Canadian Pacific posts strong third quarter earnings



    CALGARY, Oct. 29 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE:   CP)
announced its third-quarter results today. Net income improved 34 per cent in
2007 to $219 million compared with $164 million in 2006. In the third quarter,
diluted earnings per share increased 36 per cent over 2006 to $1.41 from
$1.04. Excluding the impact of foreign exchange gains and losses on long-term
debt and other specified items, diluted EPS increased 15 per cent.

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

        -  Income before foreign exchange gains and losses on long-term debt
           and other specified items increased 12 per cent to $190 million
           from $170 million.
        -  Diluted earnings per share increased 15 per cent to $1.23 from
           $1.07 (excluding foreign exchange gains and losses on
           long-term debt and other specified items).
        -  Operating ratio improved to 72.9 per cent from 74.0 per cent.
        -  Total revenues increased three per cent to $1.2 billion.
    

    "CP posted strong results for this quarter, and we delivered these
results in the face of a strengthening Canadian dollar and increasing fuel
costs," said Fred Green, President and Chief Executive Officer of Canadian
Pacific. "We moved record volumes in the quarter and with the recent
acquisition of Dakota Minnesota & Eastern Railroad Corporation (DM&E), the
largest regional railroad in the U.S., we are well-positioned to continue our
growth."
    Freight revenues improved two per cent, with growth in both coal and
intermodal of seven per cent and in grain revenue of six per cent. Industrial
and consumer products and automotive revenues were also up slightly. These
gains were partially offset by decreases in forest products of 21 per cent and
sulphur and fertilizers of four per cent.
    Workload, measured by gross ton-miles (GTMs), increased five per cent
over 2006, while operating expenses increased less than two per cent to
$866 million. This included a 15 per cent increase in fuel expense due
primarily to increased refining margins and a 12 per cent increase in
equipment rents due to lower offline car hire receipts and additional
locomotives required to move higher freight volumes. These increases were
partially offset by a six per cent decrease in compensation and benefits costs
as a result of lower incentive compensation and a settlement gain related to a
post-retirement benefit liability in the third quarter of 2007, partially
offset by inflation.
    Other specified items in the third quarter reflect a charge for an
estimated fair value adjustment of $21 million ($15 million after tax) related
to investments in Canadian third party asset-backed commercial paper (ABCP).

    SUMMARY OF FIRST NINE MONTHS 2007 COMPARED WITH 2006

    Net income for the first nine months of 2007 was $604 million compared
with $651 million in 2006, a decrease of seven per cent due mainly to a
$176 million reduction in future income tax expense as a result of changes in
Canadian federal and provincial tax legislation which were included in the
2006 results and a $21 million charge taken in the third-quarter of 2007 to
reflect the change in the estimated fair value of ABCP. This was partially
offset by higher operating income and increased foreign exchange gains on
long-term debt in 2007. Diluted earnings per share was $3.87 in the first nine
months of 2007 compared with $4.09 for the same period in 2006, but excluding
foreign exchange gains on long-term debt and other specified items was $3.13
for the first three quarters in 2007 compared with $2.79 for the first three
quarters of 2006.
    Freight revenues increased four per cent to $3.4 billion and operating
expenses increased three per cent to $2.7 billion.

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

        -  Income increased nine per cent to $488 million from
           $447 million.
        -  Diluted earnings per share grew 12 per cent to $3.13 from $2.79.
        -  Operating ratio improved 60 basis points to 75.6 per cent from
           76.2 per cent.
    

    2007 OUTLOOK

    "CP has delivered growth of 12 per cent year-to-date on our adjusted
diluted EPS through execution excellence and focused expense control," said
Mike Lambert, Chief Financial Officer. "But we see ongoing challenges with the
strengthening Canadian dollar and fuel price pressures. As a result, our
expectations for adjusted diluted EPS for the full year 2007 are at the lower
end of our growth target range of $4.30 to $4.45 or nine to 13 per cent. The
stronger Canadian dollar will also impact revenues, and we expect to be just
below our target of four to six per cent revenue growth for 2007."
    Free cash is expected to exceed $300 million in 2007. This outlook
assumes oil prices in 2007 averaging US$69 per barrel (US$84 per barrel in the
fourth quarter) and an average currency exchange rate of $1.08 per U.S. dollar
(US$0.92) for the full year 2007 and $0.98 per U.S. dollar (US$1.02) in the
fourth quarter. This is a revision to our previous assumptions which were oil
prices averaging US$65 per barrel and an average exchange rate of $1.10 per
U.S. dollar (US$0.90) in 2007.

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

    CP had a foreign exchange gain on long-term debt of $64 million
($43 million after tax) in the third quarter of 2007, compared with a foreign
exchange loss on long-term debt of $2 million ($6 million after tax) in the
third quarter of 2006.
    For the first nine months of 2007, CP had a foreign exchange gain on
long-term debt of $162 million ($114 million after tax) compared with a
foreign exchange gain of $45 million ($28 million after tax) in the first nine
months of 2006. There was a future income tax benefit of $17 million in the
first nine months of 2007 and a future income tax benefit of $176 million in
the first nine months of 2006.
    At September 30, 2007 CP held investments in 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.
As a result, the Company has adjusted the estimated fair value of the
investment and taken a charge in the third quarter of $21 million ($15 million
after tax) and classified its ABCP as long-term investments.
    Continuing uncertainties regarding the value of the assets which underlie
the ABCP, the amount and timing of cash flows associated with the ABCP and the
outcome of the restructuring process could give rise to a further change in
the value of the Company's investment in ABCP which would impact the Company's
earnings.

    RESTATEMENT OF THIRD-QUARTER 2006 FINANCIAL STATEMENTS

    As a result of the adoption of EIC162 "Stock-based Compensation for
Employees Eligible to Retire Before the Vesting Date" in December 2006, the
comparative financial statements for the three months ended September 30, 2006
have been restated with a reduction in "Compensation and benefits" expense of
$2.2 million, an increase in "Net income" of $2.1 million and an increase in
basic and diluted earnings per share of $0.02. Basic and diluted earnings per
share excluding foreign exchange gains and losses on long-term debt and other
specified items was increased by $0.01. The nine months ended September 30,
2006 have been restated with a decrease in "Compensation and benefits" expense
of $0.6 million, an increase of "Net income" of $0.5 million and an increase
in basic earnings per share of $0.01. Diluted earnings per share was increased
by $0.02. There was no change to basic and diluted earnings per share
excluding foreign exchange gains and losses on long-term debt and other
specified items.

