Canadian Pacific grows EPS in 2007



    CALGARY, Jan. 29 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE:   CP)
announced its fourth-quarter and full year results for 2007 today. In the
fourth quarter, net income increased to $342 million in 2007 compared with
$146 million in 2006 primarily due to lower future Canadian income tax rates.
For the full year 2007, net income improved 19 per cent to $946 million
compared with $796 million in 2006. This improvement was driven by an increase
in operating income and a foreign exchange gain on long-term debt. In 2007, CP
recorded a full year future tax benefit of $163 million compared with a tax
benefit in 2006 of $176 million, both due to lower future Canadian income tax
rates. Diluted earnings per share was $2.21 in fourth-quarter 2007 compared
with $0.92 in fourth-quarter 2006 and $6.08 for the full year 2007 and $5.02
in 2006.

    
    SUMMARY OF FOURTH-QUARTER 2007 COMPARED WITH FOURTH-QUARTER 2006

    -   Income before foreign exchange gains and losses on long-term debt and
        other specified items increased two per cent to $185 million from
        $181 million, due primarily to lower income tax rates in the quarter.
    -   Diluted earnings per share increased four per cent to $1.20 from
        $1.15 excluding foreign exchange gains and losses on long-term debt
        and other specified items.
    -   Operating ratio was 74.3 per cent compared with 73.1 per cent in
        2006.
    -   Total revenues were flat at $1.19 billion.
    

    "We delivered earnings growth in 2007 in a year that brought us many
challenges," said Fred Green, President and Chief Executive Officer. "Most
recently, in December, our operations were hit hard by harsh weather that
affected the entire supply chain, including high winds that shut down port and
terminal operators for several extended periods. This restricted our ability
to move the freight volumes we'd planned."
    Freight revenue, excluding the impact of foreign exchange, grew in the
fourth quarter by five per cent, however this growth was more than offset by
the impact of the stronger Canadian dollar, resulting in a decline in freight
revenue of one per cent to $1.14 billion when compared with fourth-quarter
2006. Operating expenses increased one per cent to $883 million in the
fourth-quarter 2007 compared with $870 million driven mainly by an increase in
fuel prices offset, to a degree, by foreign exchange.
    "Even with the impact of foreign exchange, we had revenue growth in some
sectors, including industrial and consumer products, intermodal and
automotive," added Mr. Green. "However, the rapid rise in the cost of fuel,
and the inherent lag in our fuel recovery programs combined with the net
negative impact of foreign exchange to reduce our operating income."

    
    SUMMARY OF FULL YEAR 2007 COMPARED WITH FULL YEAR 2006

    Excluding foreign exchange gains and losses on long-term debt and other
    specified items:

    -   Income increased seven per cent to $673 million from $628 million.
    -   Diluted earnings per share grew nine per cent to $4.32 from $3.95.
    -   Operating ratio improved 10 basis points to 75.3 per cent from
        75.4 per cent.
    -   Total revenue increased three per cent to $4.7 billion.
    -   Operating expenses increased three per cent to $3.5 billion.
    

    2008 OUTLOOK

    The outlook for 2008 for diluted earnings per share before foreign
exchange gains and losses on long-term debt and other specified items is
expected to be in the range of $4.70 to $4.85.
    "We continue to see strong demand in our bulk portfolio for 2008," said
Mr. Green. "And this, coupled with improved yield and a renewed focus on our
Integrated Operating Plan, will drive results. We still expect to meet our
objective for 2008 diluted earnings per share."
    The 2008 estimate assumes an average currency exchange rate of the U.S.
dollar at par with the Canadian dollar, and crude oil prices averaging US $87
per barrel, which is a change from the previous assumption of US $80 per
barrel.
    The outlook for growth in the North American economy continues to be
uncertain but CP expects to grow total revenue by four to six per cent in 2008
while total operating expenses are expected to increase by three to five per
cent.
    Capital investment is expected to be in the range of $885 to $895 million
in 2008, essentially flat when compared with 2007.
    CP expects free cash to be in excess of $250 million in 2008.
    The 2008 outlook includes the projected earnings of the Dakota Minnesota
and Eastern Railroad (DM&E) on an equity accounting basis for the full year.

    FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT AND OTHER SPECIFIED
    ITEMS

    CP had a foreign exchange gain on long-term debt of $8 million
($11 million after tax) in the fourth quarter of 2007, compared with a foreign
exchange loss on long-term debt of $45 million ($35 million after tax) in the
fourth quarter of 2006. Canadian income tax rate changes resulted in a benefit
of $146 million in the fourth-quarter due to a revaluation of opening future
income tax balances in 2007.
    For the full year 2007, CP had a foreign exchange gain on long-term debt
of $170 million ($126 million after tax) compared with a foreign exchange loss
of $0.1 million ($7 million after tax) for the full year 2006. Canadian income
tax rate changes resulted in a benefit of $163 million in 2007 due to a
revaluation of opening future income tax balances. This compares with a future
income tax benefit of $176 million for the full year 2006.
    At December 31, 2007 CP held investments in Asset Backed Commercial Paper
(ABCP) with an original cost of $144 million. When acquired, these investments
were rated R1 (High) by Dominion Bond Rating Service (DBRS), the highest
credit rating issued for commercial paper, and backed by R1 (High) rated
assets, and liquidity agreements. These investments matured during the third
quarter of 2007 but, as a result of liquidity issues in the ABCP market, did
not settle on maturity. Since early September 2007, a pan-Canadian
restructuring committee consisting of major investors has been working to
develop a solution to the liquidity problem affecting the ABCP market. The
pan-Canadian restructuring committee anticipates that, following approval by
the investors, a restructuring could be effected in March 2008 which would
result in the exchange of ABCP held by investors for a variety of new
long-term floating rate notes, certain of which may receive AAA credit
ratings. As a result, the Company adjusted the estimated fair value of the
investment and took a charge in the third-quarter of 2007 of $21 million ($15
million after tax) and classified its ABCP as long-term investments. As at
December 31, 2007 there has been no further change in the estimated fair value
of the Company's ABCP.
    Continuing uncertainties regarding the value of the assets which underlie
the ABCP, the amount and timing of cash flows and the outcome of the
restructuring process could give rise to material change in the value of the
Company's investment in ABCP which would impact the Company's near-term
earnings.

    Presentation of non-GAAP earnings

    CP presents non-GAAP earnings in this news release to provide a basis for
evaluating underlying earnings and liquidity trends in its business that can
be compared with prior periods' results of operations. These non-GAAP earnings
exclude foreign currency translation impacts on long-term debt, which can be
volatile and short term, and other specified items, which are not among CP's
normal ongoing revenues and operating expenses. The impact of volatile
short-term rate fluctuations on foreign-denominated debt is only realized when
long-term debt matures or is settled. A reconciliation of income, excluding
foreign exchange gains and losses on long-term debt and other specified items,
to net income as presented in the financial statements is detailed in the
attached Summary of Rail Data. Diluted EPS, 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 EPS".
    Free cash is calculated as cash provided by operating activities, less
cash used in investing activities and dividends paid, and adjusted for the
acquisition cost of DM&E and the investment in ABCP. Free cash is adjusted for
the DM&E acquisition, as it is not indicative of normal day-to-day investments
in the Company's asset base. In addition, free cash excludes the investment in
ABCP, which, upon acquisition, was initially classified as Cash and cash
equivalents and was subsequently classified as a long-term investment, as
noted above. This presentation for accounting purposes does not result in a
change in cash flow.
    Earnings that exclude the foreign exchange currency translation impact on
long-term debt and other specified items, and free cash after dividends, as
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.
    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.

    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 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; timing of
completion of capital and maintenance projects; currency and interest rate
fluctuations; effects of changes in market conditions on the financial
position of pension plans and investments; and various events that could
disrupt operations, including severe weather conditions, security threats and
governmental response to them, and technological changes.
    There are factors that could cause actual results to differ from those
described in the forward-looking statements contained in this news release.
These more specific factors are identified and discussed in the Outlook
section and elsewhere in this news release with the particular forward-looking
statement in question.
    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 except as required by law.
    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 900 communities where we
operate. Our combined ingenuity makes CPR a better place to work, rail a
better way to ship, and North America a better place to live. Come and visit
us at www.cpr.ca to see how we can put our ingenuity to work for you. Canadian
Pacific is proud to be the official rail freight services provider for the
Vancouver 2010 Olympic and Paralympic Winter Games.



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

                                                        For the three months
                                                          ended December 31
                                                          2007          2006
                                                  ---------------------------
                                                              (unaudited)
    Revenues
      Freight                                      $   1,142.6   $   1,151.5
      Other                                               45.7          38.9
                                                  ---------------------------
                                                       1,188.3       1,190.4
    Operating expenses
      Compensation and benefits                          308.4         322.2
      Fuel                                               196.3         171.2
      Materials                                           47.9          53.7
      Equipment rents                                     45.1          47.8
      Depreciation and amortization                      116.3         115.9
      Purchased services and other                       168.8         159.5
                                                  ---------------------------
                                                         882.8         870.3
                                                  ---------------------------
    Operating income                                     305.5         320.1

    Other (income) charges (Note 4)                       (3.8)          6.4
    Foreign exchange (gains) losses on
     long-term debt                                       (8.3)         44.9
    Interest expense (Note 5)                             63.4          49.8
    Income tax (recovery) expense (Note 6)               (88.1)         73.4
                                                  ---------------------------

    Net income                                     $     342.3   $     145.6
                                                  ---------------------------
                                                  ---------------------------

    Basic earnings per share (Note 7)              $      2.23   $      0.93
                                                  ---------------------------
                                                  ---------------------------

    Diluted earnings per share (Note 7)            $      2.21   $      0.92
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



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

                                                             For the year
                                                           ended December 31
                                                          2007          2006
                                                  ---------------------------
                                                              (unaudited)
    Revenues
      Freight                                      $   4,555.2   $   4,427.3
      Other                                              152.4         155.9
                                                  ---------------------------
                                                       4,707.6       4,583.2
    Operating expenses
      Compensation and benefits                        1,284.2       1,327.6
      Fuel                                               746.8         650.5
      Materials                                          215.5         212.9
      Equipment rents                                    207.5         181.2
      Depreciation and amortization                      472.0         464.1
      Purchased services and other                       617.4         618.3
                                                  ---------------------------
                                                       3,543.4       3,454.6
                                                  ---------------------------
    Operating income                                   1,164.2       1,128.6

