Canadian Pacific announces strong results for 2006



    Operating Income sets record at $1.13 billion

    CALGARY, Jan. 30 /CNW/ - Canadian Pacific (TSX/NYSE:   CP) announced its
fourth-quarter and full year 2006 results today. For the full year, net income
for 2006 was $796 million, which included a tax benefit of $176 million as a
result of a decrease in Canadian federal and provincial income tax rates. This
was an increase in net income of 47 per cent over 2005. Diluted earnings per
share was $5.02 for the full year 2006, an increase of 48 per cent over 2005.

    
    SUMMARY OF FULL-YEAR 2006 COMPARED WITH FULL-YEAR 2005

    Excluding foreign exchange gains and losses on long-term debt and other
    specified items:
    -   Diluted earnings per share was $3.95, an increase of 20 per cent.
    -   Operating income was $ 1.129 billion, a full year record, and an
        increase of 13 per cent.
    -   Operating ratio was 75.4 per cent, which was an improvement of
        180 basis points.
    -   Revenue grew 4 per cent to $4.583 billion, with operating expenses
        increasing by only 2 per cent.

    "I'm pleased with the financial results," said Fred Green, President and
CEO, "We focused on cost containment and improving the fluidity of our
operations, and, with our diversified customer portfolio, we delivered strong
results while overcoming a drop in coal revenues of $137 million. As well, I
am particularly delighted with our team's improvement on the safety front. We
reduced personal injuries by 17 per cent and train accidents by 39 per cent
over 2005, again making CP one of the safest railroads in North America."

    SUMMARY OF 4TH QUARTER 2006 COMPARED WITH 4TH QUARTER 2005

    Net income for the fourth-quarter was $146 million, an increase of 6 per
cent.

    Excluding foreign exchange losses on long-term debt and other specified
    items:
    -   Diluted earnings per share was $1.15, an increase of 7.5 per cent.
    -   Operating ratio improved by 80 basis points to 73.1 per cent.
    -   Income increased 6 per cent to $181 million.
    -   Total revenue grew 2 per cent and operating expenses were up less
        than 1 per cent.
    

    "We are well positioned to continue to deliver on our commitments in
2007," said Mr. Green. "Our Integrated Operating Plan has significantly
improved fluidity, allowing us to respond quickly and adjust our operations to
changes in traffic volumes. Through our continued focus on execution
excellence, we are improving the efficiency of our business, keeping CP on
track to be the safest, most fluid railway in North America."
    Freight revenues in the fourth-quarter were $1.152 billion, with grain
increasing 16.5 per cent over fourth-quarter 2005 and sulphur and fertilizers
growing 19 per cent. Industrial and consumer products and intermodal showed
modest growth. This was offset in part, primarily by a 16 per cent decrease in
coal.
    Operating expenses, excluding other specified items, for the quarter were
up less than 1 per cent. Increases due to inflation and volumes were largely
offset by improved operating efficiencies and reductions in management staff.

    2007 OUTLOOK

    "It is early in the year and there are many factors in play," said Mr.
Green. "Rail fundamentals remain strong, although our Operating team has been
tested with very tough winter operating conditions and there is softening in
some sectors of the North American economy. At the same time, we are seeing
fluctuating fuel prices and a weakening Canadian dollar. I am confident we
will hit our stride in 2007 and CP's outlook for diluted earnings per share in
2007 remains in the range of $4.30 to $4.45, an increase of 9 to 13 per cent
respectively, over the 2006 diluted EPS which was $3.95, (excluding foreign
exchange gains and losses on long-term debt and other specified items)."
    CP expects to grow revenue in the range of 4 per cent to 6 per cent in
2007. Capital investment is anticipated to be between $885 million and
$895 million and free cash, after dividends, is now expected to exceed $250
million in 2007. This outlook assumes oil prices averaging US$58 per barrel
and an average currency exchange rate of $1.15 per U.S. dollar (US$0.87).

    RESTATEMENT OF COMPARATIVE FIGURES FOR 2005

    Prior period comparative figures have been restated for retroactively
applied accounting changes. The CICA issued Emerging Issues Committee Abstract
"Stock-Based Compensation for Employees Eligible to Retire Before the Vesting
Date" ("EIC 162") which became effective for the year ended December 31, 2006
and has been applied retroactively with restatement of prior periods. The
compensation cost attributable to stock-based awards is recognized over the
period from the grant date to the date the employees become eligible to retire
when this is shorter than the vesting period. The adoption of EIC 162 resulted
in a decrease in reported "Compensation and benefits" expense for the three
months ended December 31, 2006 by $0.6 million (three months ended December
31, 2005 - $2.0 million) and for the year ended December 31, 2006 by $1.2
million (year ended December 31, 2005 - $0.2 million). Note 2 to the financial
statements describes adoption of EIC 162.

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

    Results for full-year 2006 included a foreign exchange loss of $0.1
million ($7 million after tax) on long-term debt, compared with a gain of
$45 million ($22 million after tax) on long-term debt in 2005. Results for the
fourth quarter of 2006 included a foreign exchange loss of $45 million ($35
million after tax), compared with a loss of $1 million ($5 million after tax)
in the same period of 2005.
    Other specified items in 2006 were related to a future income tax benefit
of $176 million as a result of a decrease in Canadian federal and provincial
income tax rates that occurred in the second quarter of 2006.
    Other specified items in 2005 were related to a special charge and a
partial reduction of a special charge originally taken in 2004, which had a
net impact of $10 million ($8 million after tax) in 2005. CP began in 2005 a
program to reduce management and administrative staff by approximately 400.
These reductions, which were completed during the third quarter of 2006,
resulted in a special charge of $44 million ($28 million after tax) in the
fourth quarter of 2005. This special charge was partially offset by a
reduction, booked in the third quarter of 2005, of $34 million ($21 million
after tax) to a special charge of $91 million ($55 million after tax) taken in
2004 for environmental remediation of a property in the United States. The
reduction reflected a settlement of litigation related to remediation of the
environmental contamination.

    Presentation of non-GAAP earnings

    CP presents non-GAAP earnings in this news release to provide a basis for
evaluating underlying earnings and liquidity trends in its business that can
be compared with prior periods' results of operations. These non-GAAP earnings
exclude foreign currency translation effects on long-term debt, which can be
volatile and short term, and other specified items, which are not among CP's
normal ongoing revenues and operating expenses. The impact of volatile
short-term rate fluctuations on foreign-denominated debt is only realized when
long-term debt matures or is settled. A reconciliation of income, excluding
foreign exchange gains and losses on long-term debt and other specified items,
to net income as presented in the financial statements is detailed in the
attached Summary of Rail Data.
    Free cash after dividends is calculated as cash provided by operating
activities, less cash used in investing activities and dividends.
    Earnings that exclude foreign exchange currency translation effect on
long-term debt and other specified items, and free cash after dividends, as
described in this news release, have no standardized meanings and are not
defined by Canadian generally accepted accounting principles and, therefore,
are unlikely to be comparable to similar measures presented by other
companies.
    Other specified items are material transactions that may include, but are
not limited to, restructuring and asset impairment charges, gains and losses
on non-routine sales of assets, unusual income tax adjustments, and other
items that do not typify normal business activities. In 2006, the only other
specified item was an income tax benefit of $176 million, or $1.09 per share,
as a result of tax rate reductions.

