Canadian Pacific announces third-quarter results

CALGARY, Oct. 27 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE: CP) announced third-quarter net income of $195 million, an increase of 14 per cent from $171 million in 2008. Diluted earnings per share were $1.16, an increase of five per cent from $1.10 in third-quarter 2008. Foreign exchange gain and loss on long-term debt and other specified items after tax, including the sale of two large properties, had an impact on earnings of $0.31. Excluding these items, adjusted diluted earnings per share were $0.85.

"We delivered strong cost control and tight resource management this quarter while traffic volumes remained under pressure," said Fred Green, President and CEO. "We are continuing to refine and optimize our business processes to further drive structural cost improvements. This increases our flexibility and positions us well to respond to changes in volumes as the economy begins to recover."

For the third-quarter and the first nine months of 2009, the results of the Dakota, Minnesota & Eastern Railroad (DM&E) are fully consolidated with CP's results; however, for the same periods in 2008 DM&E earnings were reported as equity income on one line of the income statement. In order to aid in the evaluation of the underlying earnings trends, 2008 results have also been presented on a pro forma basis, which is a non-GAAP measure. Financial data presented on a pro forma basis, redistributes DM&E's operating results from an equity income basis of accounting to a line-by-line consolidation of DM&E revenues and expenses.

    
    THIRD-QUARTER 2009 COMPARED WITH THIRD-QUARTER 2008
    EXCLUDING FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER
    SPECIFIED ITEMS ON A PRO FORMA BASIS:

    -   Total revenues were $1.1 billion, down 20 per cent from $1.4 billion
    -   Operating expenses were $827 million, down 20 percent from $1.0
        billion
    -   Income decreased to $144 million from $184 million, or 22 per cent
    -   Diluted earnings per share decreased to $0.85 from $1.19, or 29 per
        cent
    -   Operating ratio increased 20 basis points to 76.0 per cent

    SUMMARY OF FIRST NINE MONTHS OF 2009 COMPARED WITH FIRST NINE MONTHS OF
    2008

    -   Net income was virtually flat at $415 million compared with $416
        million in 2008
    -   Diluted earnings per share were $2.50 down from $2.68 or seven per
        cent

    EXCLUDING FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER
    SPECIFIED ITEMS ON A PRO FORMA BASIS:

    -   Total revenues were $3.2 billion down 18 per cent from $3.9 billion
    -   Operating expenses were $2.6 billion a decrease of 17 per cent from
        $3.1 billion
    -   Income was $298 million a decrease of 34 per cent from $451 million
    -   Diluted earnings per share were $1.80 down from $2.90 or 38 per cent
    -   Operating ratio increased 130 basis points to 80.3 per cent from 79.0
        per cent

    FOREIGN EXCHANGE GAIN AND LOSS ON LONG-TERM DEBT AND OTHER SPECIFIED
    ITEMS
    

CP had a foreign exchange loss on long-term debt of $18 million after tax in the third quarter of 2009, compared with a foreign exchange gain on long-term debt of $6 million after tax in the third quarter of 2008. For the first nine months of 2009, CP had a foreign exchange loss on long-term debt of $24 million after tax, compared with no foreign exchange gain or loss after tax for the first nine months of 2008. As part of a consolidated financing strategy, CP structures its U.S. dollar long-term debt in different taxing jurisdictions. As well, a portion of this debt is designated as a net investment hedge against net investment in U.S. subsidiaries. As a result, the tax on foreign exchange gains and losses on long-term debt in different taxing jurisdictions can vary significantly.

Other specified items in the third-quarter of 2009 included two property sales of $68 million after tax. For the first nine months of 2009 there was also a gain on sale of a portion of the Detroit River Tunnel Partnership of $69 million, after tax.

In the third quarter of 2009 other specified items included a redemption and adjustments for an improvement in fair market value of long-term floating rate notes received in replacement of the investment in Asset-Backed Commercial Paper (ABCP) of $1 million after tax, compared to an impairment in ABCP of $20 million after tax, recorded in the same period of 2008. For the first nine-months of 2009 other specified items included a similar adjustment for an improvement of $5 million, after tax, compared to an impairment in ABCP of $35 million after tax, recorded in the same period of 2008.

Presentation of non-GAAP earnings

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. Additional non-GAAP measures include Operating income, Capital program and Financial data on a pro forma basis.

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

Diluted earnings per share, excluding foreign exchange gains and losses on long-term debt and other specified items, is also referred to in this news release as "adjusted diluted earnings per share". Revenues less operating expenses are referred to as "Operating Income" and Additions to property is referred to as "Capital Program".

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.

Pro forma data provides comparable measures for periods in 2008 that preceded the Surface Transportation Board's approval of the change of control of the DM&E on October 30, 2008. Following that approval, the DM&E results are fully consolidated with CP's operations. A reconciliation of 2008 financial data on a pro forma basis to financial data as reported can be found in Management's Discussion and Analysis (Section 6.0 Non-GAAP Earnings).

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

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 ABCP; 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.

Canadian Pacific, through the ingenuity of its employees located across Canada and in the United States, remains committed to being the safest, most fluid railway in North America. Our people are the key to delivering innovative transportation solutions to our customers and to ensuring the safe operation of our trains through the more than 1,100 communities where we operate. Come and visit us at www.cpr.ca to see how we can put our ingenuity to work for you. Canadian Pacific is proud to be the official rail freight services provider for the Vancouver 2010 Olympic and Paralympic Winter Games.

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

                              For the three months      For the nine months
                               ended September 30        ended September 30
                                2009         2008         2009         2008
                                         Restated                  Restated
                                      (see Note 2)              (see Note 2)
                         -------------------------- -------------------------
                                 (unaudited)                (unaudited)
    Revenues

      Freight              $  1,061.5   $  1,239.5   $  3,084.2   $  3,557.0
      Other                      26.7         25.2         97.1         74.9
                         -------------------------- -------------------------
                              1,088.2      1,264.7      3,181.3      3,631.9

    Operating expenses

      Compensation and
       benefits                 320.2        312.3        962.7        956.1
      Fuel                      134.0        275.8        422.7        766.3
      Materials                  45.8         49.3        164.3        171.3
      Equipment rents            42.9         44.4        139.8        136.4
      Depreciation and
       amortization             132.7        120.8        400.3        365.4
      Purchased services
       and other                151.4        162.3        465.1        487.7
                         -------------------------- -------------------------
                                827.0        964.9      2,554.9      2,883.2
                         -------------------------- -------------------------
    Revenues less
     operating expenses         261.2        299.8        626.4        748.7

    Gain on sale of
     partnership interest
     (Note 4)                       -            -         81.2            -
    Gain on sale of
     Windsor Station and a
     land sale in Western
     Canada (Note 5)             79.1            -         79.1            -
    Gain (loss) in fair
     value of long-term
     floating rate notes/
     asset-backed
     commercial paper
     (Note 12)                    1.6        (28.1)         6.3        (49.4)
    Foreign exchange gain
     (loss) on long-term
     debt                        (0.1)        (2.9)         2.7        (12.4)
    Equity income in
     Dakota, Minnesota &
     Eastern Railroad
     Corporation (Note 13)          -         16.5            -         40.9
    Less:
      Other income and
       charges (Note 7)           1.6          2.8         28.2         14.4
      Net interest
       expense (Note 8)          64.7         64.5        210.4        187.3
                         -------------------------- -------------------------

    Income before income
     tax expense                275.5        218.0        557.1        526.1

    Income tax expense
     (Note 9)                    80.1         47.3        141.9        110.0
                         -------------------------- -------------------------
    Net income             $    195.4   $    170.7   $    415.2   $    416.1
                         -------------------------- -------------------------
                         -------------------------- -------------------------
    Basic earnings per
     share (Note 10)       $     1.16   $     1.11   $     2.51   $     2.71
                         -------------------------- -------------------------
                         -------------------------- -------------------------
    Diluted earnings per
     share (Note 10)       $     1.16   $     1.10   $     2.50   $     2.68
                         -------------------------- -------------------------
                         -------------------------- -------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
    (in millions of Canadian dollars)

                              For the three months      For the nine months
                               ended September 30        ended September 30
                                2009         2008         2009         2008
                                         Restated                  Restated
                                      (see Note 2)              (see Note 2)
                         -------------------------- -------------------------
                                 (unaudited)                (unaudited)

    Comprehensive income
    Net Income             $    195.4   $    170.7   $    415.2   $    416.1

    Other comprehensive
     income

      Unrealized foreign
       exchange (loss)
       gain on:
        Translation of
         the net
         investment in
         U.S. subsidiaries     (135.6)        60.0       (221.2)        97.2
        Translation of
         the U.S. dollar-
         denominated long-
         term debt
         designated as a
         hedge of the net
         investment in U.S.
         subsidiaries           134.3        (57.8)       216.4        (92.8)

      Change in
       derivatives
       designated as
       cash flow hedges:
        Realized loss
         (gain) on cash
         flow hedges
         settled in the
         period                   0.7         (3.5)         3.5        (12.4)
        Unrealized (loss)
         gain on cash
         flow hedges             (3.1)        (7.7)         0.1          7.5
        Realized loss
         (gain) on cash
         flow hedges
         settled in prior
         periods                 (0.1)        (0.1)         1.7          1.5
                         -------------------------- -------------------------
      Other comprehensive
       (loss) income
       before income taxes       (3.8)        (9.1)         0.5          1.0

      Income tax (expense)
       recovery                 (17.2)        10.2        (30.9)        12.9
                         -------------------------- -------------------------
    Other comprehensive
     (loss) income              (21.0)         1.1        (30.4)        13.9
                         -------------------------- -------------------------

    Comprehensive income   $    174.4   $    171.8   $    384.8   $    430.0
                         -------------------------- -------------------------
                         -------------------------- -------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED BALANCE SHEET
    (in millions of Canadian dollars)