    Other charges (Note 4)                                17.3          27.8
    Change in fair value of Canadian third party
     asset-backed commercial paper (Note 9)               21.5             -
    Foreign exchange (gains) losses on
     long-term debt                                     (169.8)          0.1
    Interest expense (Note 5)                            204.3         194.5
    Income tax expense (Note 6)                          144.7         109.9
                                                  ---------------------------

    Net income                                     $     946.2   $     796.3
                                                  ---------------------------
                                                  ---------------------------

    Basic earnings per share (Note 7)              $      6.14   $      5.06
                                                  ---------------------------
                                                  ---------------------------

    Diluted earnings per share (Note 7)            $      6.08   $      5.02
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
    (in millions)

                                                        For the three months
                                                          ended December 31
                                                          2007          2006
                                                  ---------------------------
                                                              (unaudited)


    Comprehensive income

    Net income                                     $     342.3   $     145.6

    Other comprehensive income

      Net change in foreign currency translation
       adjustments, net of hedging activities             (3.5)         (1.1)

      Net change in gains on derivatives
       designated as cash flow hedges                    (17.9)            -
                                                  ---------------------------

      Other comprehensive loss before income taxes       (21.4)         (1.1)

      Income tax recovery                                  7.2           3.7
                                                  ---------------------------

    Other comprehensive (loss) income (Note 12)          (14.2)          2.6
                                                  ---------------------------

    Comprehensive income                           $     328.1   $     148.2
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



                                                             For the year
                                                           ended December 31
                                                          2007          2006
                                                  ---------------------------
                                                              (unaudited)

    Comprehensive income

    Net income                                     $     946.2   $     796.3

    Other comprehensive income

      Net change in foreign currency translation
       adjustments, net of hedging activities             (7.4)         (1.6)

      Net change in gains on derivatives
       designated as cash flow hedges                    (36.8)            -
                                                  ---------------------------

      Other comprehensive loss before income taxes       (44.2)         (1.6)

      Income tax recovery                                  3.4           0.5
                                                  ---------------------------

    Other comprehensive loss (Note 12)                   (40.8)         (1.1)
                                                  ---------------------------

    Comprehensive income                           $     905.4   $     795.2
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED BALANCE SHEET
    (in millions)

                                                   December 31   December 31
                                                          2007          2006
                                                  ---------------------------
                                                           (unaudited)
    Assets
    Current assets
      Cash and cash equivalents                    $     378.1   $     124.3
      Accounts receivable and other current
       assets                                            542.8         615.7
      Materials and supplies                             179.5         158.6
      Future income taxes                                 67.3         106.3
                                                  ---------------------------

                                                       1,167.7       1,004.9

    Investments  (Note 9)                              1,668.6          64.9
    Net properties                                     9,293.1       9,122.9
    Other assets and deferred charges                  1,235.6       1,223.2
                                                  ---------------------------

    Total assets                                   $  13,365.0   $  11,415.9
                                                  ---------------------------
                                                  ---------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Short-term borrowing                         $     229.7   $         -
      Accounts payable and accrued liabilities           980.8       1,002.6
      Income and other taxes payable                      68.8          16.0
      Dividends payable                                   34.5          29.1
      Long-term debt maturing within one year             31.0         191.3
                                                  ---------------------------

                                                       1,344.8       1,239.0

    Deferred liabilities                                 714.6         725.7
    Long-term debt (Note 10)                           4,146.2       2,813.5
    Future income taxes                                1,701.5       1,781.2

    Shareholders' equity
      Share capital (Note 11)                          1,188.6       1,175.7
      Contributed surplus                                 42.4          32.3
      Accumulated other comprehensive income
       (Note 12)                                          39.6          66.4
      Retained income                                  4,187.3       3,582.1
                                                  ---------------------------

                                                       5,457.9       4,856.5
                                                  ---------------------------

    Total liabilities and shareholders' equity     $  13,365.0   $  11,415.9
                                                  ---------------------------
                                                  ---------------------------

    Commitments and contingencies (Note 18).
    See notes to interim consolidated financial statements.



    STATEMENT OF CONSOLIDATED CASH FLOWS
    (in millions)

                                                        For the three months
                                                          ended December 31
                                                          2007          2006
                                                  ---------------------------
                                                              (unaudited)
    Operating activities
      Net income                                   $     342.3   $     145.6
      Add (deduct) items not affecting cash:
        Depreciation and amortization                    116.3         115.9
        Future income taxes                             (129.6)         73.0
        Foreign exchange (gains) losses on
         long-term debt                                   (8.3)         44.9
        Amortization of deferred charges                   2.9           3.4
      Restructuring and environmental remediation
       payments (Note 8)                                 (22.0)        (27.1)
      Other operating activities, net                     20.6         (73.4)
      Change in non-cash working capital balances
       related to operations                              58.8          33.7
                                                  ---------------------------

      Cash provided by operating activities              381.0         316.0
                                                  ---------------------------

    Investing activities
      Additions to properties                           (324.6)       (204.5)
      Reductions in investments and other assets
       (Note 14)                                          16.8          23.3
      Acquisition of Dakota, Minnesota & Eastern
       Railroad Corporation (Note 9)                  (1,492.6)            -
      Net proceeds from disposal of transportation
       properties                                          5.6          18.7
                                                  ---------------------------

      Cash used in investing activities               (1,794.8)       (162.5)
                                                  ---------------------------

    Financing activities
      Dividends paid                                     (34.5)        (29.4)
      Issuance of CP Common Shares                         1.2          14.3
      Purchase of CP Common Shares                           -         (59.5)
      Net increase in short-term borrowing               229.7             -
      Issuance of long-term debt (Note 10)             1,260.2           2.8
      Repayment of long-term debt                         (3.9)         (3.8)
                                                  ---------------------------

      Cash provided by (used in) financing
       activities                                      1,452.7         (75.6)
                                                  ---------------------------

    Cash position
      Increase in cash and cash equivalents               38.9          77.9
      Cash and cash equivalents at beginning of
       period                                            339.2          46.4
                                                  ---------------------------
                                                  ---------------------------

      Cash and cash equivalents at end of period   $     378.1   $     124.3
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



    STATEMENT OF CONSOLIDATED CASH FLOWS
    (in millions)

                                                              For the year
                                                           ended December 31
                                                          2007          2006
                                                  ---------------------------
                                                              (unaudited)
    Operating activities
      Net income                                   $     946.2   $     796.3
      Add (deduct) items not affecting cash:
        Depreciation and amortization                    472.0         464.1
        Future income taxes                               38.7          75.3
        Change in fair value of Canadian third
         party asset-backed commercial paper
         (Note 9)                                         21.5             -

        Foreign exchange (gains) losses on
         long-term debt                                 (169.8)          0.1
        Amortization of deferred charges                  12.1          16.5
      Restructuring and environmental remediation
       payments (Note 8)                                 (61.0)        (96.3)
      Other operating activities, net                      4.6        (103.4)
      Change in non-cash working capital balances
       related to operations                              50.3        (101.6)
                                                  ---------------------------

      Cash provided by operating activities            1,314.6       1,051.0
                                                  ---------------------------

    Investing activities
      Additions to properties                           (893.2)       (793.7)
      Reductions in investments and other assets
       (Note 14)                                           0.2           2.2
      Acquisition of Dakota, Minnesota & Eastern
       Railroad Corporation (Note 9)                  (1,492.6)            -
      Net proceeds from disposal of transportation
       properties                                         14.9          97.8
      Investment in Canadian third party
       asset-backed commercial paper (Note 9)           (143.6)            -
                                                  ---------------------------

      Cash used in investing activities               (2,514.3)       (693.7)
                                                  ---------------------------

    Financing activities
      Dividends paid                                    (133.1)       (112.4)
      Issuance of CP Common Shares                        30.4          66.6
      Purchase of CP Common Shares                      (231.1)       (286.4)
      Net increase in short-term borrowing               229.7             -
      Issuance of long-term debt (Note 10)             1,745.3           2.8
      Repayment of long-term debt                       (187.7)        (25.4)
                                                  ---------------------------
      Cash provided by (used in) financing
       activities                                      1,453.5        (354.8)
                                                  ---------------------------

    Cash position
      Increase in cash and cash equivalents              253.8           2.5
      Cash and cash equivalents at beginning of
       year                                              124.3         121.8
                                                  ---------------------------

      Cash and cash equivalents at end of year     $     378.1   $     124.3
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
    (in millions)
                                                        For the three months
                                                          ended December 31
                                                          2007          2006
                                                                    Restated
                                                                 (see Note 2)
                                                  ---------------------------
                                                              (unaudited)
    Share capital
    Balance, beginning of period                   $   1,187.2   $   1,166.6

    Shares issued under stock option plans                 1.4          15.1

    Shares purchased                                         -          (6.0)
                                                  ---------------------------
    Balance, end of period                             1,188.6       1,175.7
                                                  ---------------------------

    Contributed surplus
    Balance, beginning of period                          40.6          51.9

    Movement in stock-based compensation                   1.8           2.3

    Shares purchased                                         -         (21.9)
                                                  ---------------------------
    Balance, end of period                                42.4          32.3
                                                  ---------------------------

    Accumulated other comprehensive income
    Balance, beginning of period                          53.8          63.8

    Other comprehensive (loss) income (Note 12)          (14.2)          2.6
                                                  ---------------------------
    Balance, end of period                                39.6          66.4
                                                  ---------------------------

    Retained income
    Balance, beginning of period                       3,879.5       3,491.9

    Net income for the period                            342.3         145.6

    Shares purchased                                         -         (26.5)

    Dividends                                            (34.5)        (28.9)
                                                  ---------------------------
    Balance, end of period                             4,187.3       3,582.1
                                                  ---------------------------

    Total accumulated other comprehensive income
     and retained income                               4,226.9       3,648.5
                                                  ---------------------------
                                                  ---------------------------

    Shareholders' equity, end of period           $    5,457.9   $   4,856.5
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



