Safest Most Fluid Railway

safest most fluid railway

2010 investor book

safe, efficient and reliable service

Contents

6 Financial HIGHLIGHTS – three-year summary 39 NETWORK STRATEGY 7 Key Metrics – three-year summary 40 NETWORK AGREEMENTS 8 Chief executive officer’s message 42 Safety 10 our company 43 Corporate Social Responsibility 11 Corporate Strategy 44 Community Relations 12 Markets 46 People 13 Bulk 49 Governance 22 Merchandise 50 Executive Profiles 30 Intermodal 52 Directors and Committees 34 Logistics Solutions – CPLS 53 Financials 35 Operations Glossary 37 Information Technology

www.cpr.ca Head office 1-888-333-6370 TSX/NYSE | CP Forward-looking information This Investor Book contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (United States) and other relevant securities legislation relating but not limited to Canadian Pacific’s (CP) operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as “anticipate,” “believe,” “expect,” “plan” or similar words suggesting future outcomes.

Readers are cautioned to not place undue reliance on forward-looking information because it is possible that we will not achieve predictions, forecasts, projections and other forms of forward-looking information. In addition, except as required by law, we undertake no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

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

Other factors relevant to forward-looking statements are contained in CP’s annual and interim Management’s Discussion and Analysis (MD&A) and other documents and press releases filed with or provided by CP to securities regulatory authorities in Canada and the U.S. from time to time.

Financial HIGHLIGHTS – three-year summary Free Cash (3) ($ millions) U.S. GAAP

2008 (in millions of Canadian dollars) 2007(1) 2008(1) DM&E(2) Pro forma(3) 2009 Total revenues 4,754.1 5,048.5 300.7 5,349.2 4,402.2

Adjusted operating expenses (3) 3,588.7 3,998.5 214.5 4,213.0 3,590.1 303.2 Adjusted operating income (3) 1,165.4 1,050.0 86.2 1,136.2 812.1

Income (before foreign exchange on long-term debt 150.7 and other specified items)(3) 703.3 639.0 - 639.0 423.7

Net income 913.2 635.6 - 635.6 555.4 -90.7 Adjusted operating ratio (percentage)(3) 75.5 79.2 71.3 78.8 81.6 2007 2008 2009

Earnings per share (EPS) (before foreign exchange and long-term debt and other Capital Expenditures ($ millions) specified specified items)(dollars)(3) basic 4.57 4.16 - 4.16 2.55 diluted 4.52 4.11 - 4.11 2.54 EPS (dollars) basic 5.93 4.14 - 4.14 3.34 diluted 5.87 4.09 - 4.09 3.33 838.0 835.8 724.1 Weighted average number of diluted shares (millions) 155.6 155.5 155.5 166.8

Average foreign exchange rate (Canada$/US$) 1.081 1.052 1.052 1.151 2007 2008 2009 Average foreign exchange rate (US$/Canada$) 0.925 0.951 0.951 0.869

(1) The 2007 and 2008 figures include the results of the Dakota, Minnesota & Eastern Railroad (DM&E) on an equity income basis from Dividends / Share ($) October 30 to December 31, 2007 and January 1 to October 29, 2008, respectively, and on a fully consolidated basis for the period from October 30 to December 31, 2008. (2) DM&E results for the period January 1, 2008 to October 29, 2008 which under GAAP were reported as one line in equity income in DM&E. (3) These earnings measures have no standardized meanings prescribed by GAAP, therefore, are unlikely to be comparable to similar measures of other companies. A reconciliation of non-GAAP measures to GAAP measures is presented on page 56-58. 0.9900 0.9900 0.9000

2007 2008 2009

6 Key Metrics – Three-year Summary

2007 2008 Pro forma (1) 2009 Gross ton-miles (GTM) (millions) 246,322 250,991 209,475 Train miles (thousands) 42,804 43,243 34,757 Revenue ton-miles (RTM) (millions) 129,352 131,053 108,352 Freight revenue per RTM (cents) 3.57 3.98 3.95 Average number of active employees - total 15,675 16,793 15,175 Average number of active employees - expense 14,172 15,107 13,619 Miles of road operated at end of year (2) 13,199 15,510 15,385 GTM per average number of active employees - expense 17,381 16,614 15,381 (thousands) U.S. gallons of locomotive fuel consumed per 1,000 GTM 1.21 1.22 1.19 - freight and yard Average fuel price (US$ per U.S. gallon) 2.33 3.30 2.04 U.S. gallons of locomotive fuel consumed - total (millions) (3) 296.7 305.0 246.7

Average Train Speed (mph) Average Terminal Dwell (hours) Car Miles / Car Day - AAR (4) definition - AAR (4) definition 142.3 143.6 142.6 22.3 22.2 25.5 21.9 24.0 23.2

2007 2008 2009 2007 2008 2009 2007 2008 2009

(1) The 2008 figures include DM&E for the full year. (2) Excludes track on which CP has haulage rights. (3) Includes gallons of fuel from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities. (4) AAR = Association of American Railroads.

7 Chief Executive Officer’s message At Canadian Pacific we are leveraging our capabilities to create shareholder value. Our recently realigned Sales and Marketing organization is using the model of We are finding new ways to drive efficiency by utilizing the network capacity to Design / Sell / Deliver to improve our yield, simplify our product line, and deliver to increase asset utilization and enhance service reliability. We are acting to pursue customer requirements more efficiently. We are constantly reviewing our book of and preserve growth opportunities and improve yield in the marketplace. It’s an business to understand the markets and tap new prospects. We also continue to exciting time at CP. preserve and exploit growth opportunities. We are ready to move forward with the development of new intermodal terminals in Regina, Montreal, and Edmonton as Over the last 18 months, we have experienced one of the most challenging our customers expand. economic periods in the history of this Company. But we have used this time to build a stronger balance sheet, hone our processes and test some new operating We are not only committed to growing with our existing customers but in plans. We have proven our ability to respond with agility to rapid reductions in traf- making new markets as well. We have secured the option to expand our footprint fic as well as add resources back to meet traffic increases. in Alberta’s Industrial Heartland as oil upgrading investments are made. The Mar- cellus shale in the U.S. Northeast and the Bakken Formation oil developments in By bringing back our resources at a measured pace when traffic volumes began Saskatchewan are other examples of new opportunities emerging on our to return some months ago, we continue to capture the efficiencies we realized franchise. In addition, with CP’s acquisition of the DM&E in 2008 there are efforts throughout the last year. Moving forward, and as volumes increase, we will increas- underway to extend our markets through the Kansas City gateway and align our ingly focus on improving our service reliability to our customers while maintain- ethanol origination capability on the DM&E with new markets in the U.S. Northeast. ing the pressure on our cost management and productivity efforts. We will remain Finding new markets and leveraging our network reach are areas of opportunity. nimble as the economic recovery will likely be a bumpy ride. In Operations, the drive for efficiency has been a priority and our Long Train In 2009, we took steps to improve our financial flexibility by issuing equity, tak- Strategy is a good example of how we are accomplishing this. Long trains use ing advantage of debt markets when conditions were beneficial to CP, and distributed power (DP) in new configurations that are allowing us to safely operate making a pension prepayment in order to smooth future cash contributions. trains of up to 14,000 feet. Canadian Pacific is a pioneer in DP, having been on the Moving forward we will continue our focus on maintaining a strong balance leading edge of developing its capabilities since 1967. More than 60% of our road sheet as well as reducing our indebtedness. locomotives are equipped to operate with DP. With our depth of experience, we have been working with the latest version of the DP software to optimally place the locomotives within a train so that we run longer trains and at the same time reduce the wear and tear on our track infrastructure.

8 GROWING OUR EXISTING CUSTOMERS AND MAKING NEW MARKETS

When long trains are combined with our innovative and responsive Integrated We have recently increased our management bench strength with the addition of Operating Plan, we capture improved efficiency through reduced train starts, Ed Harris to our team. Ed brings a depth and knowledge of the railway industry increased network capacity, improved asset utilization and reduced track main- that we will fully leverage in his role as Chief Operations Officer. Jane O’Hagan tenance – while continuing to provide a consistent and reliable service to our adds Marketing to her portfolio of Strategy and Yield. The entire management customers. team and all of CP’s employees are focused on delivering value to you, the shareholder, and I invite you to get to know our company in the pages ahead. One of the most exciting parts of our strategy is the “Railway of the Future”. We have a number of projects under this umbrella. Many of these utilize existing technologies already proven as we examine and analyze the data to diagnose and predict potential problems before they occur. This will allow us to carry out pre-emptive repairs, which optimizes our mechanical forces, improves our asset utilization and Sincerely, minimizes shipment delay.

At Canadian Pacific, safety is our top priority. In 2009, we were the safest railway in North America for train incidents and we were the best of all Class I railways in 11 of the past 13 years. We believe strongly in creating a culture of safety at CP through education and reinforcement of our safety principles and protocols. Through the Fred J. Green dedication of our more than 14,000 employees we continue to see improvements President and CEO as we strive to enhance our safety performance. May 1, 2010

CP operates through approximately 1,100 communities across our network and we continue to invest in our communities and community partners. In 2009, our Canadian and U.S. Holiday Trains visited over 130 communities in six provinces and seven states across our network to raise food, money and awareness for local food banks and food pantries. Through the last 11 years that we have operated our Holiday Trains, we’ve raised more than $4 million and 2 million pounds of food for charities in communities across our network.

9 Our vision is to be the safest, most fluid railway in North America

Our company Canadian Pacific Railway Limited, through its subsidiaries, operates a transcontinental railway in Canada and the United States and provides logistics and supply chain expertise. CP provides rail and intermodal transportation services over a network of approximately 15,300 miles and through more than 40 classification yards and 14 intermodal facilities. We serve every major centre in Canada from Montreal, Quebec, to Vancouver, British Columbia, and the U.S. Northeast and Midwest regions including Chicago, Minneapolis, Detroit, New York, Philadelphia and Kansas City. In the U.S., CP operates through three subsidiaries; Soo Line Railroad, Delaware and Hudson Railroad and the Dakota, Minnesota & Eastern Railroad.

CP’s network connects to the two major Canadian ports in Vancouver and Montreal, and to the ports of Philadelphia and New York in the northeast U.S. CP’s railway feeds directly into the U.S. heartland from the east and west coasts. Agreements with other carriers extend our market reach east of Montreal in Canada, throughout the U.S. and into Mexico.

CP transports bulk commodities, merchandise freight and intermodal traffic. Bulk commodities include grain, coal, sulphur and fertilizers. Merchandise freight consists of finished vehicles and automotive parts, as well as forest, industrial and consumer products. Intermodal traffic consists largely of high-value, time-sensitive retail goods in overseas containers that are transported by train, ship and truck, or in domestic containers and trailers that are moved by train and truck.

In 2009, CP earned $4.3 billion in freight revenues and moved 2.4 million carloads.

10 Corporate strategy Through the ingenuity of our people, it is our objective to create long-term value for customers, shareholders and employees. We seek to accomplish this objective through the following three-part strategy:

• generating quality revenue growth by realizing the benefits of demand growth in our bulk, merchandise and intermodal business lines with targeted infrastructure capacity investments linked to global trade opportunities;

• improving productivity by leveraging strategic marketing and operating partnerships, executing a scheduled railway through our bulk, merchandise and intermodal Integrated Operating Plan (IOP) and driving more value from existing assets and resources by improving fluidity and reducing our cost structure; and

• continuing to develop a dedicated, professional and knowledgeable workforce that is committed to safety and sustainable financial performance through steady improvement in profitability, increased free cash flow and a competitive return on investment.

