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 CP reports record low operating ratio for fourth quarter and full year amid challenging conditions
   Wednesday, January 18, 2017 4:01:00 PM ET

Canadian Pacific Railway Limited (TSX: CP) (CP ) today announced its lowest-ever fourth-quarter operating ratio ("OR") of 56.2 percent and a record-low full-year OR of 58.6 percent as focussed cost control helped offset softer than expected volumes.

Fourth-quarter revenues decreased 3 percent to C$1.64 billion from $1.69 billion, while diluted earnings per share ("EPS") increased 25 percent to $2.61 from $2.08 and adjusted diluted EPS rose 12 percent to $3.04 from $2.72.

"While the fourth quarter was weighed down by challenging operating conditions, including unexpected and extreme weather on the West Coast that compounded the impact of an already delayed grain harvest, it once again highlighted our resiliency and ability to operate efficiently under tough conditions," said E. Hunter Harrison, CP’s Chief Executive Officer. "I am particularly proud of our people who worked tirelessly over the last three months of 2016 to deliver for our customers in a safe and efficient manner."

FULL-YEAR 2016 RESULTS

-- Revenues decreased 7 percent to $6.23 billion from $6.71 billion

-- OR fell to a record 58.6 percent, improving on the 2015 reported OR by 140 basis-points and the adjusted OR by 240 basis-points

-- Reported diluted EPS increased 27 percent to $10.63 from $8.40; adjusted diluted EPS rose 2 percent to $10.29 from $10.10

-- Free cash flow of $1 billion

"2016 featured stiff economic headwinds and a challenging volume environment, headlined by a precipitous decline in crude oil shipments and weakness in grain movements, particularly in the first half," Harrison said. "These are not excuses, but opportunities to showcase our operating ability and leadership. As we have shown over the last four years, the precision railroading model works in all economic conditions."

In 2017, CP will continue to find opportunities to enhance the productivity, fluidity and safety of its operations.

"With continued margin improvement and an anticipated increase in volumes, led by a stronger bulk outlook, we expect adjusted diluted EPS growth to be in the high single-digits," said Keith Creel, CP’s President and Chief Operating Officer. "With our strong leadership team, plus the commitment and discipline shown by the thousands of men and women every day at CP, the franchise is well positioned for 2017 and beyond."

CP’s expectations for adjusted diluted EPS growth in 2017 are based on adjusted diluted EPS of $10.29 in 2016. CP assumes that in 2017 the Canadian-to-U.S. dollar exchange rate will be in the range of $1.30 to $1.35, the average price of West Texas Intermediate (WTI) will be approximately US$45 to $55 per barrel. To further enhance safety and fluidity of the network, CP also plans to invest approximately $1.25 billion in capital programs in 2017, an increase of 6 percent over the $1.18 billion spent in 2016.

Non-GAAP Measures

For further information regarding non-GAAP measures, including reconciliations to the nearest GAAP measures, see the attached supplementary schedule Non-GAAP Measures.

Conference Call Access

Toronto participants dial in number: 1-647-427-7450

Operator assisted toll free dial in number: 1-888-231-8191

Callers should dial in 10 minutes prior to the call.

Webcast

We encourage you to access the webcast and presentation material in the Investors section of CP’s website at http://www.cpr.ca/en/investors/earnings-releases

A replay of the fourth-quarter conference call will be available by phone through to February 15, 2017 at 416-849-0833 or toll free 1-855-859-2056, password 38021965.

Access to the webcast and audio file of the presentation will be made available at: http://www.cpr.ca/en/investors/earnings-releases

Note on forward-looking information

This news release contains certain forward-looking information within the meaning of applicable securities laws relating, but not limited, to our operations, priorities and plans, anticipated financial performance, including our 2017 full-year guidance, business prospects, planned capital expenditures, programs and strategies. This forward-looking information also includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "anticipate", "believe", "expect", "plan", "will", "outlook", "should" or similar words suggesting future outcomes. To the extent that CP has provided guidance using non-GAAP financial measures, the Company may not be able to provide a reconciliation to a GAAP measure, due to unknown variables and uncertainty related to future results.

