U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

o

REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x

ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

CANADIAN PACIFIC RAILWAY LIMITED

CANADIAN PACIFIC RAILWAY COMPANY

CANADA		4011		98-0355078 (Canadian Pacific Railway Limited) 98-0001377 (Canadian Pacific Railway Company)
(Province or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

Suite 500, Gulf Canada Square, 401-9th Avenue S.W., Calgary, Alberta, Canada T2P 4Z4
(403) 319-7000

C T Corporation System, 111 Eighth Avenue, New York, New York 10011, (212) 894-8940

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, without par value, of Canadian Pacific Railway Limited		New York Stock Exchange
Common Share Purchase Rights of Canadian Pacific Railway Limited		New York Stock Exchange
Perpetual 4% Consolidated Debenture Stock of Canadian Pacific Railway Company		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this form:

x     Annual information form		x     Audited annual financial statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

At December 31, 2008, 153,847,193 Common Shares of Canadian Pacific Railway Limited were issued and outstanding. At December 31, 2008, 347,170,009 Ordinary Shares of Canadian Pacific Railway Company were issued and outstanding.

Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes” is marked, indicate the file number assigned to the Registrant in connection with such Rule.

YES     o		NO     x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES     x		NO     o

PRIOR FILINGS MODIFIED AND SUPERSEDED

          The Registrants’ Annual Report on Form 40-F for the year ended December 31, 2008, at the time of filing with the Securities and Exchange Commission, modifies and supersedes all prior documents filed pursuant to Sections 13 and 15(d) of the Exchange Act for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement under the Securities Act of 1933 of either Registrant which incorporates by reference such Annual Report, including without limitation the following: Form S-8 No. 333-13962 (Canadian Pacific Railway Limited); Form S-8 No. 333-127943 (Canadian Pacific Railway Limited); and Form S-8 No. 333-140955 (Canadian Pacific Railway Limited).

          In addition, this Annual Report on Form 40-F is incorporated by reference into or as an exhibit to, as applicable, the Registration Statement on Form F-9 No. 333-142347 (Canadian Pacific Railway Company).

CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENT’S DISCUSSION AND ANALYSIS

A. Audited Annual Financial Statements

          For consolidated audited financial statements, including the report of the auditors with respect thereto, see pages 52 through 109 of the Registrant’s 2008 Annual Report incorporated by reference and included herein. For a reconciliation of important differences between Canadian and United States generally accepted accounting principles, see Note 28 — Reconciliation of Canadian and United States generally accepted accounting principles on pages 100 through 109 of such 2008 Annual Report.

B. Management’s Discussion and Analysis

          For management’s discussion and analysis, see pages 3 through 50 of the Registrant’s 2008 Annual Report incorporated by reference and included herein.

          For the purposes of this Annual Report on Form 40-F, only pages 3 through 109 of the Registrant’s 2008 Annual Report referred to above shall be deemed filed, and the balance of such 2008 Annual Report, except as it may be otherwise specifically incorporated by reference in the Registrant’s Annual Information Form, shall be deemed not filed with the Securities and Exchange Commission as part of this Annual Report on Form 40-F under the Exchange Act.

DISCLOSURE CONTROLS AND PROCEDURES

          As of December 31, 2008, an evaluation was carried out under the supervision of and with the participation of the Registrants’ management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Registrants’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of December 31, 2008, to ensure that information required to be disclosed by the Registrants in reports that they file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     For management’s report on internal control over financial reporting, see page 52 of the Registrant’s 2008 Annual Report, incorporated by reference and included herein.

          The effectiveness of the Registrants’ internal control over financial reporting as of December 31, 2008 has been audited by PricewaterhouseCoopers LLP, the Registrants' independent auditor, as stated in their report on page 53 of the Registrant’s 2008 Annual Report.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

          During the period covered by this Annual Report on Form 40-F, no changes occurred in the Registrants’ internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Registrants’ internal control over financial reporting.

CODE OF BUSINESS ETHICS

          The Registrants’ Code of Business Ethics was revised in late 2003 to ensure that it was in compliance with the corporate governance standards of the New York Stock Exchange (“NYSE Standards”) and specifically addresses, among other things, conflicts of interest, protection and proper use of corporate assets and opportunities, confidentiality of corporate information, fair dealing with third parties, compliance with laws, rules and regulations and reporting of illegal or unethical behavior. In October 2007, the boards of the Registrants approved an addition to the Code concerning the retention of records. The Code applies to all directors, officers and employees, both unionized and non-unionized, of the Registrants and their subsidiaries in Canada, the U.S. and elsewhere, and forms part of the terms and conditions of employment of all such individuals. All Directors have signed acknowledgements that they have read, understood and agree to comply with the Code. Commencing in 2006 the Registrant introduced mandatory annual on-line ethics training for officers and non-union employees. As part of the on-line ethics training officers and non-union employees are annually required to acknowledge that they have read, understood and agree to comply with the Code. Contractors engaged on behalf of the Registrants or their subsidiaries must undertake, as a condition of their engagement, to adhere to principles and standards of business conduct consistent with those set forth in the Code. The Code is available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests it. All amendments to the Code, and all waivers of the Code with respect to any director or executive officer of the Registrants, will be posted on the Registrants’ web site and provided in print to any shareholder who requests them.

CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS

          The Registrants adopted a Code of Ethics for Chief Executive Officer and Senior Financial Officers in 2003. This code applies to the Registrants’ President and Chief Executive Officer, the Executive Vice-President and Chief Financial Officer and the Vice-President and Comptroller. It is available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests it. All amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on the Registrants’ web site and provided in print to any shareholder who requests them.

CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES

          The Registrants last amended their Corporate Governance Principles and Guidelines in December 2008. These principles and guidelines pertain to such matters as, but are not limited to: director qualification standards and responsibilities; election of directors; access by directors to management and independent advisors; director compensation; director orientation and continuing education; management succession; and annual performance evaluations of the board, including its committees and individual directors, and of the Chief Executive Officer. The Corporate Governance Principles and Guidelines are available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests them.

COMMITTEE TERMS OF REFERENCE

          The terms of reference of each of the following committees of the Registrants are available on the Registrants’ web site at www.cpr.ca and in print to any shareholder who requests them: the Audit, Finance and Risk Management Committee; the Corporate Governance and Nominating Committee; the Management Resources and Compensation Committee; the Health, Safety, Security and Environment Committee; and the Pension Committee.

DIRECTOR INDEPENDENCE

          The boards of the Registrants have adopted the categorical standards for director independence: (a) prescribed by Section 10A(m)(3) of the Exchange Act and Rule 10A-3(b)(1) promulgated thereunder and Multilateral Instrument 52-110 for members of public company audit committees; and (b) set forth in the NYSE Standards, the Canadian corporate governance standards set forth in National Instrument 58-101 and Multilateral Instrument 52-110 in respect of public company directors. The boards also conducted a comprehensive assessment of each of their members as against these standards and determined that all current directors, except F.J. Green, have no material relationship with the Registrants and are independent. Mr. Green is not independent by virtue of the fact that he is the Chief Executive Officer of the Registrants.

EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS

     The independent directors met in executive sessions without management present at the beginning and end of each meeting of the board of directors as well as at the beginning and end of each committee meeting.

     Interested parties may communicate directly with Mr. J.E. Cleghorn, the chair of both the Corporate Governance and Nominating Committee and the boards of the Registrants, who presided at such executive sessions, by writing to him at the following address, and all communications received at this address will be forwarded to him:

Office of the Corporate Secretary
Canadian Pacific Railway
Suite 920, 401 — 9^th Avenue S.W.
Calgary, Alberta
Canada, T2P 4Z4

AUDIT COMMITTEE FINANCIAL EXPERTS

          The following individuals comprise the current membership of the Registrants’ Audit, Finance and Risk Management Committees (“Audit Committees”), which have been established in accordance with Section 3(a)(58)(A) of the Exchange Act:

Krystyna T. Hoeg
Richard C. Kelly
John P. Manley
Roger Phillips
Michael W. Wright

          Each of the aforementioned directors has been determined by the boards of the Registrants to meet the audit committee financial expert criteria prescribed by the Securities and Exchange Commission and has been designated as an audit committee financial expert for the Audit Committees of the boards of both Registrants. Each of the aforementioned directors has also been determined by the boards of the Registrants to be independent within the criteria referred to above under the subheading “Director Independence”.

          Mr. Manley is designated as an audit committee financial expert based on his experience as a lawyer advising on corporate, commercial and tax matters, his experience as a senior member of the Canadian federal government, including serving as Minister of Finance and as Deputy Chairman of the Treasury Board, and his current experience as a member of the audit committee of the Canadian Imperial Bank of Commerce.

FINANCIAL LITERACY OF AUDIT COMMITTEE MEMBERS

          The boards of the Registrants have determined that all members of the Audit Committees, have “accounting or related financial management expertise” within the meaning of the NYSE Standards. The boards have determined that all members of the Audit Committees are financially literate within the definition contained in, and as required by, Multilateral Instrument 52-110 and the NYSE Standards.

SERVICE ON OTHER PUBLIC COMPANY AUDIT COMMITTEES

          Each Registrant’s board has determined that no director who serves on more than two public company audit committees in addition to its own Audit Committee shall be eligible to serve as a member of the Audit Committee of that Registrant, unless that Registrant’s board determines that such simultaneous service would not impair the ability of such member to effectively serve on that Registrant’s Audit Committee. For purposes of calculating the aggregate number of public company audit committees on which a director serves, each Registrant is counted as a separate public company.

          Krystyna T. Hoeg serves on two public company audit committees, in addition to the Audit Committees of the two Registrants. The boards of the Registrants have determined that the service of Ms. Hoeg on the audit committees of two public companies in addition to the two Registrants does not impair her ability to effectively serve on the Audit Committees of the Registrants, for the following reasons:

	•		Two of the public company audit committees on which Ms. Hoeg serves are the Audit Committees of the Registrants. As Canadian Pacific Railway Company is a wholly-owned subsidiary of Canadian Pacific Railway Limited, and the latter company carries on no business operations and has no assets or liabilities of more than nominal value beyond its 100% shareholding in Canadian Pacific Railway Company, the workload of the Audit Committees is essentially equivalent to the workload of one public company audit committee; and
	•		Ms. Hoeg, is the former chief executive officer of a large public company and the former chief financial officer of a large public company and has been designated as an audit committee financial expert for the Registrants. As a result, she no longer has any day-to-day executive or managerial responsibilities and, in addition, brings to her role on the Audit Committees of the Registrants considerable business experience and a highly-focused and effective approach to audit-related matters.

PRINICIPAL ACCOUNTANT FEES AND SERVICES

          Fees payable to the Registrants’ independent auditor, PricewaterhouseCoopers, LLP for the years ended December 31, 2008, and December 31, 2007, totaled $3,195,200 and $3,433,980, respectively, as detailed in the following table:

		Year ended December 31, 2008				Year ended December 31, 2007
Audit Fees		$	2,044,700			$	2,391,600
Audit-Related Fees		$	808,600			$	619,780
Tax Fees		$	341,900			$	422,600
All Other Fees		$	0			$	0
TOTAL		$	3,195,200			$	3,433,980

The nature of the services provided by PricewaterhouseCoopers LLP under each of the categories indicated in the table is described below.

Audit Fees

Audit fees were for professional services rendered for the audit of the Registrants’ annual financial statements and services provided in connection with statutory and regulatory filings or engagements, including the attestation engagement for the independent auditor’s report on management’s report on internal controls for financial reporting.

Audit-Related Fees

Audit-related fees were for attestation and related services reasonably related to the performance of the audit or review of the annual financial statements, but which are not reported under “Audit Fees” above. These services consisted of: the audit or review of financial statements of certain subsidiaries and of various pension and benefits plans of the Registrants; special attestation services as may be required by various government entities; assistance with preparations for compliance with Section 404 of the Sarbanes-Oxley Act of 2002; due diligence services related to potential business acquisition targets; access fees for technical accounting database resources; and general advice and assistance related to accounting and/or disclosure matters with respect to new and proposed Canadian and US Accounting Guidelines, securities regulations, and/or laws.

Tax Fees

Tax fees were for professional services related to tax compliance, tax planning and tax advice. These services consisted of: tax compliance including the review of tax returns; assistance with questions regarding corporate tax audits; tax planning and advisory services relating to common forms of domestic and international taxation (i.e. income tax, capital tax, goods and services tax, and valued added tax); and access fees for taxation database resources.

All Other Fees

Fees disclosed under this category would be for products and services other than those described under “Audit Fees”, “Audit-Related Fees” and “Tax Fees” above. In both 2008 and 2007, there were no services in this category.

PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS

          The Audit Committee of each Registrant has adopted a written policy governing the pre-approval of audit and non-audit services to be provided to the Registrants by their independent auditors. The policy is reviewed annually and the audit and non-audit services to be provided by their independent auditors, as well as the budgeted amounts for such services, are pre-approved at that time. The Vice-President and Comptroller of the Registrants must submit to the Audit Committee at least quarterly a report of all services performed or to be performed by the independent auditors pursuant to the policy. Any additional audit or non-audit services to be provided by the independent auditors either not included among the pre-approved services or exceeding the budgeted amount for such pre-approved services by more than 10% must be individually pre-approved by the Audit Committee or its Chairman, who must report all such additional pre-approvals to the Audit Committee at its next meeting following the granting thereof. The independent auditors’ annual audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. In addition, prior to the granting of any pre-approval, the Audit Committee or its Chairman, as the case may be, must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. The Chief Internal Auditor for the Registrants monitors compliance with this policy.

OFF-BALANCE SHEET ARRANGEMENTS

          A description of the Registrants’ off-balance sheet arrangements is set forth on page 34 of the Registrants’ 2008 Annual Report incorporated by reference and included herein.

TABLE OF CONTRACTUAL COMMITMENTS

          The table setting forth the Registrants’ contractual commitments is set forth on page 35 of the Registrants’ 2008 Annual Report incorporated by reference and included herein.

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A. Undertaking

          Each Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

B. Consent to Service of Process

          A Form F-X signed by Canadian Pacific Railway Limited and its agent for service of process was filed with the Commission together with Canadian Pacific Railway Limited’s Annual Report on Form 40-F for the fiscal year ended December 31, 2000. A Form F-X/A signed by Canadian Pacific Railway Company and its agent for service of process was filed with the Commission on March 19, 2008 together with Canadian Pacific Railway Company’s Annual Report on Form 40-F for the fiscal year ended December 31, 2007.

SIGNATURES

          Pursuant to the requirements of the Exchange Act, each Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report on Form 40-F to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Calgary, Province of Alberta, Canada.

DOCUMENTS FILED AS PART OF THIS REPORT

1.		Annual Information Form of the Registrant for the year ended December 31, 2008.
2.		Annual Report of the Registrant for the year ended December 31, 2008, including Management’s Discussion and Analysis, Management’s Report on Internal Control over Financial Reporting and the Audited Consolidated Financial Statements of the Registrant as of December 31, 2008 and for each of the three years then ended1.