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

                                                              For the year
                                                           ended December 31
                                                          2007          2006
                                                                    Restated
                                                                 (see Note 2)
                                                  ---------------------------
                                                              (unaudited)
    Share capital
    Balance, beginning of year                     $   1,175.7   $   1,141.5

    Shares issued under stock option plans                37.4          71.0

    Shares purchased                                     (24.5)        (36.8)
                                                  ---------------------------
    Balance, end of year                               1,188.6       1,175.7
                                                  ---------------------------

    Contributed surplus
    Balance, beginning of year                            32.3         245.1

    Movement in stock-based compensation                  10.1          10.3

    Shares purchased                                         -        (223.1)
                                                  ---------------------------
    Balance, end of year                                  42.4          32.3
                                                  ---------------------------

    Accumulated other comprehensive income
    Balance, beginning of year                            66.4          67.5

    Adjustment for change in accounting policy
     (Note 2)                                             14.0             -
                                                  ---------------------------
    Adjusted balance, beginning of year                   80.4          67.5

    Other comprehensive loss (Note 12)                   (40.8)         (1.1)
                                                  ---------------------------
    Balance, end of year                                  39.6          66.4
                                                  ---------------------------

    Retained income
    Balance, beginning of year                         3,582.1       2,930.0

    Adjustment for change in accounting policy
     (Note 2)                                              4.0             -
                                                  ---------------------------

    Adjusted balance, beginning of year                3,586.1       2,930.0

    Net income for the year                              946.2         796.3

    Shares purchased                                    (206.6)        (26.5)

    Dividends                                           (138.4)       (117.7)
                                                  ---------------------------
    Balance, end of year                               4,187.3       3,582.1
                                                  ---------------------------

    Total accumulated other comprehensive income
     and retained income                               4,226.9       3,648.5
                                                  ---------------------------
                                                  ---------------------------

    Shareholders' equity, end of year              $   5,457.9   $   4,856.5
                                                  ---------------------------
                                                  ---------------------------

    See notes to interim consolidated financial statements.



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2007
    (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") 2006 annual
        consolidated financial statements, except as discussed below and in
        Note 2 for the adoption of new accounting standards for financial
        instruments, hedges and comprehensive income. They do not include all
        disclosures required under Generally Accepted Accounting Principles
        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.

        Financial Instruments
        ---------------------
        From January 1, 2007, certain financial instruments, including those
        classified as loans and receivables, available for sale, held for
        trading and financial liabilities, are initially measured at fair
        value and subsequently measured at fair value or amortized cost.
        Amortization is calculated using the effective interest rate for the
        instrument. Financial instruments that will be realized within the
        normal operating cycle are measured at their carrying amount as this
        approximates fair value.

        Transaction costs related to the issuance of long-term debt are
        netted against the fair value of the related instrument on issue and
        are amortized to income in conjunction with the amortization of the
        instrument using the effective interest rate method.

        Derivative financial and commodity instruments
        ----------------------------------------------
        Derivative financial and commodity instruments may be used from time
        to time by the Company to manage its exposure to price risks relating
        to foreign currency exchange rates, stock-based compensation,
        interest rates and fuel prices. When CP utilizes derivative
        instruments in hedging relationships, CP identifies, designates and
        documents those hedging transactions and regularly tests the
        transactions to demonstrate effectiveness in order to continue hedge
        accounting.

        Commencing from January 1, 2007, all derivative instruments are
        recorded at their fair value. Any change in the fair value of
        derivatives not designated as hedges is recognized in the period in
        which the change occurs in the Statement of Consolidated Income in
        the line item to which the derivative instrument is related. On the
        Consolidated Balance Sheet they are classified in "Other assets and
        deferred charges", "Deferred liabilities", "Accounts receivable and
        other current assets" or "Accounts payable and accrued liabilities"
        as applicable. Prior to 2007, only derivative instruments that did
        not qualify as hedges or were not designated as hedges were carried
        at fair value on the Consolidated Balance Sheet in "Other assets and
        deferred charges" or "Deferred liabilities". Gains and losses arising
        from derivative instruments will affect the following income
        statement lines: "Revenues", "Compensation and benefits", "Fuel",
        "Other (income) charges", "Foreign exchange (gains) losses on long-
        term debt" and "Interest expense".

        For fair value hedges, the periodic change in value is recognized in
        income, on the same line as the changes in values of the hedged items
        are also recorded. For a cash flow hedge, the change in value of the
        effective portion is recognized in "Other comprehensive income". Any
        ineffectiveness within an effective cash flow hedge is recognized in
        income as it arises in the same income account as the hedged item
        when realized. Should the hedging of a cash flow hedge relationship
        become ineffective, previously unrealized gains and losses remain
        within "Accumulated other comprehensive income" until the hedged item
        is settled and, prospectively, future changes in value of the
        derivative are recognized in income. The change in value of the
        effective portion of a cash flow hedge remains in "Accumulated other
        comprehensive income" until the related hedged item settles, at which
        time amounts recognized in "Accumulated other comprehensive income"
        are reclassified to the same income or balance sheet account that
        records the hedged item. Prior to January 1, 2007, the periodic
        change in the fair value of an effective hedging instrument prior to
        settlement was not recognized in the financial statements.

        In the Statement of Consolidated Cash Flows, cash flows relating to
        derivative instruments designated as hedges are included in the same
        line as the related item.

        The transitional date for the assessment of embedded derivatives was
        January 1, 2001.

    2   New accounting policies

        Financial instruments, hedging and comprehensive income

        On January 1, 2007, the Company adopted the following accounting
        standards issued by the Canadian Institute of Chartered Accountants
        ("CICA"): Section 3855 "Financial Instruments - Recognition and
        Measurement", Section 3861 "Financial Instruments - Disclosure and
        Presentation", Section 3865 "Hedges" and Section 1530 "Comprehensive
        Income". These sections require certain financial instruments and
        hedge positions to be recorded at their fair value. They also
        introduce the concept of comprehensive income and accumulated other
        comprehensive income. Adoption of these standards was on a
        prospective basis without retroactive restatement of prior periods,
        except for the restatement of equity balances to reflect the
        reclassification of "Foreign currency translation adjustments" to
        "Accumulated other comprehensive income".

        The impact of the adoption of these standards on January 1, 2007, was
        an increase in net assets of $18.0 million, a reduction in "Foreign
        currency translation adjustments" of $66.4 million, an increase in
        "Retained earnings" of $4.0 million, and the recognition of
        "Accumulated other comprehensive income" of $80.4 million.

        The fair value of hedging instruments at January 1, 2007, was
        $31.7 million reflected in "Other assets and deferred charges" and
        "Accounts receivable and other current assets" and $4.8 million
        reflected in "Deferred liabilities" and "Accounts payable and accrued
        liabilities". The inclusion of transaction costs within "Long-term
        debt" at amortized cost reduced "Long-term debt" by $33.4 million
        with an associated reduction in "Other assets and deferred charges"
        of $26.9 million. Deferred gains and losses on previously settled
        hedges were reclassified to "Accumulated other comprehensive income"
        and "Retained earnings" with a resultant decrease in "Other assets
        and deferred charges" of $4.8 million. The recognition of certain
        other financial instruments at fair value or amortized cost resulted
        in reductions in "Long-term debt" of $2.8 million, "Investments" of
        $1.5 million and "Other assets and deferred charges" of $0.4 million.
        The adoption of these standards increased the liability for "Future
        income taxes" by $11.6 million. Accumulated other comprehensive
        income is comprised of foreign currency gains and losses on the net
        investment in self-sustaining foreign subsidiaries, foreign currency
        gains and losses related to long-term debt designated as a hedge of
        the net investment in self-sustaining foreign subsidiaries',
        effective portions of gains and losses resulting from changes in the
        fair value of cash flow hedging instruments, and the reclassification
        of cumulative foreign currency translation adjustments. The
        adjustment to opening retained earnings reflects the change in
        measurement basis, from original cost to fair value or amortized
        cost, of certain financial assets, financial liabilities, transaction
        costs associated with the Company's long-term debt and previously
        deferred gains and losses on derivative instruments that were settled
        in prior years and which, had they currently existed, did not meet
        the criteria for hedge accounting under Accounting Standard
        Section 3865. The amounts recorded on the adoption of these standards
        differed from the estimated amounts disclosed in Note 3 to the 2006
        annual financial statements as a result of the refinement of certain
        estimates used at the year end.

        Accounting Changes

        Effective from January 1, 2007, the CICA amended Accounting Standard
        Section 1506 "Accounting Changes" to prescribe the criteria for
        changing accounting policies and related accounting treatment and
        disclosures of accounting changes. Changes in accounting policies are
        permitted when required by a primary source of GAAP, for example when
        a new accounting section is first adopted, or when the change in
        accounting policy results in more reliable and relevant financial
        information being reflected in the financial statements.

        The adoption of this amended accounting standard did not impact the
        financial statements of the Company.

    3   Future accounting changes

        Financial Instrument and Capital Disclosures

        The CICA has issued the following accounting standards effective for
        fiscal years beginning on or after January 1, 2008: Section 3862
        "Financial Instruments - Disclosures", Section 3863 "Financial
        Instruments - Presentation", and Section 1535 "Capital Disclosures".

        Section 3862 "Financial Instruments - Disclosures" and Section 3863
        "Financial Instruments - Presentation" replace Section 3861
        "Financial Instruments - Disclosure and Presentation", revising
        disclosures related to financial instruments, including hedging
        instruments, and carrying forward unchanged presentation
        requirements.

        Section 1535 "Capital Disclosures" will require the Company to
        provide disclosures about the Company's capital and how it is
        managed.

        It is not anticipated that the adoption of these new accounting
        standards will impact the amounts reported in the Company's financial
        statements as they primarily relate to disclosure.

        Inventories

        Effective January 1, 2008, the CICA has issued accounting standard
        Section 3031 "Inventories". Section 3031 "Inventories" provides
        guidance on the method of determining the cost of the Company's
        materials and supplies. The new accounting standard specifies that
        inventories are to be valued at the lower of cost and net realizable
        value. The Company currently reflects materials and supplies at the
        lower of cost and replacement value. The standard requires the
        reversal of previously recorded write downs to realizable value when
        there is clear evidence that net realizable value has increased.
        Additional disclosures will also be required. Adoption of
        Section 3031 "Inventories" will be recognized in 2008 as an
        adjustment to opening inventory and opening retained earnings and is
        not expected to have a material impact on the Company's financial
        statements.

