Contact: Jeffrey Louis Page Content: Canadian Pacific Railway Limited (TSX/NYSE: CP) announced its fourth-quarter and full year results for 2007 today.¤ In the fourth quarter, net income increased to $342 million in 2007 compared with $146 million in 2006 primarily due to lower future Canadian income tax rates.¤ For the full year 2007, net income improved 19 per cent to $946 million compared with $796 million in 2006. ¤This improvement was driven by an increase in operating income and a foreign exchange gain on long-term debt.¤ In 2007, CP recorded a full year future tax benefit of $163 million compared with a tax benefit in 2006 of $176 million, both due to lower future Canadian income tax rates. ¤Diluted earnings per share was $2.21 in fourth-quarter 2007 compared with $0.92 in fourth-quarter 2006 and $6.08 for the full year 2007 and $5.02 in 2006. ¤ SUMMARY OF FOURTH-QUARTER 2007 COMPARED WITH FOURTH-QUARTER 2006 ¤ Income before foreign exchange gains and losses on long-term debt and other specified items increased two per cent to $185 million from $181 million, due primarily to lower income tax rates in the quarter. Diluted earnings per share increased four per cent to $1.20 from $1.15 excluding foreign exchange gains and losses on long-term debt and other specified items. Operating ratio was 74.3 per cent compared with 73.1 per cent in 2006. Total revenues were flat at $1.19 billion. "We delivered earnings growth in 2007 in a year that brought us many challenges," said Fred Green, President and Chief Executive Officer.¤ "Most recently, in December, our operations were hit hard by harsh weather that affected the entire supply chain, including high winds that shut down port and terminal operators for several extended periods.¤ This restricted our ability to move the freight volumes we'd planned."¤¤ ¤ ¤ Freight revenue, excluding the impact of foreign exchange, grew in the fourth quarter by five per cent, however this growth was more than offset by the impact of the stronger Canadian dollar, resulting in a decline in freight revenue of one per cent to $1.14 billion when compared with fourth-quarter 2006.¤ Operating expenses increased one per cent to $883 million in the fourth-quarter 2007 compared with $870 million driven mainly by an increase in fuel prices offset, to a degree, by foreign exchange. ¤ "Even with the impact of foreign exchange, we had revenue growth in some sectors, including industrial and consumer products, intermodal and automotive," added Mr. Green. "However, the rapid rise in the cost of fuel, and the inherent lag in our fuel recovery programs combined with the net negative impact of foreign exchange to reduce our operating income." ¤ SUMMARY OF FULL YEAR 2007 COMPARED WITH FULL YEAR 2006 ¤ Excluding foreign exchange gains and losses on long-term debt and other specified items: Income increased seven per cent to $673 million from $628 million. Diluted earnings per share grew nine per cent to $4.32 from $3.95. Operating ratio improved 10 basis points to 75.3 per cent from 75.4 per cent. Total revenue increased three per cent to $4.7 billion. Operating expenses increased three per cent to $3.5 billion. 2008 OUTLOOK ¤ The outlook for 2008 for diluted earnings per share before foreign exchange gains and losses on long-term debt and other specified items is expected to be in the range of $4.70 to $4.85.¤ ¤ "We continue to see strong demand in our bulk portfolio for 2008," said Mr. Green. ¤"And this, coupled with improved yield and a renewed focus on our Integrated Operating Plan, will drive results.¤ We still expect to meet our objective for 2008 diluted earnings per share."¤ ¤ The 2008 estimate assumes an average currency exchange rate of the U.S. dollar at par with the Canadian dollar, and crude oil prices averaging US $87 per barrel, which is a change from the previous assumption of US $80 per barrel. ¤ The outlook for growth in the North American economy continues to be uncertain but CP expects to grow total revenue by four to six per cent in 2008 while total operating expenses are expected to increase by three to five per cent. ¤ Capital investment is expected to be in the range of $885 to $895 million in 2008, essentially flat when compared with 2007. ¤ CP expects free cash to be in excess of $250 million in 2008. ¤ The 2008 outlook includes the projected earnings of the Dakota Minnesota & Eastern Railroad (DM&E) on an equity accounting basis for the full year. ¤ FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT AND OTHER SPECIFIED ITEMS ¤ CP had a foreign exchange gain on long-term debt of $8 million ($11 million after tax) in the fourth quarter of 2007, compared with a foreign exchange loss on long-term debt of $45 million ($35 million after tax) in the fourth quarter of 2006.¤ Canadian income tax rate changes resulted in a benefit of $146 million in the fourth-quarter due to a revaluation of opening future income tax balances in 2007. ¤ For the full year 2007, CP had a foreign exchange gain on long-term debt of $170 million ($126 million after tax) compared with a foreign exchange loss of $0.1 million ($7 million after tax) for the full year 2006.¤ Canadian income tax rate changes resulted in a benefit of $163 million in 2007 due to a revaluation of opening future income tax balances.¤ This compares with a future income tax benefit of $176 million for the full year 2006. ¤ At December 31, 2007 CP held investments in Asset Backed Commercial Paper (ABCP) with an original cost of $144 million.¤ When acquired, these investments were rated R1 (High) by Dominion Bond Rating Service (DBRS), the highest credit rating issued for commercial paper, and backed by R1 (High) rated assets, and liquidity agreements.¤ These investments matured during the third quarter of 2007 but, as a result of liquidity issues in the ABCP market, did not settle on maturity.¤ Since early September 2007, a pan-Canadian restructuring committee consisting of major investors has been working to develop a solution to the liquidity problem affecting the ABCP market.