                                                    September 30  December 31
                                                          2009         2008
                                                                   Restated
                                                                (see Note 2)
                                                    -------------------------
                                                            (unaudited)
    Assets
    Current assets
      Cash and cash equivalents (Note 6)             $    615.9   $    117.6
      Accounts receivable (Note 11)                       498.6        647.4
      Materials and supplies                              169.0        215.8
      Future income taxes                                  66.8         76.5
      Other                                                58.0         65.7
                                                    -------------------------
                                                        1,408.3      1,123.0

    Investments (Note 12)                                 165.0        151.1
    Net properties                                     12,203.7     12,576.3
    Assets held for sale                                    4.9         39.6
    Prepaid pension costs and other assets              1,332.6      1,326.1
    Goodwill and intangible assets (Note 13)              206.5        237.2
                                                    -------------------------
    Total assets                                     $ 15,321.0   $ 15,453.3
                                                    -------------------------
                                                    -------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Short-term borrowing                           $     57.7   $    150.1
      Accounts payable and accrued liabilities            871.7      1,034.9
      Income and other taxes payable                       34.0         42.2
      Dividends payable                                    41.6         38.1
      Long-term debt maturing within one year             390.0         44.0
                                                    -------------------------
                                                        1,395.0      1,309.3

    Other long-term liabilities                           815.9        865.2
    Long-term debt (Note 14)                            3,701.3      4,685.8
    Future income taxes                                 2,663.6      2,610.0

    Shareholders' equity
      Share capital (Note 15)                           1,728.3      1,220.8
      Contributed surplus                                  34.9         40.2
      Accumulated other comprehensive income               47.9         78.3
      Retained income                                   4,934.1      4,643.7
                                                    -------------------------
                                                        6,745.2      5,983.0
                                                    -------------------------
    Total liabilities and shareholders' equity       $ 15,321.0   $ 15,453.3
                                                    -------------------------
                                                    -------------------------

    Commitments and contingencies (Note 20)
    See notes to interim consolidated financial statements.



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

                              For the three months       For the nine months
                               ended September 30         Ended September 30
                                2009         2008         2009         2008
                                         Restated                  Restated
                                      (see Note 2)              (see Note 2)
                         -------------------------- -------------------------
                                 (unaudited)                (unaudited)
    Operating activities
      Net income           $    195.4   $    170.7   $    415.2   $    416.1
      Reconciliation of
       net income to cash
       provided by
       operating
       activities:
        Depreciation and
         amortization           132.7        120.8        400.3        365.4
        Future income
         taxes                  117.6         28.5        179.0         56.3
        (Gain)/loss in
         fair value of
         long-term
         floating rate
         notes/ asset-
         backed commercial
         paper (Note 12)         (1.6)        28.1         (6.3)        49.4
        Foreign exchange
         (gain) loss on
         long-term debt           0.1          2.9         (2.7)        12.4
        Amortization and
         accretion charges        1.5          2.3          8.0          7.4
        Equity income, net
         of cash received        (0.2)       (15.5)         0.9        (38.9)
        Gain on sale of
         partnership
         interest (Note 4)          -            -        (81.2)           -
        Gain sale of
         Windsor Station
         and a land sale
         in Western Canada
         (Note 5)               (79.1)           -        (79.1)           -
        Net loss on
         repurchase of
         debt (Note 14)             -            -         16.6            -
        Restructuring and
         environmental
         remediation
         payments               (10.9)       (11.9)       (29.9)       (36.4)
        Pension funding
         in excess of
         expense                (19.5)       (16.0)       (61.0)       (42.5)
        Other operating
         activities, net         17.5        (30.3)         3.5          2.3
        Change in non-cash
         working capital
         balances related
         to operations
         (Note 11)               59.6         (0.2)        (3.6)      (170.4)
                         -------------------------- -------------------------
      Cash provided by
       operating
       activities               413.1        279.4        759.7        621.1
                         -------------------------- -------------------------
    Investing activities
      Additions to
       properties              (191.2)      (242.1)      (596.1)      (606.8)
      Additions to
       investments and
       other assets                 -        (20.9)           -       (213.0)
      Reductions to
       investments and
       other assets               0.2          0.4         12.5            -
      Additions to
       investment in
       Dakota, Minnesota
       & Eastern Railroad
       Corporation
       (Note 13)                    -         (0.8)           -         (8.3)
      Net proceeds from
       disposal of
       transportation
       properties
       (Notes 4 & 5)            107.1         17.0        218.7         14.4
                         -------------------------- -------------------------
      Cash used in
       investing
       activities               (83.9)      (246.4)      (364.9)      (813.7)
                         -------------------------- -------------------------
    Financing activities
      Dividends paid            (41.6)       (38.1)      (121.3)      (110.6)
      Issuance of CP
       Common Shares
       (Note 15)                  5.3          1.3        504.5         18.3
      Net increase
       (decrease) in
       short-term
       borrowing                  2.1         25.0        (92.4)        50.3
      Issuance of
       long-term debt
       (Note 14)                    -            -        409.5      1,068.7
      Repayment of
       long-term debt
       (Note 14)                 (7.0)        (7.6)      (613.8)    (1,088.1)
      Settlement of
       treasury rate lock           -            -            -        (30.9)
      Settlement of
       foreign exchange
       forward on
       long-term debt
       (Note 16)                  4.9            -         34.1            -
                         -------------------------- -------------------------
      Cash (used in)
       provided by
       financing
       activities               (36.3)       (19.4)       120.6        (92.3)
                         -------------------------  -------------------------
    Effect of foreign
     exchange fluctuations
     on U.S. dollar-
     denominated cash and
     cash equivalents           (11.3)         3.4        (17.1)         4.7
                         -------------------------- -------------------------
    Cash position
      Increase (decrease)
       in cash and cash
       equivalents              281.6         17.0        498.3       (280.2)
      Cash and cash
       equivalents at
       beginning of
       period                   334.3         80.9        117.6        378.1
                         -------------------------  -------------------------
      Cash and cash
       equivalents at
       end of period
       (Note 6)            $    615.9   $     97.9   $    615.9   $     97.9
                         -------------------------- -------------------------
                         -------------------------- -------------------------

    Certain of the comparative figures have been reclassified in order to be
    consistent with the 2009 presentation.
    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
    (in millions of Canadian dollars)

    (unaudited)               For the nine months ended September 30, 2009
                           --------------------------------------------------
                                                     Accumulated
                                                        other
                              Share     Contributed comprehensive  Retained
                             Capital      Surplus      income       income
                           --------------------------------------------------
    Balance at December 31,
     2008, as previously
     reported              $  1,220.8   $     40.2   $     78.3   $  4,654.1
    Adjustment for change
     in accounting policy
     (Note 2)                                                          (10.4)
                                                                 ------------
    Balance at December 31,
     2008, as restated                                               4,643.7
    Net Income                                                         415.2
    Other comprehensive loss                              (30.4)
    Dividends                                                         (124.8)
    Shares issued (Note 15)     488.9
    Stock compensation
     (recovery) expense                       (2.3)
    Shares issued under
     stock option plans          18.6         (3.0)
                           --------------------------------------------------
    Balance at September 30,
     2009                  $  1,728.3   $     34.9   $     47.9   $  4,934.1
                           --------------------------------------------------
                           --------------------------------------------------


                              For the nine months ended September 30, 2008
                           --------------------------------------------------
    Balance at December 31,
     2007, as previously
     reported              $  1,188.6   $     42.4   $     39.6   $  4,187.3
    Adjustment for change
     in accounting policy
     (Note 2)                                                           (7.4)
                                                                 ------------
    Balance at December 31,
     2007, as restated                                               4,179.9
    Net Income                                                         416.1
    Other comprehensive income                             13.9
    Dividends                                                         (114.1)
    Stock compensation expense                 8.3
    Shares issued under
     stock option plans          30.3         (9.4)
                           --------------------------------------------------
    Balance at September 30,
     2008                  $  1,218.9   $     41.3   $     53.5   $  4,481.9
                           --------------------------------------------------
                           --------------------------------------------------

    See notes to interim consolidated financial statements.



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    SEPTEMBER 30, 2009
    (unaudited)

    1   Basis of presentation

        These unaudited interim consolidated financial statements and notes
        have been prepared using accounting policies that are consistent with
        the policies used in preparing Canadian Pacific Railway Limited's
        ("CP", "the Company" or "Canadian Pacific Railway") 2008 annual
        consolidated financial statements, except as discussed below and in
        Note 2 for the adoption of new accounting standards. They do not
        include all disclosures required under Canadian Generally accepted
        accounting principles ("GAAP") for annual financial statements and
        should be read in conjunction with the annual consolidated financial
        statements.

        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.

    2   New accounting changes

        Goodwill and intangible assets

        In February 2008, the Canadian Institute of Chartered Accountants
        ("CICA") issued accounting standard Section 3064 "Goodwill, and
        intangible assets", replacing accounting standard Section 3062
        "Goodwill and other intangible assets" and accounting standard
        Section 3450 "Research and development costs". Section 3064
        establishes standards for the recognition, measurement, presentation
        and disclosure of intangible assets and goodwill subsequent to its
        initial recognition. The new Section was applicable to financial
        statements relating to fiscal years beginning on or after October 1,
        2008. Accordingly, the Company adopted the new standards for its
        fiscal year beginning January 1, 2009. The provisions of Section 3064
        were adopted retrospectively, with restatement of prior periods.

        As a result of this adoption, the Company has retroactively expensed
        certain expenditures related to pre-operating periods of a facility,
        rather than recording them as assets in "Prepaid pension costs and
        other assets" and "Net properties". The adoption of Section 3064
        resulted in a reduction to opening retained income of $7.4 million at
        January 1, 2008 and $10.4 million at January 1, 2009. For the three
        months ended September 30, 2008, the adoption of this section
        resulted in an increase to "Purchased services and other" expense of
        $3.4 million and a decrease to "Income tax expense" of $1.4 million.
        This change also resulted in a $0.01 decrease to previously reported
        basic and diluted earnings per share for the third quarter of 2008.
        For the nine months ended September 30, 2008, the adoption of this
        section resulted in an increase to "Purchased services and other"
        expense of $3.8 million and a decrease to "Income tax expense" of
        $1.5 million. This change also resulted in a $0.01 decrease to
        previously reported basic earnings per share and $0.02 decrease to
        previously reported diluted earnings per share for the nine months
        ended September 30, 2008.