    Note on forward looking-information

    This news release contains certain forward-looking statements relating
but not limited to our operations, anticipated financial performance and
business prospects. Undue reliance should not be placed on forward-looking
information as actual results may differ materially.
    By its nature, CP's forward-looking information involves numerous
assumptions, inherent risks and uncertainties, including but not limited to
the following factors: changes in business strategies; general global economic
and business conditions; risks in agricultural production such as weather
conditions and insect populations; fluctuations in the value of the Canadian
dollar relative to the U.S. dollar; the availability and price of energy
commodities; the effects of competition and pricing pressures; industry
capacity; shifts in market demand; changes in laws and regulations; changes in
taxes and tax rates; potential increases in maintenance and operating costs;
uncertainties of litigation; labour disputes; timing of completion of capital
and maintenance projects; interest rate fluctuations; effects of changes in
market conditions on the financial position of pension plans; and various
events that could disrupt operations, including severe weather conditions,
security threats and governmental response to them, and technological changes.
    There are factors that could cause actual results to differ from those
described in the forward-looking statements contained in this news release.
These more specific factors are identified and discussed in the Outlook
section and elsewhere in this news release with the particular forward-looking
statement in question.
    CP undertakes no obligation to update publicly or otherwise revise any
forward-looking information, whether as a result of new information, future
events or otherwise.
    Canadian Pacific, through the ingenuity of its employees located across
Canada and in the United States, intends to be the safest, and most fluid
railway in North America. Our people are the key to delivering innovative
transportation solutions to our customers and to ensuring the safe operation
of our trains through the more than 900 communities where we operate. Our
combined ingenuity makes Canadian Pacific a better place to work, rail a
better way to ship, and North America a better place to live. Come and visit
us at www.cpr.ca to see how we can put our ingenuity to work for you. Canadian
Pacific is proud to be the official rail freight services provider for the
Vancouver 2010 Olympic and Paralympic Winter Games.



    
    STATEMENT OF CONSOLIDATED INCOME
    (in millions, except per share data)
                                                         For the three months
                                                           ended December 31
                                                          2006          2005
                                                                    Restated
                                                                 (See Note 2)
                                                   --------------------------
                                                          (unaudited)
    Revenues
      Freight                                       $  1,151.5    $  1,124.4
      Other                                               38.9          42.5
                                                   --------------------------
                                                       1,190.4       1,166.9
    Operating expenses
      Compensation and benefits                          322.2         322.0
      Fuel                                               171.2         166.4
      Materials                                           53.7          53.1
      Equipment rents                                     47.8          53.0
      Depreciation and amortization                      115.9         113.6
      Purchased services and other                       159.5         154.6
                                                   --------------------------
                                                         870.3         862.7
                                                   --------------------------
    Operating income before the following:               320.1         304.2

    Special charge for labour restructuring
     (Note 5)                                                -          44.2
                                                   --------------------------

    Operating income                                     320.1         260.0

    Other charges (Note 7)                                 6.4           6.8
    Foreign exchange loss on long-term debt               44.9           0.6
    Interest expense (Note 8)                             49.8          49.1
    Income tax expense (Note 9)                           73.4          66.4
                                                   --------------------------

    Net income                                      $    145.6    $    137.1
                                                   --------------------------
                                                   --------------------------

    Basic earnings per share (Note 10)              $     0.93    $     0.87
                                                   --------------------------
                                                   --------------------------

    Diluted earnings per share (Note 10)            $     0.92    $     0.86
                                                   --------------------------
                                                   --------------------------

    See notes to interim consolidated financial statements.



    STATEMENT OF CONSOLIDATED INCOME
    (in millions, except per share data)
                                                             For the year
                                                          ended December 31
                                                          2006          2005
                                                                    Restated
                                                                 (See Note 2)
                                                   --------------------------
                                                          (unaudited)
    Revenues
      Freight                                       $  4,427.3    $  4,266.3
      Other                                              155.9         125.3
                                                   --------------------------
                                                       4,583.2       4,391.6
    Operating expenses
      Compensation and benefits                        1,327.6       1,322.1
      Fuel                                               650.5         588.0
      Materials                                          212.9         203.3
      Equipment rents                                    181.2         210.0
      Depreciation and amortization                      464.1         445.1
      Purchased services and other                       618.3         621.6
                                                   --------------------------
                                                       3,454.6       3,390.1
                                                   --------------------------
    Operating income before the following:             1,128.6       1,001.5

    Special credit for environmental
     remediation (Note 4)                                    -         (33.9)
    Special charge for labour restructuring
     (Note 5)                                                -          44.2
                                                   --------------------------

    Operating income                                   1,128.6         991.2

    Other charges (Note 7)                                27.8          18.1
    Foreign exchange loss (gain) on long-term debt         0.1         (44.7)
    Interest expense (Note 8)                            194.5         204.2
    Income tax expense (Note 9)                          109.9         270.6
                                                   --------------------------

    Net income                                      $    796.3    $    543.0
                                                   --------------------------
                                                   --------------------------

    Basic earnings per share (Note 10)              $     5.06    $     3.43
                                                   --------------------------
                                                   --------------------------

    Diluted earnings per share (Note 10)            $     5.02    $     3.39
                                                   --------------------------
                                                   --------------------------

    See notes to interim consolidated financial statements.



    CONSOLIDATED BALANCE SHEET
    (in millions)
                                                   December 31   December 31
                                                          2006          2005
                                                                    Restated
                                                                 (See Note 2)
                                                   --------------------------
                                                          (unaudited)
    Assets
    Current assets
      Cash and cash equivalents                     $    124.3    $    121.8
      Accounts receivable and other current assets       615.7         524.0
      Materials and supplies                             158.6         140.1
      Future income taxes                                106.3         108.0
                                                   --------------------------
                                                       1,004.9         893.9

    Investments                                           64.9          67.3
    Net properties                                     9,122.9       8,790.9
    Other assets and deferred charges (Note 11)        1,223.2       1,139.0
                                                   --------------------------

    Total assets                                    $ 11,415.9    $ 10,891.1
                                                   --------------------------
                                                   --------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Accounts payable and accrued liabilities      $  1,002.6    $  1,032.8
      Income and other taxes payable                      16.0          30.2
      Dividends payable                                   29.1          23.7
      Long-term debt maturing within one year            191.3          30.0
                                                   --------------------------
                                                       1,239.0       1,116.7

    Deferred liabilities                                 725.7         745.9
    Long-term debt                                     2,813.5       2,970.8
    Future income taxes                                1,781.2       1,673.6

    Shareholders' equity
      Share capital (Note 12)                          1,175.7       1,141.5
      Contributed surplus (Note 12)                       32.3         245.1
      Foreign currency translation adjustments            66.4          67.5
      Retained income                                  3,582.1       2,930.0
                                                   --------------------------
                                                       4,856.5       4,384.1
                                                   --------------------------

    Total liabilities and shareholders' equity      $ 11,415.9    $ 10,891.1
                                                   --------------------------
                                                   --------------------------

    Commitments and contingencies (Note 17).
    See notes to interim consolidated financial statements.



    STATEMENT OF CONSOLIDATED CASH FLOWS
    (in millions)
                                                         For the three months
                                                           ended December 31
                                                          2006          2005
                                                                    Restated
                                                                 (See Note 2)
                                                   --------------------------
                                                          (unaudited)

    Operating activities
      Net income                                    $    145.6    $    137.1
      Add (deduct) items not affecting cash:
        Depreciation and amortization                    115.9         113.6
        Future income taxes                               73.0          62.7
        Special charge for labour restructuring              -          44.2
        Foreign exchange loss on long-term debt           44.9           0.6
        Amortization of deferred charges                   3.4           4.3
      Restructuring payments (Note 13)                   (27.1)        (26.4)
      Other operating activities, net                    (73.4)        (52.4)
      Change in non-cash working capital balances
       related to operations                              33.7          55.6
                                                   --------------------------
      Cash provided by operating activities              316.0         339.3
                                                   --------------------------
    Investing activities
      Additions to properties                           (204.5)       (299.6)
      Decrease in investments and other
       assets (Note 11)                                   23.3           0.1
      Net proceeds from disposal of transportation
       properties                                         18.7           3.4
                                                   --------------------------
      Cash used in investing activities                 (162.5)       (296.1)
                                                   --------------------------
    Financing activities
      Dividends paid                                     (29.4)        (23.7)
      Issuance of CPR common shares                       14.3          24.1
      Purchase of CPR common shares                      (59.5)         (2.3)
      Issuance of long-term debt                           2.8             -
      Repayment of long-term debt                         (3.8)         (6.1)
                                                   --------------------------
      Cash used in financing activities                  (75.6)         (8.0)
                                                   --------------------------
    Cash position
      Increase in cash and cash equivalents               77.9          35.2
      Net cash and cash equivalents at beginning
       of period                                          46.4          86.6
                                                   --------------------------
      Net cash and cash equivalents at end
       of period                                    $    124.3    $    121.8
                                                   --------------------------
                                                   --------------------------

    See notes to interim consolidated financial statements.