CORE NETWORK MAP

Edmonton

Saskatoon Calgary Winnipeg Vancouver Kingsgate Regina Thunder Bay

Sudbury Duluth Montreal Minneapolis/St. Paul Toronto Albany Rapid City Detroit System map Canadian Pacific Chicago New York Philadelphia Principal haulage or trackage rights Kansas City

11 well-positioned to capture opportunities in the marketplace

markets The environment for rail remains compelling. The industry has high barriers to CP’s yield program is focused on generating returns through: entry, is privately funded when governments are facing increasing demands for infrastructure, is fuel efficient and has fewer emissions than other forms of trans- • pricing that supports growth and reinvestment; portation. CP is well-positioned to capture opportunities in the marketplace. • margin improvement; and

We are strategically positioned to create value and benefit from three important • effective fuel recovery. market pillars: agribusiness, energy and trade. The development of traditional and new resources within these markets creates significant inbound and outbound rail Our yield program utilizes a disciplined approach and reaches beyond just basic opportunities for CP and we are ready to both serve our customers and to capital- freight rates to include revenue and margin improvement, value-added services ize on growth opportunities. and reducing cost-to-serve.

CP has multiple routing options across Canada and through the U.S. Midwest and CP organizes its freight traffic into two business groups, carload and intermodal Northeast and excellent North American reach with multiple gateways with all based on the service and equipment requirements of our customers. CP’s carload Class I railways. We have extensive Canadian and U.S. shortline partners and serve business is comprised of bulk traffic and merchandise traffic. Our intermodal group leading Atlantic and Pacific port facilities. Collectively, the extent of our franchise consists of domestic traffic and international traffic. In 2009, carload represented will allow CP to continue to deliver increased value from international trade, as well approximately 72% of our revenues and intermodal 28%. as North American business. CP’s franchise was made even stronger with the 2008 addition of the DM&E extending our network reach. In 2009, we restructured our commercial organization creating distinct and inter- dependent Marketing, Sales and Customer Services Teams, to improve focus and We are leveraging our strengths to capture the value of current and future oppor- ensure clear accountabilities for “designing, selling and delivering” CP’s product. tunities across all markets. The timing of some of these opportunities will depend Under our new commercial model, Marketing is accountable for delivering sus- on factors such as the economic environment and the construction schedules of tained improvement in yield through developing comprehensive market, product customer facilities. and pricing strategies. Sales is focused on developing a deeper understanding of our customers ’ business needs, and identifying, closing and clearly documenting The key for CP is to fully utilize our network and the markets we serve through our more opportunities. Customer Services is accountable for delivering on our com- proven customer–focused strategies, market development activity and disciplined mitments in the marketplace, including the management of problem resolution. yield management. Our approach is to deliver consistent, reliable products to the market that are priced for value.

12 Freight revenue Carload – Bulk (Percentage of 2009 Freight Revenues)(1) CP moves bulk traffic such as grain, coal, sulphur and fertilizers. This bulk portfolio Bulk 44% represents approximately 44% of our freight revenues. Grain 27% The majority of the bulk movements originate in Western Canada and move to Coal 10% ports in Vancouver, Thunder Bay and Portland as well as major markets in the U.S. Sulphur & Fertilizer 7% Merchandise 28% The largest component of our bulk business, approximately 40%, moves through Industrial the Port Metro Vancouver to destinations such as China, India and Korea. & Consumer 19% Automotive 5% We provide a reliable, efficient model for moving bulk materials in single commod- Forest Products 4% ity unit trains, in addition to leveraging the strengths of our Integrated Operating Plan. The focus of our bulk franchise is to: Intermodal 28% Import/Export 15% • generate greater value through improved supply chain management; Domestic 13%

• expand train capacity through technology; and (1) May not add due to rounding. • grow our business with strategic customers.

We have pursued each of these strategies in all bulk commodity segments. carloads (Percentage of 2009 Carloads)

Intermodal 44% Bulk 28% Merchandise 28%

13 Grain

CP plays a critical role in the movement of agricultural products from key producing regions in Canada and the U.S. to markets throughout North America and the world.

The core of our business is the movement of whole grains such as wheat, canola, corn, soybeans, and other specialty crops. CP holds a strong position in the growing markets of canola and soybean oils and meals, and flour. We are well positioned to capitalize on the consumption requirements of ethanol and biofuels producers throughout the U.S. Midwest.

We also play a primary role in supplying the continent’s livestock and poultry markets with feed grains and crushed oilseed meal, which are shipped to large-scale production sites throughout the U.S. and Mexico.

CP originates the movement of agricultural products out of two primary regions: the Canadian prairies and the U.S. northern plains states of North Dakota, South Dakota, Minnesota and Iowa.

Canadian originated traffic is predominantly destined to export markets through the key gateways of Vancouver and Thunder Bay, as well as Montreal and Quebec City during the winter months. Canadian crops are also valued in large consumption markets in the eastern portion of North America, as well as the U.S. Midwest and Mexico.

14 Positioning the railway as a valuable and effective partner

CP’s success in the Canadian grain market is deeply rooted in our ability to be a valuable and effective partner in the grain handling and transportation system. Whether we are building or expanding a facility, or finding more innovative ways to do business, we know this collaborative approach adds value. We have forged collaborative relationships with all participants in the export pipeline and taken a leadership role in developing a highly efficient, demand-based approach to moving grain. The recent development of new canola crush facilities in Western Canada has created new opportunities for growth and diversity.

Our suite of products and services now sets the industry benchmark for meeting the needs of all segments of the grain shipping market and our reliable delivery of those products and services will continue to enhance value from our Canadian grain franchise.

PULL TO PORT

Cycle times reduced by 30%

lean production 15 GRAiN TRAFFIC FLOW

Edmonton

Saskatoon Calgary Winnipeg Vancouver Kingsgate Regina Thunder Bay Sudbury Duluth Montreal

Minneapolis/St. Paul Toronto Albany Rapid City Detroit CP main line New York Haulage, trackage or Chicago marketing rights Philadelphia

Primary traffic flows Kansas City

Grain source

16 Grain produced in our draw territory in the U.S. finds its way to global markets via the Pacific Northwest and Gulf of Mexico gateway terminals. Strong interline partnerships with other railways enable us to reach these port locations as well as important domestic markets in the U.S.

Our U.S. grain business also leverages partnerships with key customers invested in the supply chain. Our U.S. grain territory is origin-rich for wheat, soybeans and corn. Several high capacity, flexible oilseed processing facilities are located on our line and we have ethanol infrastructure either on our near our network. This processing market adds to the diversity of our agricultural portfolio.

We continue to develop strategic service offerings for our shippers to reach critical destination gateways and markets. Chief among these is our Union Pacific connection to the Pacific Northwest for North Dakota grain exports, as well as the Burlington Northern Santa Fe Railway (BNSF) shuttle originations of Midwest export corn headed to the Pacific Northwest. While different markets may require different line-haul partners, in each case we bring the same focus to ensuring efficient access to destination markets for our shippers.

Overall, CP’s targeted investments with key partners plus our ongoing efforts in efficient shipment management and execution are delivering consistent and reliable results in this core component of our franchise.

Grain Breakout Canadian Grain U.S. grain (Percentage of 2009 Freight Revenues) (Percentage of 2009 Freight Revenues) (Percentage of 2009 Freight Revenues)

Canadian Grain 61% Regulated 66% Domestic 60% U.S. Grain 39% Commercial 34% Export 40%

17 Coal

CP serves both the metallurgical and thermal coal markets. Metallurgical coal is primarily used in the steel manufacturing process, while thermal coal’s predominant application is for power generation.

Our Canadian metallurgical coal business is almost entirely generated from Teck Coal’s five mines in the Elk Valley region of southeastern British Columbia. Teck is one of the world’s largest players in the seaborne metallurgical coal market. Most of the volume is moved to Port Metro Vancouver for export throughout the world. Teck also moves product to steel manufacturers in the Great Lakes area.

CP has invested and innovated to build a truly world-class coal transportation model. Our service is based on highly efficient unit trains in continuous motion through the mine-port transportation cycle.

We receive U.S. coal from connecting railways serving the thermal coal fields in the Powder River Basin in Montana and Wyoming. It is then delivered to power generating facilities in the Midwest U.S. We also serve petroleum coke operations in Canada and the U.S. where the product is used for power generation and aluminum production.

Coal Breakout Coal Carloads Canadian coal (Percentage of 2009 Freight Revenues) (Percentage of 2009 Carloads) (Percentage of 2009 Freight Revenues)

Canada 83% Canada 57% Exports 86% U.S. 17% U.S. 43% Non-export 14%

18 a truly world-class coal transportation model

CP is focused on continued improvements in the efficiency and productivity of the supply chain. We are positioned as a valuable partner with our customers and we play a role in sustaining and improving margins for all stakeholders. Our Canadian coal business is centred on Teck Coal and our role is to support and enhance Teck’s position as a reliable supplier to global markets.

In the U.S. sector, our primary focus is to increase our participation in Powder River Basin business through our network reach and length-of-haul opportunities created by our acquisition of the DM&E. Here too, the key to this business is operational efficiency and innovation.

Coal TRAFFIC FLOW

Edmonton

Saskatoon Calgary Winnipeg Vancouver Regina Thunder Bay Kingsgate Sudbury Duluth Montreal Minneapolis/St. Paul Toronto Albany Rapid City Detroit CP main line New York Haulage, trackage or Chicago marketing rights Philadelphia

Primary traffic flows Kansas City

Coal source

19 long-term prospects are For strong growth and significant expansion

Sulphur and fertilizers

CP’s sulphur and fertilizers sector benefits from the solid global fundamentals of agribusiness. The majority of our business originates at potash mines, natural gas-based sulphur plants and nitrogen plants in Canada’s prairie provinces.

Potash makes up over 40% of our portfolio and is moved by CP into both the export and North American markets. Canpotex ships western Canadian potash to offshore markets through Vancouver and Portland. CP enjoys 100% of this business under the current contract. From a domestic perspective, potash moves to almost every state and province.

Sulphur moves through Vancouver for export via vessel to Brazil, China and Australia and also by rail direct to phosphate plants in Florida and Idaho.

Nitrogen moves primarily throughout Western Canada and the northern parts of the Western U.S.

While these businesses are subject to fluctuations in a number of factors, including crops and global commodity pricing, the long-term prospects, particularly in potash, are for strong growth and significant capacity expansion.

Sulphur and Fertilizers BREAKOUT Potash breakout (Percentage of 2009 Freight Revenues) (Percentage of 2009 Freight Revenues)

Potash 44% Export 60% Fertilizers 40% Domestic 40% Sulphur 16%

20 Our business in this sector is characterized by strong and deep relationships with a small number of large players. Our focus going forward will be to:

• maintain our strong position in potash including harnessing mine expansion opportunities;

• improve access to new sulphur production, primarily from oil sands-related facilities;

• strengthen our relationships through service reliability and responsiveness;

• improve productivity and equipment cycle times through a mix of manifest and dedicated trainload services within our IOP; and

• extend our reach through longer haul movements via our DM&E network extension.

Potash traffic flow

Edmonton

Primary traffic flows Kansas City

Potash source

21 Carload – Merchandise CP’s merchandise traffic includes forest products, industrial and consumer products, and automotive. The merchandise portfolio represents approximately 28% of our overall freight revenues.