    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, excluding the reclassification of ABCP, and
dividends. Free cash excludes the reclassification of ABCP as this reflects a
change in presentation for accounting purposes and does not in itself 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, intends to be 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 Canadian Pacific a better place to work, rail a
better way to ship, and North America a better place to live. Come and visit
us at www.cpr.ca to see how we can put our ingenuity to work for you. 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 September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)
    Revenues
      Freight                                        $  1,147.6   $  1,122.2
      Other                                                40.3         29.1
                                                    -------------------------
                                                        1,187.9      1,151.3

    Operating expenses
      Compensation and benefits                           313.5        332.4
      Fuel                                                185.6        161.3
      Materials                                            49.6         47.1
      Equipment rents                                      49.6         44.4
      Depreciation and amortization                       118.0        115.6
      Purchased services and other                        149.9        151.4
                                                    -------------------------
                                                          866.2        852.2
                                                    -------------------------
    Operating income                                      321.7        299.1

    Other charges (Note 4)                                  8.1          6.9
    Change in fair value of Canadian third
     party asset-backed commercial paper
     (Note 9)                                              21.5            -
    Foreign exchange (gains) losses on
     long-term debt                                       (64.3)         1.5
    Interest expense (Note 5)                              44.9         48.8
    Income tax expense (Note 6)                            92.9         78.1
                                                    -------------------------

    Net income                                       $    218.6   $    163.8
                                                    -------------------------
                                                    -------------------------

    Basic earnings per share (Note 7)                $     1.43   $     1.05
                                                    -------------------------
                                                    -------------------------

    Diluted earnings per share (Note 7)              $     1.41   $     1.04
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



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

                                                         For the nine months
                                                          ended September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)

    Revenues
      Freight                                        $  3,412.6   $  3,275.8
      Other                                               106.7        117.0
                                                    -------------------------
                                                        3,519.3      3,392.8
    Operating expenses
      Compensation and benefits                           975.8      1,005.4
      Fuel                                                550.5        479.3
      Materials                                           167.6        159.2
      Equipment rents                                     162.4        133.4
      Depreciation and amortization                       355.7        348.2
      Purchased services and other                        448.6        458.8
                                                    -------------------------
                                                        2,660.6      2,584.3
                                                    -------------------------
    Operating income                                      858.7        808.5

    Other charges (Note 4)                                 21.1         21.4
    Change in fair value of Canadian third party
     asset-backed commercial paper (Note 9)                21.5            -
    Foreign exchange gains on long-term debt             (161.5)       (44.8)
    Interest expense (Note 5)                             140.9        144.7
    Income tax expense (Note 6)                           232.8         36.5
                                                    -------------------------

    Net income                                       $    603.9   $    650.7
                                                    -------------------------
                                                    -------------------------

    Basic earnings per share (Note 7)                $     3.91   $     4.13
                                                    -------------------------
                                                    -------------------------

    Diluted earnings per share (Note 7)              $     3.87   $     4.09
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
    (in millions)

                                                        For the three months
                                                          ended September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)

    Comprehensive income

    Net income                                       $    218.6   $    163.8

    Other comprehensive income

      Net change in foreign currency translation
       adjustments, net of hedging activities              (0.7)        (0.7)

      Net change in gains on derivatives designated
       as cash flow hedges                                 (5.9)           -
                                                    -------------------------
      Other comprehensive loss before income taxes         (6.6)        (0.7)

      Income tax (expense) recovery                        (2.5)         0.1
                                                    -------------------------
    Other comprehensive loss (Note 12)                     (9.1)        (0.6)
                                                    -------------------------
    Comprehensive income                             $    209.5   $    163.2
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



                                                         For the nine months
                                                          ended September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)
    Comprehensive income

    Net income                                       $    603.9   $    650.7

    Other comprehensive income

      Net change in foreign currency translation
       adjustments, net of hedging activities              (3.9)        (0.6)

      Net change in gains on derivatives designated
       as cash flow hedges                                (18.9)           -
                                                    -------------------------
      Other comprehensive loss before income taxes        (22.8)        (0.6)

      Income tax expense                                   (3.8)        (3.1)
                                                    -------------------------
    Other comprehensive loss (Note 12)                    (26.6)        (3.7)
                                                    -------------------------
    Comprehensive income                             $    577.3   $    647.0
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED BALANCE SHEET
    (in millions)
                                                   September 30  December 31
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)
    Assets
    Current assets
      Cash and cash equivalents                      $    339.2   $    124.3
      Accounts receivable and other current assets        608.7        615.7
      Materials and supplies                              187.6        158.6
      Future income taxes                                 116.6        106.3
                                                    -------------------------
                                                        1,252.1      1,004.9

    Investments (Note 9)                                  179.7         64.9
    Net properties                                      9,107.5      9,122.9
    Other assets and deferred charges                   1,262.2      1,223.2
                                                    -------------------------
    Total assets                                     $ 11,801.5   $ 11,415.9
                                                    -------------------------
                                                    -------------------------
    Liabilities and shareholders' equity
    Current liabilities
      Accounts payable and accrued liabilities       $  1,018.6   $  1,002.6
      Income and other taxes payable                       44.3         16.0
      Dividends payable                                    34.5         29.1
      Long-term debt maturing within one year              30.9        191.3
                                                    -------------------------
                                                        1,128.3      1,239.0

    Deferred liabilities                                  714.1        725.7
    Long-term debt (Note 10)                            2,896.4      2,813.5
    Future income taxes                                 1,901.6      1,781.2

    Shareholders' equity
      Share capital (Note 11)                           1,187.2      1,175.7
      Contributed surplus                                  40.6         32.3
      Accumulated other comprehensive
       income (Note 12)                                    53.8         66.4
      Retained income                                   3,879.5      3,582.1
                                                    -------------------------
                                                        5,161.1      4,856.5
                                                    -------------------------
    Total liabilities and shareholders' equity       $ 11,801.5   $ 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 September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)
    Operating activities
      Net income                                     $    218.6   $    163.8
      Add (deduct) items not affecting cash:
        Depreciation and amortization                     118.0        115.6
        Future income taxes                                72.1         72.7
        Change in fair value of Canadian third party
         asset-backed commercial paper (Note 9)            21.5            -
        Foreign exchange (gains) losses on long-term
         debt                                             (64.3)         1.5
        Amortization of deferred charges                    3.0          4.5
      Restructuring and environmental remediation
       payments                                           (13.8)       (18.6)
      Other operating activities, net                     (14.2)       (32.4)
      Change in non-cash working capital balances
       related to operations                                0.5        (28.8)
                                                    -------------------------
      Cash provided by operating activities               341.4        278.3
                                                    -------------------------
    Investing activities
      Additions to properties                            (206.0)      (220.2)
      (Additions) reductions to investments and
       other assets (Note 14)                              (4.9)        63.9
      Net proceeds from disposal of transportation
       properties                                           0.8         (2.8)
      Reclassification of Canadian third party
       asset-backed commercial paper (Note 9)            (143.6)           -
                                                    -------------------------
      Cash used in investing activities                  (353.7)      (159.1)
                                                    -------------------------
    Financing activities
      Dividends paid                                      (34.8)       (29.5)
      Issuance of CP Common Shares                          4.1          3.1
      Purchase of CP Common Shares                         (3.0)       (83.3)
      Repayment of long-term debt                          (6.9)        (7.4)
                                                    -------------------------
      Cash used in financing activities                   (40.6)      (117.1)
                                                    -------------------------
    Cash position
      (Decrease) increase in cash and
       cash equivalents                                   (52.9)         2.1
      Cash and cash equivalents at beginning
       of period                                          392.1         44.3
                                                    -------------------------
      Cash and cash equivalents at end of period     $    339.2   $     46.4
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