    4   Other (income) charges

                                   For the three months       For the year
                                     ended December 31     ended December 31
        (in millions)                  2007       2006       2007       2006
                                  --------------------- ---------------------

        Amortization of discount
         on accruals recorded at
         present value             $    1.9   $    1.9   $    8.1   $   10.0
        Other exchange losses           1.5        2.0        5.8        6.5
        Loss on sale of accounts
         receivable                     1.6        1.3        5.8        5.0
        Losses (gains) on
         non-hedging derivative
         instruments                    1.4       (0.8)       1.5       (1.2)
        Equity income in Dakota,
         Minnesota & Eastern
         Railroad Corporation         (12.3)         -      (12.3)         -
        Other                           2.1        2.0        8.4        7.5
                                  --------------------- ---------------------
        Total other (income)
         charges                   $   (3.8)  $    6.4   $   17.3   $   27.8
                                  --------------------- ---------------------
                                  --------------------- ---------------------

    5   Interest expense

                                   For the three months       For the year
                                     ended December 31     ended December 31
        (in millions)                  2007       2006       2007       2006
                                  --------------------- ---------------------

        Interest expense           $   67.0   $   51.4   $  219.6   $  200.5
        Interest income                (3.6)      (1.6)     (15.3)      (6.0)
                                  --------------------- ---------------------

        Total interest expense     $   63.4   $   49.8   $  204.3   $  194.5
                                  --------------------- ---------------------
                                  --------------------- ---------------------

    6   Income taxes

        During the three months ended December 31, 2007, legislation was
        substantively enacted to reduce Canadian Federal corporate income tax
        rates. As a result of these changes, the Company recorded a
        $145.8 million benefit in future tax liability and income tax expense
        for the three months ended December 31, 2007, related to the
        revaluation of its future income tax balances as at December 31,
        2006.

        During the three months ended June 30, 2007, legislation was
        substantively enacted to reduce Canadian corporate income tax rates.
        As a result of these changes, the Company recorded a $17.1 million
        benefit in future tax liability and income tax expense for the
        three months ended December 31, 2007, related to the revaluation of
        its future income tax balances as at December 31, 2006.

        In the second quarter of 2006, federal and provincial legislation was
        substantively enacted to reduce Canadian corporate income tax rates
        over a period of several years. As a result of these changes, the
        Company recorded a $176.0 million reduction in future tax liability
        and income tax expense related to the revaluation of its future
        income tax balances as at December 31, 2005.

        Cash taxes refunded for the three months ended December 31, 2007, was
        $2.2 million (three months ended December 31, 2006 - cash taxes paid
        was $24.3 million). Cash taxes paid in the year ended December 31,
        2007, was $6.7 million (year ended December 31, 2006 -
        $50.9 million).

    7   Earnings per share

        At December 31, 2007, the number of shares outstanding was
        153.3 million (December 31, 2006 - 155.5 million).

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

        Diluted earnings per share have been calculated using the treasury
        stock method, which gives effect to the dilutive value of outstanding
        options.

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

                                   For the three months       For the year
                                     ended December 31     ended December 31
        (in millions)                  2007       2006       2007       2006
                                  --------------------- ---------------------
        Weighted average shares
         outstanding                  153.2      155.8      154.0      157.3
        Dilutive effect of stock
         options                        1.4        1.6        1.6        1.5
                                  --------------------- ---------------------
        Weighted average diluted
         shares outstanding           154.6      157.4      155.6      158.8
                                  --------------------- ---------------------
                                  --------------------- ---------------------
        (in dollars)

        Basic earnings per share   $   2.23   $   0.93   $   6.14   $   5.06
        Diluted earnings per share $   2.21   $   0.92   $   6.08   $   5.02


    8   Restructuring and environmental remediation

        At December 31, 2007, the provision for restructuring and
        environmental remediation was $234.0 million (December 31, 2006 -
        $309.0 million). This provision primarily includes labour liabilities
        for restructuring plans. Payments are expected to continue in
        diminishing amounts until 2025. The environmental remediation
        liability includes the cost of a multi-year soil remediation program.

        Set out below is a reconciliation of CP's liabilities associated with
        restructuring and environmental remediation programs:

        Three months ended December 31, 2007

                        Opening                      Amorti-          Closing
                        Balance                      zation  Foreign  Balance
                         Oct. 1  Accrued                 of Exchange  Dec. 31
        (in millions)      2007 (reduced) Payments Discount   Impact     2007
                       ------------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 152.8    (11.2)   (14.0)     1.4      0.2  $ 129.2
        Other
         non-labour
         liabilities
         for exit plans     0.8        -        -        -        -      0.8
                       ------------------------------------------------------
        Total
         restructuring
         liability        153.6    (11.2)   (14.0)     1.4      0.2    130.0
                       ------------------------------------------------------
        Environmental
         remediation
         program          106.7      5.3     (8.0)       -        -    104.0
                       ------------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 260.3     (5.9)   (22.0)     1.4      0.2  $ 234.0
                       ------------------------------------------------------
                       ------------------------------------------------------



        Three months ended December 31, 2006

                        Opening                      Amorti-          Closing
                        Balance                      zation  Foreign  Balance
                         Oct. 1  Accrued                 of Exchange  Dec. 31
        (in millions)      2006 (reduced) Payments Discount   Impact     2006
                       ------------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 204.6     (4.5)   (15.9)     1.7      1.5  $ 187.4
        Other
         non-labour
         liabilities
         for exit plans     2.0        -     (0.6)       -        -      1.4
                       ------------------------------------------------------
        Total
         restructuring
         liability        206.6     (4.5)   (16.5)     1.7      1.5    188.8
                       ------------------------------------------------------
        Environmental
         remediation
         program          125.0      3.1    (10.6)       -      2.7    120.2
                       ------------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 331.6     (1.4)   (27.1)     1.7      4.2  $ 309.0
                       ------------------------------------------------------
                       ------------------------------------------------------



        Year ended December 31, 2007

                        Opening                      Amorti-          Closing
                        Balance                      zation  Foreign  Balance
                         Jan. 1  Accrued                 of Exchange  Dec. 31
        (in millions)      2007 (reduced) Payments Discount   Impact     2007
                       ------------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 187.4    (12.8)   (46.8)     6.1     (4.7) $ 129.2
        Other
         non-labour
         liabilities
         for exit plans     1.4     (0.2)    (0.2)       -     (0.2)     0.8
                       ------------------------------------------------------
        Total
         restructuring
         liability        188.8    (13.0)   (47.0)     6.1     (4.9)   130.0
                       ------------------------------------------------------
        Environmental
         remediation
         program          120.2      7.5    (14.0)       -     (9.7)   104.0
                       ------------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 309.0     (5.5)   (61.0)     6.1    (14.6) $ 234.0
                       ------------------------------------------------------
                       ------------------------------------------------------



        Year ended December 31, 2006

                        Opening                      Amorti-          Closing
                        Balance                      zation  Foreign  Balance
                         Jan. 1  Accrued                 of Exchange  Dec. 31
        (in millions)      2006 (reduced) Payments Discount   Impact     2006
                       ------------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 263.6    (14.1)   (71.8)     9.8     (0.1)   187.4
        Other
         non-labour
         liabilities
         for exit plans     5.8      0.7     (5.0)     0.1     (0.2)     1.4
                       ------------------------------------------------------
        Total
         restructuring
         liability        269.4    (13.4)   (76.8)     9.9     (0.3)   188.8
                       ------------------------------------------------------
        Environmental
         remediation
         program          129.4     10.5    (19.5)       -     (0.2)   120.2
                       ------------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 398.8     (2.9)   (96.3)     9.9     (0.5) $ 309.0
                       ------------------------------------------------------
                       ------------------------------------------------------

        Amortization of Discount is charged to income as "Other (Income)
        Charges", "Compensation and Benefits" and "Purchased Services and
        Other" as applicable. New accruals and adjustments to previous
        accruals are reflected in "Compensation and Benefits" and "Purchased
        Services and Other" as applicable.

    9   Investments

                                                          For the year ended
                                                              December 31
        (in millions)                                           2007    2006
                                                          -------------------

        Rail investments accounted for on an equity basis  $ 1,528.6  $ 37.9
        Other investments                                      140.0    27.0
                                                          -------------------
        Total investments                                 $  1,668.6  $ 64.9
                                                          -------------------
                                                          -------------------

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

        Effective October 4, 2007, the Company acquired all of the issued and
        outstanding shares of DM&E, a Class II railroad operating in the U.S.
        Midwest, for a purchase price of approximately US$1.5 billion,
        including acquisition costs.

        Future contingent payments of up to US$1.05 billion, may become
        payable up to December 31, 2025, upon the achievement of certain
        milestones towards the completion of a track expansion into the
        Powder River Basin and the achievement of certain traffic volume
        targets. Any contingent payments that may be made would be recorded
        as additional goodwill. The acquisition has been financed with cash
        on hand and debt. On October 4, 2007, the Company drew down
        US$1.27 billion from an eighteen-month US$1.8 billion credit
        agreement entered into in October 2007 specifically to fund the
        acquisition of DM&E. The credit facility bears interest at a variable
        rate based on London Interbank Offered Rate ("LIBOR").

        The purchase is subject to review and approval by the U.S. Surface
        Transportation Board ("STB"), during which time the shares of DM&E
        have been placed in a voting trust and are administered by an
        independent trustee. The Company anticipates that the STB will
        complete its review and provide a final ruling in 2008. During the
        review period, the investment in the DM&E is accounted for on an
        equity basis. Equity income for the three months ended and year ended
        December 31, 2007, of $12.3 million (2006 - nil) has been included in
        "Other (Income) Charges" (See Note 4).

        If the proposed transaction is approved by the STB, the acquisition
        will be accounted for prospectively using the purchase method of
        accounting. Under this method, the Company will prepare its
        consolidated financial statements reflecting a line-by-line
        consolidation of DM&E and the allocation of the purchase price to
        acquire DM&E to the fair values of their assets and liabilities.