        Credit risk and the fair value of financial assets and financial
        liabilities

        On January 20, 2009 the Emerging Issues Committee ("EIC") issued a
        new abstract EIC 173 "Credit risk and the fair value of financial
        assets and financial liabilities". This abstract concludes that an
        entity's own credit risk and the credit risk of the counterparty
        should be taken into account when determining the fair value of
        financial assets and financial liabilities, including derivative
        instruments.

        This abstract applies to all financial assets and liabilities
        measured at fair value in interim and annual financial statements for
        periods ending on or after January 20, 2009. The adoption of this
        abstract did not impact the Company's financial statements.

    3   Future accounting changes

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

        On February 13, 2008, the Canadian Accounting Standards Board
        ("AcSB") confirmed that publicly accountable enterprises will be
        required to adopt IFRS in place of Canadian GAAP for interim and
        annual reporting purposes for fiscal years beginning on or after
        January 1, 2011, unless, as permitted by Canadian securities
        regulations, registrants were to adopt U.S. GAAP on or before this
        date. CP has determined that, commencing on January 1, 2010, it will
        adopt U.S. GAAP for its financial reporting. 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 replaces the former Section 1581 "Business
        combinations" and provides the Canadian equivalent to International
        Financial Reporting Standard 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 recognize and measure goodwill acquired in the
        business combination or a gain in the case of a bargain purchase.
        Acquisition-related costs are 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; however, adoption
        of these standards by the Company is not expected given the decision
        to adopt U.S. GAAP. Early adoption of all three standards is
        permitted.

        Financial Instruments - Disclosures

        The CICA amended Section 3862 "Financial Instruments - Disclosures",
        to include additional disclosures about fair value measurements and
        to enhance liquidity risk disclosures associated with financial
        instruments. This standard is effective for the annual period ending
        December 31, 2009. The adoption of this standard will not impact the
        amounts reported in the Company's financial statements as it relates
        to disclosure.

    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 sale was agreed to on March 31, 2009 but was
        subject to regulatory approval, which was received during the second
        quarter. The proceeds received in the second 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). Effective April 1, 2009,
        the Company discontinued proportionate consolidation and is
        accounting for its remaining investment in the DRTP under the equity
        method of accounting.

    5   Gain on sale of Windsor Station and a land sale in Western Canada

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

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

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

    6   Cash and cash equivalents

        (in millions of               September 30  December 31 September 30
         Canadian dollars)                   2009         2008         2008
                                      ---------------------------------------

        Cash                            $      9.0   $     11.3   $      9.3
        Short term investments;
          Government guaranteed
           investments                       439.0            -         15.4
          Deposits with financial
           institutions                      167.9        106.3         73.2
                                      ---------------------------------------
        Total cash and cash
         equivalents                    $    615.9   $    117.6   $     97.9
                                      ---------------------------------------
                                      ---------------------------------------

        All cash is invested in accordance with policies approved by the
        Company's Board of Directors which require minimum credit ratings.
        Government and financial institutions meet these standards if they
        carry AA or A1 ratings, or the equivalent, from at least two credit
        rating agencies.

    7   Other income and charges

                              For the three months      For the nine months
        (in millions of        ended September 30        ended September 30
         Canadian dollars)      2009         2008         2009         2008
                          ------------------------- -------------------------

        Accretion of
         accruals recorded
         at present value  $      2.0   $      1.5   $      6.6   $      4.6
        Accretion of
         long-term
         floating rate
         notes (Note 12)         (1.3)           -         (1.3)           -
        Net loss on
         repurchase of debt
         (Note 14)                  -            -         16.6            -
        Other exchange
         (gains) losses          (1.9)        (0.7)        (1.1)         1.2
        Other                     2.8          2.0          7.4          8.6
                          ------------------------- -------------------------
        Total other income
         and charges       $      1.6   $      2.8   $     28.2   $     14.4
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    8   Net interest expense

                              For the three months      For the nine months
        (in millions of        ended September 30        ended September 30
         Canadian dollars)      2009         2008         2009         2008
                          ------------------------- -------------------------

        Interest expense   $     65.4   $     66.2   $    214.4   $    195.7
        Interest income          (0.7)        (1.7)        (4.0)        (8.4)
                          ------------------------- -------------------------
        Total net interest
         expense           $     64.7   $     64.5   $    210.4   $    187.3
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    9   Income taxes

        During the first quarter of 2009, legislation was substantively
        enacted to reduce British Columbia provincial income tax rates. As a
        result of these changes, the Company recorded an $11.2 million
        benefit in future tax liability and income tax expense, related to
        the revaluation of its future income tax balances as at December 31,
        2008.

        During the nine months ended September 30, 2008, legislation was
        substantively enacted to reduce provincial income tax rates. As a
        result of these changes, the Company recorded a $15.7 million benefit
        in future tax liability and income tax expense for the nine months
        ended September 30, 2008, related to the revaluation of its future
        income tax balances as at December 31, 2007.

        Cash taxes recovered, net of payments, for the three months ended
        September 30, 2009, were $40.0 million (three months ended September
        30, 2008 - cash taxes paid were $4.9 million). Cash taxes recovered,
        net of payments, for the nine months ended September 30, 2009 were
        $36.5 million (nine months ended September 30, 2008 - cash taxes paid
        were $62.8 million).

    10  Earnings per share

        At September 30, 2009, the number of shares outstanding was 168.2
        million (September 30, 2008 - 153.8 million).

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

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

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

                              For the three months      For the nine months
                               ended September 30        ended September 30
                                2009         2008         2009         2008
        (in millions)                   (restated)                (restated)
                          ------------------------- -------------------------
        Weighted average
         shares outstanding     168.1        153.8        165.7        153.6
        Dilutive effect of
         stock options            0.6          1.3          0.3          1.6
                          ------------------------- -------------------------
        Weighted average
         diluted shares
         outstanding            168.7        155.1        166.0        155.2
                          ------------------------- -------------------------
                          ------------------------- -------------------------
        (in dollars)

        Basic earnings
         per share         $     1.16   $     1.11   $     2.51   $     2.71
        Diluted earnings
         per share         $     1.16   $     1.10   $     2.50   $     2.68
                          ------------------------- -------------------------
                          ------------------------- -------------------------

        For the three and nine months ended September 30, 2009, 2,542,300 and
        2,540,740 options were excluded from the computation of diluted
        earnings per share because their effects were not dilutive (three and
        nine months ended September 30, 2008 - 1,227,750 and 821,133).

    11  Accounts receivable

        In the second quarter of 2008, the Company's accounts receivable
        securitization program was terminated. As a result of this
        termination, in the Company's Consolidated Balance Sheet, Accounts
        receivable increased by $120.0 million and in the consolidated
        statement of cash flows the Change in non-cash working capital
        balances related to operations reflected an outflow of
        $120.0 million. As well, the related servicing asset and liability
        which had previously been recognized are no longer required to be
        maintained and were settled as part of the termination.

    12  Investments

                                                    September 30  December 31
        (in millions of Canadian dollars)                2009         2008
                                                    -------------------------
        Rail investments accounted for on an
         equity basis                                $     54.4   $     48.4
        Long-term floating rate notes/Asset-backed
         commercial paper                                  67.9         72.7
        Other investments                                  42.7         30.0
                                                    -------------------------
        Total investments                            $    165.0   $    151.1
                                                    -------------------------
                                                    -------------------------

        Gain/loss in fair value of long-term floating rate notes/asset-backed
        commercial paper ("ABCP")

        At September 30, 2009, the Company held replacement long-term
        floating rate notes, with a total settlement value of $130.3 million.
        At December 31, 2008, the Company held the original ABCP issued by a
        number of trusts with an original cost of $143.6 million.

        During the third quarter of 2009 the Company received $0.2 million in
        partial redemption of its Master Asset Vehicle ("MAV") 2 Class A-1
        notes and MAV 2 Class 7 Ineligible Assets (IA) tracking notes. These
        redemptions were close to the original investment value of the
        redeemed notes. During the second quarter of 2009 the Company
        received $12.3 million in partial redemption of its MAV 3 Class 9
        Traditional Asset ("TA") Tracking notes and MAV 2 Class 8 Ineligible
        Assets ("IA") Tracking notes representing 100% of the original
        investment value of the redeemed notes. As a result of the
        restructuring and the subsequent redemptions of notes, at
        September 30, 2009 the Company held replacement long-term floating
        rate notes with settlement values, as follows:

        -  $118.0 million MAV 2 notes with eligible assets represented by a
           combination of leveraged collateralized debt, synthetic assets and
           traditional securitized assets with expected repayments over
           approximately five to seven years:

           -  Class A-1: $59.1 million
           -  Class A-2: $45.9 million
           -  Class B: $8.3 million
           -  Class C: $3.5 million
           -  Class 14: $1.2 million

        -  $12.1 million MAV 2 IA Tracking notes representing assets that
           have an exposure to US mortgages and sub-prime mortgages with
           expected repayments over approximately four to 20 years:

           -  Class 3: $0.5 million
           -  Class 6: $5.5 million
           -  Class 7: $3.4 million
           -  Class 8: $0.1 million
           -  Class 13: $2.6 million

        -  $0.2 million MAV 3 Class 9 TA Tracking notes with expected
           repayments over approximately seven years.

        The MAV 2 Class A-1 notes have received an A rating by DBRS. However,
        on August 11, 2009 the rating for the MAV 2 Class A-2 notes was
        downgraded from A to BBB (low) under a negative watch by DBRS.