EXHIBITS

A.		Consent of PricewaterhouseCoopers, Independent Auditors.
B.		Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants filed pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
C.		Certifications by the Chief Executive Officer and Chief Financial Officer of the Registrants furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

2008 Annual Information Form

Table Of Contents

SECTION 1: CORPORATE STRUCTURE
1.1 NAME, ADDRESS AND INCORPORATION INFORMATION			2
SECTION 2: INTERCORPORATE RELATIONSHIPS
2.1 PRINCIPAL SUBSIDIARIES			3
SECTION 3: GENERAL DEVELOPMENT OF THE BUSINESS
3.1 RECENT DEVELOPMENTS			4
SECTION 4: DESCRIPTION OF THE BUSINESS
4.1 OUR BACKGROUND AND NETWORK			5
4.2 STRATEGY			5
4.3 PARTNERSHIPS, ALLIANCES AND NETWORK EFFICIENCY			5
4.4 NETWORK AND RIGHT-OF-WAY			6
4.5 QUARTERLY TRENDS			9
4.6 BUSINESS CATEGORIES			9
4.7 REVENUES			10
4.8 RAILWAY PERFORMANCE			12
4.9 FRANCHISE INVESTMENT			14
4.10 INTEGRATED OPERATING PLAN			14
4.11 INFORMATION TECHNOLOGY			15
4.12 LABOUR PRODUCTIVITY AND EFFICIENCY			16
4.13 BUSINESS RISKS & ENTERPRISE RISK MANAGEMENT			16
4.14 INDEMNIFICATIONS			16
4.15 SAFETY			17
4.16 ENVIRONMENTAL PROTECTION			17
4.17 INSURANCE			18
SECTION 5: DIVIDENDS
5.1 DECLARED DIVIDENDS AND DIVIDEND POLICY			19
SECTION 6: CAPITAL STRUCTURE
6.1 DESCRIPTION OF CAPITAL STRUCTURE			20
6.2 SECURITY RATINGS			21
SECTION 7: MARKET FOR SECURITIES
7.1 STOCK EXCHANGE LISTINGS			23
7.2 TRADING PRICE AND VOLUME			23
SECTION 8: DIRECTORS AND OFFICERS
8.1 DIRECTORS			24
8.2 CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS			25
8.3 SENIOR OFFICERS			26
8.4 SHAREHOLDINGS OF DIRECTORS AND OFFICERS			27
8.5 ANNOUNCEMENTS			27
SECTION 9: LEGAL PROCEEDINGS			28
SECTION 10: TRANSFER AGENTS
10.1 TRANSFER AGENT			29
SECTION 11: INTERESTS OF EXPERTS			30
SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE
12.1 COMPOSITION OF THE AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE AND RELEVANT EDUCATION AND EXPERIENCE			31
12.2 PRE-APPROVAL OF POLICIES AND PROCEDURES			31
12.3 AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE CHARTER			32
12.4 AUDIT AND NON-AUDIT FEES AND SERVICES			37
SECTION 13: ADDITIONAL INFORMATION
13.1 ADDITIONAL COMPANY INFORMATION			39

All dollar amounts in this Annual Information Form (“AIF”) are in Canadian dollars, unless otherwise noted.

February 23, 2009

SECTION 1: CORPORATE STRUCTURE

In this AIF, “our”, “us”, “we”, “CP” and “the Company” refer to Canadian Pacific Railway Limited (“CPRL”), CPRL and its subsidiaries, CPRL and one or more of its subsidiaries, or one or more of CPRL’s subsidiaries, as the context may require.

1.1 Name, Address and Incorporation Information

Canadian Pacific Railway Limited was incorporated on June 22, 2001, as 3913732 Canada Inc. pursuant to the Canada Business Corporations Act (“the CBCA”). On July 20, 2001, CP amended its Articles of Incorporation to change its name to Canadian Pacific Railway Limited. On October 1, 2001, Canadian Pacific Limited (“CPL”) completed an arrangement (“the Arrangement”) whereby it distributed to its common shareholders all of the shares of newly formed corporations holding the assets of four of CPL’s five primary operating divisions. The transfer of Canadian Pacific Railway Company (“CPRC”), previously a wholly owned subsidiary of CPL, to CPRL was accomplished as part of a series of steps, pursuant to the terms of the Arrangement. The Arrangement was effected as an arrangement pursuant to section 192 of the CBCA.

Our registered office, executive offices and principal place of business are located at Suite 500, 401 — 9th Avenue S.W., Calgary, Alberta T2P 4Z4.

SECTION 2: INTERCORPORATE RELATIONSHIPS

2.1 Principal Subsidiaries

The table below sets out our principal subsidiaries, including the jurisdiction of incorporation and the percentage of voting and non-voting securities we currently own directly or indirectly:

						Percentage of
						Non-Voting
						Securities
				Percentage of Voting		Beneficially Owned,
				Securities Held		or over which
		Incorporated under		Directly or		Control or Direction
Principal Subsidiary(1)		the Laws of		Indirectly		is Exercised
Canadian Pacific Railway Company		Canada		100%		Not applicable
Soo Line Corporation (2)		Minnesota		100%		Not applicable
Soo Line Railroad Company (3)		Minnesota		100%		Not applicable
Dakota, Minnesota & Eastern Railroad Corporation (4)		Delaware		100%		Not applicable
Delaware and Hudson Railway Company, Inc. (2)		Delaware		100%		Not applicable
Mount Stephen Properties Inc.(5)		Canada		100%		Not applicable

(1)		This table does not include all of our subsidiaries. The assets and revenues of unnamed subsidiaries did not exceed 10% of the total consolidated assets or total consolidated revenues of CP individually, or 20% of the total consolidated assets or total consolidated revenues of CP in aggregate.
(2)		Indirect wholly owned subsidiary of Canadian Pacific Railway Company.
(3)		Wholly owned subsidiary of Soo Line Corporation.
(4)		Indirect wholly owned subsidiary of the Soo Line Corporation.
(5)		Wholly owned subsidiary of Canadian Pacific Railway Company.

Dakota, Minnesota & Eastern Railroad Corporation (“DM&E”) was acquired in October 2007 and is indirectly wholly owned by Soo Line Corporation. The US Surface Transportation Board (“STB”) approved the application to acquire control on September 30, 2008. The official effective date of the final decision was October 30, 2008.

SECTION 3: GENERAL DEVELOPMENT OF THE BUSINESS

3.1 Recent Developments

We continually seek to grow the value and scale of our core business through infrastructure-sharing and joint-service programs with other railways, strategic capital investment programs, strategic additions and operating plan strategies. Combined with the ongoing improvement of our locomotive fleet, these strategies facilitate more predictable and fluid train operations between major terminals.

The Company assumed control of DM&E on October 30, 2008 following approval of its acquisition of DM&E by the STB. The addition of DM&E extended CP’s reach and increased its rail network, added new customers and expanded the service available to customers of both DM&E and CP. DM&E connects with CP at Minneapolis, Winona (Minnesota) and Chicago, and connects and interchanges traffic with all Class I railways. DM&E has approximately 1,000 employees, 2,500 miles of track, including 500 miles of trackage rights, and rolling stock that includes approximately 8,200 rail cars and 165 locomotives. DM&E serves eight states: Illinois, Minnesota, Iowa, Wisconsin, Missouri, South Dakota, Wyoming and Nebraska. DM&E’s freight revenues are derived principally from transporting grain, industrial products, and coal. DM&E has the option, but not the obligation, to construct a railway line into the Powder River Basin (“PRB”) located in Wyoming, the largest thermal coal producing region in the United States. No decision will be made by the Company on whether to construct a line of railway into the PRB until certain milestones have been met.

During the first half of 2007, we announced our intention to assemble a rail corridor to access the Alberta Industrial Heartland northeast of Edmonton that serves the Alberta oilsands development. During 2008, the Company filed its application with the Canadian Transportation Agency to initiate the regulatory permitting process for construction of the rail corridor.

In May 2006, we completed the sale of our 92.3-mile Latta subdivision in Indiana between Bedford and Fayette, near Terre Haute, to Indiana Rail Road Company. The sale, which closed in the second quarter of 2006, included trackage rights over CSX Corporation (“CSX”) rail lines from Chicago, Illinois, to Terre Haute, Indiana, and from Bedford to New Albany in Indiana, and over the Norfolk Southern Corporation (“NS”) line from New Albany to Louisville, Kentucky.

In January 2006, CP and Canadian National Railway Company (“CN”) entered into an agreement, which assists in the optimization of railway infrastructure in the lower mainland of British Columbia (“B.C.”). Under the arrangement, CP is to operate the trains of both railways using CP crews from Boston Bar, B.C. to the terminals on the south shore of the Burrard Inlet in Vancouver, and return to North Bend, B.C. CN is to operate the trains of both railways using CN crews from Boston Bar to the terminals on the north shore of the Burrard Inlet and return to North Bend. CP is to provide all switching on the south shore of the Burrard Inlet, with the exception of the Burlington Northern Santa Fe Railway (“BNSF”) barge slip, and CN is to provide all switching on the north shore of the Burrard Inlet. In addition, CP is to operate some CN trains to or from the Roberts Bank port at Delta, B.C.

In mid 2008, CP commenced a review of opportunities to accelerate the realization of benefits achievable from operating plan efficiency improvements. Known as “Execution Excellence for Efficiency” (or “E3”), this initiative is intended to identify opportunities to reduce costs and improve product reliability. Train productivity, asset utilization, yard and terminal operations, maintenance and product reliability have been the focus of this review.

In late 2008, the product design and yield teams were grouped together in the “Strategy & Yield” department, with the objective of further enhancing margins. This combined group will provide network capability in an effort to optimize demand, product offering, equipment and track utilization. The development of this coordinated approach to yield and operations planning is a key element of the larger Strategy & Yield mandate to coordinate CP’s strategy, yield, product design, interline, business development and network capacity functions.

SECTION 4: DESCRIPTION OF THE BUSINESS

4.1 Our Background and Network

CPRC was incorporated by Letters Patent in 1881 pursuant to an Act of the Parliament of Canada. CPRC is one of Canada’s oldest corporations and was North America’s first transcontinental railway. From our inception 128 years ago, we have developed into a fully integrated and technologically advanced Class I railway (a railroad earning a minimum of US$319.3 million in revenues annually) providing rail and intermodal freight transportation services over a 15,500-mile network serving the principal business centres of Canada, from Montreal, Quebec, to Vancouver, B.C., and the US Midwest and Northeast regions.

We own approximately 10,800 miles of track. An additional 4,700 miles of track are owned jointly, leased or operated under trackage rights. Of the total mileage operated, approximately 6,300 miles are located in western Canada, 2,200 miles in eastern Canada, 5,800 miles in the US Midwest and 1,200 miles in the US Northeast. Our business is based on funnelling railway traffic from feeder lines and connectors, including secondary and branch lines, onto our high-density mainline railway network. We have extended our network reach by establishing alliances and connections with other major Class I railways in North America, which allow us to provide competitive services and access to markets across North America beyond our own rail network. We also provide service to markets in Europe and the Pacific Rim through direct access to the Port of Montreal, Quebec, and the Port of Vancouver, B.C., respectively.

Our network accesses the US market directly through three wholly owned subsidiaries: Soo Line Railroad Company (“Soo Line”), a Class I railway operating in the US Midwest; the Delaware and Hudson Railway Company, Inc. (“D&H”), which operates between eastern Canada and major US Northeast markets, including New York City, New York; Philadelphia, Pennsylvania; and Washington, D.C., and DM&E, which operates in the US Midwest.

4.2 Strategy

Our vision is to become the safest and most fluid railway in North America. Through the ingenuity of our people, it is our objective to create long-term value for customers, shareholders and employees by profitably growing within the reach of our rail franchise and through strategic additions. 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, intermodal and merchandise 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 Integrated Operating Plan (“IOP”) and driving more value from existing assets and resources by improving “fluidity”; 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.

4.3 Partnerships, Alliances and Network Efficiency

Some customers’ goods may have to travel on more than one railway to reach their final destination. The transfer of goods between railways can cause delays and service interruptions. Our rail network connects to other North American rail carriers and, through partnerships, we continue to co-develop processes and products designed to provide seamless and efficient scheduled train service to these customers.

We continue to increase the capacity and efficiency of our core franchise through infrastructure-sharing and joint-service programs with other railways and third parties, strategic capital investment programs, and operating plan strategies. Combined with the continued improvement of our locomotive fleet, these strategies enable us to achieve more predictable and fluid train operations between major terminals.

SECTION 4: DESCRIPTION OF THE BUSINESS

Over the past few years Class I railway initiatives have included:

	•		a CP-CN directional running agreement over about 100 miles of parallel CP and CN track in Ontario between Waterfall (near Sudbury) and Parry Sound. The trains of both railways operate eastbound over CN’s line and westbound over our line;
	•		a CP-CN haulage agreement under which we transport CN freight over about 300 miles of CP track in Ontario between Thunder Bay and Franz;
	•		CP-CN initiatives in the Port of Vancouver Terminal and B.C. Lower Mainland;
	•		CP-CN directional running operations in the B.C. Fraser Canyon;
	•		a CP-NS trackage rights agreement to handle NS traffic over our D&H lines in the US Northeast; and
	•		a CP-NS track connection at Detroit, Michigan that provides service between eastern Canada and the US Midwest.

We also develop mutually beneficial arrangements with smaller railways, including shortline and regional carriers.

4.4 Network and Right-of-Way

Our 15,500-mile network extends from the Port of Vancouver on Canada’s Pacific Coast to the Port of Montreal in eastern Canada, and to the US industrial centres of Chicago, Illinois; Newark, New Jersey; Philadelphia, Pennsylvania; New York City and Buffalo, New York; and Kansas City, Missouri.

Our network is composed of four primary corridors (Western, Southern, Central, and Eastern) and the DM&E. These corridors with the DM&E are comprised of main lines, totalling approximately 4,700 miles, supported by secondary and branch rail lines (“feeder lines”) that carry traffic to and from the main lines.

4.4.1 The Western Corridor: Vancouver-Moose Jaw

Overview — The Western Corridor links Vancouver with Moose Jaw, which is the western Canadian terminus of our Southern and Central corridors. With service through Calgary, the Western Corridor is an important part of our routes between Vancouver and the US Midwest, and between Vancouver and central and eastern Canada.

Products — The Western Corridor is our primary route for bulk and resource products traffic from western Canada to the Port of Vancouver for export. We also handle significant volumes of international intermodal containers and domestic general merchandise traffic.

Feeder Lines — We support our Western Corridor with three significant feeder lines: the “Coal Route”, which links southeastern B.C. coal deposits to the Western Corridor and to the Roberts Bank terminal at the Port of Vancouver; the “Calgary-Edmonton-Scotford Route”, which provides rail access to central Alberta’s petrochemical industries and natural resources markets; and the “Pacific CanAm Route”, which connects Calgary and Medicine Hat, Alberta, with Union Pacific Railroad Company (“UP”) at Kingsgate, B.C.