        Asset-backed Commercial Paper ("ABCP")

        At December 31, 2007, the Company held Canadian third party asset-
        backed commercial paper ("ABCP") issued by a number of trusts with an
        original cost of $143.6 million. At the dates the Company acquired
        these investments they were rated R1 (High) by Dominion Bond Rating
        Service ("DBRS"), the highest credit rating issued for commercial
        paper, and backed by R1 (High) rated assets and liquidity agreements.
        These investments matured during the third quarter of 2007 but, as a
        result of liquidity issues in the ABCP market, did not settle on
        maturity. As a result, the Company has classified its ABCP as long-
        term assets within Investments after initially classifying them as
        Cash and cash equivalents.

        On August 16, 2007, an announcement was made by a group representing
        banks, asset providers and major investors that they had agreed in
        principle to a long-term proposal and interim agreement to convert
        the ABCP into long-term floating rate notes maturing no earlier than
        the scheduled maturity of the underlying assets. On September 6,
        2007, a pan-Canadian restructuring committee consisting of major
        investors was formed. The committee was created to propose a solution
        to the liquidity problem affecting the ABCP market and has retained
        legal and financial advisors to oversee the proposed restructuring
        process.

        The ABCP in which the Company has invested has not traded in an
        active market since mid-August 2007 and there are currently no market
        quotations available. The ABCP in which the Company has invested
        continues to be rated R1 (High, Under Review with Developing
        Implications) by DBRS.

        Through to January 31, 2008, a Standstill Agreement is in place that
        commits investors not to take any action that would precipitate an
        event of default. It is expected that the restructuring of the ABCP
        will occur in March 2008 if approval by investors is obtained to do
        so. This approval will be requested on a trust by trust basis most
        likely during February 2008.

        On December 23, 2007, the pan-Canadian restructuring committee
        provided certain details about the expected restructuring. Based on
        this and other public information it is estimated that, of the
        $143.6 million of ABCP in which the Company has invested:

           -  $12.5 million is represented by traditional securitized assets
              and the Company will, on restructuring, receive replacement
              long-term floating rate notes that are expected to receive a
              AAA credit rating;
           -  $119.0 million is represented by a combination of leveraged
              collaterized debt, synthetic assets and traditional securitized
              assets and the Company will, on restructuring, receive
              replacement senior and subordinated long-term floating rate
              notes. The senior notes are expected to obtain a AAA rating
              while the subordinated notes are likely to be unrated; and
           -  $12.1 million is represented by assets that have an exposure to
              US sub-prime mortgages. On restructuring, the Company is likely
              to receive long-term floating rate notes that may be rated,
              although at this time the pan-Canadian restructuring committee
              has provided no indication of the likely rating these notes may
              receive.

        The valuation technique used by the Company to estimate the fair
        value of its investment in ABCP at December 31, 2007, 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 assumptions used in determining the estimated fair
        value reflect the public statements made by the pan-Canadian
        restructuring committee that it expects the ABCP will be converted
        into various long-term floating rate notes, as discussed above, with
        maturities matching the maturities of the underlying assets and
        bearing market interest rates commensurate with the nature of the
        underlying assets and their associated cash flows and the credit
        rating and risk associated with the long-term floating rate notes.
        The interest rates and maturities of the various long-term floating
        rate notes, discount rates and credit losses modelled are:

           Probability weighted average interest rate   4.6 per cent
           Weighted average discount rate               5.3 per cent
           Maturity of long-term floating rate notes    five to seven years
           Credit losses                                nil to 25 per cent on
                                                         a going concern
                                                         basis
                                                        5 per cent to
                                                         50 per cent on a
                                                         liquidation basis

        Interest rates and credit losses vary by each of the different
        replacement long-term floating rate notes to be issued as each has
        different credit ratings and risks. Interest rates and credit losses
        also vary by the different probable cash flow scenarios that have
        been modelled.

        Discount rates vary dependent upon the credit rating of the
        replacement long-term floating rate notes.

        Maturities vary by different replacement long-term floating rate
        notes as a result of the expected maturity of the underlying assets.

        One of the probable cash flow scenarios modelled is a liquidation
        scenario whereby, if the restructuring is not successfully completed,
        recovery of the Company's investment is through the liquidation of
        the underlying assets of the ABCP trusts.

        In addition, assumptions have also been made as to the amount of
        restructuring costs that the Company will bear.

        Based on additional information that became publicly available during
        the fourth quarter of 2007, the probability weighted cash flows
        resulted in an estimated fair value of the Company's investment in
        ABCP of $122.1 million at December 31, 2007. This was unchanged from
        the estimated fair value at September 30, 2007. The reduction in the
        fair value of $21.5 million compared to the original cost of the ABCP
        was recorded as a charge to income in the third quarter of 2007 with
        no further charges required in the fourth quarter of 2007.

        Continuing uncertainties regarding the value of the assets which
        underlie the ABCP, the amount and timing of cash flows and the
        outcome of the restructuring process could give rise to a further
        material change in the value of the Company's investment in ABCP
        which could impact the Company's near term earnings.

    10  Long-term debt

        During the year ended December 31, 2007, the Company issued
        US$450 million of 5.95% 30 - year notes. The notes are unsecured, but
        carry a negative pledge.

        Also, during October 2007, the Company entered into an eighteen-month
        US$1.80 billion credit agreement. The credit facility bears interest
        at a variable rate based on London Interbank Offered Rate ("LIBOR"),
        and is unsecured. As at December 31, 2007, the Company had drawn down
        US$1.27 billion from the credit facility specifically to fund the
        acquisition of DM&E.

    11  Shareholders' equity

        An analysis of Common Share balances is as follows:

                                   For the three months       For the year
                                     ended December 31     ended December 31
        (millions of shares)           2007       2006       2007       2006
                                  -------------------------------------------
        Share capital, beginning
         of period                    153.2      155.9      155.5      158.2
        Shares issued under stock
         option plans                   0.1        0.5        1.0        2.3
        Shares purchased                  -       (0.9)      (3.2)      (5.0)
                                  -------------------------------------------
        Share capital, end of
         period                       153.3      155.5      153.3      155.5
                                  -------------------------------------------
                                  -------------------------------------------

        In June 2006, the Company completed the acquisition of Common Shares
        under the previous normal course issuer bid and filed a new normal
        course issuer bid to purchase, for cancellation, up to 3.9 million of
        its outstanding Common Shares. Under this filing, share purchases
        could have been made during the 12-month period beginning June 6,
        2006, and ending June 5, 2007. Of the 3.9 million shares authorized
        for purchase under this filing, 3.4 million were purchased in 2006 at
        an average price per share of $56.66 and 0.2 million shares were
        purchased during the three month period ended March 31, 2007, at an
        average price per share of $64.11.

        In March 2007, the Company completed the filing for a new normal
        course issuer bid ("2007 NCIB") to cover the period of March 28, 2007
        to March 27, 2008, to authorize the purchase, for cancellation, up to
        5.0 million of its outstanding Common Shares. Effective April 30,
        2007, the 2007 NCIB was amended to authorize the purchase, for
        cancellation, up to 15.3 million of its outstanding Common Shares. Of
        the 15.3 million shares authorized under the 2007 NCIB, 2.7 million
        shares were purchased at an average price per share of $73.64.

        In addition, pursuant to a notice of intention to make an exempt
        issuer bid filed on March 23, 2007, the Company purchased, for
        cancellation, 0.3 million shares through a private agreement with an
        arm's length third party on March 29, 2007, at an average price of
        $63.12.

        For the three months ended December 31, 2007, there were no shares
        purchased (2006 - 0.9 million shares were purchased at an average
        price per share of $63.85) and for the year ended December 31, 2007,
        3.2 million shares were purchased at an average price per share of
        $71.99 (2006 - 5.0 million shares were purchased at an average price
        per share of $57.28).

        The purchases are made at the market price on the day of purchase,
        with consideration allocated to share capital up to the average
        carrying amount of the shares, and any excess allocated first to
        contributed surplus and then to retained earnings. When shares are
        purchased, it takes three days before the transaction is settled and
        the shares are cancelled. The cost of shares purchased in a given
        month and settled in the following month is accrued in the month of
        purchase.

    12  Other comprehensive income and accumulated other comprehensive income

        Components of other comprehensive income and the related tax effects
        are as follows:

                                                  For the three months ended
                                                         December 31
        (in millions)                                        2007
                                                            Income
                                                  Before       tax    Net of
                                                     tax  (expense)      tax
                                                  amount  recovery    amount
                                                -----------------------------
        Unrealized foreign exchange gain on
         translation of U.S. dollar-denominated
         long-term debt designated as a hedge of
         the net investment in U.S. subsidiaries $   3.5   $   0.7   $   4.2

        Unrealized foreign exchange loss on
         translation of the net investment in
         U.S. subsidiaries                          (7.0)        -      (7.0)

        Realized gain on cash flow hedges
         settled in the period                      (1.6)      0.9      (0.7)

        Decrease in unrealized holding gains
         on cash flow hedges                       (17.0)      5.9     (11.1)

        Realized loss on cash flow hedges
         settled in prior periods                    0.7      (0.3)      0.4
                                                -----------------------------

        Other comprehensive loss                 $ (21.4)  $   7.2   $ (14.2)
                                                -----------------------------
                                                -----------------------------



                                                  For the three months ended
                                                         December 31
        (in millions)                                        2006
                                                  Before    Income    Net of
                                                     tax       tax       tax
                                                  amount  recovery    amount
                                                -----------------------------
        Unrealized foreign exchange loss on
         translation of U.S. dollar-denominated
         long-term debt designated as a hedge of
         the net investment in U.S. subsidiaries $ (23.6)  $   3.7   $ (19.9)

        Unrealized foreign exchange gain on
         translation of the net investment
         in U.S. subsidiaries                       22.5         -      22.5
                                                -----------------------------

        Other comprehensive income               $  (1.1)  $   3.7   $   2.6
                                                -----------------------------
                                                -----------------------------



                                                     For the year ended
                                                        December 31
        (in millions)                                       2007
                                                            Income
                                                  Before       tax    Net of
                                                     tax  (expense)      tax
                                                  amount  recovery    amount
                                                -----------------------------
        Unrealized foreign exchange gain on
         translation of U.S. dollar-denominated
         long-term debt designated as a hedge of
         the net investment in U.S. subsidiaries $  71.0   $  (9.7)  $  61.3