    STATEMENT OF CONSOLIDATED CASH FLOWS
    (in millions)
                                                         For the nine months
                                                          ended September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)
    Operating activities
      Net income                                     $    603.9   $    650.7
      Add (deduct) items not affecting cash:
        Depreciation and amortization                     355.7        348.2
        Future income taxes                               168.3          2.3
        Change in fair value of Canadian third party
         asset-backed commercial paper (Note 9)            21.5            -
        Foreign exchange gains on long-term debt         (161.5)       (44.8)
        Amortization of deferred charges                    9.2         13.1
      Restructuring and environmental remediation
       payments                                           (39.0)       (69.2)
      Other operating activities, net                     (16.0)       (30.0)
      Change in non-cash working capital balances
       related to operations                               (8.5)      (135.3)
                                                    -------------------------
      Cash provided by operating activities               933.6        735.0
                                                    -------------------------
    Investing activities
      Additions to properties                            (568.6)      (589.2)
      Additions to investments and other assets
       (Note 14)                                          (16.6)       (21.1)
      Net proceeds from disposal of transportation
       properties                                           9.3         79.1
      Reclassification of Canadian third party
       asset-backed commercial paper (Note 9)            (143.6)           -
                                                    -------------------------
      Cash used in investing activities                  (719.5)      (531.2)
                                                    -------------------------
    Financing activities
      Dividends paid                                      (98.6)       (83.0)
      Issuance of CP Common Shares                         29.2         52.3
      Purchase of CP Common Shares                       (231.1)      (226.9)
      Issuance of long-term debt (Note 10)                485.1            -
      Repayment of long-term debt                        (183.8)       (21.6)
                                                    -------------------------
      Cash provided by (used in) financing
       activities                                           0.8       (279.2)
                                                    -------------------------
    Cash position
      Increase (decrease) in cash and
       cash equivalents                                   214.9        (75.4)
      Cash and cash equivalents at beginning
       of period                                          124.3        121.8
                                                    -------------------------
      Cash and cash equivalents at end of period     $    339.2   $     46.4
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
    (in millions)
                                                        For the three months
                                                          ended September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)
    Share capital
    Balance, beginning of period                     $  1,182.0   $  1,174.0

    Shares issued under stock option plans                  5.2          3.2

    Shares purchased                                          -        (10.6)
                                                    -------------------------
    Balance, end of period                              1,187.2      1,166.6
                                                    -------------------------

    Contributed surplus
    Balance, beginning of period                           38.7        115.5

    Stock-based compensation expense related to
     stock option plans                                     1.9          2.3

    Shares purchased                                          -        (65.8)
                                                    -------------------------
    Balance, end of period                                 40.6         52.0
                                                    -------------------------

    Accumulated other comprehensive income
    Balance, beginning of period                           62.9         64.4

    Other comprehensive loss (Note 12)                     (9.1)        (0.6)
                                                    -------------------------
    Balance, end of period                                 53.8         63.8
                                                    -------------------------

    Retained earnings
    Balance, beginning of period                        3,694.9      3,357.4

    Net income for the period                             218.6        163.8

    Shares purchased                                          -            -

    Dividends                                             (34.0)       (29.3)
                                                    -------------------------
    Balance, end of period                              3,879.5      3,491.9
                                                    -------------------------
    Total accumulated other comprehensive income
     and retained earnings                              3,933.3      3,555.7
                                                    -------------------------
                                                    -------------------------
    Shareholders' equity, end of period              $  5,161.1   $  4,774.3
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
    (in millions)
                                                         For the nine months
                                                          ended September 30
                                                           2007         2006
                                                                    Restated
                                                                 (see Note 2)
                                                    -------------------------
                                                           (unaudited)
    Share capital
    Balance, beginning of period                     $  1,175.7   $  1,141.5

    Shares issued under stock option plans                 36.0         55.9

    Shares purchased                                      (24.5)       (30.8)
                                                    -------------------------
    Balance, end of period                              1,187.2      1,166.6
                                                    -------------------------

    Contributed surplus
    Balance, beginning of period                           32.3        245.1

    Stock-based compensation expense related to
     stock option plans                                     8.3          8.1

    Shares purchased                                          -       (201.2)
                                                    -------------------------
    Balance, end of period                                 40.6         52.0
                                                    -------------------------

    Accumulated other comprehensive income
    Balance, beginning of period                           66.4         67.5

    Adjustment for change in accounting policy             14.0            -
                                                    -------------------------
    Adjusted balance, beginning of period                  80.4         67.5

    Other comprehensive loss (Note 12)                    (26.6)        (3.7)
                                                    -------------------------
    Balance, end of period                                 53.8         63.8
                                                    -------------------------

    Retained earnings
    Balance, beginning of period                        3,582.1      2,930.0

    Adjustment for change in accounting policy
     (Note 2)                                               4.0            -
                                                    -------------------------
    Adjusted balance, beginning of period               3,586.1      2,930.0

    Net income for the period                             603.9        650.7

    Shares purchased                                     (206.6)           -

    Dividends                                            (103.9)       (88.8)
                                                    -------------------------
    Balance, end of period                              3,879.5      3,491.9
                                                    -------------------------
    Total accumulated other comprehensive income
     and retained earnings                              3,933.3      3,555.7
                                                    -------------------------
                                                    -------------------------
    Shareholders' equity, end of period              $  5,161.1   $  4,774.3
                                                    -------------------------
                                                    -------------------------

    See notes to interim consolidated financial statements.



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    SEPTEMBER 30, 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 added
        to 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 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.

        Stock-based compensation for employees eligible to retire before the
        vesting date
        ---------------------------------------------------------------------

        As a result of the adoption of EIC 162 "Stock-based Compensation for
        Employees Eligible to Retire Before the Vesting Date" in
        December 2006, the comparative financial statements for the three
        months ended September 30, 2006 have been restated with a reduction
        in "Compensation and benefits" expense of $2.2 million, an increase
        in "Net income" of $2.1 million and an increase in basic and diluted
        earnings per share of $0.02. The comparative financial statements for
        the nine months ended September 30, 2006 have been restated with a
        decrease in "Compensation and benefits" expense of $0.6 million, an
        increase in "Net income" of $0.5 million and an increase in basic
        earnings per share of $0.01. Diluted earnings per share was increased
        by $0.02.

    3   Future accounting changes

        The CICA has issued the following accounting standards which will be
        effective for the Company from January 1, 2008: Section 3862
        "Financial Instruments - Disclosures", Section 1535 "Capital
        Disclosures" and Section 3031 "Inventories".

        Section 3862 "Financial Instruments - Disclosures" and Section 1535
        "Capital Disclosures" will require the Company to provide additional
        disclosures relating to its financial instruments, including hedging
        instruments, and about the Company's capital. 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.

        Section 3031 "Inventories" will provide guidance on the method of
        determining the cost of CP's materials and supplies. The new
        accounting standard specifies that inventories are to be valued at
        the lower of cost and net realizable value. CP 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. It
        is not anticipated that the adoption of Section 3031 "Inventories"
        will have a material impact to CP's financial statements. Adoption of
        the new standard may be made on either a prospective basis or
        retroactively with restatement of prior comparative periods.