SECTION 4: DESCRIPTION OF THE BUSINESS

Connections — Our Western Corridor connects with UP at Kingsgate and with BNSF at Coutts, Alberta, and at New Westminster and Huntingdon in B.C. This corridor also connects with CN at Red Deer and Camrose, Calgary; Edmonton; Alberta; Kamloops, B.C.; and several locations in the Greater Vancouver Area.

Yards and Repair Facilities — We support rail operations on the Western Corridor with main rail yards at Vancouver, Calgary, Edmonton and Moose Jaw. We also have major intermodal terminals at Vancouver, Calgary and Edmonton, and locomotive and rail car repair facilities at Golden, B.C., Vancouver, Calgary and Moose Jaw.

4.4.2 The Southern Corridor: Moose Jaw-Chicago

Overview — The Southern Corridor connects with the Western Corridor at Moose Jaw. By running south to Chicago through the twin cities of Minneapolis and St. Paul in Minnesota, and through Milwaukee, Wisconsin, we provide a direct, single-carrier route between western Canada and the US Midwest.

Products — Primary traffic categories transported on the Southern Corridor include intermodal containers from the Port of Vancouver, fertilizers, chemicals, grain, coal, and automotive and other agricultural products.

Feeder Lines — We support the Southern Corridor with a major feeder line connecting Glenwood, Minnesota and Winnipeg, Manitoba. This line is both a gathering network for US grain and a route for Canadian fertilizers and merchandise traffic destined to the US.

We have operating rights over the BNSF line between Minneapolis and the twin ports of Duluth, Minnesota and Superior, Wisconsin. This line provides an outlet for grain from the US Midwest to the grain terminals at these ports.

Prior to the second half of 2006, we provided service on a route from Chicago to Louisville, Kentucky, through a combination of operating rights and owned lines. General merchandise traffic and a significant amount of coal traffic from mines in southern Indiana move over this route, which was sold to Indiana Rail Road Company in the second quarter of 2006 (discussed further in Section 3.1).

Connections — Our Southern Corridor connects with all major railways at Chicago. Outside of Chicago, we have major connections with BNSF at Minneapolis and at Minot, North Dakota and with UP at St. Paul. We connect with CN at Minneapolis, Milwaukee and Chicago. Our Southern Corridor also links to several shortline railways that primarily serve grain and coal producing areas in the US.

Yards and Repair Facilities — We support rail operations on the Southern Corridor with main rail yards in Chicago, St. Paul and Glenwood. We own 49% of the Indiana Harbor Belt Railroad Company, a switching railway serving Greater Chicago and northwest Indiana, and have two major intermodal terminals in Chicago and one in Minneapolis. In addition, we have a major locomotive repair facility at St. Paul and car repair facilities at St. Paul and Chicago.

4.4.3 The Central Corridor: Moose Jaw-Toronto

Overview — The Central Corridor extends from Moose Jaw through Winnipeg to its eastern terminus at Toronto. We complement the Central Corridor with a secondary route in Ontario that is leased and operated by Ottawa Valley Railway. This secondary route connects Sudbury and Smiths Falls, Ontario, and expedites the movement of our traffic between Montreal and western Canada. Our Central Corridor provides shippers direct rail service from Toronto and Montreal to Calgary and Vancouver via our Western Corridor. This is a key element of our transcontinental intermodal and other services. The Central Corridor also provides access to the Port of Thunder Bay, Ontario, Canada’s primary Great Lakes bulk terminal.

Products — Major traffic categories transported in the Central Corridor include Canadian grain, coal, forest and industrial and consumer products, intermodal containers, automotive products and general merchandise.

Feeder Lines — We support the Central Corridor with a main feeder line connecting Edmonton with Winnipeg, through Saskatoon in Saskatchewan. This line is an important collector of Canadian grain and fertilizer.

Connections — The Central Corridor connects with BNSF at Emerson, Manitoba, and with a number of shortline railways. Connections are also made with the CN at a number of locations, including Regina, Saskatoon, Winnipeg, Thunder Bay and Sudbury.

SECTION 4: DESCRIPTION OF THE BUSINESS

Yards and Repair Facilities — We support our rail operations in the Central Corridor with major rail yards at Saskatoon, Winnipeg, Toronto and Thunder Bay. Our largest intermodal facility is located in the northern Toronto suburb of Vaughan and serves the Greater Toronto and southwestern Ontario areas. We also operate intermodal terminals at Thunder Bay, Winnipeg, Saskatoon and Regina.

We have major locomotive repair facilities at Winnipeg and Toronto and car repair facilities at Winnipeg, Thunder Bay and Toronto.

4.4.4 The Eastern Corridor

Overview — The Eastern Corridor provides an important link between the major population centres of eastern Canada, the US Midwest and the US Northeast. The corridor supports our market position at the Port of Montreal by providing one of the shortest rail routes for European cargo destined to the US Midwest. The Eastern Corridor consists of a route between Montreal and Detroit, which we own and maintain, coupled with a trackage rights arrangement on NS track between Detroit and Chicago and a long-term rail car haulage contract with CSX that links Detroit with our lines in Chicago.

Products — Major traffic categories transported in the Eastern Corridor include intermodal containers, automotive, forest, and industrial and consumer products, as well as truck trailers moving in drive-on/drive-off Expressway service between Montreal and Toronto.

Feeder Lines — The Eastern Corridor connects with important feeder lines. Our route between Montreal and Sunbury, Pennsylvania, in combination with trackage rights over other railways, provides us with direct access to New York City and Albany, New York; Philadelphia, Pennsylvania; Newark, New Jersey and Washington, D.C.. The line between Guelph Junction, Ontario and Binghamton, including haulage rights over NS lines, links industrial southern Ontario with key US connecting rail carriers at Buffalo and with the Montreal-to-Sunbury line at Binghamton.

Connections — The Eastern Corridor connects with all major railways at Chicago. We also have major connections with NS at Detroit, Buffalo and at Harrisburg and Allentown in Pennsylvania, and with CSX at Detroit, Buffalo, Albany, Philadelphia and Washington D.C.. In addition, our eastern corridor connects with CN at Montreal and at Toronto, Windsor and London in Ontario.

Yards and Repair Facilities — We support our Eastern Corridor with major rail yards and terminals in Chicago, Toronto, Montreal and Binghamton. There are also intermodal facilities in Montreal and Detroit, as well as a second intermodal facility in Toronto dedicated to serving the Eastern Corridor. Terminals for our Expressway service are located in Montreal and at Milton and Agincourt in the Greater Toronto area. We have locomotive and car repair facilities in Montreal and Binghamton, in addition to car repair facilities in Chicago and locomotive and car repair facilities in Toronto.

4.4.5 The Dakota, Minnesota & Eastern Railroad Corporation

Overview — The DM&E is a Class II railroad with approximately 2,500 miles of track, including approximately 500 miles of trackage rights, in the US midwest and primary customers in agri-products and merchandise. DM&E has connections to and traffic interchanges with all seven Class I railroads and is proximate to the PRB located in Wyoming, the largest thermal coal producing region in the United States.

Products — Primary traffic categories transported on the DM&E include industrial and consumer products, grain, coal, fertilizers and forest products.

Feeder Lines — The acquisition of the DM&E provides a strategic end-to-end network fit that will extend CP’s network reach and increase operational efficiency. The DM&E connects with the Southern Corridor at Minneapolis, Winona, Minnesota and Chicago. The railway operates in eight states and has direct access to Chicago, Minneapolis, Kansas City (Missouri), and to critical water ports.

Connections — The DM&E has the ability to interchange with all of the seven Class I railroads operating in the United States. The east portion of the line provides additional access to Chicago where as the south portion of the rail extends to Kansas City. The DM&E is also located favourably to the PRB.

SECTION 4: DESCRIPTION OF THE BUSINESS

Yards and Repair Facilities — We support our rail operations of the DM&E with major rail yards and locomotive repair shops in Mason City, Iowa; Nahant, Iowa; and Huron, South Dakota.

4.4.6 Right-of-Way

Our rail network is standard gauge, which is used by all major railways in Canada, the US and Mexico. Continuous welded rail is used on almost all of our mainline.

We use different train control systems on portions of our owned track, depending on the volume of rail traffic. Remotely controlled centralized traffic control signals are used to authorize the movement of trains where traffic is heaviest.

Where rail traffic is lightest, train movements are directed by written instructions transmitted electronically and by radio from rail traffic controllers to train crews. In areas of intermediate traffic density, we use an automatic block signalling system in conjunction with written instructions from rail traffic controllers.

4.5 Quarterly Trends

Volumes of and, therefore, revenues from certain goods are stronger during different periods of the year. First-quarter revenues can be lower mainly due to winter weather conditions, closure of the Great Lakes ports and reduced transportation of retail goods. Second- and third-quarter revenues generally improve over the first quarter as fertilizer volumes are typically highest during the second quarter and demand for construction-related goods is generally highest in the third quarter. Revenues are typically strongest in the fourth quarter, primarily as a result of the transportation of grain after the harvest, fall fertilizer programs and increased demand for retail goods moved by rail. Operating income is also affected by seasonal fluctuations. Operating income is typically lowest in the first quarter due to higher operating costs associated with winter conditions. Net income is also influenced by seasonal fluctuations in customer demand and weather-related issues.

4.6 Business Categories

The following table compares the percentage of our total freight revenue derived from each of our major business lines in 2008 compared with 2007:

Business Category(1)		2008				2007
Bulk			43	%			44	%
Merchandise			28	%			27	%
Intermodal			29	%			29	%

(1) Figures include DM&E from October 30, 2008 to December 31, 2008.

SECTION 4: DESCRIPTION OF THE BUSINESS

4.7 Revenues

The following table summarizes our annual freight revenues since 2006:

Freight Revenues						Fiscal 2008								Fiscal 2007
(in $ millions, except for percentages)						Growth								Growth
		Fiscal				Rate as				Fiscal				Rate as				Fiscal
		2008(1)				Compared				2007				Compared				2006
						to Fiscal								to Fiscal
Business Category						2007								2006
Bulk
Grain			970				3.3	%			939				3.8	%			905
Coal			607				5.9	%			573				(3.1	)%			592
Sulphur and fertilizers			509				1.3	%			502				14.3	%			439
Total bulk			2,086				3.6	%			2,014				4.0	%			1,936
Merchandise
Forest products			239				(13.2	)%			276				(12.8	)%			316
Industrial and consumer products			766				22.0	%			628				4.0	%			604
Automotive			324				1.4	%			319				1.5	%			314
Total merchandise			1,329				8.7	%			1,223				(0.9	)%			1,234
Intermodal			1,400				6.2	%			1,318				4.9	%			1,257
Total freight revenues			4,815				5.7	%			4,555				2.9	%			4,427

(1) Revenues include DM&E from October 30, 2008 to December 31, 2008.

4.7.1 Bulk

Our bulk business represented approximately 43% of total freight revenues in 2008.

4.7.1.1 Grain

Our grain business accounted for approximately 20% of total freight revenues in 2008.

Grain transported by CP consists of both whole grains, including wheat, corn, soybeans and canola, and processed products, such as canola meal, vegetable oil and flour.

Our grain business is centred in two key agricultural areas: the Canadian prairies (Alberta, Saskatchewan and Manitoba) and the states of North Dakota, Minnesota, Iowa and South Dakota. Western Canadian grain is shipped primarily west to the Port of Vancouver and east to the Port of Thunder Bay for export. Grain is also shipped to the US Midwest and to eastern Canada for domestic consumption. US-originated export grain traffic is shipped to ports at Duluth and Superior. In partnership with other railways, we also move grain to export terminals in the US Pacific Northwest and the Gulf of Mexico. Grain destined for domestic consumption moves east via Chicago to the US Northeast or is interchanged with other carriers to the US Southeast, Pacific Northwest and California markets.

Railway rates for the movement of export grain from western Canada are subject to legislative provisions. These provisions apply to defined commodities and origin/destination pairings set out in the Canada Transportation Act (“CTA”). The revenue formula included in the CTA is indexed annually to reflect changes in the input costs associated with transporting grain destined for export markets. For additional information, refer to Section 21.5.1 of our 2008 Management’s Discussion and Analysis (“MD&A”), which is available on SEDAR at www.sedar.com in Canada, on EDGAR at www.sec.gov in the US and on our website at www.cpr.ca.

4.7.1.2 Coal

Our coal business represented approximately 13% of total freight revenues in 2008.

We handle mostly metallurgical coal destined for export through the Port of Vancouver for use in the steel-making process in the Pacific Rim, Europe and South America.

SECTION 4: DESCRIPTION OF THE BUSINESS

Our Canadian coal traffic originates mainly from mines in southeastern B.C.. They are considered to be among the most productive, highest-quality metallurgical coal mines in the world. We move coal west from these mines to port terminals for export to world markets, the US for midwest markets, and east for consumption in steel-making mills along the Great Lakes.

In the US, we move primarily thermal coal from the PRB, which is interchanged to us from other carriers, for use in power-generating plants. Our US coal business also includes petroleum coke shipments to power-generating facilities.

4.7.1.3 Sulphur and Fertilizers

Sulphur and fertilizers business represented approximately 10% of total freight revenues in 2008.

Sulphur
Most sulphur produced in Alberta is a by-product of processing sour natural gas, refining crude oil and upgrading bitumen produced in the Alberta oil sands. Sulphur is a raw material used primarily in the manufacturing of sulphuric acid, which is used most extensively in the production of phosphate fertilizers, and demand for elemental sulphur rises with demand for fertilizers. Sulphuric acid is also a key ingredient in industrial processes ranging from smelting and nickel leaching to paper production.

Alberta’s oil and gas industry produces more than eight million tonnes of sulphur annually. We transport approximately half of the sulphur that enters international markets from Canada and we are the leading transporter of formed sulphur shipped from gas plants in southern Alberta to the Port of Vancouver. The two largest shipping points in southern Alberta are Shantz and Waterton and both are located on our rail lines. Currently, our export traffic is destined mainly to China, Australia and the US. In addition, we transport liquid sulphur from Scotford, Alberta, site of one of the largest refineries in the Edmonton area, and from other origins to the southeastern and northwestern US for use in the fertilizer industry.

Fertilizers
Fertilizers traffic consists primarily of potash and chemical fertilizers. Our potash traffic moves mainly from Saskatchewan to offshore markets through the ports of Vancouver, Thunder Bay and Portland, Oregon and to markets in the US. Chemical fertilizers are transported to markets in Canada and the northwestern US from key production areas in the Canadian prairies. Phosphate fertilizer is also transported from US and Canadian producers to markets in Canada and the northern US.

We provide transportation services from major potash and nitrogen production facilities in western Canada and have efficient routes to the major US markets. We also have direct service to key fertilizer distribution terminals, such as the barge facilities on the Mississippi River system at Minneapolis-St. Paul, as well as access to Great Lakes vessels at Thunder Bay.

4.7.2 Merchandise

Our merchandise business represented approximately 28% of total freight revenues in 2008.

Merchandise products move in trains of mixed freight and in a variety of car types and service involves delivering products to many different customers and destinations. In addition to traditional rail service, we move merchandise traffic through a network of truck-rail transload facilities and provide logistics services.