We define our merchandise portfolio as “ the manufacturers’ pipeline ” because our job is to to move our customers’ products -- on a consistent and reliable schedule -- from their manufacturing facilities to the end customer.

Approximately 45% of this portfolio’s business moves cross-border between Canada and the U.S. Our product offering is built on the reliability of our IOP designed to allow continual responsive adjustments based on the volumes offered by the customer, while simultaneously maintaining the fluidity of our rail network and our customers’ shipments.

Our focus in the merchandise franchise is to:

• improve the yield on our existing business;

• pursue targeted growth from existing and emerging markets by utilizing CP’s expanded network and transload facilities;

• grow our business with strategic customers; and

• deliver a reliable and efficient product.

22 Forest products

CP’s forest products business consists of lumber, panel and pulp and paper products.

The Canadian forest products industry is struggling in today’s economy as U.S. housing starts have declined to levels not seen since before the Second World War. A significant number of mill closures have occurred as the industry consolidates production in response to lower demand. Forest Products breakout (Percentage of 2009 Freight Revenues) CP participates in lumber, panel and pulp and paper products moving primarily from Ontario and British Columbia to the U.S. and to Asia through Port Metro Vancouver.

In CP’s forest products sector, pulp and paper accounts for nearly 70% of freight revenue. Our major British Pulp and Paper 69% Columbia pulp movements originate in the province interior and are exported through Port Metro Vancouver Lumber and Panel 28% and to various North American markets. While the economic downturn has lowered demand for pulp, our Other Forest 3% efficient facilities supply high quality pulp at a low cost to Asian markets. Eastern Canadian originated pulp and paper products move to export through east coast ports and to eastern North American markets.

We also handle lumber, panel and oriented strand board products through major reload centres in Kamloops and Edmonton, which provide value-added services to our shippers and reduce train handling costs.

Forest products traffic flow

Edmonton

Calgary Saskatoon

Winnipeg Vancouver Regina Thunder Bay Kingsgate Sudbury Duluth Montreal Minneapolis/St. Paul Toronto Albany Rapid City Detroit

Chicago New York Philadelphia CP main line Kansas City Haulage, trackage or marketing rights

Primary traffic flows

Forest products source

23 substantial growth over the next decade

Industrial and consumer products

Our industrial and consumer products segment encompasses a wide array of commodities grouped under chemicals, energy and plastics as well as mines, metals and aggregates.

CP’s industrial products traffic is dispersed widely across our Canadian and U.S. network with large bases in Alberta, Ontario, Quebec and the Midwest U.S. Our industrial products traffic to and from Alberta has seen significant growth over the past few years, representing approximately 35% of the total industrial products carloads on CP.

Traffic associated with one of CP’s key markets, energy, has been particularly strong as we have pursued a targeted growth strategy. Our carload shipments of diluent, which is used for the movement of bitumen produced in Alberta’s oil sands, grew by over 100% in the 2007-2008 period. We have also expanded our participation in large diameter pipe movements from western Canadian production facilities at Camrose, Alberta and Regina, Saskatchewan.

Mileage for the transport of oil pipeline components was expected to expand by two to three times over the next 10-15 years, and, while activities stalled recently with the oil price declines, we expect that we will see movements grow substantially over the next decade. CP is well positioned to participate in these expanded shipments.

industrial and consumer products breakout (Percentage of 2009 Freight Revenues)

Energy and Chemicals 52% Mines, Metals and Aggregates 40% Food and Consumer 8%

24 Other energy products such as ethanol, crude oil from the Bakken oil fields in Saskatchewan and North Dakota, and wind energy components have been rap- oil deposits idly expanding markets for CP. The DM&E, with its large corn production area, has attracted a number of ethanol production facilities on its Iowa and Minnesota network. CP offers the only direct, single line-haul from the U.S. Midwest production CP main line Athabasca facilities to U.S. Northeast consuming markets. CP branch line Fort McMurray CP is working with companies developing the Bakken crude oil deposits in Sas- Peace River Oil sands katchewan and North Dakota to move crude oil to refineries throughout the western half of North America. Bakken oil fields ALBERTA Cold Lake Alberta industrial Edmonton heartland Lloydminster

Hardisty SASKATCHEWAN MANITOBA the Alberta industrial Heartland detail Calgary

Kingsgate Coutts

NORTH DAKOTA MONTANA

SOUTH DAKOTA

WYOMING

CP main line

New routes

Land assembled

Wind turbine movements to southern Alberta and South Dakota offer CP good growth opportunities across our expanded network.

We are also taking advantage of our new Kansas City connection to move energy, chemical and steel products between the Gulf Coast and Alberta thus bypassing the busy Chicago rail interchange.

In Alberta, even as our customers have delayed investments in upgraders to produce oil sands products, we have maintained our capability to access new upgraders when investment becomes attractive. Oil sands upgrading creates a significant rail market for products that are not compatible with traditional pipelines, including petroleum coke, sulphur, asphaltine and various hydrocarbon liquids and gasses. Oil sands development also provides significant opportunities for inbound construction materials. Our Scotford Transfer Facility and our South Edmonton Transfer Facility can accommodate aggregates, pipe, dimensional loads and some liquids.

25 Automotive Our automotive business consists of three core finished-vehicle traffic segments: While late 2008 and 2009 were a challenging period for automotive sales in the U.S. import vehicles, Canadian-produced vehicles and U.S.-produced vehicles. These and Canada, CP is solidly positioned in the automotive marketplace as volumes segments move through Port Metro Vancouver to eastern Canadian markets; to have begun to recover. the U.S. from Ontario production facilities; and to Canadian markets, respectively. Our automotive franchise is built around strong industry transplant production CP operates a number of automotive compounds in key markets in Canada and companies, such as Toyota and Honda, also known as the New Domestics. Our the U.S., providing our customers with a complete array of line-haul and com- relationship and business within this segment has grown steadily. Today the New pound services. Our compound operations provide distribution services which are Domestic segment represents approximately 55% of CP’s automotive carloads. well regarded in the marketplace and are complementary to CP’s train operation capabilities.

Automotive breakout passenger vehicles BREAKOUT (Percentage of 2009 Freight Revenues) (Percentage of 2009 Passenger Vehicle Revenues)

Cars 53% New Domestics 55% Trucks 41% “Big 3” 41% Parts 6% Used/Other 4%

26 In 2008, Toyota opened its new Canadian production facility at Woodstock, CP’s acquisition of the DM&E provides the opportunity to extend our length-of- Ontario. CP was chosen as the direct rail service provider for the facility which haul beyond Chicago and Detroit to the Kansas City gateway allowing participa- is producing RAV4s for the North American market. In early 2010, the facility tion in the Canada-Mexico marketplace where traffic levels have grown consis- increased from one to two shifts, doubling its production. tently over the past several years.

Serving both Toyota’s Woodstock and Cambridge facilities allows us to consoli- CP’s reliable train service, coupled with our automotive compound services, low date equipment supply and train service activities to provide a more efficient and damage occurrence, and strong equipment supply have translated into value reliable product. Our service has earned awards from carriers such as American improvement opportunities. Honda, Chrysler and Toyota. Our automotive franchise should continue to benefit from its strategic customer In addition to finished vehicle traffic, CP participates in automotive parts ship- alignment and strong product offerings as automotive sales rebound over the next ments such as to GM’s Oshawa production facility in Oshawa, Ontario. several years.

We also have a strong market share in the Canadian personal and pre-owned vehicle segments.

2010 Canadian plant sourcing Plant served Models produced General Motors Oshawa #1 car Ontario Chevrolet Camaro Oshawa #2 car Ontario Chevrolet Impala Ford Oakville(1) Ontario Ford Edge, Ford Flex, Lincoln MKX St. Thomas(1) Ontario Crown Victoria, Grand Marquis, Town Car Twin Cities Minnesota Ranger (plus Mazda B-Series) Chrysler Brampton(2) Ontario Chrysler 300, Dodge Challenger, Dodge Charger Windsor Assembly(2) Ontario Dodge Grand Caravan, Chrysler Town & Country (plus VW Routan) CAMI Ingersoll Ontario Chevrolet Equinox, GMC Terrain Honda Alliston –“#1” Ontario Civic 4-door Si, Civic 2-door, Acura CSX Alliston –“#2” Ontario Civic 4-door, Acura MDX, Acura ZDX Toyota Cambridge Ontario Corolla, Matrix, Lexus RX Woodstock Ontario RAV4

(1) Plants accessed via joint section or interswitching agreement. (2) Plant is not direct-rail served, although CP carries 100% of Canadian traffic to Canadian rail-served points.

27 AUTOMOTIVE TRAFFIC FLOW

Edmonton

Primary traffic flows Kansas City

Automotive source

AUTOMOTIVE compounds Edmonton Saskatoon Calgary Winnipeg Vancouver Quebec Thunder Bay Saint John Agincourt St. Luc Regina Duluth Montreal Minneapolis/St. Paul EC Row Toronto Rapid City Cottage Grove Chicago New York CP main line Windsor Philadelphia Haulage, trackage or Kansas City marketing rights

Automotive compound

28 Transload Services CP’s transload facilities provide the link between non-rail served shippers and receivers and CP’s rail network through a variety of trucking services and transfer facilities managed by operator partners.

Historically these services have focused on industrial products, specifically on mines, metals, aggregates, forest products and plastics. We have recently expanded our scope to include dimensional equipment and liquids such as fuels, condensate and food stuffs.

Transload Services works closely with other internal departments to modify and update our plans for new developments in key areas across our network. The proposed Strathcona Logistics Centre, northeast of Edmonton, is a good example of this work.

Transload Facilities

Edmonton Scotford Saskatoon Kamloops Calgary Winnipeg Vermillion Bay Quebec City Thunder Bay Sudbury Smiths Falls Vancouver Nelson Toronto Sparwood Regina Montreal Wilson Duluth Rapid City La Crosse Milwaukee Albany

Minneapolis/St. Paul CP main line New Hampton Windsor Oak Island Rockford Haulage, trackage or Chicago marketing rights Binghamton Philadelphia Muscatine CP transload facilities Kansas City

29 Long-term fundamentals for intermodal remain strong

Intermodal CP’s intermodal portfolio includes domestic and international services. Intermodal has been one of our fastest growing business segments over the past 20 years.

Domestic intermodal primarily involves moving manufactured consumer products in containers within North America, while international intermodal is the movement of marine containers to and from ports and into North American inland markets.

The long-term fundamentals for intermodal remain strong. Global sourcing, general population growth, rising fuel costs and CP’s position as an environmentally friendly transportation choice all support long-term growth.

The focus of our intermodal franchise is to:

• deliver a reliable and consistent product;

• provide a suite of value-added service offerings that meet our customer’s diversified supply chain needs;

• ensure access to an intermodal port and terminal network capable of meeting existing and future demand;

• grow business with strategic customers through co-location and strategic partnerships; and

• operate an efficient, balanced network.

Intermodal Breakout Intermodal units (Percentage of 2009 Freight Revenues) (Percentage of 2009 Carloads)

Import/Export 52% Import/Export 65% Domestic 48% Domestic 35%

30 Domestic Intermodal

Our domestic customer portfolio is diversified and covers a broad spectrum of industries including: food, retail, less-than- truckload shipping, trucking, forest products and various other consumer-related products.

In the U.S. and our cross-border business between Canada and the U.S., CP’s intermodal service is delivered mainly through wholesalers known as intermodal marketing companies. In Canada, CP’s domestic intermodal segment is marketed directly to retailers and consists primarily of long-haul intra-Canada business. For most of our domestic intermodal service CP provides complete door-to-door service.