    STATEMENT OF CONSOLIDATED CASH FLOWS
    (in millions)
                                                             For the year
                                                          ended December 31
                                                          2006          2005
                                                                    Restated
                                                                 (See Note 2)
                                                   --------------------------
                                                          (unaudited)

    Operating activities
      Net income                                    $    796.3    $    543.0
      Add (deduct) items not affecting cash:
        Depreciation and amortization                    464.1         445.1
        Future income taxes                               75.3         258.0
        Special credit for environmental
         remediation                                         -         (30.9)
        Special charge for labour restructuring              -          44.2
        Foreign exchange loss (gain) on long-term
         debt                                              0.1         (44.7)
        Amortization of deferred charges                  16.5          19.5
      Restructuring payments (Note 13)                   (96.3)        (69.0)
      Other operating activities, net                   (103.4)        (91.2)
      Change in non-cash working capital balances
       related to operations                            (101.6)        (23.3)
                                                   --------------------------
      Cash provided by operating activities            1,051.0       1,050.7
                                                   --------------------------
    Investing activities
      Additions to properties                           (793.7)       (884.4)
      Decrease in investments and other assets
       (Note 11)                                           2.2           2.0
      Net proceeds from disposal of transportation
       properties                                         97.8          13.2
                                                   --------------------------
      Cash used in investing activities                 (693.7)       (869.2)
                                                   --------------------------
    Financing activities
      Dividends paid                                    (112.4)        (89.5)
      Issuance of CPR common shares                       66.6          31.8
      Purchase of CPR common shares                     (286.4)        (80.6)
      Issuance of long-term debt                           2.8             -
      Repayment of long-term debt                        (25.4)       (274.4)
                                                   --------------------------
      Cash used in financing activities                 (354.8)       (412.7)
                                                   --------------------------
    Cash position
      Increase (decrease) in net cash and cash
       equivalents                                         2.5        (231.2)
      Net cash and cash equivalents at beginning
       of period                                         121.8         353.0
                                                   --------------------------
      Net cash and cash equivalents at end
       of period                                    $    124.3    $    121.8
                                                   --------------------------
                                                   --------------------------

    See notes to interim consolidated financial statements.



    STATEMENT OF CONSOLIDATED RETAINED INCOME
    (in millions)
                                                             For the year
                                                          ended December 31
                                                          2006          2005
                                                   --------------------------
                                                          (unaudited)

    Balance, January 1                              $  2,930.0    $  2,484.4

    Adjustment for change in accounting policy
     (Note 2)                                                -          (5.2)
                                                   --------------------------
                                                       2,930.0       2,479.2

    Net income for the period                            796.3         543.0

    Dividends                                           (117.7)        (92.2)

    Shares repurchased (Note 12)                         (26.5)            -
                                                   --------------------------

    Balance, December 31                            $  3,582.1    $  2,930.0
                                                   --------------------------
                                                   --------------------------

    See notes to interim consolidated financial statements.



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    DECEMBER 31, 2006
    (unaudited)

    1   Basis of presentation

        These unaudited interim consolidated financial statements and notes
        have been prepared using accounting policies that are consistent with
        the policies used in preparing Canadian Pacific Railway Limited's
        ("CPR", "the Company" or "Canadian Pacific Railway") 2005 annual
        consolidated financial statements except for new accounting policies
        adopted in 2006 (see Note 2). They do not include all disclosures
        required under generally accepted accounting principles for annual
        financial statements and should be read in conjunction with the
        annual consolidated financial statements.

        CPR's operations can be affected by seasonal fluctuations such as
        changes in customer demand and weather-related issues. This
        seasonality could impact quarter-over-quarter comparisons.

    2   New accounting policies

        Stock-Based Compensation for Employees Eligible to Retire Before the
        --------------------------------------------------------------------
        Vesting Date
        ------------

        The CICA issued Emerging Issues Committee Abstract "Stock-Based
        Compensation for Employees Eligible to Retire Before the Vesting
        Date" ("EIC 162") which became effective for the year ended
        December 31, 2006 and has been applied retroactively with restatement
        of prior periods. Under EIC 162, compensation cost attributable to
        stock-based awards is recognized over the period from the grant date
        to the date employees become eligible to retire when this is shorter
        than the vesting period. The adoption of EIC 162 resulted in a
        $5.2 million reduction to opening retained earnings at
        January 1, 2005, and decreased reported "Compensation and benefits"
        expense for the three months ended December 31, 2006 by $0.6 million
        (three months ended December 31, 2005 - $2.0 million) and for the
        year ended December 31, 2006 by $1.2 million (year ended
        December 31, 2005 - $0.1 million).

        Non-monetary transactions
        -------------------------

        In June 2005, the CICA issued Accounting Standard Section 3831
        "Non-Monetary Transactions" which became effective on
        January 1, 2006. It has been applied prospectively to non-monetary
        transactions occurring on or after that date. The standard requires
        that assets or liabilities exchanged or transferred in a non-monetary
        transaction that has commercial substance be valued at fair value
        with any gain or loss recorded in income. Commercial substance exists
        when, as a result of the transaction, there is a significant change
        to future cash flows of the item transferred or the company as a
        whole. Transactions that lack commercial substance or for which the
        fair value of the exchanged assets cannot be reliably measured will
        continue to be accounted for at carrying value. Previously,
        non-monetary transactions that did not constitute the culmination of
        the earnings process were recorded at carrying value. The impact to
        CPR on adoption of this new standard was not significant.

    3   Future accounting changes

        Financial instruments, hedging and comprehensive income
        -------------------------------------------------------

        The CICA issued the following accounting standards effective for
        fiscal years beginning on or after October 1, 2006: Accounting
        Standard Section 3855 "Financial Instruments, Recognition and
        Measurement", Accounting Standard Section 3861 "Financial
        Instruments, Presentation and Disclosure", Accounting Standard
        Section 3865 "Hedging" and Accounting Standard Section 1530
        "Comprehensive Income". These sections require certain financial
        instruments and hedge positions to be recorded at their fair value.
        They also introduce the concept of comprehensive income and
        accumulated other comprehensive income.

        Adoption of these standards will be effective from January 1, 2007 on
        a prospective basis without retroactive restatement of prior periods,
        except for the reclassification of equity balances to reflect
        "Accumulated Other Comprehensive Income" which will include foreign
        currency translation adjustments.

        Under the new standard, financial instruments designated as
        "held-for-trading" and "available-for-sale" will be carried at their
        fair value while financial instruments such as "loans and
        receivables", "financial liabilities" and those classified as
        "held-to-maturity" will be carried at their amortized cost. All
        derivatives will be carried on the Consolidated Balance Sheet at
        their fair value, including derivatives designated as hedges. The
        effective portion of unrealized gains and losses on cash flow hedges
        will be carried in "Accumulated Other Comprehensive Income", a
        component of "Shareholders' Equity" (on the Consolidated Balance
        Sheet), with any ineffective portions of gains and losses on hedges
        taken into income immediately.