4.7.2.1 Forest Products

Our forest products business represented approximately 5% of total freight revenues in 2008.

Forest products traffic includes wood pulp, paper, paperboard, newsprint, lumber, panel and Oriented Strand Board shipped from key producing areas in B.C., northern Alberta, northern Saskatchewan, Ontario and Quebec to destinations throughout North America.

4.7.2.2 Industrial and Consumer Products

Our industrial and consumer products business represented approximately 16% of total freight revenues in 2008.

Industrial and consumer products traffic includes an array of commodities grouped as plastics, aggregates, minerals, carload food products, metals, steel, chemicals and energy-related products.

Our industrial and consumer products traffic is widely dispersed throughout North America, with large bases in Alberta, Ontario, Quebec and the US Midwest. The location of mines, steel mills and aggregate facilities adjacent to our rail lines provides for the

SECTION 4: DESCRIPTION OF THE BUSINESS

convenient shipment of a diverse group of industrial products for a wide range of customers. We transport products to destinations throughout North America, including to and from ports. We also participate in the movement of products from the US to Canadian destinations, including chemicals originating in and around the Gulf Coast and destined to points in eastern Canada.

4.7.2.3 Automotive

Our automotive business represented approximately 7% of total freight revenues in 2008.

Automotive traffic includes domestic, import and pre-owned vehicles as well as automotive parts. We transport finished vehicles from US and Canadian assembly plants to the Canadian marketplace, and to other markets throughout North America via major interchanges at Detroit, Chicago and Buffalo. We also move imported vehicles to retail markets in Canada and the US Midwest. A comprehensive network of automotive compounds is utilized to facilitate final delivery of vehicles to dealers throughout Canada, in Minnesota, and in the US.

4.7.3 Intermodal

Our intermodal business accounted for approximately 29% of total freight revenues in 2008.

Domestic intermodal freight consists primarily of manufactured consumer products moving in containers. International intermodal freight moves in marine containers between ports and North American inland markets.

Domestic Intermodal
Our domestic intermodal segment consists primarily of long-haul intra-Canada and cross-border business. Key service factors in domestic intermodal include consistent on-time delivery, the ability to provide door-to-door service and the availability of value-added services. The majority of our domestic intermodal business originates in Canada where we market our services directly to retailers, providing complete door-to-door service and maintaining direct relationships with our customers. In the US, our service is delivered mainly through wholesalers.

International Intermodal
Our international intermodal business consists primarily of containerized traffic moving between the ports of Vancouver, Montreal, New York and Philadelphia and inland points across Canada and the US.

We are a major carrier of containers moving via the ports of Montreal and Vancouver. Import traffic from the Port of Vancouver is mainly long-haul business destined for eastern Canada and the US Midwest and Northeast, and our trans-Pacific service offers the shortest route between the Port of Vancouver and Chicago. We work closely with the Port of Montreal, a major year-round East Coast gateway to Europe, to serve markets primarily in Canada and the US Midwest. Our US Northeast service connects eastern Canada with the ports of Philadelphia and New York, offering a competitive alternative to trucks.

Recent investments in terminals and track infrastructure as well as operating and service initiatives have enhanced our strategic position for future growth.

4.7.4 Other Business

We earn additional revenues through the sale and lease of assets. Other arrangements include infrastructure and operating agreements with government-sponsored commuter rail authorities and contracts with passenger service operators.

4.7.5 Significant Customers

At December 31, 2008, one customer comprised 11.3% of total revenues and 1.5% of total accounts receivable. At December 31, 2007 and 2006, the same customer comprised 11.5% and 11.5% of total revenues and 6.2% and 5.6% of total accounts receivable, respectively.

4.8 Railway Performance

We focus on safety, franchise investment, increasing network efficiency and improving asset utilization, train operations productivity and labour productivity. The following table summarizes the effect of these strategies based on industry-recognized performance indicators:

4.8.1 Performance Indicators

		Year Ended December 31
Performance Indicators(1)(2)		2008				2007				2006				2005				2004
Consolidated Data Including DM&E(3)
Efficiency and other indicators
Gross ton-miles (GTM) (millions)(4)			239,619				246,322				236,405				242,100				236,451
US gallons of locomotive fuel per 1,000 GTMs — freight and yard(5)			1.22				1.21				1.20				1.18				1.20
Terminal dwell (hours)(6)			22.3				22.2				20.8				25.8				24.9
Number of active employees — end of period(7)			15,783				15,382				15,327				16,295				15,637
Freight revenue per RTM (cents)(8)			3.87				3.52				3.60				3.40				3.06
CP Data excluding DM&E
Efficiency and other indicators
Car miles per car day(9)			143.6				142.3				137.3				124.0				119.0
Average train speed (miles per hour)(10)			24.0				23.2				24.8				22.0				22.7
Safety indicators
FRA personal injuries per 200,000 employee-hours(11)			1.47				2.09				2.00				2.38				2.75
FRA train accidents per million train-miles(12)			1.87				2.05				1.56				2.26				2.12
DM&E Data only
FRA personal injuries per 200,000 employee-hours(3)			3.53				—				—				—				—
FRA train accidents per million train-miles(12)			7.81				—				—				—				—

(1)		Revenue ton-miles (“RTM”) (millions), GTMs per average active employee (thousands), and GTMs per mile of road operated, excluding track on which CP has haulage rights (thousands) are no longer reported.
(2)		Certain prior period figures have been updated to reflect new information.
(3)		The 2008 figures include the results of DM&E from October 30, 2008 to December 31, 2008, except where noted.
(4)		GTMs of freight measure the movement of total train weight over a distance of one mile. (Total train weight is comprised of the weight of the freight cars, their contents and any inactive locomotives.)
(5)		US gallons of locomotive fuel per 1,000 GTMs — freight and yard measures the total fuel consumed in freight and yard operations for every 1,000 GTMs traveled. This is calculated by dividing the total amount of fuel issued to our locomotives, excluding commuter and non-freight activities, by the total freight-related GTMs. The result indicates how efficiently we are using fuel.
(6)		Terminal dwell (hours) measures the average time a freight car resides at a specified terminal location. The timing starts with a train arriving in the terminal, a customer releasing the car to us, or a car arriving that is to be transferred to another railway. The timing ends when the train leaves, a customer receives the car from us or the freight car is transferred to another railway. Freight cars are excluded if: i) a train is moving through the terminal without stopping; ii) they are being stored at the terminal; iii) they are in need of repair; or iv) they are used in track repairs.
(7)		The number of actively employed workers during the last month of the period. This includes employees who are taking vacation and statutory holidays and other forms of short-term paid leave, and excludes individuals who have a continuing employment relationship with us but are not currently working.
(8)		Freight revenue per RTM (cents) measures the amount of freight revenue earned for every RTM moved, calculated by dividing the total freight revenue by the total RTMs in the period.
(9)		The total car-miles for a period divided by the total number of active cars. Total car-miles includes the distance travelled by every car on a revenue-producing train and a train used in or around our yards. A car-day is assumed to equal one active car. An active car is a revenue-producing car that is generating costs to CP on an hourly or mileage basis. Excluded from this count are i) cars that are not on the track or are being stored; ii) cars that are in need of repair; iii) cars that are used to carry materials for track repair; iv) cars owned by customers that are on the customer’s tracks; and v) cars that are idle and waiting to be reclaimed by CP.
(10)		The average train speed measures average speed attained as a train travels between terminals, calculated by dividing the total train miles traveled by the total hours operated. This calculation does not include the travel time or the distance traveled by: i) trains used in or around CP’s yards; ii) passenger trains; and iii) trains used for repairing track. The calculation also does not include the time trains spend waiting in terminals.
(11)		US Federal Railroad Administration (“FRA”) personal injuries per 200,000 employee-hours measures the number of personal injuries, multiplied by 200,000 and divided by total employee-hours. Personal injuries are defined as injuries that require employees to lose time away from work, modify their normal duties or obtain medical treatment beyond minor first aid. Employee-hours are the total hours worked, excluding vacation and sick time, by all employees, excluding contractors.

SECTION 4: DESCRIPTION OF THE BUSINESS

(12)		FRA train accidents per million train-miles measures the number of train accidents, multiplied by 1,000,000 and divided by total train-miles. Train accidents included in this metric meet or exceed the FRA reporting threshold of US$8,900 in damage.

4.9 Franchise Investment

Franchise investment is an integral part of our multi-year capital program and supports our growth initiatives. Our annual capital program typically includes investments in track and facilities (including rail yards and intermodal terminals); locomotives; information technology; and freight cars and other equipment. On an accrual basis, we invested approximately $2.7 billion in our core assets from 2006 to 2008, with annual capital spending over this period averaging approximately 19% of revenues. This included approximately $1.8 billion invested in track and facilities, $0.4 billion in locomotives, $0.2 billion in information technology and $0.4 billion in freight cars and other equipment. Our cash outlay for locomotives over the same period, however, was $0.2 billion as CP financed the 2008 tranche of acquisitions through a capital lease resulting in a net cash investment of $2.6 billion or 18% of revenues.

4.9.1 Locomotive Fleet

We continue to upgrade our locomotive fleet by acquiring high-adhesion alternating current (“AC”) locomotives, which are more fuel efficient and reliable and have superior hauling capacity compared with standard direct current (“DC”) locomotives. Our locomotive fleet now includes 732 AC locomotives (excluding DM&E). While AC locomotives represent approximately 67% of our road-freight locomotive fleet, they handle about 86% of our workload (excluding DM&E). Our investment in AC locomotives has helped to improve service reliability and generate cost savings in fuel, equipment rents and maintenance. It has also allowed us to remove from service 81 (51-Road, 30-Yard) older less-efficient locomotives and to more efficiently utilize our repair and maintenance facilities.

Following is a synopsis of our owned and leased locomotive fleet:

Number of Locomotives (owned and leased — excluding DM&E)

		Road Freight								Road				Yard
Age in Years		AC				DC				Switcher				Switcher				Total
0-5			310				—				2				—				312
6-10			238				—				—				—				238
11-15			184				—				—				—				184
16-20			—				67				—				—				67
Over 20			—				292				269				229				790
Total			732				359				271				229				1,591

4.9.2 Railcar Fleet

We own, lease or manage approximately 47,500 freight cars. Approximately 18,800 are owned by CP, 7,300 are hopper cars owned by Canadian federal and provincial government agencies, and 21,400 are leased. Long-term leases on approximately 4,300 cars are scheduled to expire during 2009, and the leases on approximately 6,300 additional cars are scheduled to expire before the end of 2013.

Our covered hopper car fleet, used for transporting regulated grain, consists of owned, leased and managed cars. A portion of the fleet used to transport export grain is leased from the Government of Canada, with whom we completed a new operating agreement in 2007.

The DM&E owns or leases approximately 6,300 freight cars. Approximately 600 are owned by DM&E, and 5,700 are leased. Long-term leases on approximately 1,300 cars are scheduled to expire during 2009, and the leases on approximately 2,000 additional cars are scheduled to expire before the end of 2013.

4.10 Integrated Operating Plan (“IOP”)

Our IOP is the foundation for our scheduled railway operations, through which we strive to provide quality service for customers and improve asset utilization to achieve high levels of efficiency. The key principles upon which our IOP is built include moving freight cars across the network with as few handlings as possible, creating balance in directional flow of trains in our corridors by day of week, and minimizing the time that locomotives and freight cars are idle.

SECTION 4: DESCRIPTION OF THE BUSINESS

Under our IOP, trains are scheduled to run consistently at times agreed upon with our customers. To accomplish this, we establish a plan for each rail car that covers its entire trip from point of origin to final destination. Cars with similar destinations are consolidated into blocks. This reduces delays at intermediate locations by simplifying processes for employees, eliminating the duplication of work and helping to ensure traffic moves fluidly through rail yards and terminals. These measures improve transit times for shipments throughout our network and increase car availability for customers. Our IOP also increases efficiency by more effectively scheduling employee shifts, locomotive maintenance, track repair and material supply.

We have capitalized on the new capabilities of our network, our upgraded locomotive fleet and the IOP to operate longer and heavier trains. This has reduced associated expenses, simplified the departure of shipments from points of origin and provided lower-cost capacity for growth.

We are committed to continuously improve scheduled railway operations as a means to achieve additional efficiencies that will enable further growth without the need to incur significant capital expenditures to accommodate the growth. During 2008, execution of our IOP generated productivity and efficiency improvements that reduced expenses in key areas, while improving service reliability to support rate increases and grow market share. Areas of expense reduction included labour, purchased services and equipment costs.

The “Execution Excellence for Efficiency” (or “E3”) review that commenced in mid-2008 is an initiative intended to accelerate benefits related to IOP efficiency, to reduce costs and to improve reliability of CP’s product. Train productivity, asset utilization, yard and terminal operations, maintenance and product reliability have been the focus of this review.

In late 2008, the IOP and Yield teams were grouped together in the “Strategy & Yield” department. This combined group will provide network capability in an effort to optimize demand, product offering, equipment and track utilization.

4.11 Information Technology

As a 24-hours-a-day, seven-days-a-week business, we rely heavily on our computer systems to schedule all components of our operations. Computer 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. We use an intricate automated traffic forecasting system that determines optimal freight car routings and the workload in our yards by using sophisticated, industry-specific software and generating time-distance diagrams to examine track capacity.

The Shipment Suite of applications is the primary toolset used in the design, planning and execution of our IOP. During 2008 we continued to enhance our shipment management systems to improve service to our customers. Key improvements included better tools for yard management and improved train marshalling for safer operations. The yard management tools facilitate better planning, performance reporting, design and execution of yard activities. The resulting efficiency gains translate into optimum capacity utilization of trains, better on time shipment performance and reduced costs. For 2009, we plan to implement improved inventory reporting using wireless technology and introduce the capability for customers to request cars and related services directly over the Internet. Safety improvements in 2008 included the ability to better track trains containing hazardous materials and an improved ability to monitor the hours of service put in by train crews.

To improve the safety and reliability of our rolling stock we implemented a system that captures data from wayside detectors and uses this data to project maintenance requirements. On-line failures are reduced and maintenance costs are lowered through better scheduling. In the Engineering area, we delivered a system to electronically schedule and capture data from the inspection of track structures such as bridges and culverts. During 2009 we plan to expand this system to cover all track components.

In the sales and marketing area we began a multi-year initiative to upgrade our e-business website to provide improved capabilities and ease of use to our customers. The first rollout of these capabilities is scheduled to begin in mid-2009. In the intermodal line of business we completed implementation of the TRIEX system at all our terminals. TRIEX provides customer self-service including proof of delivery, full shipment tracking, more sophisticated pricing options and simplified billing processes.

Our acquisition of the Dakota, Minnesota & Eastern Railroad Corporation closed on October 30, 2008 and we immediately began an expansion of CP’s systems onto the DM&E property. By year end we had loaded all employee information into our system and were ready to begin processing payrolls. All financial data has been loaded into SAP and we began using the system in January

SECTION 4: DESCRIPTION OF THE BUSINESS

2009. Over the balance of 2009 we plan to expand the use of our train operations and shipment management systems onto the DM&E.