        The valuation technique used by the Company to estimate the fair
        value of its investment in long-term floating rate notes at
        September 30, 2009 and ABCP at December 31, 2008, 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 and other minor
        changes in assumptions have resulted in a gain of $1.6 million in the
        quarter and $6.3 million for the nine months to September 30, 2009
        (third quarter 2008 - $28.1 million charge against income, nine
        months to September 30, 2008 - $49.4 million charge against income).
        The interest rates and maturities of the various long-term floating
        rate notes and ABCP, discount rates and credit losses modelled at
        September 30, 2009 and December 31, 2008, respectively are:

           September 30, 2009
           Probability weighted average coupon interest    Nil
           rate
           Weighted average discount rate                  8.0%
           Expected repayments of long-term floating       four to 20 years
           rate notes
           Credit losses                                   MAV 2 eligible
                                                           asset notes: nil
                                                           to 100%
                                                           MAV 2 IA notes:
                                                           25%
                                                           MAV 3 Class 9 TA
                                                           Tracking notes:
                                                           nil

           December 31, 2008
           Probability weighted average coupon interest    2.2%
           rate
           Weighted average discount rate                  9.1%
           Expected repayments of ABCP notes               five to eight
                                                           years, other than
                                                           certain tracking
                                                           notes to be paid
                                                           down on
                                                           restructuring

           Credit losses                                   Notes expected to
                                                           be rated (1): nil
                                                           to 25%
                                                           Notes not expected
                                                           to be rated (2):
                                                           25 to 100%

           (1) TA Tracking, Class A-1 and Class A-2 senior notes and IA
               Tracking notes.
           (2) Class B and Class C subordinated notes and IA Tracking notes.

        The probability weighted discounted cash flows resulted in an
        estimated fair value of the Company's long-term floating rate notes
        of $67.9 million at September 30, 2009 (December 31, 2008 - ABCP
        $72.7 million). The change in the original cost and estimated fair
        value of the Company's long-term floating rate notes is as follows:

                                                       Original    Estimated
                                                         cost     fair value
                                                    -------------------------

        As at January 1, 2009                        $    143.6   $     72.7
        Change due to restructuring,
         January 21, 2009                                  (0.8)           -
                                                    -------------------------
        As at March 31, 2009                              142.8         72.7
        Redemption of notes                               (12.3)        (7.9)
        Accretion                                             -          0.1
        Change in market assumptions                          -          0.3
                                                    -------------------------
        As at June 30, 2009                          $    130.5   $     65.2

        Redemption of notes                                (0.2)        (0.1)
        Accretion                                             -          1.2
        Change in market assumptions                          -          1.6
                                                    -------------------------
        As at September 30, 2009                     $    130.3   $     67.9
                                                    -------------------------
                                                    -------------------------

    13  Dakota, Minnesota & Eastern Railroad Corporation ("DM&E")

        Dakota, Minnesota & Eastern Railroad Corporation was acquired on
        October 4, 2007 and is wholly-owned by the Company. The purchase was
        subject to review and approval by the U.S. Surface Transportation
        Board ("STB"), during which time the shares of DM&E were placed in a
        voting trust. The STB approved the purchase effective on October 30,
        2008, at which time the Company assumed control of DM&E. Subsequent
        to October 30, 2008, the results of DM&E are consolidated with the
        Company on a line-by-line basis.

        The Company accounted for its investment in DM&E using the equity
        method until the acquisition was approved by the STB and the Company
        assumed control. Equity income from the Company's investment in DM&E,
        which is recorded net of tax, was $16.5 million during the three
        months ended September 30, 2008, and $40.9 million during the nine
        months ended September 30, 2008 and is recorded in "Equity income in
        Dakota, Minnesota & Eastern Railroad Corporation" on the Consolidated
        Statement of Income.

        As part of the acquisition of DM&E, CP recognized goodwill on the
        allocation of the purchase price. Since that time the DM&E operations
        have been integrated with CP's US operations and the reporting unit
        for the goodwill is CP's US business component. As required under
        generally accepted accounting principles, goodwill must be tested for
        impairment at least annually, which for CP is annually as at October
        1st.

    14  Long-term debt

        During the second quarter of 2009, the Company issued US$350 million
        7.25% 10-year Notes for net proceeds of $408.5 million. The Notes are
        unsecured, but carry a negative pledge. The proceeds from this
        offering contributed to the repurchase of debt with a carrying amount
        of $555.3 million pursuant to a tender offer for a total cost of
        $571.9 million. Upon repurchase of the debt a net loss of
        $16.6 million was recognized during the second quarter to "Other
        income and charges". The loss consisted largely of premiums paid to
        bond holders to tender their debt, and the write-off of unamortized
        fees, partly offset by a fair value adjustment (gain) recognized on
        the unwind of interest rate swaps associated with the 6.250% Notes
        that were repurchased (see Note 16). The following table summarizes
        the principal amount, carrying amount and cost to redeem debt
        repurchased during the second quarter:

                                         Principal
                                           Amount      Carrying     Cost to
        (in millions)                      in USD       Amount       Redeem
                                       --------------------------------------

        6.250% Notes due October 15,
         2011                           $    154.3   $    184.1   $    184.6
        5.75% Notes due May 15, 2013         298.6        342.7        359.1
        6.50% Notes due May 15, 2018        24.8*        28.5         28.2
                                       --------------------------------------
        Total debt tendered             $    477.7   $    555.3   $    571.9
                                       --------------------------------------
                                       --------------------------------------

        * Includes US$2.7 million principal amount of debt repurchased
            prior to commencement of the debt tender.


    15  Shareholders' equity

        An analysis of Common Share balances is as follows:

                                 For the three months    For the nine months
                                  ended September 30      ended September 30
        (in millions)              2009        2008        2009        2008
                                ---------------------------------------------

        Share capital, beginning
         of period                 168.1       153.8       153.8       153.3
        Shares issued under
         stock option plans          0.1           -         0.5         0.5
        Shares issued                  -           -        13.9           -
                                ---------------------------------------------
        Share capital, end of
         period                    168.2       153.8       168.2       153.8
                                ---------------------------------------------
                                ---------------------------------------------

        On February 3, 2009, CP filed a final prospectus offering for sale to
        the public, primarily in Canada and the U.S., up to 13,900,000 CP
        common shares at a price of $36.75 per share. The offering closed on
        February 11, 2009, at which time CP issued 13,900,000 common shares,
        including 1,300,000 common shares issued under the provisions of an
        over-allotment option available to the underwriters of the common
        share offering, for gross proceeds of approximately $511 million
        (proceeds net of fees and issue costs were $488.9 million).

    16  Financial instruments

        Foreign exchange forward contracts

        In June 2007, the Company entered into a currency forward to set the
        exchange rate on US$400 million 6.250% Notes due 2011. This
        derivative guarantees the amount of Canadian dollars that the Company
        will repay when its US$400 million 6.250% Notes matures in October
        2011. During the third quarter of 2009, the Company recorded a loss
        of $5.0 million, and a loss of $21.8 million for the nine months
        ended September 30, 2009 to "Foreign exchange gain (loss) on long-
        term debt". These represent both realized and unrealized losses. For
        the same periods in 2008, the Company recorded an unrealized gain of
        $15.0 million for the quarter and $19.2 million for first nine months
        of 2008.

        During the first six months of 2009, CP unwound and settled
        US$300 million of the US$400 million currency forward for total
        proceeds of $31.1 million. As at June 30, $29.2 million of the total
        proceeds had been collected, with the remaining $1.9 million
        collected in the third quarter. In the third quarter of 2009, a
        further US$30 million of the currency forward was unwound and settled
        for total proceeds of $3.0 million. At September 30, 2009, the
        unrealized gain on the remaining currency forward of $1.4 million
        (December 31, 2008 - $57.3 million) was included in "Prepaid pension
        costs and other assets".

        Interest rate management

        During the second quarter of 2009, CP unwound its outstanding
        interest rate swap agreements 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 "Net interest expense" until such
        time that the 6.250% Notes are repaid.

        Subsequent to the unwinding of this swap a portion of the underlying
        6.250% Notes were repurchased in the second quarter and, as a result,
        a pro rata share of the fair value adjustment amounting to a
        $6.5 million gain was recognized immediately to "Other income and
        charges" as part of the net loss on repurchase of debt (see Note 14).

        The Company recorded a gain of $3.1 million to "Net interest expense"
        for the six months ended June 30, 2009, prior to the unwind of the
        swaps. In the third quarter of 2009, subsequent to the unwind, the
        Company amortized $1.4 million of the deferred gain to "Net interest
        expense". The total gain recorded to "Net interest expense" for the
        nine months ended September 30, 2009 was $4.5 million. For the three
        months ended September 30, 2008, the Company recorded a gain of
        $1.0 million and $2.1 million for the nine months ended September 30,
        2008.

        Stock-based compensation expense management

        To minimize the volatility to compensation expense created by changes
        in share price, the Company entered into a Total Return Swap ("TRS")
        to reduce the volatility and total cost to the Company over time of
        three types of stock-based compensation programs: share appreciation
        rights ("SARs"), deferred share units ("DSUs"), and restricted share
        units ("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
        substantially 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 offset by any compensation expense
        reductions, which would reduce the effectiveness of the swap.

        "Compensation and benefits" expense in the Consolidated Statement of
        Income includes an unrealized gain on these swaps of $5.5 million in
        the third quarter of 2009 and a net gain of $8.4 million for the nine
        months ended September 30, 2009 which was inclusive of both realized
        losses and unrealized gains (unrealized losses of $27.9 million for
        the third quarter 2008 and $21.9 million for the nine months ended
        September 30, 2008). 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 that was settled in the
        second quarter of 2009. At September 30, 2009, the unrealized loss on
        the remaining TRS of $28.4 million was included in "Other long-term
        liabilities" on our Consolidated Balance Sheet (December 31, 2008 -
        $67.9 million).