We have developed significant partnerships with key Canadian retail customers, which has led to a number of these customers constructing major distribution warehouse facilities adjacent to CP’s primary intermodal terminals. These co-location initiatives extend CP’s role beyond that of a traditional railway by making us part of our customers’ supply and logistics chains.

A major strategic focus on the domestic side of our business continues to be enhancing the door-to-door product offering. As customers’ shipping requirements evolve and their supply chains become more complex, we believe there will be a growing need for more value-added services.

intermodal tERminals

Edmonton Saskatoon Calgary Winnipeg Vancouver Thunder Bay Vaughan Lachine Regina Pitt Meadows Sudbury Montreal Minneapolis/St. Paul Milwaukee Toronto Rapid City

CP main line Mason City Obico Chicago New York Detroit Haulage, trackage or Philadelphia marketing rights Kansas City Schiller Park Bensenville Intermodal terminals

31 International Intermodal

CP’s international intermodal service is marketed to ocean carriers with CP providing line-haul intermodal containerized service via ports in Vancouver, Montreal, New York and Philadelphia to and from inland points across Canada and the U.S.

Port of Montreal (POM) and Port Metro Vancouver (PMV), which are CP’s two key ports, primarily serve Canadian and U.S. Midwest markets. Traffic to and from these two ports represents approximately 90% of CP’s total international intermodal revenue. Our U.S. Northeast service connects Eastern Canada with the ports of Philadelphia and New York as a competitive alternative to trucks.

The POM is a major year-round east-coast gateway. CP enjoys a competitive advantage at the port with a dominant market share position. The port’s ability to unload ship-to-rail direct combined with CP’s excellent rail connectivity to Chicago provides a superior service gateway into the Midwest versus the U.S. east coast ports. The POM is also an important gateway for the North Europe and Mediterranean trade lanes. CP expects that with general economic recovery this port will resume its steady growth pattern.

The PMV is Canada’s largest intermodal port. More than 90% of Canada’s trans-Pacific trade is handled through this port. CP directly serves all four port facilities – Centerm, Vanterm, Fraser Surrey Docks and Deltaport. Significant volumes of containers move through the port into key destination markets of Toronto, Montreal and Chicago. CP’s trans-pacific service offers the shortest route between the PMV and Chicago. Between 2000 and 2008 volumes at the port have grown annually by 9%. Although economic conditions reduced traffic levels in 2009, CP anticipates that Asian sourcing of consumer goods, especially from China, by large Canadian retailers will continue to grow.

CP has worked with key stakeholders at POM and PMV to ensure that the supply chain operates efficiently and that the network is prepared to handle future growth. At the POM, plans to expand the port capacity by 25% over the next three years have been developed and will be implemented as required to meet future volume growth. This construction will result in the port having 2 million 20-foot equivalent units (TEU) of capacity.

At the PMV, Berth 3 at Deltaport was officially opened in January 2010, which added approximately 600,000 TEUs of capacity and expanded the terminal capacity by 50%.

In addition, CP is currently working in conjunction with port and steamship stakeholders in Vancouver to enhance the supply chain. Through ‘lean thinking’ and a more coordinated approach to managing all the elements of the supply chain, CP is seeking to improve rail car and container velocity and service quality at a lower cost.

CP will continue to work with key port stakeholders to ensure the port gateways provide a reliable and cost-competitive option for our customers. Both the Vancouver and Montreal gateways have ample capacity in place or planned to support growth in our container business.

32 Terminals and network

CP has been able to leverage growth through our expanded Western Corridor and our strong network of 14 modern intermodal terminals within Canada and the U.S. (see map on page 31). We continue to invest in new technologies and infrastructure designed to support growth and improve supply chain efficiency.

Our initiative to acquire land for future terminal expansions in Edmonton, Montreal and Regina is an example of our strategy to ensure infrastructure capacity is in place to meet the long-term growth needs of our customers. Through a network approach to facility planning, CP is well-positioned to grow with our customers at all major hubs including Toronto, Chicago, Calgary and Vancouver.

Success in the intermodal portfolio will come from providing customers with consistent, reliable and efficient transportation solutions. We will continue to deliver efficient service solutions to our customers by focusing on running highly productive double-stack transcontinental trains within a balanced integrated operations design. Our intermodal service will be supported by strong operating processes and technology that provide integration and visibility of shipments during their distribution to customers.

Intermodal traffic flow

Edmonton

Saskatoon Calgary Winnipeg Vancouver Regina Thunder Bay Kingsgate Sudbury Duluth Montreal Minneapolis/St. Paul Toronto Albany Rapid City Detroit Mason City CP main line Chicago New York Haulage, trackage or Philadelphia marketing rights Kansas City Primary traffic flows

Port facilities

33 Logistics Solutions – CPLS Canadian Pacific Logistics Solutions (CPLS) delivers logistics and transportation CPLS develops shipment plans that balance customer delivery commitments, management solutions that create value within our customers’ supply chains. The mode selection and overall lowest total cost. We facilitate the flow of goods across segment continues to experience double-digit annual growth. modes, facilities, borders and agencies, as well as, provide intervention, problem resolution and vendor management. Acting as an extension of a customer’s When the movement of goods requires a single party to coordinate activities and logistics team, CPLS integrates processes and technology at an operational level. information from end-to-end, CPLS works with railways, truckers, facility operators, freight forwarders and other vendors to deliver integrated logistics solutions. Our ability to provide effective solutions means we can respond to market changes in established industries such as food manufacturing and retailing, and new We focus on customers ’ logistics goals, and managing and controlling operational emerging markets such as wind energy and oil sands development. activities across different organizations and regions to bring the advantages of CP’s rail services to our customers. For example, working with a producer of refrigerated food products, orders are received and transportation plans are built daily to meet the requirements of the Working with customers in a variety of industries, including packaged goods, bulk manufacturer’s wholesale customers. CPLS then settles payments with different liquids, industrial materials and dimensional machinery, CPLS designs, builds and carriers and provides the manufacturer with an integrated invoice. executes customized transportation solutions. In another example, CPLS designed a customized logistics solution to move di- CPLS generates value for customers by: mensional industrial material from a port to a remote construction site, working with a variety of specialized service partners. We coordinated all of the activities • evaluating distribution and transportation strategies to meet a customer’s during the movement on the shipper’s behalf. supply chain goals; Our ability to custom design and manage multi-modal distribution solutions • designing and managing solutions that bring together the capabilities of a creates added value for our customers and CP. This winning combination enhanc- number of logistics service providers; es benefits to customers, while generating profits and new rail business. It is also • sourcing lower-cost, quality providers of transportation, warehousing and dis- integral to our goal of fluidity and an important tool for CP to adapt and grow in tribution services; new markets.

• streamlining the delivery of goods through integrated logistics and transportation management solutions; and

• capturing and reporting performance information and identifying opportunities for supply chain performance improvement.

34 Operations Integrated Operating Plan

With such a vast network, our scheduled operations are planned and managed through an Integrated Operating Plan (IOP). The plan allows us to sustain performance through two key principles; product standardization and a core commitment to continuous improvement. The goals of the plan are: driving service reliability, year-over-year continuous improvement, focus on compliance to IOP metrics, and performance sustainability and standardization.

The focus of the IOP is:

• Velocity – Use a 24/7 approach to scheduling road trains and local pickup and delivery services to ensure reliable execution.

• Balance – Balance the operation to drive execution excellence and move assets more quickly and frequently. This is accomplished by balancing train movements daily in each corridor, yard and terminal, and within hubs, through balanced local service operating plans.

• Network – Use a network-centric approach to manage the business for optimal overall service performance and efficiency. The objective is to concentrate volume into key hubs to generate shipment density for more frequent departures and less handling en route. By thinking beyond CP’s boundaries and working with all rail carriers, we can better coordinate interchanges and create more capacity and velocity.

With these three areas of focus, we generate more destination-type trains that require limited work en route to improve service reliability.

Design Principles balance

Corridors Yards

New Products Technology Maintenance

velocity network

35 A scheduled railway that delivers RELIABLE service to our customers

How the IOP works

CP establishes a plan for each rail car from point of origin to final destination. We consolidate cars with similar destinations into blocks. This reduces delays at intermediate locations by simplifying and eliminating duplica- tion of work, and helps to ensure fluid rail yards and terminals.

Taken together, the new capabilities of our network, our upgraded locomotive fleet, Train Area Marshalling (TrAM), and the IOP provide CP with the ability to safely operate longer and heavier trains with reduced transit times. This reduces associated expenses, simplifies the departure of shipments from points of origin and sets the stage for increasing our traffic capacity at a lower cost.

CP has implemented state-of-the-art railway operating systems which provide management with superior information about near-term demand and the availability of resources to meet that demand. It also allows for detailed shipment trip plans to ensure that we consistently and reliably meet customer service expectations.

Through these initiatives, CP is a scheduled railway that delivers reliable service to our customers and achieves high levels of efficiency through improved asset utilization. We will further enhance our scheduled railway operations allowing for continued growth without the need for significant future capital expenditures.

The IOP allows us to:

• consolidate more traffic to remove train miles and train starts and build longer, heavier trains;

• improve local pickup and delivery by adopting 24/7 operations and through implementation of pipeline management;

• increase direct services to bypass yards and reduce handling; and

• improve the planning and execution of our engineering and maintenance programs to minimize shipment delays and increase service reliability.

36 A scheduled railway that

Information Technology As a 24-hour-a-day, 7-day-a-week business, CP relies heavily on information technology (IT) systems to schedule and manage planning and operational components safely and efficiently. IT applications map out complex interconnections of freight cars, locomotives, facilities, track and train crews to meet more than 10,000 individual customer service commitments every day. Across the network, CP’s suite of operating systems manage the overall movement of customers’ shipments and provide railway employees with reliable data on shipment performance, transit times, connections with other trains, train and yard capacities, and locomotive requirements. Within the yards, individual shipments are matched to freight car blocks, which in turn are matched to trains that are scheduled according to CP’s IOP. MultiRail

Core to CP’s success has been the innovative and industry-leading use of a product design software tool called MultiRail. Mul- tiRail is a fully-integrated application that allows CP to refine and evaluate our operating plan. It creates and communicates a balanced plan to accommodate shippers’ needs, operational considerations and asset utilization.

The Institute for Operations Research and the Management Sciences selected CP, in partnership with Multimodal Applied Systems Inc., as the winner of the prestigious 2003 Franz Edelman Award. CP was selected for its work on “Perfecting the Scheduled Railway: Model Driven Operating Plan Development.”

We have modeled the IOP within the MultiRail application using forward-looking traffic data. The full integration of the design process with our operation control systems allows us to move from the planning phase into the execution phase and to react quickly and efficiently to changing business conditions and opportunities. Train Area Marshalling (TrAM)

CP has also introduced Train Area Marshalling (TrAM), a comprehensive set of train marshalling rules and supporting computer tools that have enabled CP to become the industry leader in the use of distributed power (DP). CP is utilizing this technology on as many trains as possible beyond its traditional use in bulk train service. TrAM provides the science to position multiple remote locomotives in specific locations within a train. By positioning remote locomotives, we keep in-train forces within acceptable limits, which optimizes safety and reduces unnecessary equipment wear when compared to conventional head-end power only or trains with just one remote locomotive location. Multiple remote distributed trains produce significantly lower lateral forces on the track, which represents an opportunity to improve safety, dramatically extend rail-asset-life and reduce fuel consumption. TrAM abilities have allowed CP to implement our long train strategy, which in 2009 improved transcontinental train services by allowing safe operation of longer, heavier trains.