¤ The pan-Canadian restructuring committee anticipates that, following approval by the investors, a restructuring could be effected in March 2008 which would result in the exchange of ABCP held by investors for a variety of new long-term floating rate notes, certain of which may receive AAA credit ratings.¤ As a result, the Company adjusted the estimated fair value of the investment and took a charge in the third-quarter of 2007 of $21 million ($15 million after tax) and classified its ABCP as long-term investments. ¤As at December 31, 2007 there has been no further change in the estimated fair value of the Company's ABCP. ¤ Continuing uncertainties regarding the value of the assets which underlie the ABCP, the amount and timing of cash flows and the outcome of the restructuring process could give rise to material change in the value of the Company's investment in ABCP which would impact the Company's near-term earnings.¤ ¤ Presentation of non-GAAP earnings ¤ CP presents non-GAAP earnings in this news release to provide a basis for evaluating underlying earnings and liquidity trends in its business that can be compared with prior periods' results of operations.¤ These non-GAAP earnings exclude foreign currency translation impacts on long-term debt, which can be volatile and short term, and other specified items, which are not among CP's normal ongoing revenues and operating expenses.¤ The impact of volatile short-term rate fluctuations on foreign-denominated debt is only realized when long-term debt matures or is settled.¤ A reconciliation of income, excluding foreign exchange gains and losses on long-term debt and other specified items, to net income as presented in the financial statements is detailed in the attached Summary of Rail Data.¤ Diluted EPS, excluding foreign exchange gains and losses on long-term debt and other specified items is also referred to in this news release as "adjusted diluted EPS". ¤ Free cash is calculated as cash provided by operating activities, less cash used in investing activities and dividends paid, and adjusted for the acquisition cost of DM&E and the investment in ABCP.¤ Free cash is adjusted for the DM&E acquisition, as it is not indicative of normal day-to-day investments in the Company's asset base.¤ In addition, free cash excludes the investment in ABCP, which, upon acquisition, was initially classified as Cash and cash equivalents and was subsequently classified as a long-term investment, as noted above.¤ This presentation for accounting purposes does not result in a change in cash flow. ¤ Earnings that exclude the foreign exchange currency translation impact on long-term debt and other specified items, and free cash after dividends, as described in this news release, have no standardized meanings and are not defined by Canadian generally accepted accounting principles and, therefore, are unlikely to be comparable to similar measures presented by other companies. ¤ Other specified items are material transactions that may include, but are not limited to, restructuring and asset impairment charges, gains and losses on non-routine sales of assets, unusual income tax adjustments, and other items that do not typify normal business activities.¤ ¤ Note on forward-looking information ¤ This news release contains certain forward-looking statements relating but not limited to our operations, anticipated financial performance and business prospects.¤ Undue reliance should not be placed on forward-looking information as actual results may differ materially. ¤ By its nature, CP's forward-looking information involves numerous assumptions, inherent risks and uncertainties, including but not limited to the following factors: changes in business strategies; general North American and global economic and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of litigation; labour disputes; risks and liabilities arising from derailments; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions on the financial position of pension plans and investments; and various events that could disrupt operations, including severe weather conditions, security threats and governmental response to them, and technological changes. ¤ There are factors that could cause actual results to differ from those described in the forward-looking statements contained in this news release.¤ These more specific factors are identified and discussed in the Outlook section and elsewhere in this news release with the particular forward-looking statement in question. ¤ CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise except as required by law.¤ ¤ Canadian Pacific, through the ingenuity of its employees located across Canada and in the United States, remains committed to being the safest, most fluid railway in North America.¤ Our people are the key to delivering innovative transportation solutions to our customers and to ensuring the safe operation of our trains through the more than 900 communities where we operate.¤ Our combined ingenuity makes CPR a better place to work, rail a better way to ship, and North America a better place to live.¤ Come and visit us at www.cpr.ca to see how we can put our ingenuity to work for you.¤ Canadian Pacific is proud to be the official rail freight services provider for the Vancouver 2010 Olympic and Paralympic Winter Games. ¤ Contacts: ¤ Media¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤Investment Community Leslie Pidcock¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤ Janet Weiss, AVP Tel.: (403) 319-6878¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤ Investor Relations email: leslie_pidcock@cpr.ca¤¤¤¤¤¤¤¤¤ Tel.: (403) 319-3591 ¤¤¤¤¤¤¤¤¤ ¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤ email: investor@cpr.ca News Release Date: 1/29/2008 12:00 AM Location: Calgary, Alberta News Type: Investors Is Featured: No More...