        Unrealized foreign exchange loss on
         translation of the net investment
         in U.S. subsidiaries                      (78.4)        -     (78.4)

        Realized gain on cash flow hedges
         settled in the period                     (12.8)      4.8      (8.0)

        Decrease in unrealized holding gains
         on cash flow hedges                       (26.2)      9.1     (17.1)

        Realized loss on cash flow hedges
         settled in prior periods                    2.2      (0.8)      1.4
                                                -----------------------------

        Other comprehensive loss                 $ (44.2)  $   3.4   $ (40.8)
                                                -----------------------------
                                                -----------------------------



                                                     For the year ended
                                                         December 31
        (in millions)                                        2006
                                                  Before    Income    Net of
                                                     tax       tax       tax
                                                  amount  recovery    amount
                                                -----------------------------
        Unrealized foreign exchange loss on
         translation of U.S. dollar-denominated
         long-term debt designated as a hedge of
         the net investment in U.S. subsidiaries $  (3.7)  $   0.5   $  (3.2)

        Unrealized foreign exchange gain on
         translation of the net investment
         in U.S. subsidiaries                        2.1         -       2.1
                                                -----------------------------

        Other comprehensive loss                 $  (1.6)  $   0.5   $  (1.1)
                                                -----------------------------
                                                -----------------------------


        Changes in the balances of each classification within Accumulated
        other comprehensive income are as follows:


    Three months ended December 31, 2007

                             Opening             Closing
                             Balance,            Balance,
                              Oct. 1,   Period   Dec. 31,
    (in millions)               2007    change      2007
                            -----------------------------
    Foreign exchange on U.S.
     dollar debt designated
     as a hedge of the net
     investment in U.S.
     subsidiaries            $ 292.4   $   4.2   $ 296.6

    Foreign exchange on net
     investment in U.S.
     subsidiaries             (239.9)     (7.0)   (246.9)

    Increase (decrease) in
     unrealized effective
     gains of cash
     flow hedges                 5.6     (11.8)     (6.2)

    Unrealized loss on
     settled hedge
     instruments                (4.3)      0.4      (3.9)
                            -----------------------------
    Accumulated other
     comprehensive income    $  53.8   $ (14.2)  $  39.6
                            -----------------------------
                            -----------------------------



    Three months ended December 31, 2006

                             Opening             Closing
                             Balance,            Balance,
                              Oct. 1,   Period   Dec. 31,
    (in millions)               2006    change      2006
                            -----------------------------
    Foreign exchange on U.S.
     dollar debt designated
     as a hedge of the net
     investment in U.S.
     subsidiaries            $ 254.8   $ (19.9)  $ 234.9

    Foreign exchange on net
     investment in U.S.
     subsidiaries             (191.0)     22.5    (168.5)
                            -----------------------------
    Accumulated other
     comprehensive income    $  63.8   $   2.6   $  66.4
                            -----------------------------
                            -----------------------------



    Year ended December 31, 2007

                                    Adjustment
                                           for  Adjusted
                             Opening    change   Opening             Closing
                             Balance,    in ac-  Balance,            Balance,
                              Jan. 1, counting    Jan. 1,   Period   Dec. 31,
    (in millions)               2007    policy      2007    change      2007
                            -------------------------------------------------
    Foreign exchange on U.S.
     dollar debt designated
     as a hedge of the net
     investment in U.S.
     subsidiaries            $ 234.9   $   0.4   $ 235.3   $  61.3   $ 296.6

    Foreign exchange on net
     investment in U.S.
     subsidiaries             (168.5)        -    (168.5)    (78.4)   (246.9)

    Increase (decrease) in
     unrealized effective
     gains of cash flow
     hedges                        -      18.9      18.9     (25.1)     (6.2)

    Unrealized loss on
     settled hedge
     instruments                   -      (5.3)     (5.3)      1.4      (3.9)
                            -------------------------------------------------
    Accumulated other
     comprehensive income    $  66.4   $  14.0   $  80.4   $ (40.8)  $  39.6
                            -------------------------------------------------
                            -------------------------------------------------



    Year ended December 31, 2006

                             Opening             Closing
                             Balance,            Balance,
                              Jan. 1,   Period   Dec. 31,
    (in millions)               2006    change      2006
                             -----------------------------
    Foreign exchange on U.S.
     dollar debt designated
     as a hedge of the net
     investment in U.S.
     subsidiaries            $ 238.1   $  (3.2)  $ 234.9

    Foreign exchange on net
     investment in U.S.
     subsidiaries             (170.6)      2.1    (168.5)
                            -----------------------------
    Accumulated other
     comprehensive income    $  67.5   $  (1.1)  $  66.4
                            -----------------------------
                            -----------------------------

        During the next twelve months, the Company expects $10.9 million of
        unrealized holding gains on derivative instruments to be realized and
        recognized in the Statement of Consolidated Income. Derivative
        instruments designated as cash flow hedges will mature during the
        year ending December 31, 2009.

    13  Fair value of financial instruments

        The fair value of a financial instrument is the amount of
        consideration that would be agreed upon in an arm's length
        transaction between willing parties. The Company uses the following
        methods and assumptions to estimate fair value of each class of
        financial instruments for which carrying amounts are included in the
        Consolidated Balance Sheet as follows:

        Loans and receivables
        ---------------------
        Accounts receivable and other current assets - The carrying amounts
        included in the Consolidated Balance Sheet approximate fair value
        because of the short maturity of these instruments.

        Investments - Long-term receivable balances are carried at amortized
        cost based on an initial fair value determined using discounted cash
        flow analysis using observable market based inputs.

        Financial liabilities
        ---------------------
        Accounts payable and accrued liabilities and short-term borrowings -
        The carrying amounts included in the Consolidated Balance Sheet
        approximate fair value because of the short maturity of these
        instruments.

        Long-term debt - The carrying amount of long-term debt is at
        amortized cost based on an initial fair value determined using the
        quoted market prices for the same or similar debt instruments.

        Available for sale
        ------------------
        Investments - The Company's equity investments recorded on a cost
        basis have a carrying value that equals cost as fair value cannot be
        reliably established. The Company's equity investments recorded on an
        equity basis have a carrying value equal to cost plus the Company's
        share of the investees net income, less any dividends received, which
        approximates fair value. These investments are not traded on a liquid
        market.

        Held for trading
        ----------------
        Other assets and deferred charges and Deferred liabilities -
        Derivative instruments that are designated as hedging instruments are
        measured at fair value determined using the quoted market prices for
        the same or similar instruments. Derivative instruments that are not
        designated in hedging relationships are classified as held for
        trading and measured at fair value determined by using quoted market
        prices for the same or similar instruments and changes in the fair
        values of such derivative instruments are recognized in net income as
        they arise.

        Cash and cash equivalents - The carrying amounts included in the
        Consolidated Balance Sheet approximate fair value because of the
        short maturity of these instruments.

        Investments - ABCP is carried at fair value, which has been
        determined using valuation techniques that incorporate probability
        weighted discounted future cash flows reflecting market conditions
        and other factors that a market participant would consider (See
        Note 9).

        Carrying value and fair value of financial instruments
        ------------------------------------------------------
        The carrying values of financial instruments equal or approximate
        their fair values with the exception of long-term debt which has a
        carrying value of approximately $4,177.2 million and a fair value of
        approximately $4,308.3 million at December 31, 2007.

    14  Reductions in investments and other assets

        Reductions in investments and other assets includes the acquisition
        of freight car assets which were purchased in anticipation of a sale
        and lease back arrangement with a financial institution. For the
        three months ended December 31, 2007, $4.7 million in assets were
        acquired and $19.2 million were sold; and for the year ended
        December 31, 2007, $19.2 million in assets were acquired and
        $20.2 million sold. For the three months ended December 31, 2006,
        $4.6 million in assets were acquired and $26.7 million were sold; and
        for the year ended December 31, 2006, $137.1 million in assets were
        acquired and $136.1 million sold. No gains or losses were incurred in
        these sale and leaseback arrangements.

    15  Stock-based compensation

        In 2007, under CP's stock option plans, the Company issued
        1,304,500 options to purchase Common Shares at the weighted average
        price of $62.60 per share, based on the closing price on the day
        prior to the grant date. In tandem with these options, 434,400 stock
        appreciation rights were issued at the weighted average exercise
        price of $62.60.

        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 vest after 48 months, unless
        certain performance targets are achieved, in which case vesting is
        accelerated. These options expire five years after the grant date.
        Other 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 December 31 (including options granted under the Directors'
        Stock Option Plan, which was suspended in 2003):

                                       2007                    2006
                              ----------------------- -----------------------
                                            Weighted                Weighted
                                             average                 average
                               Number of    exercise   Number of    exercise
                                 options       price     options       price
                              ----------------------- -----------------------
        Outstanding,
         January 1             6,807,644  $    38.50   7,971,917  $    32.07
        New options granted    1,304,500       62.60   1,467,900       57.80
        Exercised               (972,281)      31.99  (2,330,664)      28.59
        Forfeited/cancelled     (158,755)      35.76    (301,509)      39.07
                              -----------             -----------

        Outstanding,
         December 31           6,981,108  $    43.97   6,807,644  $    38.50
                              ----------------------- -----------------------
                              ----------------------- -----------------------
        Options exercisable
         at December 31        4,035,008  $    34.12   2,918,294  $    29.64
                              ----------------------- -----------------------
                              ----------------------- -----------------------

        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 options at the grant
        date was $11.3 million for options issued during the year ended
        December 31, 2007 (year ended December 31, 2006 - $12.4 million). The
        weighted average fair value assumptions were approximately:

                                                          For the year ended
                                                              December 31
                                                              2007      2006
                                                         --------------------

        Expected option life (years)                          4.00      4.50
        Risk-free interest rate                              3.90%     4.07%
        Expected stock price volatility                        22%       22%
        Expected annual dividends per share                  $0.90     $0.75
        Weighted average fair value of options
         granted during the year                            $12.97    $12.99
                                                         --------------------
                                                         --------------------

    16  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
        December 31, 2007, was $26.4 million (three months ended December 31,
        2006 - $30.3 million) and for the year ended December 31, 2007, was
        $95.0 million (year ended December 31, 2006 - $119.0 million).