37 Truck Rail Intermodal Excellence (TRIEX) Engineering Excellence

CP recently implemented the Truck Rail Intermodal Excellence (TRIEX) system at all CP is making significant technology investments in Engineering Excellence to intermodal facilities. The system will further improve intermodal service by provid- ensure continued network safety and reliability. A new bridge inspection system ing customer self-service, proof of delivery and full shipment tracking. TRIEX will allows employees to capture inspection results electronically in the field, reduc- also provide more sophisticated pricing options and simplify billing processes. ing the amount of time spent documenting inspection results and increasing the quality of information gathered about the condition of each asset. Engineering Mycpr.ca Excellence ensures timely maintenance, improved infrastructure renewal planning and assured compliance to regulatory requirements. A multi-year program to revamp e-business applications is underway to provide customers with an industry-leading electronic commerce capability. The next Equipment Health Management System (EHMS) phase will see the launch of a new version to our customer website, myCPR.ca. This new tool will allow customers to manage all aspects of their shipments The Equipment Health Management System (EHMS) is a multi-year project that from initial price inquiries, car ordering, shipment tracking, invoice viewing and supports the railway industry’s Advanced Technology Safety Initiative to reduce payment. stress on railway infrastructure. The system allows freight car equipment owners to monitor their fleet proactively. We recently added truck hunting detectors and hot box detector information and alerting to our EHMS system.

38 Network STRATEGY Agreements and commercial arrangements with other rail carriers, including shortline, regional and Class I railways, enable CP to provide our customers more truck-competitive services and extend our market reach to virtually all of North America.

Continuously improving operating efficiencies between rail carriers fosters the development of new business by extending rail services into markets that previously were beyond the reach of individual railways. As a result, rail carriers are shipping goods to new markets and moving goods that had traditionally been carried by trucks. Approximately half of CP’s business is either received from or handed off to other railways.

Our Network and Interline Management Group is dedicated to building relations with other rail carriers to position CP as their preferred business partner. The group is a cross-functional team that works with operations as well as marketing and sales. The cross-functional team works with operations, marketing and sales, and is responsible for strategic and ongoing interline matters that cut across commodity lines and train services, including managing our many inter-railway agreements. This group also defines the vision for longer trains and the overall structure of the CP network. This includes managing shortline relationships, network restructuring and discontinuance, long-term capacity planning and pursuing rail expansions with new and existing customers.

CP has working partnerships with all Class I railways, various shortline and regional railways in Canada and the U.S. and Kansas City Southern de Mexico and Ferrocarril Mexicano in Mexico.

Extend the company’s market reach to virtually all Of north america

39 increase capacity utilization by sharing routes

NETWORK agreements CP has entered into several co-production agreements with Class I railways as part of our ongoing strategy to increase capacity utilization by sharing routes and track while maintaining vigorous competition. Port Metro Vancouver Operations

In 2008, CP and Canadian National (CN) renegotiated the Fraser Canyon directional running zone agreement. This ground breaking agreement allows both companies to mitigate the effects of steep and difficult operating terrain and improve fluidity for import and export goods.

CP and CN have benefited from a series of agreements to realize efficiencies and improve service to shippers using Canada’s largest, busiest and most diversified port in Vancouver, British Columbia. These agreements provide:

• reciprocal access to Vancouver’s north and south shores, with CP potash trains having direct access to Neptune Terminals and CN sulphur trains having direct access to Pacific Coast Terminals;

• the option to operate longer, heavier trains; and

• a reciprocal interchange at CN’s Thornton Yard and CP’s Coquitlam Yard that replaces a less efficient interchange arrangement.

These CP/CN reciprocal arrangements have been enhanced to optimize railway infrastructure in the Lower Mainland of British Columbia. Under the arrangements, CP operates the trains of both railways using CP crews a distance of approximately 127 miles from Boston Bar to the terminals on the south shore of Burrard Inlet in Vancouver and return to North Bend. CN operates trains of both railways using CN crews a distance of approximately 140 miles from Boston Bar to the terminals on the north shore of Burrard Inlet and return to North Bend. CP provides all switching on the south shore of Burrard Inlet and CN provides all switching on the north shore of Burrard Inlet. In addition, CP operates some CN trains a distance of approximately 135 miles to or from the Roberts Bank port at Delta.

40 U.S. Northeast operations Ontario operations

CP and Norfolk Southern Corporation (NS) have joint operations, including CP and CN also have additional network initiatives that improve transit times and trackage rights, freight haulage trackage rights and yard services, to increase asset utilization in Ontario. operational efficiency and enhance rail service to customers in the Northeast U.S. These initiatives provide for: Under the arrangement, CP and NS consolidate freight marshalling at yards in Buffalo and Binghamton, New York. With this, CP ceased yard operations in Buffalo, • directional running over approximately 100 miles of parallel CP and CN track shifting all freight marshalling to the NS yard. Similarly NS has the right to shift its in Ontario between Waterfall, near Sudbury, and Parry Sound. The two rail- yard operations. ways operate eastbound trains over the CN line and westbound trains over CP’s line, improving network fluidity in this corridor; and CP, NS and CN also have an agreement to significantly improve freight service between eastern Canada and the eastern U.S. The three-party arrangement gives • a haulage arrangement, with CN freight moving over about 300 miles of CP CN and NS a seamless, direct north-south routing over CP’s lines south of Montreal track in Ontario between Thunder Bay and Franz using CP’s route north of which removes as much as two days of transit time for some 20,000 annual ship- Lake Superior. ments. It also increases freight-traffic density and revenues on CP’s U.S. Northeast. The arrangement has cut 330 miles off the old routing, which saw freight traffic handled more circuitously through the Buffalo gateway. Joint routing agreements CP and CSX Transportation (CSX) have filed an application with the Surface Trans- In 2007, CP entered into joint routing agreements with CN, complementing simi- portation Board (STB) seeking approval of a new joint use agreement which, if lar agreements already in place with Union Pacific (UP) and Burlington Northern approved, we expect to implement in the fourth quarter of 2010. Santa Fe Railway (BNSF). These agreements demonstrate CP’s focus on provid- This agreement will stretch over the I-87 corridor between Montreal and New York ing the most fluid and dependable service for our customers and allows them to City. The part of the agreement that covers the route between Montreal and CSX’s take advantage of new growth opportunities via the North American rail network. Selkirk yard is patterned on the CP, NS and CN agreement and will reduce CSX’s These agreements allow us to work more effectively with our connecting carriers current route miles by 142, bringing even more density and revenues to CP’s U.S. and generate increased rail capacity. In doing so, we are better positioned to grow Northeast. The segment of the agreement covering Selkirk to New York and Long our overall share of transportation services on the continent. Island brings more benefits to CP by reducing our costs while at the same time increasing service frequency.

The proposed joint corridor use agreement assigns operating responsibility for each segment of the joint use lines in New York State as follows:

• CP will run all trains using CP crews and equipment from Saratoga Springs to Rouses Point;

• CSX crews and equipment will operate all movements from Fresh Pond Junction to Albany; and

• Both railroads will manage their own train operations over the Albany to Saratoga Springs segment.

Recognizing the need to increase rail infrastructure capacity, the agreement enables all parties to deliver more fluid, efficient operations in the high volume east side of the Hudson corridor. No shipper will lose a competitive rail option as a result of the proposed transaction. The filed agreement specifically preserves CP’s ability to serve our customers at current levels and opens up the opportunity for future growth. It is expected that shipping frequency will increase as the flow of freight is managed jointly. CP’s current biweekly service will increase to 5-7 times a week between Montreal and New York City.

41 Safety Safety is a priority for CP’s management, employees and Board of Directors. We We also have a commitment to the safety and health of the public, working in believe safety is good business and our corporate safety policy emphasizes that cooperation with Operation Lifesaver® and Direction 2006® to educate the pub- no job is so important that time cannot be taken to do it safely. CP has consis- lic about the potential hazards of railway crossings at grade and the dangers of tently sustained low U.S. Federal Railroad Administration reportable train accident trespassing on railway property. CP’s business practices include consultations with rates. In 2009 we again led all North American railways with a rate of 1.49 train communities, neighbours and other key stakeholders. CP also conducts regular accidents per million train miles. In the area of personal injuries, CP achieved the emergency response exercises with communities. second best performance in our history with a rate of 1.85 injuries per 200,000 employee hours. The safety of customers is another high priority. We have distributed over 15,000 copies of a Customer Safety Handbook. This provides key contacts and critical CP’s Health, Safety, Security and Environment Committee provides ongoing focus, safety information about handling and securing rail cars, loading practices, facility leadership, commitment and support to improve the safety of our operations, the and personal safety. CP regularly conducts facility safety audits and provides feed- safety and health of all employees and the safety of communities through which back to our customers. In 2009, this handbook won the industry’s safety award for we operate. A bottom-up safety action process, called the Safety Framework, freight railways from the Railway Association of Canada. actively involves over 1,000 employees, management and executives working together through local health and safety committees. Our commitment to railway and public safety can also be seen is in our Respon- sible Care® partnership. As a partner, CP works with other companies to continu- CP produces a comprehensive corporate safety plan each year that is supported ously improve standards in handling and transporting chemical products. The Re- by individual safety plans produced by each operating department. Additionally, sponsible Care® ethic is reflected in CP’s corporate values, policies, business plans senior union and operating employees meet regularly to discuss systemic safety and management systems. enhancement opportunities. There are four functional policy committees and one cross-functional committee in Canada, as well as three safety advisory boards in the U.S. This integrated approach to safety management covers all operating functions, ensures a consistent approach, promotes the sharing of best practices and has sustained our industry leading safety performance.

FRA Personal Injuries per 200,000 employee-hours(1)(2) FRA Train Accidents per million train-miles(1)(2) 2.38 2.26 2.09 2.05 2.00 1.93 1.85 1.56 1.51 1.49

2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

(1) Certain prior period figures have been revised to conform with current presentation or have been updated to reflect new information. (2) Data excludes DM&E.

42 Corporate Social Responsibility CP is continuing along a path of real change in the way it operates. We firmly be- Annually, third-party environmental auditors assess our compliance to regulatory lieve that corporate social responsibility will make us more efficient, our services requirements and against internal policies and standards. A corrective action plan- more marketable, and assist us in attracting and retaining the brightest talent. We ning process ensures audit findings are completed in a timely fashion. believe that this is our obligation to the communities in which we operate, to our customers, to our employees and to our investors – to operate safely, securely and Protecting our future in an environmentally sustainable way. Our environmental assessment program ensures that projects and activities are Environment designed and undertaken carefully and without causing adverse environmental impacts. Environmental assessment (EA) work supports opportunities to grow our Our environment management system is based on the five basic components of business in a sustainable way. Current major projects undergoing EA include ex- ISO14001 – policy, planning, implementation and operation, checking and correc- pansion into the Alberta Industrial Heartland, various new intermodal facilities and tive action and management review. Our policies are based on regulatory require- a new rail tunnel under the Detroit River connecting Windsor and Detroit. ments and industry best practices. Our plans strive to reduce risk, minimize waste and introduce leading practices. Our programs are focused on cleaning up our Rail is already an environmental leader in transportation -- the railway sector rep- past, managing our present and protecting our future. resents only 3% of transportation-related greenhouse gases. Still, CP continues to pursue fuel conservation and locomotive fleet renewal to support our target for Managing our past and present further greenhouse gas reductions.