    4   Other charges
                                          For the three        For the nine
                                           months ended        months ended
                                           September 30        September 30
        (in millions)                     2007      2006      2007      2006
                                       ------------------  ------------------
        Amortization of discount on
         accruals recorded at present
         value                         $   2.0   $   2.9   $   6.2   $   8.1
        Other exchange losses              2.3       1.0       4.3       4.5
        Loss on sale of accounts
         receivable                        1.5       1.4       4.2       3.7
        Losses (gains) on non-hedging
         derivative instruments            0.5      (0.3)      0.1      (0.4)
        Other                              1.8       1.9       6.3       5.5
                                       ------------------  ------------------
        Total other charges            $   8.1   $   6.9   $  21.1   $  21.4
                                       ------------------  ------------------
                                       ------------------  ------------------

    5   Interest expense
                                          For the three        For the nine
                                           months ended        months ended
                                           September 30        September 30
        (in millions)                     2007      2006      2007      2006
                                       ------------------  ------------------

        Interest expense               $  51.5   $  50.0   $ 152.6   $ 149.1
        Interest income                   (6.6)     (1.2)    (11.7)     (4.4)
                                       ------------------  ------------------
        Total interest expense         $  44.9   $  48.8   $ 140.9   $ 144.7
                                       ------------------  ------------------
                                       ------------------  ------------------

    6   Income taxes

        Cash taxes paid for the three months ended September 30, 2007 was
        $0.9 million (three months ended September 30, 2006 - $21.1 million).
        Cash taxes paid in the nine months ended September 30, 2007 was
        $8.9 million (nine months ended September 30, 2006 - $26.6 million).

    7   Earnings per share

        At September 30, 2007, the number of shares outstanding was
        153.2 million (September 30, 2006 - 155.9 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         For the nine
                                         months ended         months ended
                                         September 30         September 30
        (in millions)                   2007     2006        2007     2006
                                     -------------------  -------------------

        Weighted average shares
         outstanding                   153.2    156.7       154.3    157.8
        Dilutive effect of stock
         options                         1.8      1.6         1.6      1.8
                                     -------------------  -------------------
        Weighted average diluted
         shares outstanding            155.0    158.3       155.9    159.6
                                     -------------------  -------------------
                                     -------------------  -------------------
        (in dollars)

        Basic earnings per share     $  1.43  $  1.05(1)  $  3.91  $  4.13(1)
        Diluted earnings per share   $  1.41  $  1.04(1)  $  3.87  $  4.09(1)
                                     -------------------  -------------------
                                     -------------------  -------------------
        (1) Restated


    8   Restructuring and environmental remediation

        At September 30, 2007, the provision for restructuring and
        environmental remediation was $260.3 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 September 30, 2007
                                                                     Closing
                        Opening                      Amorti-         Balance
                        Balance                      zation  Foreign  Septem-
                         July 1  Accrued                 of Exchange  ber 30
        (in millions)      2007 (reduced) Payments Discount   Impact    2007
                        -----------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 163.6      0.5    (10.7)     1.5     (2.1) $ 152.8
        Other
         non-labour
         liabilities
         for exit plans     1.1     (0.2)    (0.1)       -        -      0.8
                        -----------------------------------------------------
        Total
         restructuring
         liability        164.7      0.3    (10.8)     1.5     (2.1)   153.6
                        -----------------------------------------------------
        Environmental
         remediation
         program          112.7      0.9     (3.0)       -     (3.9)   106.7
                        -----------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 277.4      1.2    (13.8)     1.5     (6.0) $ 260.3
                        -----------------------------------------------------
                        -----------------------------------------------------


        Three months ended September 30, 2006
                                                                     Closing
                        Opening                      Amorti-         Balance
                        Balance                      zation  Foreign  Septem-
                         July 1  Accrued                 of Exchange  ber 30
        (in millions)      2006 (reduced) Payments Discount   Impact    2006
                        -----------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 215.8      0.2    (14.2)     2.8        -  $ 204.6

        Other
         non-labour
         liabilities
         for exit plans     1.8      0.2     (0.1)     0.1        -      2.0
                        -----------------------------------------------------
        Total
         restructuring
         liability        217.6      0.4    (14.3)     2.9        -    206.6
                        -----------------------------------------------------

        Environmental
         remediation
         program          128.2      1.0     (4.3)       -      0.1    125.0
                        -----------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 345.8      1.4    (18.6)     2.9      0.1  $ 331.6
                        -----------------------------------------------------
                        -----------------------------------------------------


        Nine months ended September 30, 2007
                                                                     Closing
                        Opening                      Amorti-         Balance
                        Balance                      zation  Foreign  Septem-
                         Jan. 1  Accrued                 of Exchange  ber 30
        (in millions)      2007 (reduced) Payments Discount   Impact    2007
                        -----------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 187.4     (1.6)   (32.8)     4.7     (4.9) $ 152.8

        Other
         non-labour
         liabilities
         for exit plans     1.4     (0.2)    (0.2)       -     (0.2)     0.8
                        -----------------------------------------------------
        Total
         restructuring
         liability        188.8     (1.8)   (33.0)     4.7     (5.1)   153.6
                        -----------------------------------------------------
        Environmental
         remediation
         program          120.2      2.2     (6.0)       -     (9.7)   106.7
                        -----------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 309.0      0.4    (39.0)     4.7    (14.8) $ 260.3
                        -----------------------------------------------------
                        -----------------------------------------------------


        Nine months ended September 30, 2006
                                                                     Closing
                        Opening                      Amorti-         Balance
                        Balance                      zation  Foreign  Septem-
                         Jan. 1  Accrued                 of Exchange  ber 30
        (in millions)      2006 (reduced) Payments Discount   Impact    2006
                        -----------------------------------------------------
        Labour
         liability for
         terminations
         and severances $ 263.6     (9.5)   (55.9)     8.0     (1.6) $ 204.6

        Other
         non-labour
         liabilities
         for exit plans     5.8      0.7     (4.4)     0.1     (0.2)     2.0
                        -----------------------------------------------------
        Total
         restructuring
         liability        269.4     (8.8)   (60.3)     8.1     (1.8)   206.6
                        -----------------------------------------------------
        Environmental
         remediation
         program          129.4      7.4     (8.9)       -     (2.9)   125.0
                        -----------------------------------------------------
        Total
         restructuring
         and
         environmental
         remediation
         liability      $ 398.8     (1.4)   (69.2)     8.1     (4.7) $ 331.6
                        -----------------------------------------------------
                        -----------------------------------------------------

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

    9   Investments

        At September 30, 2007, the Company held Canadian third party asset-
        backed commercial paper ("ABCP") 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 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 ABCPs 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 and has retained legal
        and financial advisors to oversee the proposed restructuring process.
        On October 16, 2007, it was announced that the committee expected
        that the restructuring would be completed on or before December 14,
        2007. Through to December 14, 2007, by means of Extraordinary
        Resolutions of the various trusts that had issued ABCP, trading has
        ceased and investors have committed not to take any action that would
        precipitate an event of default.

        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.

        The valuation technique used by the Company to estimate the fair
        value of its investments in ABCP 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. During the
        three and nine months ended September 30, 2007, this valuation
        resulted in a reduction of $21.5 million to the estimated fair value
        of the ABCP. 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 long-term floating rate notes 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. Assumptions have been made as to
        the long-term interest rates to be received from the long-term
        floating rate notes compared to the short term interest rate
        currently being accrued by the Company on the ABCP. Assumptions have
        also been made as to the amount of restructuring costs that the
        Company will bear.