    17  Significant customers

        During the year ended 2007, one customer comprised 11.5% of total
        revenue (year ended 2006 - 11.5%). At December 31, 2007, that same
        customer represented 6.2% of total accounts receivable (December 31,
        2006 - 5.6%).

    18  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 December 31, 2007, 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 December 31, 2007, the Company had multi-year capital commitments
        of $504.2 million, mainly for locomotive overhaul agreements, in the
        form of signed contracts. Payments for these commitments are due in
        2008 through 2016.

        Operating lease commitments

        At December 31, 2007, minimum payments under operating leases were
        estimated at $614.9 million in aggregate, with annual payments in
        each of the next five years of: 2008 - $120.3 million; 2009 -
        $86.8 million; 2010 - $68.9 million; 2011 - $60.9 million; 2012 -
        $58.0 million.

        Guarantees

        The Company had residual value guarantees on operating lease
        commitments of $321.7 million at December 31, 2007. 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 December 31, 2007, these accruals amounted to
        $7.0 million.


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

                                                 Fourth Quarter
                                  -------------------------------------------
                                        2007       2006   Variance         %
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data and ratios)
     --------------------------

    Revenues
    --------
      Freight revenue               $1,142.6   $1,151.5   $   (8.9)     (0.8)
      Other revenue                     45.7       38.9        6.8      17.5
                                  ---------------------------------
                                     1,188.3    1,190.4       (2.1)     (0.2)
                                  ---------------------------------
    Operating Expenses
    ------------------
      Compensation and benefits        308.4      322.2      (13.8)     (4.3)
      Fuel                             196.3      171.2       25.1      14.7
      Materials                         47.9       53.7       (5.8)    (10.8)
      Equipment rents                   45.1       47.8       (2.7)     (5.6)
      Depreciation and
       amortization                    116.3      115.9        0.4       0.3
      Purchased services and other     168.8      159.5        9.3       5.8
                                  ---------------------------------
                                       882.8      870.3       12.5       1.4
                                  ---------------------------------

    Operating income                   305.5      320.1      (14.6)     (4.6)

      Other (income) charges,
       including DM&E equity
       income(1)                        (3.8)       6.4      (10.2)        -
      Interest expense                  63.4       49.8       13.6      27.3
      Income tax expense before
       foreign exchange (gains)
       losses on long-term debt
       and other specified
       items(2)                         60.8       82.9      (22.1)    (26.7)
                                  ---------------------------------
      Income before foreign
       exchange (gains) losses
       on long-term debt and other
       specified items(2)              185.1      181.0        4.1       2.3
                                  ---------------------------------

    Foreign exchange (gains) losses
    -------------------------------
     on long-term debt (FX on LTD)
     -----------------------------
      FX on LTD                         (8.3)      44.9      (53.2)        -
      Income tax on FX on LTD(3)        (3.1)      (9.5)       6.4         -
                                  ---------------------------------
      FX on LTD (net of tax)           (11.4)      35.4      (46.8)        -

    Other specified items
    ---------------------
      Change in estimated fair
       value of Canadian third
       party asset-backed
       commercial paper (ABCP)             -          -          -         -
      Income tax on change in
       estimated fair
       value of ABCP                       -          -          -         -
                                  ---------------------------------
      Change in estimated fair
       value of ABCP (net of tax)          -          -          -         -

      Income tax benefits due to
       rate reductions on opening
       future income tax balances     (145.8)         -     (145.8)        -
                                  ---------------------------------
      Net income                    $  342.3   $  145.6   $  196.7     135.1
                                  ---------------------------------
                                  ---------------------------------

    Earnings per share (EPS)
    ------------------------
      Basic earnings per share      $   2.23   $   0.93   $   1.30     139.8
      Diluted earnings per share    $   2.21   $   0.92   $   1.29     140.2

    EPS before FX on LTD and
    ------------------------
     other specified items(2)
     ------------------------
      Basic earnings per share      $   1.21   $   1.16   $   0.05       4.3
      Diluted earnings per share    $   1.20   $   1.15   $   0.05       4.3

      Weighted average (avg) number
       of shares outstanding
       (millions)                      153.2      155.8       (2.6)     (1.7)

      Weighted avg number of
       diluted shares outstanding
       (millions)                      154.6      157.4       (2.8)     (1.8)

      Operating ratio(2)(4) (%)         74.3       73.1        1.2         -

      ROCE before FX on LTD and
       other specified items
       (after tax)(2)(4) (%)             9.5       10.2       (0.7)        -

      Net debt to net debt
       plus equity (%)                  42.5       37.2        5.3         -

      EBIT before FX on LTD and
       other specified items(2)(4)  $  309.3   $  313.7   $   (4.4)     (1.4)

      EBITDA before FX on LTD and
       other specified items(2)(4)  $  425.6   $  429.6   $   (4.0)     (0.9)


                                                     Year
                                  -------------------------------------------
                                        2007       2006   Variance         %
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data and ratios)
     --------------------------

    Revenues
    --------
      Freight revenue               $4,555.2   $4,427.3   $  127.9       2.9
      Other revenue                    152.4      155.9       (3.5)     (2.2)
                                  ---------------------------------
                                     4,707.6    4,583.2      124.4       2.7
                                  ---------------------------------
    Operating Expenses
    ------------------
      Compensation and benefits      1,284.2    1,327.6      (43.4)     (3.3)
      Fuel                             746.8      650.5       96.3      14.8
      Materials                        215.5      212.9        2.6       1.2
      Equipment rents                  207.5      181.2       26.3      14.5
      Depreciation and
       amortization                    472.0      464.1        7.9       1.7
      Purchased services and other     617.4      618.3       (0.9)     (0.1)
                                  ---------------------------------
                                     3,543.4    3,454.6       88.8       2.6
                                  ---------------------------------
    Operating income                 1,164.2    1,128.6       35.6       3.2

      Other (income) charges,
       including DM&E equity
       income(1)                        17.3       27.8      (10.5)    (37.8)
      Interest expense                 204.3      194.5        9.8       5.0
      Income tax expense before
       foreign exchange (gains)
       losses on long-term debt
       and other specified
       items(2)                        269.8      278.8       (9.0)     (3.2)
                                  ---------------------------------
      Income before foreign
       exchange (gains) losses
       on long-term debt and other
       specified items(2)              672.8      627.5       45.3       7.2
                                  ---------------------------------

    Foreign exchange (gains) losses
    -------------------------------
     on long-term debt (FX on LTD)
     -----------------------------
      FX on LTD                       (169.8)       0.1     (169.9)        -
      Income tax on FX on LTD(3)        44.3        7.1       37.2         -
                                  ---------------------------------
      FX on LTD (net of tax)          (125.5)       7.2     (132.7)        -

    Other specified items
    ---------------------
      Change in estimated fair
       value of Canadian third
       party asset-backed
       commercial paper (ABCP)          21.5          -       21.5         -
      Income tax on change in
       estimated fair
       value of ABCP                    (6.5)         -       (6.5)        -
                                  ---------------------------------
      Change in estimated fair
       value of ABCP (net of tax)       15.0          -       15.0         -

      Income tax benefits due to
       rate reductions on opening
       future income tax balances     (162.9)    (176.0)      13.1         -
                                  ---------------------------------
      Net income                    $  946.2   $  796.3   $  149.9      18.8
                                  ---------------------------------
                                  ---------------------------------

    Earnings per share (EPS)
    ------------------------
      Basic earnings per share      $   6.14   $   5.06   $   1.08      21.3
      Diluted earnings per share    $   6.08   $   5.02   $   1.06      21.1

    EPS before FX on LTD and
    ------------------------
     other specified items(2)
     ------------------------
      Basic earnings per share      $   4.37   $   3.99   $   0.38       9.5
      Diluted earnings per share    $   4.32   $   3.95   $   0.37       9.4

      Weighted average (avg) number
       of shares outstanding
       (millions)                      154.0      157.3       (3.3)     (2.1)

      Weighted avg number of
       diluted shares outstanding
       (millions)                      155.6      158.8       (3.2)     (2.0)

      Operating ratio(2)(4) (%)         75.3       75.4       (0.1)        -

      ROCE before FX on LTD and
       other specified items
       (after tax)(2)(4) (%)             9.5       10.2       (0.7)        -

      Net debt to net debt
       plus equity (%)                  42.5       37.2        5.3         -

      EBIT before FX on LTD and
       other specified items(2)(4)  $1,146.9   $1,100.8   $   46.1       4.2

      EBITDA before FX on LTD and
       other specified items(2)(4)  $1,618.9   $1,564.9   $   54.0       3.5

    (1) Dakota, Minnesota & Eastern Railroad Corporation (DM&E) equity income
        is $12.3 million, net of tax.
    (2) These earnings measures have no standardized meanings prescribed by
        GAAP and may not be comparable to similar measures of other
        companies. See note on non-GAAP earnings measures attached to
        commentary.
    (3) Income tax on FX on LTD is discussed in the MD&A in the
        "Other Income Statement Items" section - "Income Taxes".
    (4) EBIT:             Earnings before interest and taxes.
        EBITDA:           Earnings before interest, taxes, and depreciation
                          and amortization.
        ROCE (after tax): Return on capital employed (after tax) =
                          earnings before after-tax interest expense (last
                          12 months) divided by average net debt plus
                          equity.
        Operating ratio:  Operating expenses divided by revenues.