        Fuel price management

        At September 30, 2009, the Company had crude futures contracts, which
        are accounted for as cash flow hedges, to purchase approximately
        45,000 barrels during the remainder of 2009 at average quarterly
        prices of US$38.19 per barrel. This represents approximately 3% of
        estimated fuel purchases for the remainder of 2009. At September 30,
        2009, the unrealized gain on these futures contracts was $1.6 million
        (December 31, 2008 - $3.2 million) and was reflected in "Other"
        current assets with the offset, net of tax, reflected in Accumulated
        other comprehensive income ("AOCI") on our Consolidated Balance
        Sheet.

        At September 30, 2009, the Company had foreign exchange ("FX")
        forward contracts (in conjunction with the crude purchases above),
        which are accounted for as cash flow hedges, totalling US$1.1 million
        for the remainder of 2009 at an average exchange rate of 1.23. At
        September 30, 2009, the unrealized loss on these forward contracts
        was $0.2 million (December 31, 2008 - loss of $0.1 million) and was
        recognized in "Accounts payable and accrued liabilities" with the
        offset, net of tax, reflected in "AOCI" on our Consolidated Balance
        Sheet.

        At September 30, 2009, the Company had diesel futures contracts,
        which are accounted for as cash flow hedges, to purchase
        approximately 285,000 barrels during the period October 2009 to
        September 2010 at average quarterly prices of US$77.29 per barrel.
        This represents approximately 5% of estimated fuel purchases for this
        period. At September 30, 2009, the unrealized gain on these futures
        contracts was $1.1 million (December 31, 2008 - unrealized loss
        $4.5 million) and was reflected in "Other" current assets with the
        offset, net of tax, reflected in "AOCI" on our Consolidated Balance
        Sheet.

        In addition, at September 30, 2009, the Company had heating oil crack
        spread futures contracts, which were not designated nor accounted for
        as cash flow hedges, to purchase approximately 150,000 barrels during
        the fourth quarter of 2009 at an average price of US$6.05 per barrel.
        This represents approximately 10% of estimated fuel purchases in the
        fourth quarter. At September 30, 2009, the unrealized gain on these
        futures contracts was $0.2 million and has been recognized in income
        in "Fuel" expense.

        For the third quarter of 2009, "Fuel" expense was decreased by
        $1.5 million as a result of realized gains of $1.7 million arising
        from settled swaps, partially offset by realized losses of
        $0.2 million arising from settled FX forward contracts. For the third
        quarter of 2008, "Fuel" expense was reduced by $3.4 million as a
        result of realized gains of $3.8 million arising from settled swaps,
        partially offset by realized losses of $0.4 million arising from
        settled FX forward contracts.

        For the nine months ended September 30, 2009, "Fuel" expense was
        increased by $3.3 million due to a combination of realized losses of
        $3.1 million arising from settled swaps and $0.2 million arising from
        settled FX forward contracts. For the nine months ended September 30,
        2008, "Fuel" expense was reduced by $12.2 million as a result of
        realized gains of $13.9 million arising from settled swaps, partially
        offset by realized losses of $1.7 million arising from settled FX
        forward contracts.

        Credit risk

        Credit risk refers to the possibility that a customer or counterparty
        will fail to fulfil its obligations under a contract and as a result,
        create a financial loss for the Company. The Company's credit risk
        regarding its investment in long-term floating rate notes are
        discussed in more detail in Note 12.

        Credit risk management

        The railway industry services predominantly financially established
        customers and the Company has experienced limited financial loss with
        respect to credit risk. The credit worthiness of customers is
        assessed using credit scores supplied by a third party, and through
        direct monitoring of their financial well-being on a continual basis.
        The Company establishes guidelines for customer credit limits and
        should thresholds in these areas be reached, appropriate precautions
        are taken to improve collectibility. There has been no significant
        change to the Company's exposure to credit risk in the quarter.

    17  Stock-based compensation

        In the first nine months of 2009, under CP's stock option plans, the
        Company issued 747,800 options to purchase Common Shares at the
        weighted average price of $36.29 per share, based on the closing
        price on the grant date. In tandem with these options, 747,450 stock
        appreciation rights were issued at the weighted average exercise
        price of $36.29.

        Pursuant to the employee plan, options may be exercised upon vesting,
        which is between 24 months and 36 months after the grant date, and
        will expire after 10 years. Some options only vest if certain
        performance targets are achieved and expire approximately five years
        after the grant date.

        The following is a summary of the Company's fixed stock option plans
        as of September 30, 2009 (including options granted under the
        Directors' Stock Option Plan, which was suspended in 2003):

                                        2009                    2008
                              ----------------------- -----------------------
                                            Weighted                Weighted
                                             average                 average
                               Number of    exercise   Number of    exercise
                                 options       price     options       price
                              ----------------------- -----------------------
        Outstanding,
         January 1             7,671,143   $   49.52   6,981,108   $   43.97
        New options granted      747,800       36.29   1,360,800       71.59
        Exercised               (473,725)      32.01    (531,860)      34.49
        Forfeited               (203,675)      57.61     (91,450)      47.78
                              -----------             -----------
        Outstanding,
         September 30          7,741,543   $   49.10   7,718,598   $   49.45
                              ----------------------- -----------------------
                              ----------------------- -----------------------
        Options exercisable
         at September 30       4,893,643   $   42.94   4,608,798   $   38.39
                              ----------------------- -----------------------
                              ----------------------- -----------------------

        Compensation expense is recognized over the vesting period for stock
        options issued since January 1, 2003, based on their estimated fair
        values on the date of grants, as determined by the Black-Scholes
        option pricing model.

        Under the fair value method, the fair value of all tandem and non-
        tandem options at the grant date was $5.4 million for options issued
        in the first nine months of 2009 (first nine months of 2008 -
        $21.0 million). Excluding tandem options, which are accounted for as
        SARS, the fair value of non-tandem options was $nil (first nine
        months of 2008 - $14.1 million). The weighted average fair value
        assumptions were approximately:

                                                       For the nine months
                                                        ended September 30
                                                         2009         2008
                                                    -------------------------

        Expected option life (years)                       5.00         4.39
        Risk-free interest rate                            2.14%        3.54%
        Expected stock price volatility                      30%          22%
        Expected annual dividends per share          $     0.99   $     0.99
        Weighted average fair value of options
         granted during the year                     $     7.24   $    15.12
                                                    -------------------------
                                                    -------------------------

        Performance share units

        In the first nine months of 2009, the Company issued 404,580
        Performance Share Units ("PSUs"). 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 expense related to the
        PSUs is accrued based on the price of Common Shares at the end of the
        period and the anticipated performance factor, over the vesting
        period. In the first nine months of 2009, the expense recognized for
        PSUs was $8.8 million.

    18  Pensions and other benefits

        The total benefit cost for the Company's defined benefit pension
        plans and post-retirement benefits for the three months ended
        September 30, 2009, was $10.3 million (three months ended
        September 30, 2008 - $21.6 million) and for the nine months ended
        September 30, 2009, was $23.7 million (nine months ended
        September 30, 2008 - $58.9 million).

    19  Significant customer

        During the first nine months of 2009, one customer comprised 9.3% of
        total revenue (first nine months of 2008 - 11.9%). At September 30,
        2009, that same customer represented 4.3% of total accounts
        receivable (September 30, 2008 - 4.7%).

    20  Commitments and contingencies

        In the normal course of its operations, the Company becomes involved
        in various legal actions, including claims relating to injuries and
        damages to property. The Company maintains provisions it considers to
        be adequate for such actions. While the final outcome with respect to
        actions outstanding or pending at September 30, 2009, 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.

        Capital commitments

        At September 30, 2009, the Company had multi-year capital commitments
        of $913.7 million, mainly for locomotive overhaul agreements, in the
        form of signed contracts. Payments for these commitments are due in
        2009 through 2028.

        Operating lease commitments

        At September 30, 2009, minimum payments under operating leases were
        estimated at $968.9 million in aggregate, with annual payments in
        each of the next five years of: balance of 2009 - $37.4 million; 2010
        - $145.3 million; 2011 - $124.9 million; 2012 - $111.5 million;
        2013 - $97.4 million.

        Guarantees

        At September 30, 2009, the Company had residual value guarantees on
        operating lease commitments of $174.4 million. The maximum amount
        that could be payable under these and all of the Company's other
        guarantees cannot be reasonably estimated due to the nature of
        certain of the guarantees. All or a portion of amounts paid under
        certain guarantees could be recoverable from other parties or through
        insurance. The Company has accrued for all guarantees that it expects
        to pay. At September 30, 2009, these accruals amounted to
        $8.3 million.

    21  Capital disclosures

        The Company monitors capital using a number of key financial metrics,
        including:
           -  total debt to total capitalization; and
           -  interest-coverage ratio: earnings before interest and taxes
              ("EBIT") to net interest expense.

        Both of these metrics have no standardized meanings prescribed by
        GAAP and, therefore, are unlikely to be comparable to similar
        measures of other companies.

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

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

        Interest coverage ratio
        -----------------------
        EBIT, which is a non-GAAP measure that is calculated, on a twelve
        month rolling basis, as revenues less operating expenses, less other
        income and charges, plus equity income in DM&E, divided by net
        interest expense. The ratio excludes changes in the estimated fair
        value of the Company's investment in long-term floating rate
        notes/ABCP and the gains on sale of partnership interest, Windsor
        Station and a land sale in Western Canada as these are not in the
        normal course of business.