CP’s proactive Environmental Accrual Program remediates historically impacted sites with a target of achieving a 10% reduction in environmental liability per year. In 2009, we achieved a 10.7% reduction.

Environmental Accrual Liability Reduction (percentage) 100 Actual Projected 80

20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Canadian Pacific Greenhouse Gas Emissions

3500 35 3000 30 2500 25 2000 20 CO eq (kt) 1500 2 15

1000 CO2 eq (KG) / RTM (000s) 10 500 5

1990 2000 2001 2002 2003 2004 2005 2006 2007 2008

43 Community Relations CP operates through more than 1,100 communities. We strive to uphold our reputation as an integral part of these communities. Being a valued member of a community means knowing what matters to local residents, building mutual understanding and doing the right thing. We attempt to achieve this through communication and joint issues management, emergency response training and community investment. Emergency Response Preparedness

As part of federally-mandated common carrier obligations, moving regulated commodities is a daily reality. To build understanding and preparedness capabilities, CP supports and participates in various emergency response preparedness activities including:

• mock disasters/exercises, drills and table-top exercises;

• awareness sessions with municipal leaders and first responders;

• education and audits for shippers of hazardous materials; and

• regional/national TRANSCAER® (Transportation Community Awareness and Emergency Response) meetings and workshops.

All exercises include participation from fire departments, police, emergency medical services, hospitals, surrounding community facilities (e.g. schools), public works and others.

CP’s industry-leading incident response protocol ensures that communities and the environment are protected. In the event that an incident occurs, our priorities are to:

• ensure community and employee safety;

• mitigate and remediate potential environmental concerns;

• investigate and preserve evidence; and

• restore railway operations.

44 Community Connect Community Investment

CP’s Community Connect Line is a toll-free service that provides education, infor- Our community investment program focuses on the past and present ties we mation and a convenient way to address community inquiries about CP and its have with the communities along our network. Our goal is to make meaningful operations. It offers a single point of contact for local governments, residents, and and lasting contributions to the quality of life in the communities through which stakeholders to ensure potential issues are managed promptly and consistently. CP we operate. is the only North American Class I railway to offer a service dedicated specifically to direct community dialogue and issues resolution. Holiday Train

The Community Connect Line is also used in emergency response situations when Our Holiday Train program, which celebrated its 11th anniversary in 2009, travels rapid exchange of public information is a priority. across Canada and the U.S. every December raising food, funds and awareness for local food banks. Since its launch, the Holiday Train has raised more than $4.7 Community Advisory Panels million and 2.2 million pounds of food for local food charities. In locations where local issues could potentially and unnecessarily escalate, our Empress Steam Train community relations staff can establish a joint Community Advisory Panel (CAP). These are effective forums for addressing rail-related issues and promoting dia- In 2008, the Empress Steam Train visited more than 40 communities, providing logue on topics such as safety, community planning in proximity to the railway, a focal point for CP to deliver safety messages, highlight community investment new facility construction, traffic and noise concerns, and incident recovery. and recognize local employees. The Empress is a community ambassador, travel- ing the CP network to celebrate our rich heritage and support community events. To maintain and build on our reputation as a responsible neighbour, we have established CAPs in more than 14 key communities. United Way Aboriginal Relations CP and its employees are long-standing supporters of the United Way, annually donating more than $1 million to local United Way campaigns across the CP net- More than 100 aboriginal communities border our tracks in Canada. Each aborigi- work. In 2009, employee volunteers in more than 20 locations held their own nal group offers a unique cultural and historical perspective on how we do busi- unique and creative fundraising events to collect an additional $93,000. ness. We frequently meet with our aboriginal neighbours to discuss issues ranging from safety and taxation to fencing and the environment.

maintain and build on our reputation as a responsible neighbour

45 People Human Resources

CP strives to attract and retain a dedicated, professional and knowledgeable work- As an example of CP’s approach, the organization is currently implementing an force committed to safety and sustainable financial performance. Both CP’s short automated inventory reporting system which allows train crews to report car and long-term incentive program targets include measures and standards that are locations on a real-time basis. This system will allow for immediate updates to rail- closely tied to business objectives, such as free cash, return on capital employed, asset inventories, enhanced asset planning and utilization while, at the same time, safety and expense reduction. improving timeliness and accuracy of waybill activity. This project is creating a better customer experience and enhancing rail productivity. This change eliminates To ensure the organization is positioned to succeed now and in the years to come, double handling of information and will allow for a reduction of a number of cleri- our approach to human resource management includes key elements designed cal positions over the next 1-2 years. to: For those non-union employees whose jobs are being permanently eliminated by • preserve a talent base for the future to meet the prospect of returning freight the change in economic activity or planned process changes, CP has introduced volumes; and working notice and a redeployment strategy. This approach will streamline the change process, while opening a window of opportunity for affected employees • implement process enhancements that address both emerging demographic to pursue other roles within the railway. shifts and our productivity goals.

Over the next five years, almost one-third of CP’s employee base will become eligible to retire. The demographics of our workforce provide the opportunity to implement process changes cost effectively and presents a unique opportunity for CP employees to participate in knowledge transfer, develop new skills and pursue new roles within CP.

To ensure our continued success we are:

• undertaking an in-depth review of cross-functional work processes in an effort to implement streamlining opportunities;

• pursuing enabling technologies that will support a smaller more productive workforce; and

• introducing new “lean thinking” to support a culture of continuous improvement.

46 Labour Relations

CP employs approximately 15,200 employees across North America with approximately 75% based in Canada and the remainder in the United States. Unionized employees represent approximately 75% of the CP workforce and are represented by 37 bargaining units.

During bargaining, we continue to drive for business-based settlements with the unions that:

• enhance productivity and flexibility;

• protect our future workforce; and

• simplify our work procedures.

Within Canada there are seven bargaining units representing approximately 9,000 Canadian unionized employees. CP has concluded 38 collective agreements since 1996 with only brief strikes in 2003 (Traffic Controllers) and 2007 (Track Maintainers), during which we continued to operate.

In the United States, there are currently 30 bargaining units on three subsidiary railroads representing approximately 3,000 unionized employees or approximately 75% of our U.S. workforce. Agreements are in place with 13 of the bargaining units and negotiations with another 13 bargaining units are being handled as part of U.S. railroad industry national negotiations. In addition to contract negotiations, Labour Relations works with union leads to create additional efficiencies and productivity improvements, including the rationalization of facilities, modified operating arrangements, and other changes that impact the unionized workforce.

Canadian Unions As of March 31 # of Employees(1) Type of Employees Expiration Teamsters (RTE) 3,650 Train / Engine crews 31-Dec-11 Canadian Auto Workers (CAW) 1,850 Car & locomotive repair employees 31-Dec-10 Teamsters (MWD) 1,750 Track maintainers 31-Dec-12 (2) United Steel Workers of America Transportation Communications Local (TC - USWA) 900 Clerical 31-Dec-12 International Brotherhood of Electrical Workers (IBEW) 350 Signal maintainers 31-Dec-09 Rail Canada Traffic Controllers (RCTC) 200 Rail traffic controllers 31-Dec-11 Canadian Pacific Police Association (CPPA) 50 Police 31-Dec-12 Total 8,750

(1) Employee counts include both capital and expense employees. (2) Tentative agreement subject to ratification.

47 United States Unions As of March 31 SOO Line # of Employees(1) Type of Employees Expiration United Transportation Union (UTU) 552 Train Service Employees 31-Dec-09 Transportation Communications International Union (TCU) 176 Clerical Employees 31-Dec-09 Teamsters (BLE&T) 418 Locomotive Engineers 31-Dec-09 Brotherhood of Railway Carmen – Division of Transportation Communications International Union (TCU-BRC) 160 Car Repair Employees 31-Dec-09 Brotherhood of Railway Signalmen (BRS) 82 Signal Maintainers 31-Dec-09 Soo Line Locomotive and Car Foremen Association (SLL&CFA) 26 Locomotive/ Car Foremen 31-Dec-09 Teamsters (BMWE) 426 Track Maintainers 31-Dec-09 American Train Dispatchers Association (ATDA) 46 Train Dispatchers 31-Dec-09 National Conference of Firemen and Oilers (NCF&O) 38 Mechanical Laborers 31-Dec-09 International Association of Machinists & Aerospace Workers (IAM) 124 Machinists 31-Dec-09 International Brotherhood of Electrical Workers (IBEW) 60 Electricians 31-Dec-09 United Transportation Union – Yardmasters (UTU-Y) 40 Yardmasters 31-Dec-09 Various 5 Various 31-Dec-09

Deleware and Hudson Brotherhood of Railway Carmen – Division of Transportation Communications International Union (BRC) 18 Car Repair Employees 31-Dec-09 Brotherhood of Railway Signalmen (BRS) 29 Signal Maintainers 31-Dec-09 United Transportation Union (UTU) 76 Conductors & Trainpersons 31-Dec-09 Teamsters (BLE&T) 63 Locomotive Engineers 31-Dec-09 Teamsters (BMWE) 136 Track Maintainers 31-Dec-04 (3) Various 41 Various 31-Dec-09

Dakota, Minnesota and Eastern Brotherhood of Railway Signalmen (BRS) 33 Signal Maintainers Certified by NMB(2) 4/13/2009 Brotherhood of Locomotive Engineers and Trainmen (BLET) 269 Locomotive Engineers, 31-Dec-08 Conductors and Trainmen United Transportation Union (UTU) 139 Locomotive Engineers, 31-Dec-13 Conductors and Trainmen Total 2,957

(1) Employee counts include both capital and expense employees. (2) National Mediation Board (NMB).

48 Governance CP has a culture of strong corporate governance. The Board of Directors and management believe that good corporate governance practices are essential to the effective management of CP and to the protection of its investors, employees and other stakeholders. In 2009, CP was awarded the Governance Gavel for Director Disclosure by the Canadian Coalition for Good Governance (CCGG). The award recognizes excellence in shareholder communications, particularly through the annual proxy circular.

CP is dedicated to maintaining the highest standards of corporate governance and as developments in corporate governance have occurred in Canada and the United States, CP has been, and continues to be, engaged in an ongoing review and updat- ing of governance practices to ensure that they are of the highest standard and in compliance with all applicable requirements, including:

• comprehensive Corporate Governance Guidelines and charters for the Board of Directors and all committees available on our website describing the significant responsibilities of the Board and its committees;

• a strong independent Chair and a compensation committee, audit committee, and governance/nominating committee comprised entirely of independent directors;

• a majority voting policy for the election of directors;

• meetings of the independent directors in executive sessions at Board and committee meetings without management present;

• a formal process including peer review for assessing the effectiveness and contribution of the Board, Board committees, and individual directors which is conducted by individual director interviews as well as Board discussion;

• adoption of a Code of Business Ethics which applies to all directors, officers, and employees with mandatory annual on- line ethics training for all officers and non-union employees;

• creation of a skills matrix as to what competencies and skills the Board, as a whole, should possess and a review of what competencies, skills and personal qualities the existing directors possess to ensure directors have career experience and expertise relevant to the corporation’s business purpose, financial responsibilities and risk profile;

• maintenance of an evergreen list of potential director candidates for consideration as the need for new directors arise;

• development of a directors’ education and orientation program to ensure that the directors are conversant with the Corporation and the railway industry including site visits, orientation, education sessions and a directors ’ handbook;

• disclosure of all other directorships held by CP directors and any interlocking directorships; and

• adoption of executive and director compensation programs to attract and retain skilled talent, and pay for performance, which are aligned with shareholder interests.