                                                 Fourth Quarter
                                  -------------------------------------------
                                        2007       2006   Variance         %
                                  -------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                         $  257.5   $  261.6   $   (4.1)     (1.6)
    - Coal                             131.2      149.3      (18.1)    (12.1)
    - Sulphur and fertilizers          121.2      122.0       (0.8)     (0.7)
    - Forest products                   61.5       71.2       (9.7)    (13.6)
    - Industrial and consumer
       products                        157.9      148.5        9.4       6.3
    - Automotive                        77.0       74.9        2.1       2.8
    - Intermodal                       336.3      324.0       12.3       3.8
                                  ---------------------------------
    Total Freight Revenues          $1,142.6   $1,151.5   $   (8.9)     (0.8)
                                  ---------------------------------

    Millions of Revenue
     Ton-Miles (RTM)
    - Grain                            8,283      8,463       (180)     (2.1)
    - Coal                             4,812      4,986       (174)     (3.5)
    - Sulphur and fertilizers          5,202      5,065        137       2.7
    - Forest products                  1,673      1,930       (257)    (13.3)
    - Industrial and consumer
       products                        4,449      4,030        419      10.4
    - Automotive                         621        572         49       8.6
    - Intermodal                       7,500      7,009        491       7.0
                                  ---------------------------------
    Total RTMs                        32,540     32,055        485       1.5
                                  ---------------------------------

    Freight Revenue per
     RTM (cents)
    - Grain                             3.11       3.09       0.02       0.6
    - Coal                              2.73       2.99      (0.26)     (8.7)
    - Sulphur and fertilizers           2.33       2.41      (0.08)     (3.3)
    - Forest products                   3.68       3.69      (0.01)     (0.3)
    - Industrial and consumer
       products                         3.55       3.68      (0.13)     (3.5)
    - Automotive                       12.40      13.09      (0.69)     (5.3)
    - Intermodal                        4.48       4.62      (0.14)     (3.0)

    Freight Revenue per RTM             3.51       3.59      (0.08)     (2.2)

    Carloads (thousands)
    - Grain                            103.6      105.0       (1.4)     (1.3)
    - Coal                              64.9       68.6       (3.7)     (5.4)
    - Sulphur and fertilizers           50.7       48.7        2.0       4.1
    - Forest products                   26.0       30.7       (4.7)    (15.3)
    - Industrial and consumer
       products                         80.4       77.1        3.3       4.3
    - Automotive                        41.8       39.8        2.0       5.0
    - Intermodal                       315.1      292.9       22.2       7.6
                                  ---------------------------------
    Total Carloads                     682.5      662.8       19.7       3.0
                                  ---------------------------------

    Freight Revenue per Carload
    - Grain                         $  2,486   $  2,491   $     (5)     (0.2)
    - Coal                             2,022      2,176       (154)     (7.1)
    - Sulphur and fertilizers          2,391      2,505       (114)     (4.6)
    - Forest products                  2,365      2,319         46       2.0
    - Industrial and consumer
       products                        1,964      1,926         38       2.0
    - Automotive                       1,842      1,882        (40)     (2.1)
    - Intermodal                       1,067      1,106        (39)     (3.5)

    Freight Revenue per Carload     $  1,674   $  1,737   $    (63)     (3.6)


                                                     Year
                                  -------------------------------------------
                                        2007       2006   Variance         %
                                  -------------------------------------------

    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                         $  938.9   $  904.6   $   34.3       3.8
    - Coal                             573.6      592.0      (18.4)     (3.1)
    - Sulphur and fertilizers          502.0      439.3       62.7      14.3
    - Forest products                  275.8      316.4      (40.6)    (12.8)
    - Industrial and consumer
       products                        627.9      603.8       24.1       4.0
    - Automotive                       319.0      314.4        4.6       1.5
    - Intermodal                     1,318.0    1,256.8       61.2       4.9
                                  ---------------------------------
    Total Freight Revenues          $4,555.2   $4,427.3   $  127.9       2.9
                                  ---------------------------------

    Millions of Revenue
     Ton-Miles (RTM)
    - Grain                           30,690     30,127        563       1.9
    - Coal                            20,629     19,650        979       5.0
    - Sulphur and fertilizers         21,259     17,401      3,858      22.2
    - Forest products                  7,559      8,841     (1,282)    (14.5)
    - Industrial and consumer
       products                       16,987     16,844        143       0.8
    - Automotive                       2,471      2,450         21       0.9
    - Intermodal                      29,757     27,561      2,196       8.0
                                  ---------------------------------
    Total RTMs                       129,352    122,874      6,478       5.3
                                  ---------------------------------

    Freight Revenue per
     RTM (cents)
    - Grain                             3.06       3.00       0.06       2.0
    - Coal                              2.78       3.01      (0.23)     (7.6)
    - Sulphur and fertilizers           2.36       2.52      (0.16)     (6.3)
    - Forest products                   3.65       3.58       0.07       2.0
    - Industrial and consumer
       products                         3.70       3.58       0.12       3.4
    - Automotive                       12.91      12.83       0.08       0.6
    - Intermodal                        4.43       4.56      (0.13)     (2.9)

    Freight Revenue per RTM             3.52       3.60      (0.08)     (2.2)

    Carloads (thousands)
    - Grain                            385.0      382.8        2.2       0.6
    - Coal                             269.1      281.7      (12.6)     (4.5)
    - Sulphur and fertilizers          209.8      178.3       31.5      17.7
    - Forest products                  114.1      135.0      (20.9)    (15.5)
    - Industrial and consumer
       products                        313.3      316.0       (2.7)     (0.9)
    - Automotive                       168.5      165.3        3.2       1.9
    - Intermodal                     1,238.1    1,159.0       79.1       6.8
                                  ---------------------------------
    Total Carloads                   2,697.9    2,618.1       79.8       3.0
                                  ---------------------------------

    Freight Revenue per Carload
    - Grain                         $  2,439   $  2,363   $     76       3.2
    - Coal                             2,132      2,102         30       1.4
    - Sulphur and fertilizers          2,393      2,464        (71)     (2.9)
    - Forest products                  2,417      2,344         73       3.1
    - Industrial and consumer
       products                        2,004      1,911         93       4.9
    - Automotive                       1,893      1,902         (9)     (0.5)
    - Intermodal                       1,065      1,084        (19)     (1.8)

    Freight Revenue per Carload     $  1,688   $  1,691   $     (3)     (0.2)



                                                 Fourth Quarter
                                  -------------------------------------------
                                        2007       2006   Variance         %
                                  -------------------------------------------

    Operations and Productivity
    ---------------------------

    Freight gross ton-miles
     (GTM) (millions)                 62,104     62,190        (86)     (0.1)
    Revenue ton-miles (RTM)
     (millions)                       32,540     32,055        485       1.5
    Average number of active
     employees                        15,801     15,821        (20)     (0.1)
    Number of employees at
     end of period                    15,382     15,327         55       0.4

    FRA personal injuries per
     200,000 employee-hours(1)           2.3        2.4       (0.1)     (4.2)
    FRA train accidents per
     million train-miles(1)              1.6        1.9       (0.3)    (15.8)

    Total operating expenses
     per RTM (cents)                    2.71       2.72      (0.01)     (0.4)
    Total operating expenses
     per GTM (cents)                    1.42       1.40       0.02       1.4
    Compensation and benefits
     expense per GTM (cents)            0.50       0.52      (0.02)     (3.8)
    GTMs per average active
     employee (000)                    3,930      3,931         (1)        -

    Miles of road operated at
     end of period(2)                 13,199     13,260        (61)     (0.5)

    Average train speed - AAR
     definition (mph)                   22.6       24.1       (1.5)     (6.2)
    Terminal dwell time - AAR
     definition (hours)                 23.3       21.7        1.6       7.4
    Car miles per car day              140.0      141.7       (1.7)     (1.2)
    Average daily total cars
     on-line - AAR
     definition (000)                   83.9       80.6        3.3       4.1

    U.S. gallons of locomotive
     fuel per 1,000 GTMs -
     freight & yard                     1.23       1.20       0.03       2.5
    U.S. gallons of locomotive fuel
     consumed - total (millions)(3)     75.7       74.3        1.4       1.9

    Average foreign exchange rate
     (US$/Canadian$)                   1.020      0.887      0.133      15.0
    Average foreign exchange rate
     (Canadian$/US$)                   0.980      1.128     (0.148)    (13.1)


                                                     Year
                                  -------------------------------------------
                                        2007       2006   Variance         %
                                  -------------------------------------------

    Operations and Productivity
    ---------------------------

    Freight gross ton-miles
     (GTM) (millions)                246,322    236,405      9,917       4.2
    Revenue ton-miles (RTM)
     (millions)                      129,352    122,874      6,478       5.3
    Average number of active
     employees                        15,675     15,947       (272)     (1.7)
    Number of employees at
     end of period                    15,382     15,327         55       0.4

    FRA personal injuries per
     200,000 employee-hours(1)           2.1        2.0        0.1       5.0
    FRA train accidents per
     million train-miles(1)              2.0        1.6        0.4      25.0

    Total operating expenses
     per RTM (cents)                    2.74       2.81      (0.07)     (2.5)
    Total operating expenses
     per GTM (cents)                    1.44       1.46      (0.02)     (1.4)
    Compensation and benefits
     expense per GTM (cents)            0.52       0.56      (0.04)     (7.1)
    GTMs per average active
     employee (000)                   15,714     14,824        890       6.0

    Miles of road operated at
     end of period(2)                 13,199     13,260        (61)     (0.5)

    Average train speed - AAR
     definition (mph)                   23.2       24.8       (1.6)     (6.5)
    Terminal dwell time - AAR
     definition (hours)                 22.2       20.8        1.4       6.7
    Car miles per car day              142.3      137.3        5.0       3.6
    Average daily total cars
     on-line - AAR
     definition (000)                   82.0       80.9        1.1       1.4

    U.S. gallons of locomotive
     fuel per 1,000 GTMs -
     freight & yard                     1.21       1.20       0.01       0.8
    U.S. gallons of locomotive fuel
     consumed - total (millions)(3)    296.7      283.4       13.3       4.7

    Average foreign exchange rate
     (US$/Canadian$)                   0.925      0.885      0.040       4.5
    Average foreign exchange rate
     (Canadian$/US$)                   1.081      1.130     (0.049)     (4.3)

    (1) Certain prior period figures have been revised to conform with
        current presentation or have been updated to reflect new information.
    (2) Excludes track on which CP has haulage rights.
    (3) Includes gallons of fuel consumed from freight, yard and commuter
        service but excludes fuel used in capital projects and other non-
        freight activities.
    





For further information:

For further information: Media: Leslie Pidcock, Tel.: (403) 319-6878,
email: leslie_pidcock@cpr.ca; Investment Community: Janet Weiss, Assistant
Vice-President, Investor Relations, Tel.: (403) 319-3591, email:
investor@cpr.ca


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