        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
        change in the value of the Company's investment in ABCP which would
        impact the Company's earnings.

    10  Long-term debt

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

    11  Shareholders' equity

        An analysis of Common Share balances is as follows:

                                          For the three        For the nine
                                           months ended        months ended
                                           September 30        September 30
        (in millions)                     2007      2006      2007      2006
                                       ------------------  ------------------
        Share capital, beginning
         of period                       153.1     157.2     155.5     158.2
        Shares issued under stock
         option plans                      0.1       0.1       0.9       1.8
        Shares purchased                     -      (1.4)     (3.2)     (4.1)
                                       ------------------  ------------------
        Share capital, end of period     153.2     155.9     153.2     155.9
                                       ------------------  ------------------
                                       ------------------  ------------------

        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 months 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 purchase, for cancellation, up to 5.0 million of
        its outstanding Common Shares. Effective April 30, 2007, the 2007
        NCIB was amended to 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 September 30, 2007, there were no shares
        purchased (2006 - 1.4 million shares were purchased at an average
        price per share of $53.85) and for the nine months ended
        September 30, 2007, 3.2 million shares were purchased at an average
        price per share of $71.99 (2006 - 4.1 million shares were purchased
        at an average price per share of $55.93). For the three months ended
        September 30, 2007, certain share purchases were settled for
        $3.0 million.

        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 to
        contributed surplus and 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
                                                         September 30
                                                             2007
                                                            Income
                                                  Before       tax    Net of
                                                     tax  (expense)      tax
        (in millions)                             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                       $  29.8   $  (4.6)  $  25.2

        Unrealized foreign exchange loss on
         translation of the net investment
         in U.S. subsidiaries                      (30.5)        -     (30.5)

        Realized gain on cash flow hedges
         settled in the period                      (3.1)      1.1      (2.0)

        Decrease in unrealized holding gains on
         cash flow hedges                           (2.7)      1.0      (1.7)

        Realized loss on cash flow hedges
         settled in prior periods                   (0.1)        -      (0.1)
                                                -----------------------------
        Other comprehensive loss                 $  (6.6)  $  (2.5)  $  (9.1)
                                                -----------------------------
                                                -----------------------------



                                                  For the three months ended
                                                         September 30
                                                             2006
                                                            Income
                                                  Before       tax    Net of
                                                     tax  (expense)      tax
        (in millions)                             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                       $  (0.8)  $   0.1   $  (0.7)

        Unrealized foreign exchange gain on
         translation of the net investment
         in U.S. subsidiaries                        0.1         -       0.1
                                                -----------------------------
        Other comprehensive loss                 $  (0.7)  $   0.1   $  (0.6)
                                                -----------------------------
                                                -----------------------------



                                                  For the nine months ended
                                                         September 30
                                                             2007
                                                            Income
                                                  Before       tax    Net of
                                                     tax  (expense)      tax
        (in millions)                             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                       $  67.5   $ (10.4)  $  57.1

        Unrealized foreign exchange loss on
         translation of the net investment
         in U.S. subsidiaries                      (71.4)        -     (71.4)

        Realized gain on cash flow hedges
         settled in the period                     (11.2)      3.9      (7.3)

        Decrease in unrealized holding gains on
         cash flow hedges                           (9.2)      3.2      (6.0)

        Realized loss on cash flow hedges settled
         in prior periods                            1.5      (0.5)      1.0
                                                -----------------------------
        Other comprehensive loss                 $ (22.8)  $  (3.8)  $ (26.6)
                                                -----------------------------
                                                -----------------------------



                                                  For the nine months ended
                                                         September 30
                                                             2006
                                                            Income
                                                  Before       tax    Net of
                                                     tax  (expense)      tax
        (in millions)                             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                       $  19.8   $  (3.1)  $  16.7

        Unrealized foreign exchange loss on
         translation of the net investment
         in U.S. subsidiaries                      (20.4)        -     (20.4)
                                                -----------------------------
        Other comprehensive loss                 $  (0.6)  $  (3.1)  $  (3.7)
                                                -----------------------------
                                                -----------------------------



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

        Three months ended September 30, 2007

                                                 Opening             Closing
                                                 Balance,            Balance,
                                                  July 1,   Period  Sept. 30,
        (in millions)                               2007    change      2007
                                                -----------------------------
        Foreign exchange on U.S. dollar debt
         designated as a hedge of the net
         investment in U.S. subsidiaries         $ 267.2   $  25.2   $ 292.4

        Foreign exchange on net investment in
         U.S. subsidiaries                        (209.4)    (30.5)   (239.9)

        Increase (decrease) in unrealized
         effective gains of cash flow hedges         9.3      (3.7)      5.6

        Unrealized loss on settled hedge
         instruments                                (4.2)     (0.1)     (4.3)
                                                -----------------------------

        Accumulated other comprehensive income   $  62.9   $  (9.1)  $  53.8
                                                -----------------------------
                                                -----------------------------



        Three months ended September 30, 2006
                                                 Opening             Closing
                                                 Balance,            Balance,
                                                  July 1,   Period  Sept. 30,
        (in millions)                               2006    change      2006
                                                -----------------------------
        Foreign exchange on U.S. dollar debt
         designated as a hedge of the net
         investment in U.S. subsidiaries         $ 255.5   $  (0.7)  $ 254.8

        Foreign exchange on net investment
         in U.S. subsidiaries                     (191.1)      0.1    (191.0)
                                                -----------------------------

        Accumulated other comprehensive income   $  64.4   $  (0.6)  $  63.8
                                                -----------------------------
                                                -----------------------------



        Nine months ended September 30, 2007

                                       Adjustment
                                              for
                                           change Adjusted
                                 Opening       in  Opening           Closing
                                 Balance, account- Balance,          Balance,
                                  Jan. 1,     ing   Jan. 1,  Period Sept. 30,
        (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  $  57.1  $ 292.4

        Foreign exchange on net
         investment in U.S.
         subsidiaries             (168.5)       -   (168.5)   (71.4)  (239.9)

        Increase (decrease) in
         unrealized effective
         gains of cash flow
         hedges                        -     18.9     18.9    (13.3)     5.6

        Unrealized loss on
         settled hedge
         instruments                   -     (5.3)    (5.3)     1.0     (4.3)
                                ---------------------------------------------
        Accumulated other
         comprehensive income    $  66.4  $  14.0  $  80.4  $ (26.6) $  53.8
                                ---------------------------------------------
                                ---------------------------------------------

        Nine months ended September 30, 2006

                                 Opening           Closing
                                 Balance,          Balance,
                                  Jan. 1,  Period Sept. 30,
        (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  $  16.7  $ 254.8

        Foreign exchange on net
         investment in U.S.
         subsidiaries             (170.6)   (20.4)  (191.0)
                                ---------------------------

        Accumulated other
         comprehensive income    $  67.5  $  (3.7) $  63.8
                                ---------------------------
                                ---------------------------


        During the next twelve months, the Company expects $9.7 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
        period ending December 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. 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.

        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 $2,916.3 million and a fair value of
        approximately $3,056.2 million at September 30, 2007.