        Accounting Changes
        ------------------

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

        A change in accounting policy as a result of the initial application
        of a new accounting section should be applied in accordance with the
        transitional provisions of the accounting section being adopted. A
        voluntary change in accounting policy for which specific transitional
        provisions do not exist should be applied retrospectively with
        restatement of prior period financial statements.

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

    4   Reduction to environmental remediation

        During the three months ended September 30, 2005, a settlement was
        reached with a responsible party in relation to portions of past
        environmental contamination at a CPR-owned property in the U.S. As a
        result, CPR was able to reduce accrued liabilities related to the
        property, and recognized a total reduction of $33.9 million to a
        special charge for environmental remediation recorded in 2004.

    5   Special charge for labour restructuring

        In the fourth quarter of 2005, CPR recorded a special charge of
        $44.2 million for a labour restructuring initiative. This initiative,
        mostly job reductions in management and administrative positions, was
        completed in 2006.

    6   Change in accounting estimate

        During 2005, the Company prospectively recorded a $23.4-million
        adjustment to increase revenues in 2005 related to services provided
        in 2004. The adjustment reflected a change in estimate primarily as a
        result of a contract settlement with a customer.

    7   Other charges

                                          For the three       For the year
                                          months ended           ended
                                           December 31         December 31
        (in millions)                     2006      2005      2006      2005
                                      ------------------- -------------------

        Amortization of discount on
         accruals recorded at
         present value                $    1.9  $    3.0  $   10.0  $   15.4
        Other exchange losses (gains)      2.0       1.1       6.5      (2.2)
        Loss on sale of accounts
         receivable                        1.3       0.9       5.0       3.5
        Gains on non-hedging
         derivative instruments           (0.8)     (0.1)     (1.2)     (6.6)
        Other                              2.0       1.9       7.5       8.0
                                      ------------------- -------------------

        Total other charges           $    6.4  $    6.8  $   27.8  $   18.1
                                      ------------------- -------------------
                                      ------------------- -------------------


    8   Interest expense

                                          For the three       For the year
                                          months ended           ended
                                           December 31         December 31
        (in millions)                     2006      2005      2006      2005
                                      ------------------- -------------------

        Interest expense              $   51.4  $   50.2  $  200.5  $  211.8
        Interest income                   (1.6)     (1.1)     (6.0)     (7.6)
                                      ------------------- -------------------

        Total interest expense        $   49.8  $   49.1  $  194.5  $  204.2
                                      ------------------- -------------------


    9   Income tax expense

        In the three months ended June 30, 2006, federal and provincial
        legislation was introduced to reduce corporate income tax rates over
        a period of several years. As a result of these changes, the Company
        recorded a $176.0 million benefit in future tax liability and income
        tax expense in the three months ended June 30, 2006.

        Cash taxes paid for the three months ended December 31, 2006 were
        $24.3 million (three months ended December 31, 2005 - $0.9 million)
        and for the year ended December 31, 2006 were $50.9 million (year
        ended December 31, 2005 - $7.6 million).


    10  Earnings per share

        At December 31, 2006, the number of shares outstanding was
        155.5 million (December 31, 2005 - 158.2 million).

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

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

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

                                          For the three       For the year
                                          months ended           ended
                                           December 31         December 31
        (in millions)                     2006      2005      2006      2005
                                      ------------------- -------------------

        Weighted average shares
         outstanding                     155.8     157.6     157.3     158.4
        Dilutive effect of stock
         options                           1.6       2.1       1.5       1.7
                                      ------------------- -------------------

        Weighted average diluted
         shares outstanding              157.4     159.7     158.8     160.1
                                      ------------------- -------------------
                                      ------------------- -------------------

        (in dollars)

        Basic earnings per share      $   0.93  $ 0.87(1) $   5.06  $ 3.43(1)
          Diluted earnings per share  $   0.92  $ 0.86(1) $   5.02  $ 3.39(1)
                                      ------------------- -------------------
                                      ------------------- -------------------

        (1) Restated (see Note 2).

        For the three months ended December 31, 2006, 14,483 options (three
        months ended December 31, 2005 - 4,000 options) were excluded from
        the computation of diluted earnings per share because their effects
        were not dilutive. For the year ended December 31, 2006,
        379,908 options (year ended December 31, 2005 - 1,000 options) were
        excluded from the computation of diluted earnings per share because
        their effects were not dilutive.

    11  Decrease in investments and other assets

        Other assets and deferred charges on the Consolidated Balance Sheet
        include, from time to time, assets held for sale which are purchased
        in anticipation of sale and leaseback arrangements with various
        financial institutions. For the three months ended December 31, 2006,
        assets of $4.6 million were acquired and $26.7 million were sold; and
        for the year ended December 31, 2006, assets of $137.1 million were
        acquired and $136.1 million were sold. No gains or losses were
        incurred in these sale and leaseback arrangements. These investing
        activities are reflected in the Statement of Consolidated Cash Flows
        as part of "Decrease in investments and other assets".

    12  Shareholders' equity

        An analysis of Common Share balances is as follows:

                                      For the three months ended December 31
        (in millions)                        2006                2005
                                        Number    Amount    Number    Amount
                                    -----------------------------------------

        Share capital, October 1         155.9  $1,166.6     157.3  $1,116.3
        Shares issued under stock
         option plans                      0.5      15.1       0.9      25.2
        Shares repurchased                (0.9)     (6.0)        -         -
                                    -----------------------------------------

        Share capital, December 31       155.5  $1,175.7     158.2  $1,141.5
                                    -----------------------------------------
                                    -----------------------------------------


                                         For the year ended December 31
        (in millions)                        2006                2005
                                        Number    Amount    Number    Amount
                                    -----------------------------------------

        Share capital, January 1         158.2  $1,141.5     158.8  $1,120.6
        Shares issued under stock
         option plans                      2.3      71.0       1.2      33.4
        Shares repurchased                (5.0)    (36.8)     (1.8)    (12.5)
                                    -----------------------------------------

        Share capital, December 31       155.5  $1,175.7     158.2  $1,141.5
                                    -----------------------------------------
                                    -----------------------------------------


        An analysis of contributed surplus balances is as follows:

                                                        For the three months
                                                           ended December 31
        (in millions)                                         2006      2005
                                                                    Restated
                                                                 (see Note 2)
                                                       ----------------------

        Contributed surplus, October 1                    $   51.9  $  243.6
        Stock-based compensation expense related to
         stock option plans                                    2.3       1.5
        Shares repurchased                                   (21.9)        -
                                                       ----------------------

        Contributed surplus, December 31                  $    32.3 $  245.1
                                                       ----------------------
                                                       ----------------------


                                                              For the year
                                                           ended December 31
        (in millions)                                       2006        2005
                                                                    Restated
                                                                 (see Note 2)
                                                       ----------------------

        Contributed surplus, January 1                    $  245.1  $  304.1
        Stock-based compensation expense related to
         stock option plans                                   10.3       9.1
        Shares repurchased                                  (223.1)    (68.1)
                                                       ----------------------

        Contributed surplus, December 31                  $   32.3  $  245.1
                                                       ----------------------
                                                       ----------------------


        The balance remaining in contributed surplus of $32.3 million relates
        to stock-based compensation recognized to date on unexercised options
        and will be attributed to share capital as options are exercised.

