (0.38)      (9.8)
      - Industrial and consumer
         products                      4.20       4.52      (0.32)      (7.1)
      - Automotive                    15.89      14.38       1.51       10.5
      - Intermodal                     5.15       5.04       0.11        2.2

    Total Freight Revenue per RTM      3.83       3.92      (0.09)      (2.3)

    Carloads (thousands)
      - Grain                         115.9      119.3       (3.4)      (2.8)
      - Coal                           94.6       66.2       28.4       42.9
      - Sulphur and fertilizers        43.2       22.3       20.9       93.7
      - Forest products                17.2       15.5        1.7       11.0
      - Industrial and consumer
         products                      96.6       80.1       16.5       20.6
      - Automotive                     37.5       22.6       14.9       65.9
      - Intermodal                    271.4      238.2       33.2       13.9
                                  --------------------------------
    Total Carloads                    676.4      564.2      112.2       19.9
                                  --------------------------------

    Freight Revenue per Carload
      - Grain                     $   2,281  $   2,302  $     (21)      (0.9)
      - Coal                          1,445      1,440          5        0.3
      - Sulphur and fertilizers       2,660      2,987       (327)     (10.9)
      - Forest products               2,581      2,716       (135)      (5.0)
      - Industrial and consumer
         products                     2,246      2,242          4        0.2
      - Automotive                    2,373      2,208        165        7.5
      - Intermodal                    1,237      1,231          6        0.5

    Total Freight Revenue per
     Carload                      $   1,777  $   1,775  $       2        0.1


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

    Freight Revenues (millions)
      - Grain                     $   535.7  $   562.3  $   (26.6)      (4.7)
      - Coal                          247.2      211.8       35.4       16.7
      - Sulphur and fertilizers       232.7      142.8       89.9       63.0
      - Forest products                87.6       87.5        0.1        0.1
      - Industrial and consumer
         products                     422.5      385.4       37.1        9.6
      - Automotive                    166.6      101.8       64.8       63.7
      - Intermodal                    648.1      585.8       62.3       10.6
                                  --------------------------------
    Total Freight Revenues        $ 2,340.4  $ 2,077.4  $   263.0       12.7
                                  --------------------------------

    Millions of Revenue
     Ton-Miles (RTM)
      - Grain                        16,939     17,224       (285)      (1.7)
      - Coal                          9,576      7,720      1,856       24.0
      - Sulphur and fertilizers       8,727      3,899      4,828      123.8
      - Forest products               2,653      2,156        497       23.1
      - Industrial and consumer
         products                    10,053      8,321      1,732       20.8
      - Automotive                    1,105        710        395       55.6
      - Intermodal                   12,575     11,427      1,148       10.0
                                  --------------------------------
    Total RTMs                       61,628     51,457     10,171       19.8
                                  --------------------------------

    Freight Revenue per RTM (cents)
      - Grain                          3.16       3.26      (0.10)      (3.1)
      - Coal                           2.58       2.74      (0.16)      (5.8)
      - Sulphur and fertilizers        2.67       3.66      (0.99)     (27.0)
      - Forest products                3.30       4.06      (0.76)     (18.7)
      - Industrial and consumer
         products                      4.20       4.63      (0.43)      (9.3)
      - Automotive                    15.08      14.34       0.74        5.2
      - Intermodal                     5.15       5.13       0.02        0.4

    Total Freight Revenue per RTM      3.80       4.04      (0.24)      (5.9)

    Carloads (thousands)
      - Grain                         229.1      230.8       (1.7)      (0.7)
      - Coal                          170.6      137.0       33.6       24.5
      - Sulphur and fertilizers        87.5       47.2       40.3       85.4
      - Forest products                34.8       33.0        1.8        5.5
      - Industrial and consumer
         products                     188.4      166.7       21.7       13.0
      - Automotive                     71.0       43.6       27.4       62.8
      - Intermodal                    520.0      482.2       37.8        7.8
                                  --------------------------------
    Total Carloads                  1,301.4    1,140.5      160.9       14.1
                                  --------------------------------

    Freight Revenue per Carload
      - Grain                     $   2,338  $   2,436  $     (98)      (4.0)
      - Coal                          1,449      1,546        (97)      (6.3)
      - Sulphur and fertilizers       2,659      3,025       (366)     (12.1)
      - Forest products               2,517      2,652       (135)      (5.1)
      - Industrial and consumer
         products                     2,243      2,312        (69)      (3.0)
      - Automotive                    2,346      2,335         11        0.5
      - Intermodal                    1,246      1,215         31        2.6

    Total Freight Revenue per
     Carload                      $   1,798  $   1,821  $     (23)      (1.3)



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

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

    Total operating expenses
     per GTM (cents)(2)                1.58       1.71       0.13        7.6
    Operating expenses exclusive
     of land sales per GTM
     (cents)(2)(3)                     1.58       1.75       0.17        9.7