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

        ---------------------------------------------------------------------
        (in millions of              Management   September 30, September 30,
         Canadian dollars)              targets           2009          2008
        ---------------------------------------------------------------------
        Long-term debt                              $  3,701.3    $  4,140.4
        Long-term debt maturing
         within one year                                 390.0         248.4
        Short-term borrowing                              57.7         280.0
        ---------------------------------------------------------------------
        Total debt(1)                               $  4,149.0    $  4,668.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Shareholders' equity                        $  6,745.2    $  5,795.6
        Total debt                                     4,149.0       4,668.8
        ---------------------------------------------------------------------
        Total debt plus equity(1)                   $ 10,894.2    $ 10,464.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Revenues less operating
         expenses(2)                                $    930.1    $  1,054.2
        Less:
          Other income and charges                       (36.5)        (22.9)
        Plus:
          Equity income in DM&E                           10.4          53.2
        ---------------------------------------------------------------------
        EBIT(1)(2)                                  $    904.0    $  1,084.5
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Total debt                                  $  4,149.0    $  4,668.8
        Total debt plus equity                      $ 10,894.2    $ 10,464.4
        ---------------------------------------------------------------------
        Total debt to total        No more than
         capitalization(1)             50.0%             38.1%         44.6%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        EBIT                                        $    904.0    $  1,084.5
        Net interest expense                        $    284.2    $    250.7
        ---------------------------------------------------------------------
        Interest Coverage          No less than
         Ratio(1)(2)                    4.0                3.2           4.3
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) These earnings measures have no standardized meanings prescribed
            by Canadian GAAP and, therefore, are unlikely to be comparable to
            similar measures of other companies.
        (2) The balance is calculated on a rolling twelve-month basis.


        The Company remains in compliance with all external financial
        covenants.

        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. In
        2009, the Company changed one of its measures used to monitor capital
        from net-debt to net-debt-plus-equity ratio to total debt to total
        capitalization to better align with a more common convention used by
        investors. The interest coverage ratio has decreased during the
        twelve-month period ending September 30, 2009 due to a reduction in
        year-over-year earnings and the unfavourable impact of a weakening
        Canadian dollar. 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.

        In addition, CP issued 13,900,000 common shares generating net
        proceeds of $488.9 million and monetized certain assets to reduce
        indebtedness and further augment its cash position due to ongoing
        uncertainty around the timing of the economic recovery.

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




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

                                                 Third Quarter
                                  -------------------------------------------
                                     2009    2008(1)(2)  Fav/(Unfav)     %
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue             $ 1,061.5  $ 1,239.5  $  (178.0)     (14.4)
      Other revenue                    26.7       25.2        1.5        6.0
                                  --------------------------------
                                    1,088.2    1,264.7     (176.5)     (14.0)
                                  --------------------------------
    Operating expenses
    ------------------
      Compensation and benefits       320.2      312.3       (7.9)      (2.5)
      Fuel                            134.0      275.8      141.8       51.4
      Materials                        45.8       49.3        3.5        7.1
      Equipment rents                  42.9       44.4        1.5        3.4
      Depreciation and
       amortization                   132.7      120.8      (11.9)      (9.9)
      Purchased services and other    151.4      162.3       10.9        6.7
                                  --------------------------------
                                      827.0      964.9      137.9       14.3
                                  --------------------------------
    Revenues less operating
     expenses                         261.2      299.8      (38.6)     (12.9)

    Gain on sale of partnership
     interest                             -          -          -          -
    Gain on sale of Windsor
     Station and a land sale
     in Western Canada                 79.1          -       79.1          -
    Gain (loss) in fair value of
     long-term floating rate
     notes/asset-backed
     commercial paper                   1.6      (28.1)      29.7          -
    Foreign exchange gain (loss)
     on long-term debt                 (0.1)      (2.9)       2.8          -
    Equity income in Dakota,
     Minnesota & Eastern Railroad
     Corporation (DM&E)                   -       16.5      (16.5)    (100.0)

    Less:

      Other income and charges          1.6        2.8        1.2       42.9
      Net interest expense             64.7       64.5       (0.2)      (0.3)
                                  --------------------------------
    Income before income tax
     expense                          275.5      218.0       57.5       26.4
      Income tax expense               80.1       47.3      (32.8)     (69.3)
                                  --------------------------------
    Net income                    $   195.4  $   170.7  $    24.7       14.5
                                  --------------------------------
                                  --------------------------------

    Basic earnings per share      $    1.16  $    1.11  $    0.05        4.5
                                  --------------------------------
                                  --------------------------------

    Diluted earnings per share    $    1.16  $    1.10  $    0.06        5.5
                                  --------------------------------
                                  --------------------------------


                                                  Year-to-date
                                  -------------------------------------------
                                     2009    2008(1)(2)  Fav/(Unfav)     %
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue             $ 3,084.2  $ 3,557.0  $  (472.8)     (13.3)
      Other revenue                    97.1       74.9       22.2       29.6
                                  --------------------------------
                                    3,181.3    3,631.9     (450.6)     (12.4)
                                  --------------------------------
    Operating expenses
    ------------------
      Compensation and benefits       962.7      956.1       (6.6)      (0.7)
      Fuel                            422.7      766.3      343.6       44.8
      Materials                       164.3      171.3        7.0        4.1
      Equipment rents                 139.8      136.4       (3.4)      (2.5)
      Depreciation and
       amortization                   400.3      365.4      (34.9)      (9.6)
      Purchased services and other    465.1      487.7       22.6        4.6
                                  --------------------------------
                                    2,554.9    2,883.2      328.3       11.4
                                  --------------------------------
    Revenues less operating
     expenses                         626.4      748.7     (122.3)     (16.3)

    Gain on sale of partnership
     interest                          81.2          -       81.2          -
    Gain on sale of Windsor
     Station and a land sale
     in Western Canada                 79.1          -       79.1          -
    Gain (loss) in fair value of
     long-term floating rate
     notes/asset-backed
     commercial paper                   6.3      (49.4)      55.7          -
    Foreign exchange gain (loss)
     on long-term debt                  2.7      (12.4)      15.1          -
    Equity income in Dakota,
     Minnesota & Eastern Railroad
     Corporation (DM&E)                   -       40.9      (40.9)    (100.0)

    Less:

      Other income and charges         28.2       14.4      (13.8)     (95.8)
      Net interest expense            210.4      187.3      (23.1)     (12.3)
                                  --------------------------------
    Income before income tax
     expense                          557.1      526.1       31.0        5.9
      Income tax expense              141.9      110.0      (31.9)     (29.0)
                                  --------------------------------
    Net income                    $   415.2  $   416.1  $    (0.9)      (0.2)
                                  --------------------------------
                                  --------------------------------

    Basic earnings per share      $    2.51  $    2.71  $   (0.20)      (7.4)
                                  --------------------------------
                                  --------------------------------

    Diluted earnings per share    $    2.50  $    2.68  $   (0.18)      (6.7)
                                  --------------------------------
                                  --------------------------------

    (1) The 2008 figures include the results of the DM&E on an equity
        accounting basis through October 29, 2008 and on a fully consolidated
        basis after that date including the first three quarters of 2009.

    (2) Certain 2008 figures have been restated for the adoption of CICA
        accounting standard 3064, which requires the expensing of certain
        expenditures related to pre-operating periods of a facility rather
        than recording them as assets.




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

                                                 Third Quarter
                                  -------------------------------------------
                                     2009    2008(1)(2)  Fav/(Unfav)     %
                                  -------------------------------------------
    Financial (millions)
    --------------------

    Net income                    $   195.4  $   170.7  $    24.7       14.5
    Exclude:

    Foreign exchange gain (loss)
    ----------------------------
     on long-term debt (FX on LTD)
     -----------------------------
      FX on LTD                        (0.1)      (2.9)       2.8          -
      Income tax recovery
       (expense) on FX on LTD(3)      (18.1)       9.0      (27.1)         -
                                  --------------------------------
      FX on LTD (net of tax)          (18.2)       6.1      (24.3)         -

    Other specified items
    ---------------------
    Gain on sale of partnership
     interest                             -          -          -          -
    Income tax expense on
     partnership interest                 -          -          -          -
                                  --------------------------------
    Gain on sale of partnership
     interest (net of tax)                -          -          -          -
                                  --------------------------------
    Gain on sale of Windsor
     Station and a land sale
     in Western Canada                 79.1          -       79.1          -
    Income tax expense on sale
     of Windsor Station and a
     land sale in Western Canada      (11.0)         -      (11.0)         -
                                  --------------------------------
    Gain on sale of Windsor
     Station and a land sale in
     Western Canada (net of tax)       68.1          -       68.1          -
                                  --------------------------------
    Gain (loss) in fair value
     of long-term floating rate
     notes/asset-backed
     commercial paper (ABCP)            1.6      (28.1)      29.7          -
    Income tax recovery (expense)
     on gain (loss) in fair value
     of long-term floating rate
     notes/ABCP                        (0.3)       8.3       (8.6)         -
                                  --------------------------------
    Gain (loss) in fair value
     of long-term floating rate
     notes/(ABCP) (net of tax)          1.3      (19.8)      21.1          -
                                  --------------------------------
    Income before foreign
     exchange gain (loss) on
     long-term debt and other
     specified items(4)           $   144.2  $   184.4  $   (40.2)     (21.8)
                                  --------------------------------
                                  --------------------------------
    Earnings per share (EPS)
    ------------------------
    Diluted EPS, as determined
     by GAAP                      $    1.16  $    1.10  $    0.06        5.5
    Exclude:
      Diluted EPS, related to
       FX on LTD, net of tax(4)       (0.11)      0.04      (0.15)         -
      Diluted EPS, related to
       other specified items,
       net of tax(4)                   0.42      (0.13)      0.55          -
                                  --------------------------------
    Diluted EPS, before FX on LTD
     and other specified items(4) $    0.85  $    1.19  $   (0.34)     (28.6)
                                  --------------------------------
                                  --------------------------------

    Operating ratio(4)(5) (%)          76.0       76.3        0.3          -

    Shares Outstanding
    ------------------
    Weighted average (avg) number
     of shares outstanding
     (millions)                       168.1      153.8       14.3        9.3
    Weighted avg number of
     diluted shares outstanding
     (millions)                       168.7      155.1       13.6        8.8

    Foreign Exchange
    ----------------
    Average foreign exchange
     rate (US$/Canadian$)             0.899      0.966     (0.067)      (6.9)
    Average foreign exchange
     rate (Canadian$/US$)             1.112      1.035      0.077        7.4