During 2007, we signed two significant outsourcing contracts that will see our application development and support activities provided by a global delivery model. As well as improving the effectiveness and efficiency of project delivery and application support, this initiative is expected to improve CP’s level of process maturity by leveraging the experience and best practices of industry leaders. We also extended a license agreement with SAP Canada for two more years, to leverage use of its software to functions beyond managing assets and expenditures, such as revenue management, supplier management and pricing.

During 2006, improvements were made to the Shipment Suite applications to support the Yard Operating Plan, improve train line-up accuracy, reduce train marshalling exceptions and smooth the customer empty order process. We implemented the first phase of our new crew management application which automated outbound calls for duty to the running trades employees in Canada and the US. For engineering services we provided a new application that allows on-line bidding for positions and electronically matches employees to positions based on their bids, seniority and qualifications.

4.12 Labour Productivity and Efficiency

We continually take steps to improve the effectiveness of our organizational structure in order to increase productivity and efficiency. We have been improving communication and decision-making, simplifying the organization’s management structure, and increasing the responsibility given to management personnel. We regularly review our organizational processes, workforce needs and related organizational costs with a focus on improving the productivity and efficiency of our workforce while reducing expenses.

In 2005, we began a restructuring initiative to further improve efficiency in our administrative areas. The restructuring was intended to eliminate more than 400 management and administration positions. The targeted reductions for these initiatives were successfully achieved by 2006. During 2008 we launched the Execution Excellence for Efficiency (E3) initiative and began progressing its implementation during the fourth quarter — it is designed to reduce operating costs, and provide us with increased flexibility to react quickly to market changes.

Running trades productivity has been improved in 2006 through 2008 by executing a scheduled railway through our IOP.

In order to stimulate and reward employee participation in our efficiency initiatives, we have implemented a number of incentive-based compensation programs designed to allow eligible unionized and non-unionized employees to share in the profits they help generate.

4.13 Business Risks & Enterprise Risk Management

In the normal course of our operations, we are exposed to various business risks and uncertainties that can have an effect on our financial condition. The risks and our enterprise risk management are discussed in Section 21.0 of our 2008 MD&A, which is available on SEDAR at www.sedar.com in Canada, on EDGAR at www.sec.gov in the US and on our website at www.cpr.ca.

4.14 Indemnifications

Pursuant to a trust and custodial services agreement with the trustee of the Canadian Pacific Railway Company Pension Trust Fund, we have undertaken to indemnify and save harmless the trustee, to the extent not paid by the fund, from any and all taxes, claims, liabilities, damages, costs and expenses arising out of the performance of the trustee’s obligations under the agreement, except as a result of misconduct by the trustee. The indemnity includes liabilities, costs or expenses relating to any legal reporting or notification obligations of the trustee with respect to the defined contribution option of the pension plans or otherwise with respect to the assets of the pension plans that are not part of the fund. The indemnity survives the termination or expiry of the agreement with respect to claims and liabilities arising prior to the termination or expiry. At December 31, 2008 we had not recorded a liability associated with this indemnification, as we do not expect to make any payments pertaining to it.

Pursuant to our by-laws, we indemnify all our current and former directors and officers. In addition to the indemnity provided by our by-laws, we also indemnify our directors and officers pursuant to indemnity agreements. We carry a liability insurance policy for directors and officers, subject to a maximum coverage limit and certain deductibles in cases where a director or officer is reimbursed for any loss covered by the policy.

SECTION 4: DESCRIPTION OF THE BUSINESS

4.15 Safety

Safety is a key priority for our management and Board of Directors. Our two main safety indicators — personal injuries and train accidents — follow strict US FRA reporting requirements used by all Class I railways in Canada and the US.

The FRA personal injury rate per 200,000 employee-hours, for CP excluding DM&E data, was 1.47 in 2008 compared with 2.09 in 2007 and 2.00 in 2006. For DM&E this rate was 3.53 in 2008. The FRA train accident rate in 2008, for CP excluding DM&E data, was 1.87 accidents per million train-miles, compared with 2.05 and 1.56, respectively, in 2007 and 2006. For DM&E, this rate was 7.81 in 2008.

Our Health, Safety, Security and Environment Committee provides ongoing focus, leadership, commitment and support for efforts to improve the safety of our operations as well as the safety and health of our employees. The committee is comprised of all of the most senior representatives from our different operations departments and is a key component of safety governance at CP. Our Safety Framework governs the safety management process, which involves more than 1,000 employees in planning and implementing safety-related activities. This management process, combined with planning that encompasses all operational functions, ensures a continuous and consistent focus on safety.

4.16 Environmental Protection

We have implemented a comprehensive Environmental Management System, which uses the five elements of the ISO 14001 standard — policy, planning, implementation and operation, checking and corrective action, and management review — as described below.

4.16.1 Policy

We have adopted an Environmental Protection Policy and continue to develop and implement policies and procedures to address specific environmental issues and reduce environmental risk. Each policy is implemented with training for employees and a clear identification of roles and responsibilities.

Our partnership in Responsible CareÒ is a key part of our commitment as we strive to be a leader in railway and public safety. Responsible CareÒ, an initiative of the Canadian Chemical Producers Association (“CCPA”) in Canada and the American Chemistry Council (“ACC”) in the US, is an ethic for the safe and environmentally sound management of chemicals throughout their life cycle. Partnership in Responsible CareÒ involves a public commitment to continually improve the industry’s environmental, health and safety performance. We successfully completed our first Responsible CareÒ external verification in June 2002 and were granted “Responsible CareÒ practice-in-place” status. We were successfully re-verified in 2005 and again in 2008. Our next CCPA and ACC Responsible Care verification is tentatively scheduled for June 2011.

4.16.2 Planning

We prepare an annual Corporate Environmental Plan and an Operations Environment Plan, which include details of our environmental goals and targets as well as high-level strategies. These plans are used by various departments to integrate key corporate environmental strategies into their business plans.

4.16.3 Implementation and Operation

We have developed specific environmental programs to address areas such as air emissions, wastewater, management of vegetation, chemicals and waste, storage tanks and fuelling facilities, and environmental impact assessment. Our environmental specialists and consultants lead these programs.

Our focus is on preventing spills and other incidents that have a negative impact on the environment. As a precaution, we have established a Strategic Emergency Response Contractor network and located spill equipment kits across Canada and the US to ensure a rapid and efficient response in the event of an environmental incident. In addition, we regularly update and test emergency preparedness and response plans. We have taken a proactive position on the remediation of historically impacted sites and have an accounting accrual for environmental costs that extends to 2018.

4.16.4 Environmental Contamination

We continue to be responsible for remediation work on portions of the property in the State of Minnesota and continue to retain liability accruals for remaining future anticipated costs. The costs are expected to be incurred over approximately 10 years. The

SECTION 4: DESCRIPTION OF THE BUSINESS

state’s voluntary investigation and remediation program will oversee the work to ensure it is completed in accordance with applicable standards. We currently estimate the remaining liability associated with these areas to be $27.8 million.

4.16.5 Checking and Corrective Action

Our environmental audit comprehensively, systematically and regularly assesses our facilities for compliance with legal requirements and conformance to our policies, which are based on legal requirements and accepted industry standards. Audits are scheduled based on risk assessment for each facility and are led by third-party environmental audit specialists supported by our environmental staff.

Audits are followed by a formal Corrective Action Planning process that ensures findings are addressed in a timely manner. Progress is monitored against completion targets and reported quarterly to senior management.

In 2007, our audit program was expanded to include health and safety and continues to evolve.

4.16.6 Management Review

Our Board of Directors’ Health, Safety, Security and Environment Committee conducts a semi-annual comprehensive review of environmental issues. An Environmental Lead Team, which is comprised of senior leaders of our Real Estate, Legal Services, Sales and Marketing, Finance, Operations, Supply Services, and Safety and Environmental Services departments, meets quarterly to review environmental matters.

4.16.7 Expenditures

We spent $41 million in 2008 for environmental management, including amounts spent for ongoing operations, capital upgrades and remediation.

4.17 Insurance

We maintain insurance policies to protect our assets and to protect against liabilities. Our insurance policies include, but are not limited to, liability insurance, director and officer liability insurance, automobile insurance and property insurance. The property insurance program includes business interruption coverage, which would respond in the event of catastrophic damage to our infrastructure. We believe our insurance is adequate to protect us from known and unknown liabilities. However, in certain circumstances, certain losses may not be covered or completely covered by insurance and we may suffer losses, which could be material.

SECTION 5: DIVIDENDS

5.1 Declared Dividends and Dividend Policy

Dividends declared by the Board of Directors in the last three years are as follows:

Dividend Amount		Record Date		Payment Date
$0.1875		March 31, 2006		April 24, 2006
$0.1875		June 30, 2006		July 31, 2006
$0.1875		September 29, 2006		October 30, 2006
$0.1875		December 29, 2006		January 29, 2007
$0.2250		March 30, 2007		April 30, 2007
$0.2250		June 29, 2007		July 30, 2007
$0.2250		September 28, 2007		October 29, 2007
$0.2250		December 28, 2007		January 28, 2008
$0.2475		March 28, 2008		April 28, 2008
$0.2475		June 27, 2008		July 28, 2008
$0.2475		September 26, 2008		October 27, 2008
$0.2475		December 24, 2008		January 26, 2009
$0.2475		March 27, 2009		April 27, 2009

Our Board of Directors is expected to give consideration on a quarterly basis to the payment of future dividends. The amount of any future quarterly dividends will be determined based on a number of factors that may include the results of operations, financial condition, cash requirements and future prospects of the Company. The Board of Directors is, however, under no obligation to declare dividends and the declaration of dividends is wholly within their discretion. Further, our Board of Directors may cease declaring dividends or may declare dividends in amounts that are different from those previously declared. Restrictions in the credit or financing agreements entered into by the Company or the provisions of applicable law may preclude the payment of dividends in certain circumstances.

SECTION 6: CAPITAL STRUCTURE

6.1 Description of Capital Structure

The Company is authorized to issue an unlimited number of Common Shares, an unlimited number of First Preferred Shares and an unlimited number of Second Preferred Shares. At December 31, 2008, no Preferred Shares had been issued.

1).

The rights, privileges, restrictions and conditions attaching to the Common Shares are as follows:

	a).		Payment of Dividends: The holders of the Common Shares will be entitled to receive dividends if, as and when declared by CP’s Board of Directors out of the assets of the Company properly applicable to the payment of dividends in such amounts and payable in such manner as the Board may from time to time determine. Subject to the rights of the holders of any other class of shares of the Company entitled to receive dividends in priority to or rateably with the holders of the Common Shares, the Board may in its sole discretion declare dividends on the Common Shares to the exclusion of any other class of shares of the Company.
	b).		Participation upon Liquidation, Dissolution or Winding Up: In the event of the liquidation, dissolution or winding up of the Company or other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of the Common Shares will, subject to the rights of the holders of any other class of shares of the Company entitled to receive the assets of the Company upon such a distribution in priority to or rateably with the holders of the Common Shares, be entitled to participate rateably in any distribution of the assets of the Company.
	c).		Voting Rights: The holders of the Common Shares will be entitled to receive notice of and to attend all annual and special meetings of the shareholders of the Company and to one (1) vote in respect of each Common Share held at all such meetings, except at separate meetings of or on separate votes by the holders of another class or series of shares of the Company.

2).

The rights, privileges, restrictions and conditions attaching to the First Preferred Shares are as follows:

	a).		Authority to Issue in One or More Series: The First Preferred Shares may at any time or from time to time be issued in one (1) or more series. Subject to the following provisions, the Board may by resolution fix from time to time before the issue thereof the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series of First Preferred Shares.
	b).		Voting Rights: The holders of the First Preferred Shares will not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and will not be entitled to vote at any such meeting, except as may be required by law.
	c).		Limitation on Issue: The Board may not issue any First Preferred Shares if by so doing the aggregate amount payable to holders of First Preferred Shares as a return of capital in the event of the liquidation, dissolution or winding up of the Company or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs would exceed $500,000,000.
	d).		Ranking of First Preferred Shares: The First Preferred Shares will be entitled to priority over the Second Preferred Shares and the Common Shares of the Company and over any other shares ranking junior to the First Preferred Shares with respect to the payment of dividends and the distribution of assets of the Company in the event of any liquidation, dissolution or winding up of the Company or other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs.
	e).		Dividends Preferential: Except with the consent in writing of the holders of all outstanding First Preferred Shares, no dividend can be declared and paid on or set apart for payment on the Second Preferred Shares or the Common Shares or on any other shares ranking junior to the First Preferred Shares unless and until all dividends (if any) up to and including any dividend payable for the last completed period for which such dividend is payable on each series of First Preferred Shares outstanding has been declared and paid or set apart for payment.

SECTION 6: CAPITAL STRUCTURE

3).

The rights, privileges, restrictions and conditions attaching to the Second Preferred Shares are as follows:

	a).		Authority to Issue in One or More Series: The Second Preferred Shares may at any time or from time to time be issued in one (1) or more series. Subject to the following provisions, the Board may by resolution fix from time to time before the issue thereof the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series of Second Preferred Shares.
	b).		Voting Rights: The holders of the Second Preferred Shares will not be entitled to receive notice of or to attend any meetings of the shareholders of the Company and will not be entitled to vote at any such meeting, except as may be required by law.
	c).		Limitation on Issue: The Board may not issue any Second Preferred Shares if by so doing the aggregate amount payable to holders of Second Preferred Shares as a return of capital in the event of the liquidation, dissolution or winding up of the Company or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs would exceed $500,000,000.
	d).		Ranking of Second Preferred Shares: The Second Preferred Shares will be entitled to priority over the Common Shares of the Company and over any other shares ranking junior to the Second Preferred Shares with respect to the payment of dividends and the distribution of assets of the Company in the event of the liquidation, dissolution or winding up of the Company or any other distribution of the assets of the Company among its shareholders for the purpose of winding up of its affairs.
	e).		Dividends Preferential: Except with the consent in writing of the holders of all outstanding Second Preferred Shares, no dividend can be declared and paid on or set apart for payment on the Common Shares or on any other shares ranking junior to the Second Preferred Shares unless and until all dividends (if any) up to and including any dividend payable for the last completed period for which such dividend is payable on each series of Second Preferred Shares outstanding has been declared and paid or set apart for payment.

6.2 Security Ratings

The Company’s debt securities are rated annually by three approved rating organizations — Moody’s Investors Service, Inc., Standard & Poor’s Corporation and Dominion Bond Rating Service Limited. Currently, our securities are rated as Investment Grade, shown in the table below:

			Long-Term
	Approved Rating		Debt
	Organization		Rating
	Moody’s Investors Service		Baa3
	Standard & Poor’s		BBB
	Dominion Bond Rating Service		BBB

There is a negative outlook for the Company’s rating with Standard & Poor’s Corporation and Dominion Bond Rating Service, while the rating of Moody’s Investors Service has a stable outlook.