        In June 2006, the Company completed the acquisition of Common Shares
        under the previous normal course issuer bid and filed a new normal
        course issuer bid to purchase, for cancellation, up to 3.9 million of
        its outstanding Common Shares. Under the new filing, share purchases
        may be made during the 12-month period beginning June 6, 2006, and
        ending June 5, 2007. The purchases are made at the market price on
        the day of purchase, with consideration allocated to share capital up
        to the average carrying amount of the shares, and any excess
        allocated to contributed surplus and retained earnings. When shares
        are repurchased, it takes three days before the transaction is
        settled and the shares are cancelled. The cost of shares purchased in
        a given month and settled in the following month is accrued in the
        month of purchase. During the three months ended December 31, 2006,
        0.9 million shares were repurchased at an average price of $63.85
        (three months ended December 31, 2005 - no shares were repurchased)
        and for the year ended December 31, 2006, 5.0 million shares were
        repurchased at an average price of $57.28 (year ended
        December 31, 2005 - 1.8 million shares were repurchased at an average
        price of $45.77).

        The table below summarizes the allocation of shares repurchased
        between share capital, contributed surplus and retained earnings.

                                          For the three       For the year
                                          months ended           ended
                                           December 31         December 31
        (in millions)                     2006      2005      2006      2005
                                      ------------------- -------------------

        Share capital                 $    6.0  $      -  $   36.8  $   12.5
        Contributed surplus               21.9         -     223.1      68.1
        Retained earnings                 26.5         -      26.5         -
                                      ------------------- -------------------

                                      $   54.4  $      -  $  286.4  $   80.6
                                      ------------------- -------------------
                                      ------------------- -------------------


    13  Restructuring and environmental remediation

        At December 31, 2006, the provision for restructuring and
        environmental remediation was $309.0 million (December 31, 2005 -
        $398.8 million). The restructuring provision primarily includes
        labour liabilities for workforce restructuring plans. Payments are
        expected to continue in diminishing amounts until 2025. The
        environmental remediation liability includes the cost of a
        multi-year soil remediation program.

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

                                                    Amorti-
                       Opening                      zation  Foreign  Closing
                       Balance  Accrued                 of Exchange  Balance
        (in millions)   Oct. 1 (Reduced) Payments Discount   Impact  Dec. 31
                       ------------------------------------------------------

        Three months ended December 31, 2006

        Labour
         liability
         for
         terminations
         and
         severances    $ 204.6     (4.5)    (15.9)     1.7      1.5  $ 187.4
        Other
         non-labour
         liabilities
         for exit
         plans             2.0        -      (0.6)       -        -      1.4
                       ------------------------------------------------------

        Total
         restructuring
         liability       206.6     (4.5)    (16.5)     1.7      1.5    188.8
                       ------------------------------------------------------

        Environmental
         remediation
         program         125.0      3.1     (10.6)       -      2.7    120.2
                       ------------------------------------------------------

        Total
         restructuring
         and
         environmental
         remediation
         liability     $ 331.6     (1.4)    (27.1)     1.7      4.2  $ 309.0
                       ------------------------------------------------------
                       ------------------------------------------------------

        Three months ended December 31, 2005

        Labour
         liability for
         terminations
         and
         severances    $ 241.5     35.4     (15.9)     2.4      0.2  $ 263.6
        Other
         non-labour
         liabilities
         for exit plans    5.8        -         -        -        -      5.8
                       ------------------------------------------------------

        Total
         restructuring
         liability       247.3     35.4     (15.9)     2.4      0.2    269.4
                       ------------------------------------------------------

        Environmental
         remediation
         program         132.1      7.7     (10.5)       -      0.1    129.4
                       ------------------------------------------------------

        Total
         restructuring
         and
         environmental
         remediation
         liability     $ 379.4     43.1     (26.4)     2.4      0.3  $ 398.8
                       ------------------------------------------------------
                       ------------------------------------------------------


                                                    Amorti-
                       Opening                      zation  Foreign  Closing
                       Balance  Accrued                 of Exchange  Balance
        (in millions)   Jan. 1 (Reduced) Payments Discount   Impact  Dec. 31
                       ------------------------------------------------------

        Year ended December 31, 2006

        Labour
         liability for
         terminations
         and
         severances    $ 263.6    (14.1)    (71.8)     9.8     (0.1) $ 187.4
        Other
         non-labour
         liabilities
         for exit plans    5.8      0.7      (5.0)     0.1     (0.2)     1.4
                       ------------------------------------------------------

        Total
         restructuring
         liability       269.4    (13.4)    (76.8)     9.9     (0.3)   188.8
                       ------------------------------------------------------

        Environmental
         remediation
         program         129.4     10.5     (19.5)      -      (0.2)   120.2
                       ------------------------------------------------------

        Total
         restructuring
         and
         environmental
         remediation
         liability     $ 398.8     (2.9)    (96.3)     9.9     (0.5) $ 309.0
                       ------------------------------------------------------
                       ------------------------------------------------------

        Year ended December 31, 2005

        Labour
         liability for
         terminations
         and
         severances    $ 269.7     33.6     (50.5)    12.0     (1.2) $ 263.6
        Other
         non-labour
         liabilities
         for exit plans    6.1     (0.1)     (0.1)     0.1     (0.2)     5.8
                       ------------------------------------------------------

        Total
         restructuring
         liability       275.8     33.5     (50.6)    12.1     (1.4)   269.4
                       ------------------------------------------------------

        Environmental
         remediation
         program         172.9    (22.4)    (18.4)       -     (2.7)   129.4
                       ------------------------------------------------------

        Total
         restructuring
         and
         environmental
         remediation
         liability     $ 448.7     11.1     (69.0)    12.1     (4.1) $ 398.8
                       ------------------------------------------------------
                       ------------------------------------------------------


        In the three months and year ended December 31, 2006, CPR recorded
        net reductions in the restructuring liability of $4.5 million and
        $13.4 million, respectively, mainly due to experience gains on
        termination costs for previously accrued labour initiatives. These
        reductions were partially offset by increases in the environmental
        remediation liability of $3.1 million and $10.5 million,
        respectively.

        In the three months and year ended December 31, 2005, CPR recorded
        net increases in the restructuring liability of $35.4 million and
        $33.5 million, respectively. These increases were mostly due to a new
        labour restructuring provision totalling $44.2 million (see Note 5),
        partially offset by experience gains on termination costs for
        previously accrued labour initiatives. In the fourth quarter of 2005,
        CPR also recorded an increase in the environmental remediation
        liability of $7.7 million. In the year ended December 31, 2005, the
        increase in the restructuring liability was partially offset by a
        reduction in the environmental liability (see Note 4).

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


    14  Stock-based compensation

        In 2006, under CPR's stock option plans, the Company issued
        1,467,900 options to purchase Common Shares at the weighted average
        price of $57.80 per share, based on the closing price on the day
        prior to the grant date. In tandem with these options, 509,850 stock
        appreciation rights were issued at the weighted average exercise
        price of $57.80. Also, all 30,000 unvested Restricted Share Units
        which had been issued in 2005, were cancelled in 2006.

        Pursuant to the employee plan, options may be exercised upon vesting,
        which for most employees is between 24 months and 36 months after the
        grant date, and will expire after 10 years.  Some options vest after
        48 months, unless certain performance targets are achieved, in which
        case vesting is accelerated.  These options expire five years after
        the grant date.