                                                  Year-to-date
                                  -------------------------------------------
                                     2009    2008(1)(2)  Fav/(Unfav)     %
                                  -------------------------------------------
    Financial (millions)
    --------------------

    Net income                    $   415.2  $   416.1  $    (0.9)      (0.2)
    Exclude:

    Foreign exchange gain (loss)
    ----------------------------
     on long-term debt (FX on LTD)
     -----------------------------
      FX on LTD                         2.7      (12.4)      15.1          -
      Income tax recovery
       (expense) on FX on LTD(3)      (27.1)      12.4      (39.5)         -
                                  --------------------------------
      FX on LTD (net of tax)          (24.4)         -      (24.4)         -

    Other specified items
    ---------------------
    Gain on sale of partnership
     interest                          81.2          -       81.2          -
    Income tax expense on
     partnership interest             (12.5)         -      (12.5)         -
                                  --------------------------------
    Gain on sale of partnership
     interest (net of tax)             68.7          -       68.7          -
                                  --------------------------------
    Gain on sale of Windsor
     Station and a land sale
     in Western Canada                 79.1          -       79.1          -
    Income tax expense on sale
     of Windsor Station and a
     land sale in Western Canada      (11.0)         -      (11.0)         -
                                  --------------------------------
    Gain on sale of Windsor
     Station and a land sale in
     Western Canada (net of tax)       68.1          -       68.1          -
                                  --------------------------------
    Gain (loss) in fair value
     of long-term floating rate
     notes/asset-backed
     commercial paper (ABCP)            6.3      (49.4)      55.7          -
    Income tax recovery (expense)
     on gain (loss) in fair value
     of long-term floating rate
     notes/ABCP                        (1.8)      14.6      (16.4)         -
                                  --------------------------------
    Gain (loss) in fair value
     of long-term floating rate
     notes/(ABCP) (net of tax)          4.5      (34.8)      39.3          -
                                  --------------------------------
    Income before foreign
     exchange gain (loss) on
     long-term debt and other
     specified items(4)           $   298.3  $   450.9  $  (152.6)     (33.8)
                                  --------------------------------
                                  --------------------------------

    Earnings per share (EPS)
    ------------------------
    Diluted EPS, as determined
     by GAAP                      $    2.50  $    2.68  $   (0.18)      (6.7)
    Exclude:
      Diluted EPS, related to
       FX on LTD, net of tax(4)       (0.15)         -      (0.15)         -
      Diluted EPS, related to
       other specified items,
       net of tax(4)                   0.85      (0.22)      1.07          -
                                  --------------------------------
    Diluted EPS, before FX on LTD
     and other specified items(4) $    1.80  $    2.90  $   (1.10)     (37.9)
                                  --------------------------------
                                  --------------------------------

    Operating ratio(4)(5) (%)          80.3       79.4       (0.9)         -

    Shares Outstanding
    ------------------
    Weighted average (avg) number
     of shares outstanding
     (millions)                       165.7      153.6       12.1        7.9
    Weighted avg number of
     diluted shares outstanding
     (millions)                       166.0      155.2       10.8        7.0

    Foreign Exchange
    ----------------
    Average foreign exchange
     rate (US$/Canadian$)             0.849      0.988     (0.139)     (14.1)
    Average foreign exchange
     rate (Canadian$/US$)             1.178      1.012      0.166       16.4

    (1) The 2008 figures include the results of the DM&E on an equity
        accounting basis through October 29, 2008 and on a fully consolidated
        basis after that date including the first three quarters of 2009.
    (2) Certain 2008 figures have been restated for the adoption of CICA
        accounting standard 3064, which requires the expensing of certain
        expenditures related to pre-operating periods of a facility rather
        than recording them as assets.
    (3) Income tax on FX on LTD is discussed in the MD&A in the "Other Income
        Statement Items" section - "Income Taxes".
    (4) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies.
        See note on non-GAAP earnings measures included in this press
        release.
    (5) Operating ratio is the percentage derived by dividing operating
        expenses by total revenues.




                        Summary of Rail Data (Page 3)
                        -----------------------------
                   Pro forma Basis Including DM&E in 2008
                   --------------------------------------

                                                 Third Quarter
                                  -------------------------------------------
                                    2009  2008(1)(2)(3)  Fav/(Unfav)     %
                                            Pro forma
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue             $ 1,061.5  $ 1,340.0  $  (278.5)     (20.8)
      Other revenue                    26.7       25.8        0.9        3.5
                                  --------------------------------
                                    1,088.2    1,365.8     (277.6)     (20.3)
                                  --------------------------------
    Operating expenses
    ------------------
      Compensation and benefits       320.2      331.0       10.8        3.3
      Fuel                            134.0      292.8      158.8       54.2
      Materials                        45.8       54.1        8.3       15.3
      Equipment rents                  42.9       48.6        5.7       11.7
      Depreciation and
       amortization                   132.7      131.8       (0.9)      (0.7)
      Purchased services and other    151.4      177.3       25.9       14.6
                                  --------------------------------
                                      827.0    1,035.6      208.6       20.1
                                  --------------------------------
    Operating income(3)(4)            261.2      330.2      (69.0)     (20.9)

      Other income and charges          1.6        2.7        1.1       40.7
      Net interest expense             64.7       67.7        3.0        4.4
      Income tax expense before
       foreign exchange gain
       (loss) on long-term debt
       and other specified items(3)    50.7       75.4       24.7       32.8
                                  --------------------------------
    Income before foreign exchange
     gain (loss) on long-term debt
     and other specified items(3) $   144.2  $   184.4  $   (40.2)     (21.8)
                                  --------------------------------
                                  --------------------------------

    Operating ratio(3)(5) (%)          76.0       75.8       (0.2)         -

    Diluted EPS, before FX on LTD
     and other specified items(3) $    0.85  $    1.19  $   (0.34)     (28.6)


                                                  Year-to-date
                                  -------------------------------------------
                                    2009  2008(1)(2)(3)  Fav/(Unfav)     %
                                            Pro forma
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue             $ 3,084.2  $ 3,816.5  $  (732.3)     (19.2)
      Other revenue                    97.1       76.6       20.5       26.8
                                  --------------------------------
                                    3,181.3    3,893.1     (711.8)     (18.3)
                                  --------------------------------
    Operating expenses
    ------------------
      Compensation and benefits       962.7    1,012.4       49.7        4.9
      Fuel                            422.7      813.2      390.5       48.0
      Materials                       164.3      184.3       20.0       10.9
      Equipment rents                 139.8      148.0        8.2        5.5
      Depreciation and
       amortization                   400.3      397.2       (3.1)      (0.8)
      Purchased services and other    465.1      519.6       54.5       10.5
                                  --------------------------------
                                    2,554.9    3,074.7      519.8       16.9
                                  --------------------------------

    Operating income(3)(4)            626.4      818.4     (192.0)     (23.5)

      Other income and charges         28.2       14.0      (14.2)    (101.4)
      Net interest expense            210.4      189.1      (21.3)     (11.3)
      Income tax expense before
       foreign exchange gain
       (loss) on long-term debt
       and other specified items(3)    89.5      164.4       74.9       45.6
                                  --------------------------------
    Income before foreign exchange
     gain (loss) on long-term debt
     and other specified items(3) $   298.3  $   450.9  $  (152.6)     (33.8)
                                  --------------------------------
                                  --------------------------------

    Operating ratio(3)(5) (%)          80.3       79.0       (1.3)         -

    Diluted EPS, before FX on LTD
     and other specified items(3) $    1.80  $    2.90  $   (1.10)     (37.9)

    (1) Pro forma basis redistributes DM&E equity income to a line-by-line
        consolidation of DM&E results for the first three quarters of 2008.
        See note on non-GAAP earnings measures included in this press
        release.

    (2) Certain 2008 figures have been restated for the adoption of CICA
        accounting standard 3064, which requires the expensing of certain
        expenditures related to pre-operating periods of a facility rather
        than recording them as assets.

    (3) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies.
        See note on non-GAAP earnings measures included in this press
        release.

    (4) Operating income is a non-GAAP term, which represents "revenue less
        operating expenses".

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




                        Summary of Rail Data (Page 4)
                        -----------------------------
                Pro forma Basis for Comparative Purposes only
                ---------------------------------------------

                                                 Third Quarter
                                  -------------------------------------------
                                     2009    2008(1)(2)  Fav/(Unfav)     %
                                             Pro forma
                                  -------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                       $   279.6  $   262.4  $    17.2        6.6
    - Coal                            119.7      161.0      (41.3)     (25.7)
    - Sulphur and fertilizers          80.3      126.1      (45.8)     (36.3)
    - Forest products                  45.3       68.9      (23.6)     (34.3)
    - Industrial and consumer
       products                       191.6      249.3      (57.7)     (23.1)
    - Automotive                       59.6       84.5      (24.9)     (29.5)
    - Intermodal                      285.4      387.8     (102.4)     (26.4)
                                  --------------------------------
    Total Freight Revenues        $ 1,061.5  $ 1,340.0  $  (278.5)     (20.8)
                                  --------------------------------

    Millions of Revenue Ton-Miles
     (RTM)
    - Grain                           8,458      7,321      1,137       15.5
    - Coal                            4,784      5,580       (796)     (14.3)
    - Sulphur and fertilizers         2,747      4,785     (2,038)     (42.6)
    - Forest products                 1,216      1,535       (319)     (20.8)
    - Industrial and consumer
       products                       4,570      5,651     (1,081)     (19.1)
    - Automotive                        417        533       (116)     (21.8)
    - Intermodal                      5,829      7,381     (1,552)     (21.0)
                                  --------------------------------
    Total RTMs                       28,021     32,786     (4,765)     (14.5)
                                  --------------------------------

    Freight Revenue per RTM (cents)
    - Grain                            3.31       3.58      (0.27)      (7.5)
    - Coal                             2.50       2.89      (0.39)     (13.5)
    - Sulphur and fertilizers          2.92       2.64       0.28       10.6
    - Forest products                  3.73       4.49      (0.76)     (16.9)
    - Industrial and consumer
       products                        4.19       4.41      (0.22)      (5.0)
    - Automotive                      14.29      15.85      (1.56)      (9.8)
    - Intermodal                       4.90       5.25      (0.35)      (6.7)