As part of CP’s ongoing commitment to strong corporate governance practices, the Board has approved the adoption of a non-binding advisory vote by shareholders on executive compensation, commonly known as “Say on Pay”, starting at our annual meeting of shareholders in 2011.

49 Executive profiles John E. Cleghorn, O.C., F.C.A. Chairman of the Board

Mr. Cleghorn is the Chairman of the Board of Directors of the Corporation. He is the retired Chief Executive Officer of the Royal Bank of Canada. He held that position from November 1994 until his retirement in July 2001. He is a director of Molson Coors Brewing Company. He was Chairman of the Board of SNC-Lavalin Group Inc. from May 2002 until May 2007. He is Governor Emeritus of McGill University, Chancellor Emeritus of Wilfrid Laurier University, and a director of the Atlantic Salmon Federa- tion. He was appointed an Officer of the Order of Canada in 2001.

Mr. Cleghorn graduated from McGill University in Montreal with a Bachelor of Commerce degree and is a Chartered Accountant.

Frederic J. Green President and Chief Executive Officer

Fred Green is Canadian Pacific’s 16th President and Chief Executive Officer. He is leading the Corporation in its drive to be the safest, most fluid railway in North America.

Fred began his career at CP in 1978 and has held senior leadership positions throughout the railway in operations, sales and marketing, and yield which have taken him from coast to coast within Canada. He was promoted to Chief Operating Officer in 2004, President in 2005 and CEO in 2006.

Fred is Chairman and CEO of the Soo Line Railroad and of the Delaware and Hudson Railroad, which are CP’s subsidiaries in the United States.

He is Chair of the Railway Association of Canada, director and Vice-Chair of The Conference Board of Canada, and a Board member of the Calgary Petroleum Club.

He holds a Bachelor of Commerce degree from Concordia University in Montreal.

Edmond Harris Executive Vice-President and Chief Operations Officer

Ed Harris was appointed Executive Vice-President and Chief Operations Officer in April 2010.

Ed is responsible for all aspects of railway operations, safety, customer service, engineering and mechanical services in both Canada and the U.S.

Ed has over 30 years of operations management experience in the North American railroad industry. Following his retirement in 2007 as CN’s Executive Vice-President, Operations, Ed was providing consulting services for North American Class I and regional railroads, including CP. He served in various executive positions at CN and Illinois Central, interrupted only by a four- year tour of duty in the U.S. Marine Corps.

Ed holds a Bachelor of Science degree in Management from the University of Illinois, Chicago.

50 Kathryn McQuade Executive Vice-President and Chief Financial Officer

Kathryn McQuade was appointed Chief Financial Officer in September 2008.

Kathryn is responsible for providing the strategic leadership for CP’s finance, information technology and strategic sourcing groups. She is focused on driving the benefits of CP’s efficiency initiatives to the bottom line. As CFO, Kathryn has led efforts to enhance financial flexibility during the recent economic downturn, by completing an equity offering, two debt financings, a debt tender, and pension plan prepayment which collectively reduced indebtedness, extended maturities and improved near-term liquidity. She also led the integration of the DM&E acquisition.

Kathryn joined CP in June 2007 as Chief Operating Officer. Prior to her move to CP, she spent 27 years with Norfolk Southern in key leadership positions where she was involved in major change initiatives, Conrail restructuring and integration, and leadership in information technology, strategic planning and all finance functions.

Kathryn is a CPA and holds a Bachelors of Business Administration in Accounting with a minor in Mathematics from the Col- lege of William and Mary in Virginia and completed the Advanced Management Program (AMP) at Harvard.

Jane O’Hagan Senior Vice-President Marketing and Sales, and Chief Marketing Officer

Jane O’Hagan was appointed Senior Vice-President Marketing and Sales and Chief Marketing Officer in April 2010. Jane is responsible for CP’s corporate strategy and marketing, sales, corporate communications and public affairs.

Jane rejoined CP in August 2002 as Assistant Vice-President, Strategy and Research and was appointed Vice-President of Strategy and Research in November 2005.

In March 2005, she took on responsibility for CP’s new market development in China and Mexico, as well as the Company’s logistics services. In 2006, she was appointed Vice-President Strategy and External Affairs where she added communications and public affairs along with government affairs to her role. In November 2008, Jane was appointed Senior Vice-President, Strategy and Yield.

51 DIRECTORS and COMMITTEES

John E. Cleghorn, O.C., F.C.A. (2) Madeleine Paquin (3)(4) Chairman President and Chief Executive Officer Canadian Pacific Railway Limited Logistec Corporation Toronto, Ontario Montreal, Quebec

Tim W. Faithfull (2)(3)*(4) Michael E.J. Phelps, O.C. (2)(4)*(5) Retired President and Chief Executive Officer Chairman Shell Canada Limited Dornoch Capital Inc. Oxford, Oxfordshire, England West Vancouver, British Columbia

Frederic J. Green (3) Roger Phillips, O.C., S.O.M., F.Inst.P. (1)(2)*(5) President and Chief Executive Officer Retired President and Chief Executive Officer Canadian Pacific Railway Limited IPSCO Inc. Calgary, Alberta Regina, Saskatchewan

Krystyna T. Hoeg, C.A. (1)(5) David W. Raisbeck (4)(5) Former President and Chief Executive Officer Retired Vice-Chairman Corby Distilleries Limited Cargill Inc. Toronto, Ontario Sanibel, Florida

Richard C. Kelly (1)(3) Hartley T. Richardson (4)(5) Chairman, President and Chief Executive Officer President and Chief Executive Officer Xcel Energy Inc. James Richardson & Sons, Limited Minneapolis, Minnesota Winnipeg, Manitoba

The Honourable John P. Manley (1)(2)(5)* Michael W. Wright (1)*(2)(3) President and Chief Executive Officer Retired Chairman of the Board and Canadian Council of Chief Executives Chief Executive Officer Ottawa, Ontario Supervalu Inc. Longboat Key, Florida Linda J. Morgan (1)(3) Counsel Covington & Burling LLP Bethesda, Maryland

(1) Audit, Finance and Risk Management Committee (2) Corporate Governance and Nominating Committee (3) Health, Safety, Security and Environment Committee (4) Management Resources and Compensation Committee (5) Pension Committee

*denotes Chairman of the committee

52 Consolidated Statement of Income and Pro Forma Income (1)

U.S. GAAP Year ended December 31 (in millions of Canadian dollars, except per share data) 2008 2009 2008 (2) DM&E (3) Pro forma (4)(5) 2007 (2) Revenues Freight $ 4,279.8 $ 4,921.5 $ 298.8 $ 5,220.3 $ 4,623.1 Other 122.4 127.0 1.9 128.9 131.0 4,402.2 5,048.5 300.7 5,349.2 4,754.1 Operating expenses Compensation and benefits 1,303.8 1,287.1 63.0 1,350.1 1,264.0 Fuel 580.2 1,005.8 51.5 1,057.3 746.8 Materials 215.8 256.1 14.9 271.0 254.7 Equipment rents 226.0 218.5 13.0 231.5 234.8 Depreciation and amortization 497.2 437.1 35.9 473.0 423.0 Purchased services and other 767.1 793.9 36.2 830.1 665.4 Gain on sales of significant properties (79.1) - - - - Loss on termination of lease with shortline railway 54.5 - - - - 3,565.5 3,998.5 214.5 4,213.0 3,588.7

Operating income 836.7 1,050.0 86.2 1,136.2 1,165.4 Gain on sale of partnership interest 81.2 - - - Equity income in Dakota, Minnesota & Eastern Railroad Corporation - 50.9 (50.9) - 11.2 Less: Other income and charges 12.4 72.3 (0.4) 71.9 (127.0) Interest expense 267.6 239.6 1.9 241.5 190.0 Income before income tax expense 637.9 789.0 33.8 822.8 1,113.6 Income tax expense 82.5 153.4 33.8 187.2 200.4 Net income $ 555.4 $ 635.6 $ - $ 635.6 $ 913.2 Basic earnings per share $ 3.34 $ 4.14 $ 4.14 $ 5.93 Diluted earnings per share $ 3.33 $ 4.09 $ 4.09 $ 5.87

(1) Certain of the comparative figures have been reclassified in order to be consistant with the 2009 presentation. (2) The 2007 and 2008 figures include the results of DM&E on an equity income basis from October 30 to December 31, 2007 and January 1 to October 29, 2008, respectively, and on a fully consolidated basis for the period from October 30 to December 31, 2008. (3) DM&E results for the period January 1, 2008 to October 29, 2008 which under GAAP were reported as one line in equity income in DM&E. (4) Pro forma basis redistributes DM&E equity income to a line by line consolidation of DM&E results for full year 2008. (5) Pro forma earnings has no standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures of other companies. Pro forma earnings is discussed further in Section 6.0 Non-GAAP Earnings of the 2009 U.S. GAAP MD&A.

53 CONSOLIDATED BALANCE SHEET U.S. GAAP (in millions of Canadian dollars) As at December 31 2009 2008 Assets Current assets Cash and cash equivalents $ 679.1 $ 117.5 Accounts receivable, net 655.1 647.4 Materials and supplies 132.7 215.8 Deferred income taxes 128.1 76.5 Other current assets 46.5 65.7 1,641.5 1,122.9

Investments 156.7 202.3 Net properties 12,067.5 12,450.6 Goodwill and intangible assets 202.3 237.2 Other assets and deferred charges 175.8 435.4 Total assets $ 14,243.8 $ 14,448.4

Liabilities and shareholders’ equity Current liabilities Short-term borrowing $ - $ 150.1 Accounts payable and accrued liabilities 927.1 1,034.6 Income and other taxes payable 31.9 42.2 Dividends payable 41.7 38.1 Long-term debt maturing within one year 605.3 43.2 1,606.0 1,308.2

Pension and other benefit liabilities 1,453.9 1,338.1 Other long-term liabilities 479.9 553.7 Long-term debt 4,138.2 4,922.6 Deferred income taxes 1,845.0 1,991.0 Total liabilities 9,523.0 10,113.6

Shareholders’ equity Share capital 1,771.1 1,242.3 Accumulated paid-in capital 30.8 40.6 Accumulated other comprehensive loss (1,746.3) (1,224.4) Retained earnings 4,665.2 4,276.3 4,720.8 4,334.8 Total liabilities and shareholders’ equity $ 14,243.8 $ 14,448.4

54 STATEMENT OF CONSOLIDATED CASH FLOWS (1)(2) U.S. GAAP (in millions of Canadian dollars) Year ended December 31 Operating activities 2009 2008 2007 Net income $ 555.4 $ 635.6 $ 913.2 Reconciliation of net income to cash provided by operating activities: depreciation and amortization 497.2 437.1 423.0 deferred income taxes 134.2 173.8 94.4 Foreign exchange (gain) loss on long-term debt (3.6) 5.8 (169.4) equity income, net of cash received 0.5 (50.8) (12.9) gain on sales of significant properties (79.1) - - gain on sale of partnership interest (81.2) - - restructuring and environmental payments (45.1) (53.4) (61.0) Pension funding in excess of expense (572.0) (66.5) (44.7) other operating activities, net (37.5) 13.4 (0.4) Change in non-cash working capital balances related to operations 102.7 (132.2) 50.3 Cash provided by operating activities 471.5 962.8 1,192.5 Investing activities additions to properties (724.1) (835.8) (838.0) additions to assets held for sale and other - (222.5) (19.2) investment in Dakota, Minnesota & Eastern Railroad Corporation - (8.6) (1,492.6) Proceeds from sale of properties and other assets 324.9 237.2 119.9 redemption of long-term floating rate notes / (investment in) asset-backed commercial paper 12.5 - (143.6) other 7.4 9.7 - Cash used in investing activities (379.3) (820.0) (2,373.5) Financing activities dividends paid (162.9) (148.7) (133.1) issuance of CP Common Shares 513.5 19.7 30.4 Purchase of CP Common Shares - - (231.1) net (decrease) increase in short-term borrowing (150.1) (79.6) 229.7 issuance of long-term debt 872.7 1,148.2 1,745.3 repayment of long-term debt (617.9) (1,339.9) (187.3) other financing activities 34.1 (30.9) - Cash provided by (used in) financing activities 489.4 (431.2) 1,453.9 Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents (20.0) 28.0 (18.9) Cash position increase (decrease) in cash and cash equivalents 561.6 (260.4) 254.0 Cash and cash equivalents at beginning of year (3) 117.5 377.9 123.9 Cash and cash equivalents at end of year (3) $ 679.1 $ 117.5 $ 377.9

(1) Certain of the comparative figures have been reclassified in order to be consistent with the 2009 presentation. (2) The 2008 figures include the results of the DM&E on an equity accounting basis through October 29, 2008 and on a fully consolidated basis after that date. (3) Cash and cash equivalents is defined as cash and short-term investments.