        The following is a summary of the Company's fixed stock option plans
        as of December 31:

                                   2006                        2005
                        --------------------------  -------------------------
                                         Weighted                   Weighted
                                          average                    average
                          Number of      exercise     Number of     exercise
                            options         price       options        price
                        --------------------------  -------------------------
        Outstanding,
         January 1        7,971,917   $     32.07     7,752,080  $     29.32
        New options
         granted          1,467,900         57.80     1,556,400        42.09
        Exercised        (2,330,664)        28.59    (1,157,752)       27.48
        Forfeited/
         cancelled         (301,509)        39.07      (178,811)       29.80
                        ------------                ------------
        Outstanding,
         December 31      6,807,644   $     38.50     7,971,917  $     32.07
                        --------------------------  -------------------------
                        --------------------------  -------------------------
        Options
         exercisable
         at December 31   2,918,294   $     29.64     3,162,807  $     27.37
                        --------------------------  -------------------------
                        --------------------------  -------------------------

        Compensation expense is recognized over the shorter of the vesting
        period or employee service period for stock options issued since
        January 1, 2003, based on their estimated fair values on the date of
        grants, as determined by the Black-Scholes option pricing model. Had
        CPR used the fair value method for options granted between January 1,
        2002, and December 31, 2002, CPR's pro forma basis net income and
        earnings per share would have been as follows:

                             For the three months             For the year
                               ended December 31           ended December 31
                               2006          2005          2006         2005
                                         Restated                   Restated
                                      (see Note 2)               (see Note 2)
                        --------------------------  -------------------------

        Net income
         (in millions)
          As reported   $     145.6   $     137.1   $     796.3  $     543.0
          Pro forma     $     145.5   $     137.3   $     796.1  $     542.7
                        --------------------------  -------------------------

        (in dollars)

        Basic earnings
         per share
          As reported   $      0.93   $      0.87   $      5.06  $      3.43
          Pro forma     $      0.93   $      0.87   $      5.06  $      3.43
                        --------------------------  -------------------------

        Diluted earnings
         per share
          As reported   $      0.92   $      0.86   $      5.02  $      3.39
          Pro forma     $      0.92   $      0.86   $      5.01  $      3.39
                        --------------------------  -------------------------


        Under the fair value method, the fair value of options at the grant
        date was $12.4 million for options issued during the year ended
        December 31, 2006 (year ended December 31, 2005 - $10.1 million). The
        weighted average fair value assumptions were approximately:

                                                              For the year
                                                           ended December 31
                                                           2006         2005
                                                       ----------------------

        Expected option life (years)                       4.50         4.50
        Risk-free interest rate                            4.07%        3.49%
        Expected stock price volatility                      22%          24%
        Expected annual dividends per share               $0.75        $0.53
        Weighted average fair value of options granted
         during the year                                 $12.99        $9.66
                                                       ----------------------

        Total Return Swap

        The Company entered into a Total Return Swap ("TRS"), effective in
        May 2006, in order to reduce the volatility and total cost to the
        Company over time of two stock-based compensation programs, share
        appreciation rights ("SAR") and deferred share units ("DSU"). The
        value of the TRS derivative is linked to the market value of the
        Company's stock and is intended to mitigate the impact on expenses of
        share value movements on SARs and DSUs. "Compensation and Benefits"
        expense decreased by $10.8 million and increased by $1.2 million
        during the three months and year ended December 31, 2006,
        respectively, due to unrealized gains and losses for these swaps
        recognized in "Deferred liabilities". These gains and losses
        substantially offset the costs and benefits recognized in the SAR and
        DSU stock-based compensation programs due to fluctuations in share
        price during the period the TRS was in place.

    15  Pensions and other benefits

        The total current charges for pension and other benefits for the
        Company's defined benefit pension plans, defined contribution pension
        plans and post-retirement benefits for the three months ended
        December 31, 2006, was $31.0 million (three months ended December 31,
        2005 - $20.2 million) and for the year ended December 31, 2006, was
        $122.1 million (year ended December 31, 2005 - $82.6 million).

    16  Significant customers

        During the year ended December 31, 2006, one customer comprised 11.5%
        of total revenue (year ended December 31, 2005 - 14.5%). At December
        31, 2006, one customer represented 5.6% of total accounts receivable
        (December 31, 2005 - 8.0%).

    17  Commitments and contingencies

        In the normal course of its operations, the Company becomes involved
        in various legal actions, including claims relating to injuries and
        damages to property. The Company maintains provisions it considers to
        be adequate for such actions. While the final outcome with respect to
        actions outstanding or pending at December 31, 2006, cannot be
        predicted with certainty, it is the opinion of management that their
        resolution will not have a material adverse effect on the Company's
        financial position or results of operations.

        Capital commitments
        At December 31, 2006, CPR had multi-year capital commitments of
        $480.1 million, mainly for locomotive overhaul agreements, in the
        form of signed contracts. Payments for these commitments are due in
        2007 through 2016.

        Operating lease commitments
        At December 31, 2006, minimum payments under operating leases were
        estimated at $634.2 million in aggregate, with annual payments in
        each of the next five years of: 2007 - $133.2 million; 2008 -
        $99.2 million; 2009 - $71.4 million; 2010 - $55.8 million; 2011 -
        $50.4 million.

        Guarantees
        The Company had residual value guarantees on operating lease
        commitments of $442.5 million at December 31, 2006. The maximum
        amount that could be payable under these and all of the Company's
        other guarantees cannot be reasonably estimated due to the nature of
        certain of the guarantees. The Company has accrued for all guarantees
        that it expects will require payment. At December 31, 2006, these
        accruals amounted to $6.2 million. All or a portion of amounts paid
        under certain guarantees could be recoverable from other parties or
        through insurance.


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

                                               Fourth Quarter
                               ----------------------------------------------
                                  2006       2005(1)    Variance       %
                               ----------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------
    Revenues
    --------
      Freight revenue          $ 1,151.5   $ 1,124.4   $    27.1         2.4
      Other revenue                 38.9        42.5        (3.6)       (8.5)
                               ----------------------------------
                                 1,190.4     1,166.9        23.5         2.0
                               ----------------------------------
    Operating Expenses, before
    --------------------------
     other specified items
     ---------------------
      Compensation and benefits    322.2       322.0         0.2         0.1
      Fuel                         171.2       166.4         4.8         2.9
      Materials                     53.7        53.1         0.6         1.1
      Equipment rents               47.8        53.0        (5.2)       (9.8)
      Depreciation and
       amortization                115.9       113.6         2.3         2.0
      Purchased services and
       other                       159.5       154.6         4.9         3.2
                               ----------------------------------
                                   870.3       862.7         7.6         0.9
                               ----------------------------------

    Operating income, before
     other specified items         320.1       304.2        15.9         5.2
      Other charges                  6.4         6.8        (0.4)       (5.9)
      Interest expense              49.8        49.1         0.7         1.4
      Income tax expense before
       foreign exchange (gains)
       losses on long-term debt
       and other specified
       items(2)                     82.9        77.8         5.1         6.6
                               ----------------------------------

    Income before foreign
     exchange (gains) losses on
     long-term debt and other
     specified items(2)            181.0       170.5        10.5         6.2
                               ----------------------------------

    Foreign exchange (gains)
    ------------------------
     losses on long-term debt
     ------------------------
     (FX on LTD)
     -----------
      FX on LTD                     44.9         0.6        44.3           -
      Income tax on FX on
       LTD(3)                       (9.5)        4.5       (14.0)          -
                               ----------------------------------
      FX on LTD (net of tax)        35.4         5.1        30.3           -

    Other specified items
    ---------------------
      Special credit for
       environmental remediation       -           -           -           -
      Special charge for labour
       restructuring                   -        44.2       (44.2)          -
      Income tax on other
       specified items                 -       (15.9)       15.9           -
                               ----------------------------------
      Other specified items (net
       of tax)                         -        28.3       (28.3)          -
      Income tax benefits due to
       Federal and Provincial
       income tax rate
       reductions                      -           -           -           -
                               ----------------------------------
    Net income                 $   145.6   $   137.1   $     8.5         6.2
                               ----------------------------------
                               ----------------------------------

    Earnings per share (EPS)
    ------------------------
      Basic earnings per
       share                   $    0.93   $    0.87   $    0.06         6.9
      Diluted earnings per
       share                   $    0.92   $    0.86   $    0.06         7.0

    EPS before FX on LTD and
    ------------------------
     other specified items(2)
     ------------------------
      Basic earnings per
       share                   $    1.16   $    1.08   $    0.08         7.4
      Diluted earnings per
       share                   $    1.15   $    1.07   $    0.08         7.5