    Freight Revenue per RTM            3.79       4.09      (0.30)      (7.3)

    Carloads (thousands)
    - Grain                           117.6      112.0        5.6        5.0
    - Coal                             84.2       82.3        1.9        2.3
    - Sulphur and fertilizers          29.7       46.7      (17.0)     (36.4)
    - Forest products                  17.4       25.7       (8.3)     (32.3)
    - Industrial and consumer
       products                        86.6      110.8      (24.2)     (21.8)
    - Automotive                       27.2       34.7       (7.5)     (21.6)
    - Intermodal                      239.7      324.6      (84.9)     (26.2)
                                  --------------------------------
    Total Carloads                    602.4      736.8     (134.4)     (18.2)
                                  --------------------------------

    Freight Revenue per Carload
    - Grain                       $   2,378  $   2,343  $      35        1.5
    - Coal                            1,422      1,956       (534)     (27.3)
    - Sulphur and fertilizers         2,704      2,700          4        0.1
    - Forest products                 2,603      2,681        (78)      (2.9)
    - Industrial and consumer
       products                       2,212      2,250        (38)      (1.7)
    - Automotive                      2,191      2,435       (244)     (10.0)
    - Intermodal                      1,191      1,195         (4)      (0.3)

    Freight Revenue per Carload   $   1,762  $   1,819  $     (57)      (3.1)


                                                  Year-to-date
                                  -------------------------------------------
                                     2009    2008(1)(2)  Fav/(Unfav)     %
                                             Pro forma
                                  -------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                       $   838.0  $   750.7  $    87.3       11.6
    - Coal                            331.2      481.6     (150.4)     (31.2)
    - Sulphur and fertilizers         219.8      399.9     (180.1)     (45.0)
    - Forest products                 131.2      191.0      (59.8)     (31.3)
    - Industrial and consumer
       products                       565.3      686.8     (121.5)     (17.7)
    - Automotive                      161.1      245.6      (84.5)     (34.4)
    - Intermodal                      837.6    1,060.9     (223.3)     (21.0)
                                  --------------------------------
    Total Freight Revenues        $ 3,084.2  $ 3,816.5  $  (732.3)     (19.2)
                                  --------------------------------

    Millions of Revenue Ton-Miles
     (RTM)
    - Grain                          25,682     23,116      2,566       11.1
    - Coal                           12,504     16,975     (4,471)     (26.3)
    - Sulphur and fertilizers         6,646     15,879     (9,233)     (58.1)
    - Forest products                 3,372      4,650     (1,278)     (27.5)
    - Industrial and consumer
       products                      12,891     16,548     (3,657)     (22.1)
    - Automotive                      1,127      1,731       (604)     (34.9)
    - Intermodal                     17,256     21,645     (4,389)     (20.3)
                                  --------------------------------
    Total RTMs                       79,478    100,544    (21,066)     (21.0)
                                  --------------------------------

    Freight Revenue per RTM (cents)
    - Grain                            3.26       3.25       0.01        0.3
    - Coal                             2.65       2.84      (0.19)      (6.7)
    - Sulphur and fertilizers          3.31       2.52       0.79       31.3
    - Forest products                  3.89       4.11      (0.22)      (5.4)
    - Industrial and consumer
       products                        4.39       4.15       0.24        5.8
    - Automotive                      14.29      14.19       0.10        0.7
    - Intermodal                       4.85       4.90      (0.05)      (1.0)

    Freight Revenue per RTM            3.88       3.80       0.08        2.1

    Carloads (thousands)
    - Grain                           348.4      337.0       11.4        3.4
    - Coal                            221.2      245.2      (24.0)      (9.8)
    - Sulphur and fertilizers          76.9      154.7      (77.8)     (50.3)
    - Forest products                  50.4       76.8      (26.4)     (34.4)
    - Industrial and consumer
       products                       253.3      327.9      (74.6)     (22.8)
    - Automotive                       70.8      111.5      (40.7)     (36.5)
    - Intermodal                      721.9      936.4     (214.5)     (22.9)
                                  --------------------------------
    Total Carloads                  1,742.9    2,189.5     (446.6)     (20.4)
                                  --------------------------------

    Freight Revenue per Carload
    - Grain                       $   2,405  $   2,228  $     177        7.9
    - Coal                            1,497      1,964       (467)     (23.8)
    - Sulphur and fertilizers         2,858      2,585        273       10.6
    - Forest products                 2,603      2,487        116        4.7
    - Industrial and consumer
       products                       2,232      2,095        137        6.5
    - Automotive                      2,275      2,203         72        3.3
    - Intermodal                      1,160      1,133         27        2.4

    Freight Revenue per Carload   $   1,770  $   1,743  $      27        1.5

    (1) Pro forma basis redistributes DM&E equity income to a line-by-line
        consolidation of DM&E results for the first three quarters of 2008.
        See note on non-GAAP earnings measures included in this press
        release.

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




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

                                                 Third Quarter
                                  -------------------------------------------
                                    2009  2008(1)(2)(3)  Fav/(Unfav)     %
                                  -------------------------------------------
    Operations Performance
    ----------------------
    Pro forma Consolidated Data
    ---------------------------
     including DM&E(1)
     -----------------
    Total operating expenses
     per GTM (cents)(4)                1.54       1.63       0.09        5.5

    Freight gross ton-miles (GTM)
     (millions)                      53,709     63,511     (9,802)     (15.4)
    Train miles (000)(5)              8,562     10,900     (2,338)     (21.4)

    Average number of active
     employees - Total               15,420     17,385      1,965       11.3
    Average number of active
     employees - Expense             13,352     15,153      1,801       11.9

    Number of employees at end
     of period - Total               15,416     17,249      1,833       10.6
    Number of employees at end
     of period - Expense             13,371     15,081      1,710       11.3

    U.S. gallons of locomotive
     fuel per 1,000 GTMs -
     freight & yard                    1.09       1.14       0.05        4.4
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(6)                     58.1       72.0       13.9       19.3
    Average fuel price (U.S.
     dollars per U.S. gallon)          2.07       3.93       1.86       47.3

    Fluidity Data (excluding DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                20.7       21.3        0.6        2.8
    Average train speed - AAR
     definition (mph)                  25.7       23.9        1.8        7.5
    Car miles per car day             147.1      145.2        1.9        1.3
    Average daily active cars
     on-line (000)                     44.5       53.4        8.9       16.7
    Average daily active road
     locomotives on-line                694        963        269       27.9

    Safety
    ------
    FRA personal injuries per
     200,000 employee-hours
     (CP only)                         1.97       1.79      (0.18)     (10.1)
    FRA train accidents per
     million train-miles (CP only)     0.64       1.58       0.94       59.5
    FRA personal injuries per
     200,000 employee-hours
     (DM&E only)                       3.23       4.12       0.89       21.6
    FRA train accidents per
     million train-miles
     (DM&E only)                      12.14      13.15       1.01        7.7


                                                  Year-to-date
                                  -------------------------------------------
                                    2009  2008(1)(2)(3)  Fav/(Unfav)     %
                                  -------------------------------------------
    Operations Performance
    ----------------------
    Pro forma Consolidated Data
    ---------------------------
     including DM&E(1)
     -----------------
    Total operating expenses
     per GTM (cents)(4)                1.66       1.60      (0.06)      (3.8)

    Freight gross ton-miles (GTM)
     (millions)                     154,277    192,217    (37,940)     (19.7)
    Train miles (000)(5)             25,860     33,265     (7,405)     (22.3)

    Average number of active
     employees - Total               15,209     16,904      1,695       10.0
    Average number of active
     employees - Expense             13,669     15,184      1,515       10.0

    Number of employees at end
     of period - Total               15,416     17,249      1,833       10.6
    Number of employees at end
     of period - Expense             13,371     15,081      1,710       11.3

    U.S. gallons of locomotive
     fuel per 1,000 GTMs -
     freight & yard                    1.19       1.22       0.03        2.5
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(6)                    181.9      231.4       49.5       21.4
    Average fuel price (U.S.
     dollars per U.S. gallon)          1.97       3.47       1.50       43.2

    Fluidity Data (excluding DM&E)
    ------------------------------
    Average terminal dwell - AAR
     definition (hours)                21.5       22.3        0.8        3.6
    Average train speed - AAR
     definition (mph)                  25.7       23.8        1.9        8.0
    Car miles per car day             144.0      143.5        0.5        0.3
    Average daily active cars
     on-line (000)                     45.2       55.4       10.2       18.4
    Average daily active road
     locomotives on-line                749      1,003        254       25.3

    Safety
    ------
    FRA personal injuries per
     200,000 employee-hours
     (CP only)                         1.74       1.47      (0.27)     (18.4)
    FRA train accidents per
     million train-miles (CP only)     1.29       1.85       0.56       30.3
    FRA personal injuries per
     200,000 employee-hours
     (DM&E only)                       2.22       3.68       1.46       39.7
    FRA train accidents per
     million train-miles
     (DM&E only)                       8.11      11.74       3.63       30.9

    (1) Pro forma basis redistributes DM&E equity income to a line-by-line
        consolidation of DM&E results for the first three quarters of 2008.
        See note on non-GAAP earnings measures included in this press
        release.

    (2) Certain 2008 figures have been restated for the adoption of CICA
        accounting standard 3064, which requires the expensing of certain
        expenditures related to pre-operating periods of a facility rather
        than recording them as assets.

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

    (4) The pro forma total operating expenses per GTM for 2008 is a non-GAAP
        measure.
        See note on non-GAAP earnings measures included in this press
        release.

    (5) Train miles decreased in response to the reduced volumes. Management
        reduced train starts by consolidating trains and running longer
        heavier trains which also decreased overall train miles.

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

SOURCE Canadian Pacific

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


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