    14  Additions to investments and other assets

        Additions to investment and other assets includes the acquisition of
        $2.6 million in freight car assets for the three month period ended
        September 30, 2007 and $14.5 million for the nine month period ended
        September 30, 2007. These assets were purchased in anticipation of a
        sale and lease back arrangement with a financial institution. For
        the three months ended September 30, 2006, $46.0 million in assets
        were acquired and $109.4 million were sold; and for the nine months
        ended September 30, 2006, $132.5 million in assets were acquired and
        $109.4 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 1,304,200
        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, 434,250 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 September 30 (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             6,815,494  $    38.50   7,971,917  $    32.07
        New options granted    1,304,200       62.60   1,446,300       57.72
        Exercised               (934,381)      31.99  (1,842,317)      28.37
        Forfeited/cancelled     (165,855)      36.16    (280,795)      39.82
                              -----------             -----------

        Outstanding,
         September 30          7,019,458  $    43.90   7,295,105  $    37.79
                              ----------------------- -----------------------
                              ----------------------- -----------------------
        Options exercisable
         at September 30       4,068,654  $    34.08   3,419,305  $    29.59
                              ----------------------- -----------------------
                              ----------------------- -----------------------

        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. Had CP used the fair value method for options
        granted between January 1, 2002, and December 31, 2002, CP's pro
        forma basis net income and earnings per share would have been as
        follows:

                                          For the three        For the nine
                                           months ended        months ended
                                           September 30        September 30
                                          2007      2006      2007      2006
                                                Restated            Restated
                                      ------------------- -------------------
        Net income (in millions)
                        As reported   $  218.6  $  163.8  $  603.9  $  650.7
                        Pro forma     $  218.6  $  163.8  $  603.9  $  650.5
                                      ------------------- -------------------
                                      ------------------- -------------------

        Pro forma basic and diluted earnings per share are unchanged from the
        amounts disclosed in the Statement of Consolidated Income.

        Under the fair value method, the fair value of options at the grant
        date was $11.3 million for options issued in the first nine months of
        2007 (first nine months of 2006 - $12.3 million). The weighted
        average fair value assumptions were approximately:

                                                               For the nine
                                                               months ended
                                                               September 30
                                                              2007      2006
                                                          -------------------
        Expected option life (years)                          4.00      4.50
        Risk-free interest rate                               3.90%     4.07%
        Expected stock price volatility                         22%       21%
        Expected annual dividends per share                  $0.90     $0.75
        Weighted average fair value of options granted
         during the year                                    $12.97    $12.98
                                                          -------------------
                                                          -------------------

    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
        September 30, 2007, was $15.9 million (three months ended
        September 30, 2006 - $29.2 million) and for the nine months ended
        September 30, 2007, was $68.6 million (nine months ended
        September 30, 2006 - $88.7 million).


    17  Significant customers

        During the first nine months of 2007, one customer comprised 11.6% of
        total revenue (first nine months of 2006 - 11.7%).  At September 30,
        2007, that same customer represented 6.0% of total accounts
        receivable (September 30, 2006 - 5.3%).

    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 September 30, 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 September 30, 2007, the Company had multi-year capital commitments
        of $455.4 million, mainly for locomotive overhaul agreements, in the
        form of signed contracts. Payments for these commitments are due in
        2007 through 2016.

        Operating lease commitments

        At September 30, 2007, minimum payments under operating leases were
        estimated at $588.9 million in aggregate, with annual payments in
        each of the next five years of: remainder of 2007 - $32.8 million;
        2008 - $109.5 million; 2009 - $78.7 million; 2010 - $62.8 million;
        2011 - $55.5 million.

        Guarantees

        The Company had residual value guarantees on operating lease
        commitments of $385.4 million at September 30, 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 September 30, 2007, these accruals amounted to
        $7.0 million.


    19  Subsequent Event

        Effective October 4, 2007, the Company acquired all of the issued and
        outstanding shares of Dakota, Minnesota & Eastern Railroad
        Corporation and its subsidiaries (DM&E), a Class II railroad with
        approximately 2,500 miles of track 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$1.80 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 during 2008. During
        the review period, the investment in the DM&E will be accounted for
        on an equity basis.

        If the proposed transaction is approved by the STB, the acquisition
        will be accounted for 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.

        The Company is in the process of obtaining third-party valuations of
        certain assets. Accordingly, the allocation of the purchase price has
        not been determined.


                             Summary of Rail Data
                             --------------------
                                                  Third Quarter
                                  -------------------------------------------
                                       2007     2006(1)  Variance          %
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue              $1,147.6   $1,122.2   $   25.4        2.3
      Other revenue                    40.3       29.1       11.2       38.5
                                  --------------------------------
                                    1,187.9    1,151.3       36.6        3.2
                                  --------------------------------
    Operating Expenses
    ------------------
      Compensation and benefits       313.5      332.4      (18.9)      (5.7)
      Fuel                            185.6      161.3       24.3       15.1
      Materials                        49.6       47.1        2.5        5.3
      Equipment rents                  49.6       44.4        5.2       11.7
      Depreciation and amortization   118.0      115.6        2.4        2.1
      Purchased services and other    149.9      151.4       (1.5)      (1.0)
                                  --------------------------------
                                      866.2      852.2       14.0        1.6
                                  --------------------------------

    Operating income                  321.7      299.1       22.6        7.6

      Other charges                     8.1        6.9        1.2       17.4
      Interest expense                 44.9       48.8       (3.9)      (8.0)
      Income tax expense before
       foreign exchange (gains)
       losses on long-term debt
       and other specified items(2)    78.4       73.7        4.7        6.4
                                  --------------------------------
    Income before foreign exchange
     (gains) losses on long-term
     debt and other specified
     items(2)                         190.3      169.7       20.6       12.1
                                  --------------------------------

    Foreign exchange (gains) losses
    -------------------------------
     on long-term debt (FX on LTD)
     -----------------------------
      FX on LTD                       (64.3)       1.5      (65.8)         -
      Income tax on FX on LTD(3)       21.0        4.4       16.6          -
                                  --------------------------------
      FX on LTD (net of tax)          (43.3)       5.9      (49.2)         -

    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
       Federal / Provincial income
       tax rate reductions                -          -          -          -
                                  --------------------------------

    Net income                     $  218.6   $  163.8   $   54.8       33.5
                                  --------------------------------
                                  --------------------------------
    Earnings per share (EPS)
    ------------------------
      Basic earnings per share     $   1.43   $   1.05   $   0.38       36.2
      Diluted earnings per share   $   1.41   $   1.04   $   0.37       35.6

    EPS before FX on LTD and
    ------------------------
     other specified items(2)
     ------------------------
      Basic earnings per share     $   1.24   $   1.08   $   0.16       14.8
      Diluted earnings per share   $   1.23   $   1.07   $   0.16       15.0

    Weighted average number of
     shares outstanding (millions)    153.2      156.7       (3.5)      (2.2)

    Weighted average number of
     diluted shares outstanding
     (millions)                       155.0      158.3       (3.3)      (2.1)

    Operating ratio(2)(4)(%)           72.9       74.0       (1.1)         -

    ROCE before FX on LTD and
     other specified items
     (after tax)(2)(4)(%)              10.4       10.2        0.2          -