    Weighted average number
     of shares outstanding
     (millions)                    155.8       157.6        (1.8)       (1.1)

    Operating ratio(2)(4)(%)        73.1        73.9        (0.8)          -

    ROCE before FX on LTD
     and other specified
     items (after tax)
     (2)(4)(%)                      10.2         9.4         0.8           -

    Net debt to net debt
     plus equity (%)                37.2        39.6        (2.4)          -

    EBIT before FX on LTD
     and other specified
     items(2)(4)(millions)     $   313.7   $   297.4   $    16.3         5.5
    EBITDA before FX on LTD
     and other specified items
     (2)(4)(millions)          $   429.6   $   411.0   $    18.6         4.5



                                                   Year
                               ----------------------------------------------
                                  2006       2005(1)    Variance       %
                               ----------------------------------------------
    Financial (millions, except
    ---------------------------
     per share data)
     ---------------
    Revenues
    --------
      Freight revenue          $ 4,427.3   $ 4,266.3   $   161.0         3.8
      Other revenue                155.9       125.3        30.6        24.4
                               ----------------------------------
                                 4,583.2     4,391.6       191.6         4.4
                               ----------------------------------
    Operating Expenses, before
    --------------------------
     other specified items
     ---------------------
      Compensation and benefits  1,327.6     1,322.1         5.5         0.4
      Fuel                         650.5       588.0        62.5        10.6
      Materials                    212.9       203.3         9.6         4.7
      Equipment rents              181.2       210.0       (28.8)      (13.7)
      Depreciation and
       amortization                464.1       445.1        19.0         4.3
      Purchased services and
       other                       618.3       621.6        (3.3)       (0.5)
                               ----------------------------------
                                 3,454.6     3,390.1        64.5         1.9
                               ----------------------------------

    Operating income, before
     other specified items       1,128.6     1,001.5       127.1        12.7
      Other charges                 27.8        18.1         9.7        53.6
      Interest expense             194.5       204.2        (9.7)       (4.8)
      Income tax expense before
       foreign exchange (gains)
       losses on long-term debt
       and other specified
       items(2)                    278.8       250.8        28.0        11.2
                               ----------------------------------

    Income before foreign
     exchange (gains) losses on
     long-term debt and other
     specified items(2)            627.5       528.4        99.1        18.8
                               ----------------------------------

    Foreign exchange (gains)
    ------------------------
     losses on long-term debt
     ------------------------
     (FX on LTD)
     -----------
      FX on LTD                      0.1       (44.7)       44.8           -
      Income tax on FX on
       LTD(3)                        7.1        22.4       (15.3)          -
                               ----------------------------------
      FX on LTD (net of tax)         7.2       (22.3)       29.5           -

    Other specified items
    ---------------------
      Special credit for
       environmental remediation       -       (33.9)       33.9           -
      Special charge for labour
       restructuring                   -        44.2       (44.2)          -
      Income tax on other
       specified items                 -        (2.6)        2.6           -
                               ----------------------------------
      Other specified items (net
       of tax)                         -         7.7        (7.7)          -
      Income tax benefits due to
       Federal and Provincial
       income tax rate
       reductions                 (176.0)          -      (176.0)          -
                               ----------------------------------
    Net income                 $   796.3   $   543.0   $   253.3        46.6
                               ----------------------------------
                               ----------------------------------

    Earnings per share (EPS)
    ------------------------
      Basic earnings per
       share                   $    5.06   $    3.43   $    1.63        47.5
      Diluted earnings per
       share                   $    5.02   $    3.39   $    1.63        48.1

    EPS before FX on LTD and
    ------------------------
     other specified items(2)
     ------------------------
      Basic earnings per
       share                   $    3.99   $    3.34   $    0.65        19.5
      Diluted earnings per
       share                   $    3.95   $    3.30   $    0.65        19.7

    Weighted average number
     of shares outstanding
     (millions)                    157.3       158.4        (1.1)       (0.7)

    Operating ratio(2)(4)(%)        75.4        77.2        (1.8)          -

    ROCE before FX on LTD
     and other specified
     items (after tax)
     (2)(4)(%)                      10.2         9.4         0.8           -

    Net debt to net debt
     plus equity (%)                37.2        39.6        (2.4)          -

    EBIT before FX on LTD
     and other specified
     items(2)(4)(millions)     $ 1,100.8   $   983.4   $   117.4        11.9
    EBITDA before FX on LTD
     and other specified items
     (2)(4)(millions)          $ 1,564.9   $ 1,428.5   $   136.4         9.5

    (1) Certain comparative period figures have been restated for retroactive
        application of a new accounting pronouncement on stock-based
        compensation for employees eligible to retire before vesting date.
    (2) These are earnings measures that are not in accordance with GAAP and
        may not be comparable to similar measures of other companies.
        See note on non-GAAP earnings measures attached to commentary in the
        press release.
    (3) Income tax on FX on LTD is discussed in the MD&A in the "Other Income
        Statement Items" section - "Income Taxes".
    (4) EBIT:             Earnings before interest and taxes.
        EBITDA:           Earnings before interest, taxes, and depreciation
                          and amortization.
        ROCE (after tax): Return on capital employed (after tax) =
                          earnings before interest (last 12 months) divided
                          by average net debt plus equity.
        Operating ratio:  Operating expenses, before other specified items
                          divided by revenues.



                                               Fourth Quarter
                               ----------------------------------------------
                                  2006        2005      Variance       %
                               ----------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                    $   261.6   $   224.6   $    37.0        16.5
    - Coal                         149.3       178.6       (29.3)      (16.4)
    - Sulphur and fertilizers      122.0       102.6        19.4        18.9
    - Forest products               71.2        80.8        (9.6)      (11.9)
    - Industrial and consumer
       products                    148.5       146.4         2.1         1.4
    - Automotive                    74.9        78.8        (3.9)       (4.9)
    - Intermodal                   324.0       312.6        11.4         3.6
                               ----------------------------------
    Total Freight Revenues     $ 1,151.5   $ 1,124.4   $    27.1         2.4
                               ----------------------------------

    Millions of Revenue
     Ton-Miles (RTM)
    - Grain                        8,463       7,427       1,036        13.9
    - Coal                         4,986       5,657        (671)      (11.9)
    - Sulphur and fertilizers      5,065       4,600         465        10.1
    - Forest products              1,930       2,347        (417)      (17.8)
    - Industrial and consumer
       products                    4,030       4,249        (219)       (5.2)
    - Automotive                     572         602         (30)       (5.0)
    - Intermodal                   7,009       7,094         (85)       (1.2)
                               ----------------------------------
    Total RTMs                    32,055      31,976          79         0.2
                               ----------------------------------

    Freight Revenue per RTM
     (cents)
    - Grain                         3.09        3.02        0.07         2.3
    - Coal                          2.99        3.16       (0.17)       (5.4)
    - Sulphur and fertilizers       2.41        2.23        0.18         8.1
    - Forest products               3.69        3.44        0.25         7.3
    - Industrial and consumer
       products                     3.68        3.45        0.23         6.7
    - Automotive                   13.09       13.09           -           -
    - Intermodal                    4.62        4.41        0.21         4.8
    Freight Revenue per RTM         3.59        3.52        0.07         2.0

    Carloads (thousands)
    - Grain                        105.0        96.8         8.2         8.5
    - Coal                          68.6        84.4       (15.8)      (18.7)
    - Sulphur and fertilizers       48.7        46.1         2.6         5.6
    - Forest products               30.7        36.2        (5.5)      (15.2)
    - Industrial and consumer
       products                     77.1        82.1        (5.0)       (6.1)
    - Automotive                    39.8        43.8        (4.0)       (9.1)
    - Intermodal                   292.9       294.2        (1.3)       (0.4)
                               ----------------------------------
    Total Carloads                 662.8       683.6       (20.8)       (3.0)
                               ----------------------------------