Credit ratings are intended to provide investors with an independent measure of the credit quality of an issue of securities and are indicators of the likelihood of payment and of the capacity and willingness of a company to meet its financial commitment on an obligation in accordance with the terms of the obligation. A description of the rating categories of each of the rating agencies in the table above is set out below.

Credit ratings are not recommendations to purchase, hold or sell securities and do not address the market price or suitability of a specific security for a particular investor and may be subject to revision or withdrawal at any time by the rating agencies. Credit ratings may not reflect the potential impact of all risks on the value of securities. In addition, real or anticipated changes in the rating assigned to a security will generally affect the market value of that security. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be revised or withdrawn entirely by a rating agency in the future.

SECTION 6: CAPITAL STRUCTURE

The following table summarizes rating categories for respective rating agencies:

				Dominion
Moody’s				Bond
Investors		Standard		Rating
Service		& Poor’s		Service
Aaa		AAA		AAA				High Investment Grade
Aa1		AA+		AA(high)
Aa2		AA		AA
Aa3		AA-		AA(low)
A1		A+		A(high)
A2		A		A
A3		A-		A(low)
								Investment Grade
Baa1		BBB+		BBB(high)
Baa2		BBB		BBB
Baa3		BBB-		BBB(low)
Ba1		BB+		BB(high)				Below Investment Grade
Ba2		BB		BB
Ba3		BB-		BB(low)
B1		B+		B(high)
B2		B		B
B3		B-		B(low)
Caa		CCC		CCC
Ca		CC		CC
C		C		C

SECTION 7: MARKET FOR SECURITIES

7.1 Stock Exchange Listings

The Common Shares of CP are listed on the Toronto Stock Exchange and the New York Stock Exchange under the symbol “CP”.

7.2 Trading Price and Volume

The following table provides the monthly trading information for our Common Shares on the Toronto Stock Exchange during 2008.

		Opening				High				Low				Closing				Volume of
Month		Price per				Price per				Price per				Price per				Shares
		Share ($)				Share ($)				Share ($)				Share ($)				Traded
January			64.24				69.10				57.30				67.04				16,198,128
February			67.30				74.74				67.13				71.54				13,733,133
March			71.54				72.10				62.39				66.00				15,823,326
April			66.45				72.13				63.98				69.38				16,600,290
May			69.17				75.00				69.05				72.58				16,782,877
June			71.90				71.90				64.60				67.70				16,748,437
July			65.50				68.75				60.50				64.30				16,287,700
August			64.98				68.27				60.50				64.78				9,102,256
September			65.00				67.80				53.80				57.07				16,919,026
October			57.86				57.86				43.38				54.55				18,774,397
November			54.84				57.41				34.24				40.70				15,023,450
December			39.00				42.82				35.16				40.98				14,078,169

The following table provides the monthly trading information for our Common Shares on the New York Stock Exchange during 2008.

		Opening				High				Low				Closing				Volume of
Month		Price per				Price per				Price per				Price per				Shares
		Share ($)				Share ($)				Share ($)				Share ($)				Traded
January			64.95				69.26				55.39				66.57				5,470,200
February			67.00				76.18				66.90				73.19				5,112,100
March			72.90				72.96				60.82				64.29				5,728,000
April			65.10				71.67				62.84				69.16				4,899,100
May			68.23				76.14				68.09				73.16				4,630,400
June			71.86				72.12				63.55				66.14				5,111,200
July			65.42				68.33				59.62				62.81				11,084,078
August			63.26				63.71				57.97				60.75				5,420,403
September			61.18				63.08				51.75				53.86				10,446,979
October			53.60				53.70				34.37				45.00				15,014,105
November			45.44				49.52				26.64				32.20				12,614,948
December			31.37				35.68				28.05				33.62				10,174,603

SECTION 8: DIRECTORS AND OFFICERS

Following are the names and municipalities of residence of the directors and officers of the Company, their positions and principal occupations within the past five years, the period during which each director has served as director of the Company, and the date on which each director’s term of office expires.

8.1 Directors

Name and Municipality of Residence		Position Held and Principal Occupation within		Year of Annual Meeting
		the Preceding Five Years(1)		at which Term of Office
				Expires (Director
				Since)
J.E. Cleghorn, O.C., F.C.A. (3) Toronto, Ontario, Canada		Chairman, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Chairman, SNC-Lavalin Group Inc., (international engineering and construction firm)		2009 (2001)
T.W. Faithfull (4)(5) Oxford, Oxfordshire, England		Retired President and Chief Executive Officer Shell Canada Limited (oil and gas company)		2009 (2003)
F.J. Green (4) Calgary, Alberta, Canada		President and Chief Executive Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited		2009 (2006)
K.T. Hoeg, C.A. (2)(6) Toronto, Ontario, Canada		Former President and Chief Executive Officer of Corby Distilleries Limited (spirits and wine)		2009 (2007)
Richard C. Kelly (2)(4) Minneapolis, Minnesota, U.S.A.		Chairman, President and Chief Executive Officer Xcel Energy (a utility supplier of electric power and natural gas)		2009 (2008)
The Hon. J.P. Manley (2)(3)(6) Ottawa, Ontario, Canada		Senior Counsel, McCarthy Tétrault LLP (law firm)		2009 (2006)
L.J. Morgan (4)(5) Bethesda, Maryland, U.S.A.		Partner, Covington & Burling LLP (law firm)		2009 (2006)
M. Paquin (4)(5) Montreal, Quebec, Canada		President and Chief Executive Officer, Logistec Corporation (international cargo-handling company)		2009 (2001)
M.E.J. Phelps, O.C. (3)(5)(6) West Vancouver, B.C., Canada		Chairman, Dornoch Capital Inc. (private investment company)		2009 (2001)
R. Phillips, O.C.,S.O.M., F.Inst.P. (2)(3)(6) Regina, Saskatchewan, Canada		Retired President and Chief Executive Officer, IPSCO Inc. (steel manufacturing company)		2009 (2001)
H.T. Richardson, C.M., O.M. (5)(6) Winnipeg, Manitoba, Canada		President and Chief Executive Officer, James Richardson & Sons, Limited (privately owned corporation)		2009 (2006)
M.W. Wright (2)(3)(4) Longboat Key, Florida, U.S.A.		Retired Chairman of the Board and Chief Executive Officer, SUPERVALU INC. (food distributor and grocery retailer)		2009 (2001)

Notes:
(1)		F.J. Green was President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited from November 2005 until May 2006, Executive Vice-President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited from October 2004 until November 2005; Executive Vice-President, Operations and Marketing, Canadian Pacific Railway Company from January 2004 until October 2004. K. T. Hoeg was President and Chief Executive Officer of Corby Distilleries Limited from October 1996 to February 2007. The Hon. J.P. Manley was the Member of Parliament for Ottawa South from November 1988 until June 2004 and Chairman of the Ontario Power Generation Review Committee from December 2003 until March 2004.
(2)		Member of the Audit, Finance and Risk Management Committee.

SECTION 8: DIRECTORS AND OFFICERS

(3)		Member of the Corporate Governance and Nominating Committee.
(4)		Member of the Health, Safety, Security and Environment Committee.
(5)		Member of the Management Resources and Compensation Committee.
(6)		Member of the Pension Committee.

8.2 Cease Trade Orders, Bankruptcies, Penalties or Sanctions

As a result of the announcement in May 2004 by Nortel Networks Corporation and Nortel Networks Limited (collectively, the “Nortel Companies”) of the need to restate certain of their previously reported financial results and the resulting delays in filing interim and annual financial statements for certain periods by the required filing dates under Ontario securities laws, the Ontario Securities Commission made a final order on May 31, 2004 prohibiting all trading by directors, officers and certain current and former employees including J.E. Cleghorn, a former director, and J.P. Manley, a current director. The Quebec and Alberta Securities commissions issued similar orders. The cease trade order issued by the Ontario Securities Commission was revoked on June 21, 2005. The Quebec and Alberta orders were revoked shortly thereafter. Mr. Cleghorn and Mr. Manley were not subject to the Quebec and Alberta orders. Following the March 10, 2006 announcement by the Nortel Companies of the need to restate certain of their previously reported financial results and the resulting delay in the filing of certain 2005 financial statements by the required filing dates, the Ontario Securities Commission issued a final management cease trade order on April 10, 2006 prohibiting all of the directors, officers and certain current and former employees including Mr. Cleghorn and Mr. Manley from trading in the securities of the Nortel Companies. The British Columbia and Quebec Securities commissions issued similar orders. The Ontario Securities Commission lifted the cease trade order effective June 8, 2006 and the British Columbia and the Quebec Securities commissions also lifted their cease trade orders shortly thereafter. Mr. Cleghorn and Mr. Manley were not subject to the British Columbia and Quebec orders.

Mr. Manley was a director of the Nortel Companies when the Nortel Companies applied for and was granted creditor protection under the Companies’ Creditors Arrangement Act on January 14, 2009.

Mr. R. Kelly was President and Chief Executive Officer of NRG Energy, Inc. (“NRG”), a former subsidiary of Xcel Energy Inc. from June 6, 2002 to May 14, 2003, and a director of NRG from June 2000 to May 14, 2003. In May 2003, NRG and certain of NRG’s affiliates filed voluntary petitions for reorganization under Chapter 11 of the US Bankruptcy Code to restructure their debt. NRG emerged from bankruptcy on December 5, 2003.

SECTION 8: DIRECTORS AND OFFICERS

8.3 Senior Officers

As at February 17, 2009, the following were executive officers of CPRL:

Name and municipality of residence		Position held		Principal occupation within the
				preceding five years
J.E. Cleghorn, O.C., F.C.A. Toronto, Ontario, Canada		Chairman		Chairman, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Chairman, SNC-Lavalin Group Inc. (international engineering and construction firm)
F.J. Green Calgary, Alberta, Canada		President and Chief Executive Officer		President and Chief Executive Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Executive Vice-President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Executive Vice-President, Operations and Marketing, Canadian Pacific Railway Company
K. B. McQuade Mesquite, Nevada, U.S.A.		Executive Vice- President and Chief Financial Officer		Executive Vice-President and Chief Financial Officer Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Executive Vice-President and Chief Operating Officer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Executive Vice-President and Chief Information Officer, Norfolk Southern Railroad
J. A. O’Hagan Calgary, Alberta, Canada		Senior Vice-President, Strategy and Yield		Senior Vice-President, Strategy and Yield, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Vice-President, Canadian Pacific Railway Limited and Vice-President, Strategy and External Affairs, Canadian Pacific Railway Company; Vice-President, Strategy Research and New Market Development, Assistant Vice-President, Strategy and Research, Canadian Pacific Railway Company
M. M. Szel Calgary, Alberta, Canada		Senior Vice- President, Sales and Marketing		Senior Vice-President, Sales and Marketing Canadian Pacific Railway Limited and Senior Vice-President, Marketing and Sales, Canadian Pacific Railway Company; Senior Vice-President Bulk Commodities and Government Affairs, Canadian Pacific Railway Company; Vice-President, Marketing and Sales — Bulk, Canadian Pacific Railway; Vice-President Strategy and Law, Corporate Secretary, Canadian Pacific Railway Company
B. M. Winter Calgary, Alberta, Canada		Senior Vice- President, Operations		Senior Vice-President, Operations, Canadian Pacific Railway Limited and Senior Vice-President, Operations, Canadian Pacific Railway Company; Vice-President Operations, Canadian Pacific Railway Company; Vice-President Transportation and Field Operations, Canadian Pacific Railway Company

Name and municipality of residence		Position held		Principal occupation within the
				preceding five years
D. B. Campbell Calgary, Alberta, Canada		Vice-President, Corporate Planning		Vice-President, Corporate Planning, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Vice-President Business Planning and Development, Canadian Pacific Railway Company
B. Grassby Calgary, Alberta, Canada		Vice-President and Comptroller		Vice-President and Comptroller, Canadian Pacific Railway Company and Canadian Pacific Railway Limited
P.A. Guthrie, Q.C. Municipal District of Rockyview, Alberta, Canada		Vice-President, Law		Vice-President, Law, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Assistant Vice-President Legal Services, Canadian Pacific Railway Company
T. A. Robinson Calgary, Alberta, Canada		Vice-President and Treasurer		Vice-President and Treasurer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Assistant Treasurer, Canadian Pacific Railway Company and Canadian Pacific Railway Limited; Assistant Comptroller, Canadian Pacific Railway Company; Assistant Vice-President, Customer Service, Canadian Pacific Railway Company
R. A. Shields Calgary, Alberta, Canada		Vice-President, Human Resources and Industrial Relations		Vice-President, Human Resources and Industrial Relations, Canadian Pacific Railway Limited and Canadian Pacific Railway Company
K. Fleming Calgary, Alberta, Canada		Corporate Secretary		Corporate Secretary, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Associate Corporate Secretary, Canadian Pacific Railway Limited and Canadian Pacific Railway Company; Legal Counsel Labour & Employment Coordinator, Canadian Pacific Railway Company; Labour Coordinator, Canadian Pacific Railway Company
G.A. Feigel Calgary, Alberta, Canada		Assistant Corporate Secretary		Assistant Corporate Secretary, Canadian Pacific Railway Company and Canadian Pacific Railway Limited

8.4 Shareholdings of Directors and Officers

As at December 31, 2008, the directors and senior officers, as a group, beneficially owned, either directly or indirectly, or exercised control or direction over a total of 106,304 Common Shares of CP, representing 0.07% of the outstanding Common Shares as of that date.

8.5 Announcements

In accordance with the Company’s General By-Law, Mr. S.E. Bachand retired from the Board of Directors on May 8, 2008, as he has reached the retirement age of 70 years.

SECTION 9: LEGAL PROCEEDINGS

We are involved in various claims and litigation arising in the normal course of business. Following are the only significant legal proceedings currently in progress.

9.1 Stoney Tribal Council v. Canada, EnCana and CP

On February 26, 1999, a Statement of Claim was issued in the Court of Queen’s Bench of Alberta, Judicial Centre of Calgary. The Stoney Tribal Council filed an action against CP and others in the amount of $150 million for alleged trespass and unlawful removal of oil and gas from reserve lands. We believe no provision is required for this lawsuit.

SECTION 10: TRANSFER AGENTS AND REGISTRARS

10.1 Transfer Agent

Computershare Investor Services Inc., with transfer facilities in Montreal, Toronto, Calgary and Vancouver, serves as transfer agent and registrar for CP’s Common Shares in Canada.

Computershare Trust Company NA, Denver, Colorado, serves as co-transfer agent and co-registrar for CP’s Common Shares in the United States.

Requests for information should be directed to:

Computershare Trust Company of Canada
100 University Avenue, 9^th Floor
Toronto, Ontario Canada
M5J 2Y1

SECTION 11: INTERESTS OF EXPERTS

The Company’s auditors are PricewaterhouseCoopers LLP, Chartered Accountants. PricewaterhouseCoopers LLP has prepared an independent auditors’ report dated February 23, 2009, in respect of our consolidated financial statements, with accompanying notes as at December 31, 2008 and 2007 and for each of the years in the three year period ended December 31, 2008. They have also prepared an audit report on the effectiveness of internal control over financial reporting, at December 31, 2008. PricewaterhouseCoopers LLP has advised that it is independent with respect to CP within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Alberta and the rules of the US Securities and Exchange Commission.