    Net debt to net debt plus
     equity (%)                        33.4       37.5       (4.1)         -

    EBIT before FX on LTD and
     other specified items(2)(4)
     (millions)                    $  313.6   $  292.2   $   21.4        7.3

    EBITDA before FX on LTD and
     other specified items(2)(4)
     (millions)                    $  431.6   $  407.8   $   23.8        5.8


                                                  Year-to-date
                                  -------------------------------------------
                                       2007     2006(1)  Variance          %
                                  -------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------

    Revenues
    --------
      Freight revenue              $3,412.6   $3,275.8   $  136.8        4.2
      Other revenue                   106.7      117.0      (10.3)      (8.8)
                                  --------------------------------
                                    3,519.3    3,392.8      126.5        3.7
                                  --------------------------------
    Operating Expenses
    ------------------
      Compensation and benefits       975.8    1,005.4      (29.6)      (2.9)
      Fuel                            550.5      479.3       71.2       14.9
      Materials                       167.6      159.2        8.4        5.3
      Equipment rents                 162.4      133.4       29.0       21.7
      Depreciation and amortization   355.7      348.2        7.5        2.2
      Purchased services and other    448.6      458.8      (10.2)      (2.2)
                                  --------------------------------
                                    2,660.6    2,584.3       76.3        3.0
                                  --------------------------------

    Operating income                  858.7      808.5       50.2        6.2

      Other charges                    21.1       21.4       (0.3)      (1.4)
      Interest expense                140.9      144.7       (3.8)      (2.6)
      Income tax expense before
       foreign exchange (gains)
       losses on long-term debt
       and other specified items(2)   209.0      195.9       13.1        6.7
                                  --------------------------------
    Income before foreign exchange
     (gains) losses on long-term
     debt and other specified
     items(2)                         487.7      446.5       41.2        9.2
                                  --------------------------------

    Foreign exchange (gains) losses
    -------------------------------
     on long-term debt (FX on LTD)
     -----------------------------
      FX on LTD                      (161.5)     (44.8)    (116.7)         -
      Income tax on FX on LTD(3)       47.4       16.6       30.8          -
                                  --------------------------------
      FX on LTD (net of tax)         (114.1)     (28.2)     (85.9)         -

    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
       Federal / Provincial income
       tax rate reductions            (17.1)    (176.0)     158.9          -
                                  --------------------------------

    Net income                     $  603.9   $  650.7   $  (46.8)      (7.2)
                                  --------------------------------
                                  --------------------------------

    Earnings per share (EPS)
    ------------------------
      Basic earnings per share     $   3.91   $   4.13   $  (0.22)      (5.3)
      Diluted earnings per share   $   3.87   $   4.09   $  (0.22)      (5.4)

    EPS before FX on LTD and
    ------------------------
     other specified items(2)
     ------------------------
      Basic earnings per share     $   3.16   $   2.83   $   0.33       11.7
      Diluted earnings per share   $   3.13   $   2.79   $   0.34       12.2

    Weighted average number of
     shares outstanding (millions)    154.3      157.8       (3.5)      (2.2)

    Weighted average number of
     diluted shares outstanding
     (millions)                       155.9      159.6       (3.7)      (2.3)

    Operating ratio(2)(4)(%)           75.6       76.2       (0.6)         -

    ROCE before FX on LTD and
     other specified items
     (after tax)(2)(4)(%)              10.4       10.2        0.2          -

    Net debt to net debt plus
     equity (%)                        33.4       37.5       (4.1)         -

    EBIT before FX on LTD and
     other specified items(2)(4)
     (millions)                    $  837.6   $  787.1   $   50.5        6.4

    EBITDA before FX on LTD and
     other specified items(2)(4)
     (millions)                    $1,193.3   $1,135.3   $   58.0        5.1


    (1) Certain comparative period figures have been restated for retroactive
        application of a new accounting standard adopted in 2006 related to
        stock-based compensation for employees eligible to retire before the
        vesting date.
    (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 current 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.



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

    Freight Revenues (millions)
    - Grain                        $  237.8   $  225.3   $   12.5        5.5
    - Coal                            148.7      139.0        9.7        7.0
    - Sulphur and fertilizers         113.9      118.7       (4.8)      (4.0)
    - Forest products                  68.0       86.0      (18.0)     (20.9)
    - Industrial and consumer
       products                       159.3      156.7        2.6        1.7
    - Automotive                       71.4       69.3        2.1        3.0
    - Intermodal                      348.5      327.2       21.3        6.5
                                  --------------------------------
    Total Freight Revenues         $1,147.6   $1,122.2   $   25.4        2.3
                                  --------------------------------

    Millions of Revenue Ton-Miles
     (RTM)
    - Grain                           7,614      7,142        472        6.6
    - Coal                            5,400      4,875        525       10.8
    - Sulphur and fertilizers         4,967      5,023        (56)      (1.1)
    - Forest products                 1,867      2,213       (346)     (15.6)
    - Industrial and consumer
       products                       4,228      4,311        (83)      (1.9)
    - Automotive                        566        529         37        7.0
    - Intermodal                      7,907      6,770      1,137       16.8
                                  --------------------------------
    Total RTMs                       32,549     30,863      1,686        5.5
                                  --------------------------------

    Freight Revenue per RTM (cents)
    - Grain                            3.12       3.15      (0.03)      (1.0)
    - Coal                             2.75       2.85      (0.10)      (3.5)
    - Sulphur and fertilizers          2.29       2.36      (0.07)      (3.0)
    - Forest products                  3.64       3.89      (0.25)      (6.4)
    - Industrial and consumer
       products                        3.77       3.63       0.14        3.9
    - Automotive                      12.61      13.10      (0.49)      (3.7)
    - Intermodal                       4.41       4.83      (0.42)      (8.7)

    Freight Revenue per RTM            3.53       3.64      (0.11)      (3.0)

    Carloads (thousands)
    - Grain                           100.9       96.2        4.7        4.9
    - Coal                             70.7       65.9        4.8        7.3
    - Sulphur and fertilizers          47.6       49.0       (1.4)      (2.9)
    - Forest products                  28.1       32.9       (4.8)     (14.6)
    - Industrial and consumer
       products                        78.0       78.3       (0.3)      (0.4)
    - Automotive                       38.6       36.4        2.2        6.0
    - Intermodal                      323.5      288.8       34.7       12.0
                                  --------------------------------
    Total Carloads                    687.4      647.5       39.9        6.2
                                  --------------------------------

    Freight Revenue per Carload
    - Grain                        $  2,357   $  2,342   $     15        0.6
    - Coal                            2,103      2,109         (6)      (0.3)
    - Sulphur and fertilizers         2,393      2,422        (29)      (1.2)
    - Forest products                 2,420      2,614       (194)      (7.4)
    - Industrial and consumer
       products                       2,042      2,001         41        2.0
    - Automotive                      1,850      1,904        (54)      (2.8)
    - Intermodal                      1,077      1,133        (56)      (4.9)

    Freight Revenue per Carload    $  1,669   $  1,733   $    (64)      (3.7)