    Freight Revenue per Carload
    - Grain                    $   2,491   $   2,320   $     171         7.4
    - Coal                         2,176       2,116          60         2.8
    - Sulphur and fertilizers      2,505       2,226         279        12.5
    - Forest products              2,319       2,232          87         3.9
    - Industrial and consumer
       products                    1,926       1,783         143         8.0
    - Automotive                   1,882       1,799          83         4.6
    - Intermodal                   1,106       1,063          43         4.0
    Freight Revenue per
     Carload                   $   1,737   $   1,645   $      92         5.6



                                                   Year
                               ----------------------------------------------
                                  2006        2005      Variance       %
                               ----------------------------------------------
    Commodity Data
    --------------

    Freight Revenues (millions)
    - Grain                    $   904.6   $   754.5   $   150.1        19.9
    - Coal                         592.0       728.8      (136.8)      (18.8)
    - Sulphur and fertilizers      439.3       447.1        (7.8)       (1.7)
    - Forest products              316.4       333.9       (17.5)       (5.2)
    - Industrial and consumer
       products                    603.8       542.9        60.9        11.2
    - Automotive                   314.4       298.0        16.4         5.5
    - Intermodal                 1,256.8     1,161.1        95.7         8.2
                               ----------------------------------
    Total Freight Revenues     $ 4,427.3   $ 4,266.3   $   161.0         3.8
                               ----------------------------------

    Millions of Revenue
     Ton-Miles (RTM)
    - Grain                       30,127      26,081       4,046        15.5
    - Coal                        19,650      23,833      (4,183)      (17.6)
    - Sulphur and fertilizers     17,401      20,080      (2,679)      (13.3)
    - Forest products              8,841       9,953      (1,112)      (11.2)
    - Industrial and consumer
       products                   16,844      15,936         908         5.7
    - Automotive                   2,450       2,361          89         3.8
    - Intermodal                  27,561      27,059         502         1.9
                               ----------------------------------
    Total RTMs                   122,874     125,303      (2,429)       (1.9)
                               ----------------------------------

    Freight Revenue per RTM
     (cents)
    - Grain                         3.00        2.89        0.11         3.8
    - Coal                          3.01        3.06       (0.05)       (1.6)
    - Sulphur and fertilizers       2.52        2.23        0.29        13.0
    - Forest products               3.58        3.35        0.23         6.9
    - Industrial and consumer
       products                     3.58        3.41        0.17         5.0
    - Automotive                   12.83       12.62        0.21         1.7
    - Intermodal                    4.56        4.29        0.27         6.3
    Freight Revenue per RTM         3.60        3.40        0.20         5.9

    Carloads (thousands)
    - Grain                        382.8       338.7        44.1        13.0
    - Coal                         281.7       352.3       (70.6)      (20.0)
    - Sulphur and fertilizers      178.3       201.8       (23.5)      (11.6)
    - Forest products              135.0       153.7       (18.7)      (12.2)
    - Industrial and consumer
       products                    316.0       322.2        (6.2)       (1.9)
    - Automotive                   165.3       168.1        (2.8)       (1.7)
    - Intermodal                 1,159.0     1,139.4        19.6         1.7
                               ----------------------------------
    Total Carloads               2,618.1     2,676.2       (58.1)       (2.2)
                               ----------------------------------

    Freight Revenue per Carload
    - Grain                    $   2,363   $   2,228   $     135         6.1
    - Coal                         2,102       2,069          33         1.6
    - Sulphur and fertilizers      2,464       2,216         248        11.2
    - Forest products              2,344       2,172         172         7.9
    - Industrial and consumer
       products                    1,911       1,685         226        13.4
    - Automotive                   1,902       1,773         129         7.3
    - Intermodal                   1,084       1,019          65         6.4
    Freight Revenue per
     Carload                   $   1,691     $ 1,594   $      97         6.1



                                              Fourth Quarter
                                 --------------------------------------------
                                    2006      2005(1)   Variance           %
                                 --------------------------------------------
    Operations and Productivity
    ---------------------------

    Freight gross ton-miles (GTM)
     (millions)                   62,190      61,769         421         0.7
    Revenue ton-miles (RTM)
     (millions)                   32,055      31,976          79         0.2
    Average number of active
     employees                    15,821      16,684        (863)       (5.2)
    Number of employees at end
     of period                    15,327      16,295        (968)       (5.9)


    FRA personal injuries per
     200,000 employee-hours          2.2         2.3        (0.1)       (4.3)
    FRA train accidents per
     million train-miles             1.4         2.0        (0.6)      (30.0)


    Total operating expenses per
     RTM (cents)                    2.72        2.70        0.02         0.7
    Total operating expenses per
     GTM (cents)                    1.40        1.40           -           -
    Compensation and benefits
     expense per GTM (cents)        0.52        0.52           -           -
    GTMs per average active
     employee (000)                3,931       3,702         229         6.2

    Average train speed - AAR
     definition (mph)               24.1        22.7         1.4         6.2
    Terminal dwell time - AAR
     definition (hours)             21.7        22.5        (0.8)       (3.6)
    Car miles per car day          141.7       132.3         9.4         7.1
    Average daily total cars
     on-line - AAR definition
     (000)                          80.6        82.9        (2.3)       (2.8)

    U.S. gallons of locomotive
     fuel per 1,000 GTMs
     - freight & yard               1.20        1.18        0.02         1.7
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(2)                  74.3        72.8         1.5         2.1


    Average foreign exchange
     rate (US$/Canadian$)          0.887       0.855       0.032         3.7
    Average foreign exchange
     rate (Canadian$/US$)          1.128       1.170      (0.042)       (3.6)



                                                    Year
                                 --------------------------------------------
                                    2006      2005(1)   Variance           %
                                 --------------------------------------------
    Operations and Productivity
    ---------------------------

    Freight gross ton-miles
     (GTM) (millions)            236,405     242,100      (5,695)       (2.4)
    Revenue ton-miles (RTM)
     (millions)                  122,874     125,303      (2,429)       (1.9)
    Average number of active
     employees                    15,947      16,448        (501)       (3.0)
    Number of employees at
     end of period                15,327      16,295        (968)       (5.9)


    FRA personal injuries per
     200,000 employee-hours          2.0         2.4        (0.4)      (16.7)
    FRA train accidents per
     million train-miles             1.4         2.3        (0.9)      (39.1)


    Total operating expenses
     per RTM (cents)                2.81        2.71        0.10         3.7
    Total operating expenses
     per GTM (cents)                1.46        1.40        0.06         4.3
    Compensation and benefits
     expense per GTM (cents)        0.56        0.55        0.01         1.8
    GTMs per average active
     employee (000)               14,824      14,719         105         0.7

    Average train speed - AAR
     definition (mph)               24.8        22.0         2.8        12.7
    Terminal dwell time - AAR
     definition (hours)             20.8        25.8        (5.0)      (19.4)
    Car miles per car day          137.3       124.0        13.3        10.7
    Average daily total cars
     on-line - AAR definition
     (000)                          80.9        86.1        (5.2)       (6.0)

    U.S. gallons of locomotive
     fuel per 1,000 GTMs
     - freight & yard               1.20        1.18        0.02         1.7
    U.S. gallons of locomotive
     fuel consumed - total
     (millions)(2)                 283.4       285.4        (2.0)       (0.7)


    Average foreign exchange
     rate (US$/Canadian$)          0.885       0.825       0.060         7.3
    Average foreign exchange
     rate (Canadian$/US$)          1.130       1.212      (0.082)       (6.8)


    (1) Certain comparative period figures have been restated for retroactive
        application of a new accounting pronouncement on stock-based
        compensation for employees eligible to retire before vesting date or
        have been updated to reflect new information.

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




For further information:

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


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