55 NON-GAAP MEASURES We present non-GAAP measures and cash flow information in this Investor Book to provide a basis for evaluating underlying earnings and liquidity trends in our business that can be compared with the results of our operations in prior periods. These non-GAAP measures exclude foreign currency translation effects on long-term debt (“FX on LTD”), which can be volatile and short term, and other specified items that are not among our normal ongoing revenues and operating expenses.

The adjoining table details a reconciliation of adjusted operating expenses, adjusted operating income, adjusted earnings before interest and taxes (“adjusted EBIT”) and income, before FX on LTD and other specified items, to net income, as presented in the financial statements. Free cash is calculated as cash provided by operating activities, less cash used in investing activities and dividends paid, adjusted for the acquisition costs of DM&E, changes in cash and cash equivalent balances resulting from foreign exchange fluctuations, and excluding changes in the accounts receivable securitization program and the initial reclassification of cash to investment in Asset-backed Commercial Paper (“ABCP”). The measure is used by management to provide information with respect to investment and financing decisions and provides a comparable measure for period to period changes. Free cash is reconciled to the change in cash and cash equivalents as presented in the financial statements on page 58.

Earnings measures before FX on LTD and other specified items, adjusted operating expenses, adjusted operating income, adjusted EBIT, adjusted diluted earnings per share, adjusted operating ratio, free cash and other specified items as described in this Investor Book have no standardized meanings and are not defined by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies. Adjusted operating expenses and adjusted operating income exclude other specified operating expenses (gain on sales of significant properties and loss on termination of lease with shortline railway). Adjusted EBIT is calculated as income, before FX on LTD and other specified items, plus income tax expense before income tax on FX on LTD and other specified items and interest expense. Income, before FX on LTD and other specified items provides management with a measure of income that can help in a multi-period assessment of long-term profitability and also allows management and other external users of our consolidated financial statements to compare our profitability on a long-term basis with that of our peers. Adjusted operating ratio is calculated as adjusted operating expenses divided by total revenues and is a common measure of profitability used in the railway industry.

CP’s results for 2008 are presented as reported and on a pro forma basis on pages 53 and 57. Pro forma basis is a non-GAAP measure which redistributes the DM&E operating results originally reported on an equity income basis of accounting to a line-by-line consolidation of revenues and expenses. Doing so provided a comparable measure for period to period changes until DM&E results were fully consolidated with CP’s operations for comparative periods.

56 RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES U.S. GAAP Year ended December 31 (in millions of Canadian dollars, except diluted) 2008 2009 2008 (1) DM&E (2) Pro forma(3)(4) 2007(1) Revenues $ 4,402.2 $ 5,048.5 $ 300.7 $ 5,349.2 $ 4,754.1 Adjusted operating expenses (4) 3,590.1 3,998.5 214.5 4,213.0 3,588.7 Adjusted operating income (4) 812.1 1,050.0 86.2 1,136.2 1,165.4 Equity income in DM&E - 50.9 (50.9) - 11.2 Less: Other income and charges, before FX on LTD and other specified items (4) 22.3 17.1 (0.4) 16.7 20.9 Adjusted EBIT (4) 789.8 1,083.8 35.7 1,119.5 1,155.7 Less: Interest expense 267.6 239.6 1.9 241.5 190.0 Income tax expense, before income tax on FX on LTD and other specified items (4) 98.5 205.2 33.8 239.0 262.4 Income, before FX on LTD and other specified items (4) 423.7 639.0 - 639.0 703.3 Foreign exchange (gain) loss on long-term debt FX on LTD - (loss) gain 3.6 (5.8) - (5.8) 169.4 Income tax recovery (expense) on FX on LTD (31.3) 37.2 - 37.2 (44.2) FX on LTD, net of tax - (loss) gain (27.7) 31.4 - 31.4 125.2 Other specified items (4) Loss on termination of lease with shortline railway (54.5) - - - - Income tax recovery 16.9 - - - - Loss on termination of lease with shortline railway, net of tax (37.6) - - - - Gain on sale of partnership interest 81.2 - - - - Income tax expense (12.5) - - - - Gain on sale of partnership interest, net of tax 68.7 - - - - Gain on sales of significant properties 79.1 - - - - Income tax expense (11.0) - - - - Gain on sales of significant properties, net of tax 68.1 - - - - Gain/(loss) in fair value of long-term floating rate notes / ABCP 6.3 (49.4) - (49.4) (21.5) Income tax (expense) recovery (1.8) 14.6 - 14.6 6.5 Gain/(loss) in fair value of long-term floating rate notes / ABCP, net of tax 4.5 (34.8) - (34.8) (15.0) Income tax benefits due to rate reductions and settlement related to prior year 55.7 - - - 99.7 Net income $ 555.4 $ 635.6 $ - $ 635.6 $ 913.2 Diluted EPS, before FX on LTD and other specified items (4) $ 2.54 $ 4.11 $ - $ 4.11 $ 4.52 Diluted EPS, related to FX on LTD, net of tax (4) (0.17) 0.20 - 0.20 0.81 Diluted EPS, related to other specified items, net of tax (4) 0.96 (0.22) - (0.22) 0.54 Diluted EPS, as determined by GAAP $ 3.33 $ 4.09 $ - $ 4.09 $ 5.87

(1) The 2007 and 2008 figures include DM&E on an equity income basis from October 30 to December 31, 2007 and January 1 to October 29, 2008, respectively, and on a fully consolidated basis for the period from October 30, 2008 to December 31, 2008. (2) DM&E results for the period January 1, 2008 to October 29, 2008 which under GAAP were reported as one line in equity income in DM&E. (3) Pro forma basis redistributes DM&E equity income to a line by line consolidation of DM&E results for full year 2008. (4) These earnings measures have no standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures of other companies. These earnings measures and other specified items are described in Section 6.0 Non-GAAP Earnings of the 2009 U.S. GAAP MD&A.

57 reconciliation of free cash to GAAP change in cash and cash equivalents

U.S. GAAP (in millions of Canadian dollars) Year ended December 31 2009 2008 (1) 2007 Cash provided by operating activities $ 471.5 $ 962.8 $ 1,192.5 Cash used in investing activities (379.3) (820.0) (2,373.5) Add back reclassification of ABCP (2) - - 143.6 Dividends paid (162.9) (148.7) (133.1) Add back acquisition of DM&E (3) - 8.6 1,492.6 Termination of accounts receivable securitization program (4) - 120.0 - Foreign exchange effect on cash and cash equivalents (20.0) 28.0 (18.9) Free cash (5) (90.7) 150.7 303.2 Cash provided by (used in) financing activities, excluding dividend payment 652.3 (282.5) 1,587.0 Reclassification of ABCP (2) - - (143.6) Acquisition of DM&E (3) - (8.6) (1,492.6) Accounts receivable securitization program (4) - (120.0) - Increase (decrease) in cash, as shown on the Consolidated Statement 561.6 (260.4) 254.0 of Cash Flows Net cash and cash equivalents at beginning of year 117.5 377.9 123.9 Net cash and cash equivalents at end of year $ 679.1 $ 117.5 $ 377.9

(1) The 2008 figures include DM&E consolidated from October 30, 2008 to December 31, 2008. (2) The reclassification of ABCP is discussed further in Section 10.2.1 Change in Estimated Fair Value of Long-term Floating Rate Notes and Asset-backed Commercial Paper of the 2009 U.S. GAAP MD&A. (3) The acquisition of DM&E is discussed further in Section 18.0 Acquisition of the 2009 U.S. GAAP MD&A. (4) The termination of accounts receivable securitization program is discussed further in Section 17.1 Sale of Accounts Receivable of the 2009 U.S. GAAP MD&A. (5) Free cash has no standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures of other companies. Free cash is discussed further in Section 6.0 Non-GAAP Earnings and Section 14.4 Free Cash of the 2009 U.S. GAAP MD&A.

58 Glossary ACTIVE EMPLOYEE METRIC TONNE Employees actively employed by the railway. Excludes employees who are A metric tonne is 2,204.6 pounds. not working for reasons other than normal vacation or short-term leaves, and individuals who have a continued employment relationship with CP but are not currently working. Integrated Operating Plan The operating plan describes in detail all of the activities needed to provide AVERAGE TRAIN WEIGHT the required level of dock-to-dock service. These include train scheduling, train design, locomotive cycling plans, major yard car processing plans and The average total weight (freight car tare plus content) of all trains operated in contingency plans. the period over CP’s track and track on which CP has running rights.

OPERATING RATIO CLASS I RAILWAY The percentage of revenues expended in operating the railway. It is calculated A railway having operating revenues of more than US$401.4 million annually. by dividing operating expenses by operating revenues.

CONTAINER REVENUE TON-MILE (RTM) A large, weatherproof box designed for shipping and/or transferring freight The movement of one revenue-producing ton of freight one mile. between rail, truck or marine modes.

Shortline GROSS TON-MILES (GTM) A railway that is not large enough to be classified as a Class I or regional railway. The movement of the combined tons (freight car tare, inactive locomotive tare, and contents) a distance of one mile. TRACK CAPACITY HAULAGE The maximum number of trains that can operate safely over a given segment of track during a specified time period (e.g., one day). Factors such as signal systems, The right of one railway to have another railway transport freight over that siding lengths, number of tracks and geography all have an impact on track railway’s tracks, using the other’s crews and usually its locomotives. capacity.

INTERMODAL SERVICE TRACKAGE RIGHTS Freight moving via two or more modes of transport. Import/export containers The right of one railway to operate over another railway’s tracks, using its own generally move via marine and rail, while domestic intermodal typically utilizes crews and locomotives. truck and rail.

TRANSLOAD FACILITY MAINLINE ROUTE A transfer facility enabling the railway to expand market reach through A primary rail line over which trains operate from terminal to terminal. truck-to-rail service.

MARSHALLING The activity of grouping and connecting together cars and locomotives in the correct sequence to make-up a train that can safely travel between rail terminals.