    Freight gross ton-miles
     (GTM) (millions)                60,766     49,635     11,131       22.4
    Train miles (000)                 9,920      8,391      1,529       18.2

    Average number of active
     employees - Total               15,726     15,156       (570)      (3.8)
    Average number of active
     employees - Expense             13,813     13,270       (543)      (4.1)

    Number of employees at
     end of period - Total           15,975     15,178       (797)      (5.3)
    Number of employees at
     end of period - Expense         13,887     13,120       (767)      (5.8)

    U.S. gallons of locomotive
     fuel per 1,000 GTMs
     - freight & yard                  1.13       1.14       0.01        0.9
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(4)                     68.3       56.1      (12.2)     (21.7)
    Average fuel price (U.S.
     dollars per U.S. gallon)          2.55       1.78      (0.77)     (43.3)

    Fluidity Data (including DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                19.9        n/a          -          -
    Average train speed - AAR
     definition (mph)                  23.2        n/a          -          -
    Car miles per car day             147.0        n/a          -          -
    Average daily active cars
     on-line (000)                     55.3        n/a          -          -
    Average daily active road
     locomotives on-line              1,013        n/a          -          -

    Fluidity Data (excluding DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                19.9       20.4        0.5        2.5
    Average train speed - AAR
     definition (mph)                  24.6       26.4       (1.8)      (6.8)
    Car miles per car day             160.6      144.6       16.0       11.1
    Average daily active cars
     on-line (000)                     48.1       42.5       (5.6)     (13.2)
    Average daily active road
     locomotives on-line                901        723       (178)     (24.6)

    Safety
    ------
    FRA personal injuries per
     200,000 employee-hours            1.36       1.60       0.24       15.0
    FRA train accidents per
     million train-miles               1.46       1.92       0.46       24.0


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

    Total operating expenses
     per GTM (cents)(2)                1.61       1.81       0.20       11.0
    Operating expenses exclusive
     of land sales per GTM
     (cents)(2)(3)                     1.61       1.84       0.23       12.5

    Freight gross ton-miles
     (GTM) (millions)               119,290    100,568     18,722       18.6
    Train miles (000)                19,477     17,298      2,179       12.6

    Average number of active
     employees - Total               15,079     15,103         24        0.2
    Average number of active
     employees - Expense             13,818     13,827          9        0.1

    Number of employees at
     end of period - Total           15,975     15,178       (797)      (5.3)
    Number of employees at
     end of period - Expense         13,887     13,120       (767)      (5.8)

    U.S. gallons of locomotive
     fuel per 1,000 GTMs
     - freight & yard                  1.18       1.24       0.06        4.8
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(4)                    139.8      123.8      (16.0)     (12.9)
    Average fuel price (U.S.
     dollars per U.S. gallon)          2.49       1.93      (0.56)     (29.0)

    Fluidity Data (including DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                21.9        n/a          -          -
    Average train speed - AAR
     definition (mph)                  23.1        n/a          -          -
    Car miles per car day             139.2        n/a          -          -
    Average daily active cars
     on-line (000)                     57.8        n/a          -          -
    Average daily active road
     locomotives on-line              1,006        n/a          -          -

    Fluidity Data (excluding DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                21.9       21.8       (0.1)      (0.5)
    Average train speed - AAR
     definition (mph)                  24.4       25.7       (1.3)      (5.1)
    Car miles per car day             152.1      142.2        9.9        7.0
    Average daily active cars
     on-line (000)                     50.3       45.6       (4.7)     (10.3)
    Average daily active road
     locomotives on-line                886        777       (109)     (14.0)

    Safety
    ------
    FRA personal injuries per
     200,000 employee-hours            1.64       1.71       0.07        4.1
    FRA train accidents per
     million train-miles               1.36       1.94       0.58       29.9


    (1) Certain prior period figures have been revised to conform with
        current presentation or have been updated to reflect new information.
    (2) Restated for the Company's change in accounting policy in relation to
        the accounting for rail grinding.
    (3) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies. Operating expenses exclusive of land sales per GTM is
        calculated consistently with total operating expenses per GTM except
        for the exclusion of net gains on land sales of $0.8 million and
        $22.9 million for the three months ended June 30, 2010 and 2009, and
        $3.2 million and $24.5 million for the six months ended June 30, 2010
        and 2009 respectively.
        Please refer to pages 2 and 3, Adjusted Earnings Performance, Quarter
        and Year-to-date, Non-GAAP measures.
    (4) Includes gallons of fuel consumed from freight, yard and commuter
        service but excludes fuel used in capital projects and other non-
        freight activities.

        n/a - not available
    

SOURCE Canadian Pacific

For further information: For further information: Media: Mike LoVecchio, Senior Manager, Media Relations, Tel.: (778) 772-9636, 24/7 Media Pager: (416) 814-0948, e-mail: mike_lovecchio@cpr.ca; Investment Community: Janet Weiss, Assistant Vice President, Investor Relations, Tel.: (403) 319-3591, e-mail: investor@cpr.ca


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