                                                  Year-to-date
                                  -------------------------------------------
                                       2007       2006   Variance          %
                                  -------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                        $  681.4   $  643.0   $   38.4        6.0
    - Coal                            442.4      442.7       (0.3)      (0.1)
    - Sulphur and fertilizers         380.8      317.3       63.5       20.0
    - Forest products                 214.3      245.2      (30.9)     (12.6)
    - Industrial and consumer
       products                       470.0      455.3       14.7        3.2
    - Automotive                      242.0      239.5        2.5        1.0
    - Intermodal                      981.7      932.8       48.9        5.2
                                  --------------------------------
    Total Freight Revenues         $3,412.6   $3,275.8   $  136.8        4.2
                                  --------------------------------

    Millions of Revenue Ton-Miles
     (RTM)
    - Grain                          22,407     21,664        743        3.4
    - Coal                           15,817     14,664      1,153        7.9
    - Sulphur and fertilizers        16,057     12,336      3,721       30.2
    - Forest products                 5,886      6,911     (1,025)     (14.8)
    - Industrial and consumer
       products                      12,538     12,814       (276)      (2.2)
    - Automotive                      1,850      1,878        (28)      (1.5)
    - Intermodal                     22,257     20,552      1,705        8.3
                                  --------------------------------
    Total RTMs                       96,812     90,819      5,993        6.6
                                  --------------------------------

    Freight Revenue per RTM (cents)
    - Grain                            3.04       2.97       0.07        2.4
    - Coal                             2.80       3.02      (0.22)      (7.3)
    - Sulphur and fertilizers          2.37       2.57      (0.20)      (7.8)
    - Forest products                  3.64       3.55       0.09        2.5
    - Industrial and consumer
       products                        3.75       3.55       0.20        5.6
    - Automotive                      13.08      12.75       0.33        2.6
    - Intermodal                       4.41       4.54      (0.13)      (2.9)

    Freight Revenue per RTM            3.53       3.61      (0.08)      (2.2)

    Carloads (thousands)
    - Grain                           281.4      277.8        3.6        1.3
    - Coal                            204.2      213.1       (8.9)      (4.2)
    - Sulphur and fertilizers         159.1      129.6       29.5       22.8
    - Forest products                  88.1      104.3      (16.2)     (15.5)
    - Industrial and consumer
       products                       232.9      238.9       (6.0)      (2.5)
    - Automotive                      126.7      125.5        1.2        1.0
    - Intermodal                      923.0      866.1       56.9        6.6
                                  --------------------------------
    Total Carloads                  2,015.4    1,955.3       60.1        3.1
                                  --------------------------------

    Freight Revenue per Carload
    - Grain                        $  2,421   $  2,315   $    106        4.6
    - Coal                            2,167      2,077         90        4.3
    - Sulphur and fertilizers         2,393      2,448        (55)      (2.2)
    - Forest products                 2,432      2,351         81        3.4
    - Industrial and consumer
       products                       2,018      1,906        112        5.9
    - Automotive                      1,910      1,908          2        0.1
    - Intermodal                      1,064      1,077        (13)      (1.2)

    Freight Revenue per Carload    $  1,693   $  1,675   $     18        1.1



                                                  Third Quarter
                                  -------------------------------------------
                                       2007     2006(1)  Variance          %
                                  -------------------------------------------

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

    Freight gross ton-miles (GTM)
     (millions)                      62,177     59,102      3,075        5.2
    Revenue ton-miles (RTM)
     (millions)                      32,549     30,863      1,686        5.5
    Average number of active
     employees                       16,136     16,420       (284)      (1.7)
    Number of employees at end
     of period                       16,037     16,315       (278)      (1.7)

    FRA personal injuries per
     200,000 employee-hours             2.0        1.9        0.1        5.3
    FRA train accidents per
     million train-miles                2.0        1.0        1.0      100.0

    Total operating expenses per
     RTM (cents)                       2.66       2.76      (0.10)      (3.6)
    Total operating expenses per
     GTM (cents)                       1.39       1.44      (0.05)      (3.5)
    Compensation and benefits
     expense per GTM (cents)           0.50       0.56      (0.06)     (10.7)
    GTMs per average active
     employee (000)                   3,853      3,599        254        7.1

    Miles of road operated at
     end of period(2)                13,260     13,529       (269)      (2.0)

    Average train speed - AAR
     definition (mph)                  23.8       25.1       (1.3)      (5.2)
    Terminal dwell time - AAR
     definition (hours)                20.1       19.9        0.2        1.0
    Car miles per car day             147.4      141.7        5.7        4.0
    Average daily total cars on-line
     - AAR definition (000)            81.3       79.8        1.5        1.9

    U.S. gallons of locomotive fuel
     per 1,000 GTMs - freight & yard   1.17       1.17          -          -
    U.S. gallons of locomotive fuel
     consumed - total (millions)(3)    71.9       68.9        3.0        4.4

    Average foreign exchange rate
     (US$/Canadian$)                  0.941      0.895      0.046        5.1
    Average foreign exchange rate
     (Canadian$/US$)                  1.063      1.118     (0.055)      (4.9)


                                                  Year-to-date
                                  -------------------------------------------
                                       2007     2006(1)  Variance          %
                                  -------------------------------------------
    Operations and Productivity
    ---------------------------

    Freight gross ton-miles (GTM)
     (millions)                     184,218    174,215     10,003        5.7
    Revenue ton-miles (RTM)
     (millions)                      96,812     90,819      5,993        6.6
    Average number of active
     employees                       15,633     15,988       (355)      (2.2)
    Number of employees at end
     of period                       16,037     16,315       (278)      (1.7)

    FRA personal injuries per
     200,000 employee-hours             1.9        1.9          -          -
    FRA train accidents per
     million train-miles                2.0        1.4        0.6       42.9

    Total operating expenses per
     RTM (cents)                       2.75       2.85      (0.10)      (3.5)
    Total operating expenses per
     GTM (cents)                       1.44       1.48      (0.04)      (2.7)
    Compensation and benefits
     expense per GTM (cents)           0.53       0.58      (0.05)      (8.6)
    GTMs per average active
     employee (000)                  11,784     10,897        887        8.1

    Miles of road operated at
     end of period(2)                13,260     13,529       (269)      (2.0)

    Average train speed - AAR
     definition (mph)                  23.5       25.1       (1.6)      (6.4)
    Terminal dwell time - AAR
     definition (hours)                21.9       20.4        1.5        7.4
    Car miles per car day             143.1      135.8        7.3        5.4
    Average daily total cars on-line
     - AAR definition (000)            81.4       81.0        0.4        0.5

    U.S. gallons of locomotive fuel
     per 1,000 GTMs - freight & yard   1.20       1.20          -          -
    U.S. gallons of locomotive fuel
     consumed - total (millions)(3)   221.0      209.1       11.9        5.7

    Average foreign exchange rate
     (US$/Canadian$)                  0.897      0.884      0.013        1.5
    Average foreign exchange rate
     (Canadian$/US$)                  1.115      1.131     (0.016)      (1.4)


    (1) Certain comparative period figures have been restated for retroactive
        application of a new accounting standard adopted in 2006 related to
        stock-based compensation for employees eligible to retire before the
        vesting date 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,
e-mail: leslie_pidcock@cpr.ca; Investment Community, Janet Weiss, Assistant
Vice-President Investor Relations, Tel.: (403) 319-3591, e-mail:
investor@cpr.ca


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