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

12.1 Composition of the Audit, Finance and Risk Management Committee and Relevant Education and Experience

The following individuals comprise the entire membership of the Audit, Finance and Risk Management Committee (“the Committee”).

Krystyna T. Hoeg - Ms. Hoeg is the former President and Chief Executive Officer of Corby Distilleries Limited, a marketer and seller of spirits and wine, a position that she held from October 1996 to February 2007. She is a director of Imperial Oil Limited, Sun Life Financial Inc., Shoppers Drug Mart Corporation, Cineplex Galaxy Income Fund, Ganong Bros. Limited and Samuel, Son & Co., Limited. She is also on the Board of the Toronto East General Hospital and a member of the Advisory Board, Woodrow Wilson Center Canada Institute. Ms. Hoeg is a Chartered Accountant (1982) and holds a B.Sc. from McMaster University, and a B.Com. and an M.Sc. from the University of Windsor.

Richard C. Kelly - Mr. Kelly is Chairman of the Board, President and Chief Executive Officer of Xcel Energy Inc., a utility supplier of electric power and natural gas service in eight Western and Midwestern States. He has held that position since December 2005. From June to mid-December 2005 he served as President and Chief Executive Officer, and previous to that he served as Chief Financial Officer. Mr. Kelly is Second Vice-Chairman of Edison Electric Institute, Chairman of the Board of Trustees of the Science Museum of Minnesota and a Board member of the Capital City Partnership, the Electric Power Research Institute, the Nuclear Energy Institute Regis University and director on the Denver Metro Chamber of Commerce. Mr. Kelly earned both an M.B.A. and a bachelor’s degree in accounting from Regis University.

John P. Manley - Mr. Manley is counsel at the law firm of McCarthy Tétrault LLP. He has held that position since May 2004. He is a director of Nortel Networks Corporation and Nortel Networks Limited, Canadian Imperial Bank of Commerce, CAE Inc. and a director and Board Chair of Optosecurity Inc. (a private company). In addition, Mr. Manley serves on the boards of the University of Waterloo, MaRS Discovery District, National Arts Center Foundation, CARE Canada, The Conference Board of Canada and the Institute for Research on Public Policy. In October 2007 he was appointed by the Prime Minister to Chair the Independent Panel on Canada’s role in Afghanistan. Mr. Manley was previously the Member of Parliament for Ottawa South from November 1988 to June 2004. As a Member of Parliament, Mr. Manley also held various positions in the Canadian Federal Government, including Deputy Prime Minister of Canada from January 2002 to December 2003, Minister of Finance from June 2002 to December 2003, Chair of the Cabinet Committee on Public Security and Anti-Terrorism from October 2001 to December 2003, Minister of Foreign Affairs from October 2000 to January 2002 and Minister of Industry prior thereto. He graduated from Carleton University with a B.A. and from the University of Ottawa with an LL.B. He was granted the designation C.Dir (Chartered Director) by McMaster University in February 2006.

Roger Phillips (Chair) - Mr. Phillips is the Retired President and Chief Executive Officer of IPSCO Inc., a steel manufacturing company. He held that position from February 1982 until his retirement in December 2001. He is a director of Toronto Dominion Bank, Imperial Oil Limited and Cliffs Natural Resources. Mr. Phillips is a Fellow of the Institute of Physics and a Member of the Canadian Association of Physicists. He is also President of La Sauciere Investments Inc., a private company. He was appointed an Officer of the Order of Canada in 1999 and was presented with the Saskatchewan Order of Merit in 2002. He graduated from McGill University in Montreal with a B.Sc. in Physics and Mathematics.

Michael W. Wright - Mr. Wright is the Retired Chairman of the Board and Chief Executive Officer of SUPERVALU INC., a food distributor and grocery retailer. He was Chairman and Chief Executive Officer from June 1981 to June 2001 and Chairman until June 2002. He is a Past Chairman of Food Distributors International and the Food Marketing Institute, and is a director of Wells Fargo & Company, Honeywell International, Inc., S.C. Johnson & Son, Inc., and Cargill Inc. He is a Trustee Emeritus of the University of Minnesota Foundation and the Board of Trustees of St. Thomas Academy. He graduated from the University of Minnesota with a B.A. and from the University of Minnesota Law School with a J.D. (Honours).

Each of the aforementioned committee members has been determined by the board to be independent and financially literate within the meaning of National Instrument 52-110.

12.2 Pre-Approval of Policies and Procedures

The Committee has adopted a written policy governing the pre-approval of audit and non-audit services to be provided to CP by our independent auditors. The policy is reviewed annually and the audit and non-audit services to be provided by our independent auditors, as well as the budgeted amounts for such services, are pre-approved at that time. Our Vice-President and Comptroller must submit to the Committee at least quarterly a report of all services performed or to be performed by our independent auditors pursuant to the policy. Any additional audit or non-audit services to be provided by our independent

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

auditors either not included among the pre-approved services or exceeding the budgeted amount for such pre-approved services by more than 10% must be individually pre-approved by the Committee or its Chairman, who must report all such additional pre-approvals to the Committee at its next meeting following the granting thereof. Our independent auditors’ annual audit services engagement terms and fees are subject to the specific pre-approval of the Committee. In addition, prior to the granting of any pre-approval, the Committee or its Chairman, as the case may be, must be satisfied that the performance of the services in question will not compromise the independence of our independent auditors. Our Chief Internal Auditor monitors compliance with this policy.

12.3 Audit, Finance and Risk Management Committee Charter

The term “Corporation” herein shall refer to each of Canadian Pacific Railway Limited (“CPRL”) and Canadian Pacific Railway Company (“CPRC”), and the terms “Board”, “Directors”, “Board of Directors” and “Committee” shall refer to the Board, Directors, Board of Directors, or Committee of CPRL or CPRC, as applicable.

A.		Committee and Procedures
1.		Purposes

The purposes of the Audit, Finance and Risk Management Committee (the “Committee”) of the Board of Directors of the Corporation are to fulfill applicable public company audit committee legal obligations and to assist the Board of Directors in fulfilling its oversight responsibilities in relation to the disclosure of financial statements and information derived from financial statements, and in relation to risk management matters including:

	•		the review of the annual and interim financial statements of the Corporation;
	•		the integrity and quality of the Corporation’s financial reporting and systems of internal control, and risk management;
	•		the Corporation’s compliance with legal and regulatory requirements;
	•		the qualifications, independence, engagement, compensation and performance of the Corporation’s external auditors; and
	•		the performance of the Corporation’s internal audit function;

and to prepare, if required, an audit committee report for inclusion in the Corporation’s annual management proxy circular, in accordance with applicable rules and regulations.

The Corporation’s external auditors shall report directly to the Committee.

2.

Composition of Committee

The members of the Committee of each of CPRL and CPRC shall be identical and shall be Directors of CPRL and CPRC, respectively. The Committee shall consist of not less than three and not more than six Directors, none of whom is either an officer or employee of the Corporation or any of its subsidiaries. Members of the Committee shall meet applicable requirements and guidelines for audit committee service, including requirements and guidelines with respect to being independent and unrelated to the Corporation and to having accounting or related financial management expertise and financial literacy, set forth in applicable securities laws or the rules of any stock exchange on which the Corporation’s securities are listed for trading. No director who serves on the audit committee of more than two public companies other than the Corporation shall be eligible to serve as a member of the Committee, unless the Board of Directors has determined that such simultaneous service would not impair the ability of such member to effectively serve on the Committee. Determinations as to whether a particular Director satisfies the requirements for membership on the Committee shall be affirmatively made by the full Board.

3.

Appointment of Committee Members

Members of the Committee shall be appointed from time to time by the Board and shall hold office at the pleasure of the Board. Where a vacancy occurs at any time in the membership of the Committee, it may be filled by the Board. The Board shall fill a vacancy whenever necessary to maintain a Committee membership of at least three Directors.

4.

Committee Chair

The Board shall appoint a Chair for the Committee from among the Committee members.

5.

Absence of Committee Chair

If the Chair of the Committee is not present at any meeting of the Committee, one of the other members of the Committee who is present at the meeting shall be chosen by the Committee to preside at the meeting.

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

6.

Secretary of Committee

The Committee shall appoint a Secretary who need not be a director of the Corporation.

7.

Meetings

The Committee shall meet at regularly scheduled meetings at least once every quarter and shall meet at such other times during each year as it deems appropriate. In addition, the Chair of the Committee may call a special meeting of the Committee at any time.

8.

Quorum

Three members of the Committee shall constitute a quorum.

9.

Notice of Meetings

Notice of the time and place of every meeting shall be given in writing by any means of transmitted or recorded communication, including facsimile, telex, telegram or other electronic means that produces a written copy, to each member of the Committee at least 24 hours prior to the time fixed for such meeting; provided however, that a member may in any manner waive a notice of a meeting. Attendance of a member at a meeting constitutes a waiver of notice of the meeting, except where a member attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

10.

Attendance of Others at Meetings

At the invitation of the Chair of the Committee, other individuals who are not members of the Committee may attend any meeting of the Committee.

11.

Procedure, Records and Reporting

Subject to any statute or the articles and by-laws of the Corporation, the Committee shall fix its own procedures at meetings, keep records of its proceedings and report to the Board when the Committee may deem appropriate (but not later than the next meeting of the Board). The minutes of its meetings shall be tabled at the next meeting of the Board.

12.

Delegation

The Committee may delegate from time to time to any person or committee of persons any of the Committee’s responsibilities that lawfully may be delegated.

13.

Report to Shareholders

The Committee shall prepare a report to shareholders or others concerning the Committee’s activities in the discharge of its responsibilities, when and as required by applicable laws or regulations.

14.

Guidelines to Exercise of Responsibilities

The Board recognizes that meeting the responsibilities of the Committee in a dynamic business environment requires a degree of flexibility. Accordingly, the procedures outlined in these Terms of Reference are meant to serve as guidelines rather than inflexible rules, and the Committee may adopt such different or additional procedures as it deems necessary from time to time.

15.

Use of Outside Legal, Accounting or Other Advisors; Appropriate Funding

The Committee may retain, at its discretion, outside legal, accounting or other advisors, at the expense of the Corporation, to obtain advice and assistance in respect of any matters relating to its duties, responsibilities and powers as provided for or imposed by these Terms of Reference or otherwise by law.

The Committee shall be provided by the Corporation with appropriate funding, as determined by the Committee, for payment of:

	(i)		compensation of any outside advisers as contemplated by the immediately preceding paragraph;
	(ii)		compensation of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation; or
	(iii)		ordinary administrative expenses that are necessary or appropriate in carrying out the Committee’s duties.

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

All outside legal, accounting or other advisors retained to assist the Committee shall be accountable ultimately to the Committee.

16. Remuneration of Committee Members

No member of the Committee shall receive from the Corporation or any of its affiliates any compensation other than the fees to which he or she is entitled as a Director of the Corporation or a member of a committee of the Board. Such fees may be paid in cash and/or shares, options or other in-kind consideration ordinarily available to Directors.

B. Mandate

17.		The Committee’s role is one of oversight. Management is responsible for preparing the interim and annual financial statements of the Corporation and for maintaining a system of risk assessment and internal controls to provide reasonable assurance that assets are safeguarded and that transactions are authorized, recorded and reported properly, for maintaining disclosure controls and procedures to ensure that it is informed on a timely basis of material developments and the Corporation complies with its public disclosure obligations, and for ensuring compliance by the Corporation with legal and regulatory requirements. The external auditors are responsible for auditing the Corporation’s financial statements. In carrying out its oversight responsibilities, the Committee does not provide any professional certification or special assurance as to the Corporation’s financial statements or the external auditors’ work.
		The Committee shall:
		Audit Matters
		External Auditors’ Report on Annual Audit

a)

obtain and review annually prior to the completion of the external auditors’ annual audit of the year-end financial statements a report from the external auditors describing:

	(i)		all critical accounting policies and practices to be used;
	(ii)		all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the external auditors; and
	(iii)		other material written communications between the external auditors and management, such as any management letter or schedule of unadjusted differences;

Management’s and Internal Auditors’ Reports on External Audit Issues

b)

review any reports on the above or similar topics prepared by management or the internal auditors and discuss with the external auditors any material issues raised in such reports;

Annual Financial Reporting Documents and External Auditors’ Report

c)

meet to review with management, the internal auditors and the external auditors the Corporation’s annual financial statements, the report of the external auditors thereon, the related Management’s Discussion and Analysis, and the information derived from the financial statements, as contained in the Annual Information Form and the Annual Report. Such review will include obtaining assurance from the external auditors that the audit was conducted in a manner consistent with applicable law and will include a review of:

	(i)		all major issues regarding accounting principles and financial statement presentations, including any significant changes in the Corporation’s selection or application of accounting policies or principles;
	(ii)		all significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including the effects on the financial statements of alternative methods within generally accepted accounting principles;
	(iii)		the effect of regulatory and accounting issues, as well as off-balance sheet structures, on the financial statements;
	(iv)		all major issues as to the adequacy of the Corporation’s internal controls and any special steps adopted in light of material control deficiencies; and
	(v)		the external auditors’ judgment about the quality, and not just the acceptability, of the accounting principles applied in the Corporation’s financial reporting;

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

d)

following such review with management and the external auditors, recommend to the Board of Directors whether to approve the audited annual financial statements of the Corporation and the related Management’s Discussion and Analysis, and report to the Board on the review by the Committee of the information derived from the financial statements contained in the Annual Information Form and Annual Report;

Interim Financial Statements and MD&A

e)

review with management, the internal auditors and the external auditors the Corporation’s interim financial statements and its interim Management’s Discussion and Analysis, and if thought fit, approve the interim financial statements and interim Management’s Discussion and Analysis and the public release thereof by management;

Earnings Releases, Earnings Guidance

f)

review and discuss earnings press releases, including the use of “proforma” or “adjusted” information determined other than in accordance with generally accepted accounting principles, and the disclosure by the Corporation of earnings guidance and other financial information to the public including analysts and rating agencies, it being understood that such discussions may, in the discretion of the Committee, be done generally (i.e., by discussing the types of information to be disclosed and the type of presentation to be made) and that the Committee need not discuss in advance each earnings release or each instance in which the Corporation discloses earnings guidance or other financial information; and be satisfied that adequate procedures are in place for the review of such public disclosures and periodically assess the adequacy of those procedures;

Material Litigation, Tax Assessments, Etc.

g)

review with management, the external auditors and, if necessary, legal counsel all legal and regulatory matters and litigation, claims or contingencies, including tax assessments, that could have a material effect upon the financial position of the Corporation, and the manner in which these matters may be, or have been, disclosed in the financial statements; and obtain reports from management and review with the Corporation’s chief legal officer, or appropriate delegates, the Corporation’s compliance with legal and regulatory requirements;

Oversight of External Auditors

h)

subject to applicable law relating to the appointment and removal of the external auditors, be directly responsible for the appointment, retention, termination, compensation and oversight of the external auditors; and be responsible for the resolution of disagreements between management and the external auditors regarding financial reporting;

Rotation of External Auditors’ Audit Partners

i)

review and evaluate the lead audit partner of the external auditors and assure the regular rotation of the lead audit partner and the audit partner responsible for reviewing the audit and other audit partners, as required by applicable law; and consider whether there should be a regular rotation of the external audit firm itself;

External Auditors’ Internal Quality Control

j)

obtain and review, at least annually, and discuss with the external auditors a report by the external auditors describing the external auditors’ internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues;

External Auditors’ Independence

k)

review and discuss at least annually with the external auditors all relationships that the external auditors and their affiliates have with the Corporation and its affiliates in order to assess the external auditors’ independence, including, without limitation:

	(i)		obtaining and reviewing, at least annually, a formal written statement from the external auditors delineating all relationships that in the external auditors’ professional judgment may reasonably be thought to bear on the independence of the external auditors with respect to the Corporation,
	(ii)		discussing with the external auditors any disclosed relationships or services that may affect the objectivity and independence of the external auditors, and

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

(iii)

recommending that the Board take appropriate action in response to the external auditors’ report to satisfy itself as to the external auditors’ independence;

Policies Regarding Hiring of External Auditors’ Employees and Former Employees

l)

set clear policies for the hiring by the Corporation of partners, employees and former partners and employees of the external auditors;

Pre-Approval of Audit and Non-Audit Services Provided by External Auditors

	m)		be solely responsible for the pre-approval of all audit and non-audit services to be provided to the Corporation and its subsidiary entities by the external auditors (subject to any prohibitions provided in applicable law), and of the fees paid for these services; provided however, that the Committee may delegate to an independent member or members of the Committee authority to pre-approve such non-audit services, and such member(s) shall report to the Committee at its next meeting following the granting any pre-approvals granted pursuant to such delegated authority;
	n)		review the external auditors’ annual audit plan (including scope, staffing, reliance on internal controls and audit approach);
	o)		review the external auditors’ engagement letter;

Oversight of Internal Audit

	p)		oversee the internal audit function by reviewing senior management action with respect to the appointment or dismissal of the Chief Internal Auditor; afford the Chief Internal Auditor unrestricted access to the Committee; review the charter, activities, organizational structure, and the skills and experience of the Internal Audit Department; discuss with management and the external auditors the competence, performance and cooperation of the internal auditors; and discuss with management the compensation of the internal auditors;
	q)		review and consider, as appropriate, any significant reports and recommendations issued by the Corporation or by any external party relating to internal audit issues, together with management’s response thereto;

Internal Controls and Financial Reporting Processes

	r)		review with management, the internal auditors and the external auditors, the Corporation’s financial reporting processes and its internal controls;
	s)		review with the internal auditors the adequacy of internal controls and procedures related to any corporate transactions in which directors or officers of the Corporation have a personal interest, including the expense accounts of officers of the Corporation at the level of Vice-President and above and officers’ use of corporate assets, and consider the results of any reviews thereof by the internal or external auditors;

Complaints Processes

t)

establish procedures for:

	(i)		the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and
	(ii)		the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters,

and review periodically with management and the internal auditors these procedures and any significant complaints received;

Separate Meetings with External Auditors, Internal Audit, Management

u)

meet separately with management, the external auditors and the internal auditors periodically to discuss matters of mutual interest, including any audit problems or difficulties and management’s response thereto, the responsibilities, budget and staffing of the Internal Audit Department and any matter they recommend bringing to the attention of the full Board;

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

Finance

	v)		review all major financings, including financial statement information contained in related prospectuses, information circulars, etc., of the Corporation and its subsidiaries and annually review the Corporation’s financing plans and strategies;
	w)		review management’s plans with respect to Treasury operations, including such items as financial derivatives and hedging activities;

Risk Management

	x)		discuss risk assessment and risk management policies and processes to be implemented for the Corporation, review with management and the Corporation’s internal auditors the effectiveness and efficiency of such policies and processes and their compliance with other relevant policies of the Corporation, and make recommendations to the Board with respect to any outcomes, findings and issues arising in connection therewith;
	y)		review management’s program to obtain appropriate insurance to mitigate risks;

Terms of Reference and Performance Evaluation of Committee

z)

review and reassess the adequacy of these Terms of Reference at least annually, and otherwise as it deems appropriate, and recommend changes to the Board. The Committee shall also undertake an annual evaluation of the Committee’s performance.

Other

	aa)		perform such other activities, consistent with these Terms of Reference, the Corporation’s articles and by-laws and governing law, as the Committee or the Board deems appropriate.
	bb)		report regularly to the Board of Directors on the activities of the Committee.

12.4 Audit and Non-Audit Fees and Services

Fees payable to PricewaterhouseCoopers LLP for the years ended December 31, 2008, and December 31, 2007, totalled $3,195,200 and $3,433,980, respectively, as detailed in the following table:

		Year ended				Year ended
		December 31, 2008				December 31, 2007
Audit Fees		$	2,044,700			$	2,391,600
Audit-Related Fees		$	808,600			$	619,780
Tax Fees		$	341,900			$	422,600
All Other Fees		$	—			$	—
TOTAL		$	3,195,200			$	3,433,980

The nature of the services provided by PricewaterhouseCoopers LLP under each of the categories indicated in the table is described below.

12.4.1 Audit Fees

Audit fees were for professional services rendered for the audit of CP’s annual financial statements and services provided in connection with statutory and regulatory filings or engagements, including the attestation engagement for the independent auditor’s report on management’s report on internal controls for financial reporting.

12.4.2 Audit-Related Fees

Audit-related fees were for attestation and related services reasonably related to the performance of the audit or review of the annual financial statements, but which are not reported under “Audit Fees” above. These services consisted of: the audit or review of financial statements of certain subsidiaries and of various pension and benefits plans of CP; special attestation services as may be required by various government entities; assistance with preparations for compliance with Section 404 of the Sarbanes-Oxley Act of 2002; due diligence services related to potential business acquisition targets; access fees for technical accounting database resources; and general advice and assistance related to accounting and/or disclosure matters with respect to new and proposed Canadian and US Accounting Guidelines, securities regulations, and/or laws.

SECTION 12: AUDIT, FINANCE AND RISK MANAGEMENT COMMITTEE

12.4.3 Tax Fees

Tax fees were for professional services related to tax compliance, tax planning and tax advice. These services consisted of: tax compliance including the review of tax returns; assistance with questions regarding corporate tax audits; tax planning and advisory services relating to common forms of domestic and international taxation (i.e. income tax, capital tax, goods and services tax, and valued added tax); and access fees for taxation database resources.

12.4.4 All Other Fees

Fees disclosed under this category would be for products and services other than those described under “Audit Fees”, “Audit-Related Fees” and “Tax Fees” above. In both 2008 and 2007, there were no services in this category.

SECTION 13: ADDITIONAL INFORMATION

13.1 Additional Company Information

Additional information about CP is available on SEDAR (System for Electronic Document Analysis and Retrieval) at www.sedar.com in Canada, and on the US Securities and Exchange Commission’s website (EDGAR) at www.sec.gov. The aforementioned information is issued and made available in accordance with legal requirements and is not incorporated by reference into this AIF except as specifically stated.

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities and securities authorized for issuance under equity compensation plans, where applicable, is contained in the information circular for our most recent annual meeting of shareholders at which directors were elected.

Additional financial information is provided in our Consolidated Financial Statements and MD&A for the most recently completed financial year.

This information is also available on our website at www.cpr.ca.

 

 

 

 

 

 

 

Annual Report 2008 

CHIEF EXECUTIVE OFFICER’S LETTER TO SHAREHOLDERS
February 23, 2009

 

The world faced unprecedented economic volatility in 2008. At Canadian Pacific, we felt the effects of a fluctuating Canadian dollar, extreme movement in fuel prices, drastic changes in both equity and credit markets and reduced traffic volumes as our customers adjusted to changing trade levels. While these factors are expected to pressure our business through 2009, I expect that our sound business strategy will produce positive long-term results and position us to take advantage of opportunities when the global economy recovers.

 

In January 2009, CP announced an equity offering in which we entered into an agreement with a syndicate of underwriters who agreed to purchase 13.9 million common shares of CP. This offering provides CP with gross proceeds of approximately $510.8 million which may be used to reduce indebtedness, contribute to funding of capital projects and for general corporate purposes. This transaction strengthens our balance sheet and provides us with increased financial flexibility in today’s uncertain economy.

 

I am confident that our efforts to preserve future growth options, focus on cost management and strengthening our balance sheet will help us weather the global economic storm and emerge even stronger.

 

We completed the acquisition of the Dakota, Minnesota & Eastern Railroad (DM&E) with the approval from the U.S. Surface Transportation Board in October of 2008. This strong regional railroad is delivering results that exceed our original investment case. It has expanded our capacity and extends our network reach and access to key ports and rail interchanges.

 

We saw early signs of the softening economy in the first half of 2008 and we moved quickly to accelerate a number of efficiency efforts throughout our organization. Our early actions are already delivering sustainable savings and we will elevate our focus on our fixed cost structure in 2009 to realize additional efficiencies.

 

We have also acted to ensure future growth opportunities, despite the changes in the economic landscape. We secured land and permits in the Montreal and Edmonton areas for intermodal growth. We also secured rights-of-way and permits in Woodstock, Ontario to service Toyota, and in the Alberta Industrial Heartland for access to future oil sands upgrader growth. The completion of our western corridor expansion provides capacity for many years of efficient growth and our co-production agreements on critical lines running into Vancouver from Kamloops were aligned and extended.

 

While we are operating more efficiently, we continue to make safe operations our top priority. We made notable improvements in the full-year safety statistics on our railway. Our employee injury frequency was down 31% and train operation incidents declined 10%. While these are excellent results, I am most proud that 2008 was a fatality-free year. Throughout 2008, every CP employee truly embraced our vision to be the safest, most fluid railway in North America by making safety a top priority.

 

CP recognizes how important it is that we maintain our partnerships with the more than 1,500 communities through which we operate. 2008 marked a number of community investment milestones. Our 10th anniversary Holiday Train visited over 125 communities in six provinces and seven states to raise food, money and awareness for local food banks. Our ongoing sponsorship of the Vancouver 2010 Winter Games will help move Games equipment, sponsor materials and supplies to Vancouver through our innovative logistics and transportation solutions. We also partnered with the province of B.C. to celebrate its 150th anniversary with the CP Spirit of BC 150 Rail Tour, which visited 33 communities and was headed by CP’s 2816 Empress Steam locomotive.

 

Although investing in our employees and the communities through which we operate must be balanced with aggressively capitalizing on cost control opportunities, our values include being good neighbours and we will continue to fulfill our community responsibilities in these challenging economic times.

 

With continuing economic uncertainty through 2009, CP is firmly focused on managing fixed and variable costs, ensuring we continue to price for value, delivering consistent, quality service to our customers and maximizing our strategic flexibility. Maintaining our financial flexibility and focusing on safe and efficient operations will position us well for the future and the inevitable upturn in the economy.

 

Sincerely,

 

Fred J. Green

President and Chief Executive Officer

2008 ANNUAL REPORT		1

 

MANAGEMENT’S DISCUSSION AND ANALYSIS
February 23, 2009

 

 

TABLE OF CONTENTS

 

2		2008 ANNUAL REPORT

 

This Management’s Discussion and Analysis (“MD&A”) supplements the Consolidated Financial Statements and related notes for the year ended December 31, 2008. Except where otherwise indicated, all financial information reflected herein is expressed in Canadian dollars. All information has been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), except as described in Section 6.0 of this MD&A.

 

In this MD&A, “our”, “us”, “we”, “CP” and “the Company” refer to Canadian Pacific Railway Limited (“CPRL”), CPRL and its subsidiaries, CPRL and one or more of its subsidiaries, or one or more of CPRL’s subsidiaries, as the context may require. Other terms not defined in the body of this MD&A are defined in Section 25.0 Glossary of Terms.

 

Unless otherwise indicated, all comparisons of results for the fourth quarter of 2008 and 2007 are against the results for the fourth quarter of 2007 and 2006, respectively. Unless otherwise indicated, all comparisons of results for 2008 and 2007 are against the results for 2007 and 2006, respectively.

 

1.0 Business Profile

 

CPRL is a holding company whose direct and indirect subsidiaries operate railways in North America. The Company’s vision is to become the safest and most fluid railway in North America.

 

The main operating subsidiary of the Company, Canadian Pacific Railway Company (“CPRC”), was incorporated in 1881. CPRC is one of Canada’s oldest corporations and was North America’s first transcontinental railway. From its inception 128 years ago, CPRC has developed into a fully integrated and technologically advanced Class I railway providing rail and intermodal freight transportation services over a 15,500 mile network serving the principal business centres of Canada, from Montreal, Quebec, to Vancouver, British Columbia, and the US Midwest and Northeast regions.

 

The Company owns approximately 10,800 miles of track. An additional 4,700 miles of track are owned jointly, leased or operated under trackage rights. Of the total mileage operated, approximately 6,300 miles are located in western Canada, 2,200 miles in eastern Canada, 5,800 miles in the US Midwest and 1,200 miles in the US Northeast. CPRL’s business is based on funnelling railway traffic from feeder lines and connectors, including secondary and branch lines, onto its high-density mainline railway network. CPRL has established alliances and connections with other major Class I railways in North America, to provide competitive services and access to markets across North America beyond its own rail network. CPRL also provides service to markets in Europe and the Pacific Rim through direct access to the Port of Montreal, Quebec, and the Port of Vancouver, British Columbia, respectively.

 

CPRL’s network accesses the US market directly through three wholly-owned subsidiaries: Soo Line Railroad Company (“Soo Line”), a Class I railway operating in the US Midwest; the Delaware and Hudson Railway Company (“D&H”), which operates between eastern Canada and major US Northeast markets, including New York City, New York; Philadelphia, Pennsylvania; and Washington, DC; and Dakota, Minnesota and Eastern Railroad Corporation (“DM&E”, discussed further in Section 18.0 Acquisition), which operates in the US Midwest.

 

2.0 Strategy

 

Our vision is to become the safest and most fluid railway in North America. Through the ingenuity of our people, it is our objective to create long-term value for our customers, shareholders and employees by profitably growing to expand within the reach of our rail franchise and through strategic additions. We seek to accomplish this objective through the following three-part strategy:

 

 

3.0 Additional Information

 

Additional information, including our Consolidated Financial Statements, MD&A, Annual Information Form, press releases and other required filing documents, is available on SEDAR at www.sedar.com in Canada, on EDGAR at www.sec.gov in the US and on our website at www.cpr.ca. The aforementioned documents are issued and made available in accordance with legal requirements and are not incorporated by reference into this MD&A.

2008 ANNUAL REPORT		3

4.0 Financial Highlights