Undue reliance should not be placed on forward-looking information as actual results may differ materially from the forward-looking information. Forward-looking information is not a guarantee of future performance. By its nature, CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward looking information, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; changes in commodity prices; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of investigations, proceedings or other types of claims and litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; and various events that could disrupt operations, including severe weather, droughts, floods, avalanches and earthquakes as well as security threats and governmental response to them, and technological changes. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference should be made to "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Information" in CP’s annual and interim reports on Form 10-K and 10-Q. Readers are cautioned not to place undue reliance on forward-looking information. Forward looking information is based on current expectations, estimates and projections and it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. Except as required by law, 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.

About Canadian Pacific

Canadian Pacific Railway Limited (TSX:CP)(CP ) is a transcontinental railway in Canada and the United States with direct links to eight major ports, including Vancouver and Montreal, providing North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit www.cpr.ca to see the rail advantages of CP.

CANADIAN PACIFIC RAILWAY LIMITED
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
                                                                          For the three months      For the year ended
                                                                          ended December 31         December 31
(in millions of Canadian dollars, except share and per share data)        2016         2015         2016         2015
Revenues
                                  Freight                                 $     1,596  $     1,645  $     6,060  $     6,552
                                  Non-freight                             41           42           172          160
Total revenues                                                            1,637        1,687        6,232        6,712
Operating expenses
                                  Compensation and benefits               282          333          1,189        1,371
                                  Fuel                                    173          166          567          708
                                  Materials                               47           40           180          184
                                  Equipment rents                         41           44           173          174
                                  Depreciation and amortization           162          155          640          595
                                  Purchased services and other (Note 3)   215          272          905          1,060
                                  Gain on sale of Delaware & Hudson South --           --           --           (68)
Total operating expenses                                                  920          1,010        3,654        4,024
Operating income                                                          717          677          2,578        2,688
Less:
                                  Other income and charges (Note 4)       74           99           (45)         335
                                  Net interest expense                    116          122          471          394
Income before income tax expense                                          527          456          2,152        1,959
                                  Income tax expense                      143          137          553          607
Net income                                                                $     384    $     319    $     1,599  $     1,352
Earnings per share
                                  Basic earnings per share                $     2.63   $     2.09   $     10.69  $     8.47
                                  Diluted earnings per share              $     2.61   $     2.08   $     10.63  $     8.40
Weighted-average number of shares (millions)
                                  Basic                                   146.3        153.0        149.6        159.7
                                  Diluted                                 147.3        154.0        150.5        161.0
Dividends declared per share                                              $     0.5000 $     0.3500 $     1.8500 $     1.4000
See notes to interim consolidated financial information.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
                                                                                               For the three months    For the year ended
                                                                                               ended December 31       December 31
(in millions of Canadian dollars)                                                              2016        2015        2016        2015
Net income                                                                                     $     384   $     319   $     1,599 $     1,352
                           Net (loss) gain in foreign currency translation adjustments, net of (15)        (23)        18          (86)
                           hedging activities
                           Change in derivatives designated as cash flow hedges                73          9           (2)         (69)
                           Change in pension and post-retirement defined benefit plans         (571)       856         (434)       1,059
Other comprehensive (loss) income before income taxes                                          (513)       842         (418)       904
Income tax recovery (expense) on above items                                                   147         (206)       96          (162)
Other comprehensive (loss) income                                                              (366)       636         (322)       742
Comprehensive income                                                                           $     18    $     955   $     1,277 $     2,094
See notes to interim consolidated financial information.
INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)
(in millions of Canadian dollars)                              December 31         December 31
                                                               2016                2015
Assets
Current assets
                      Cash and cash equivalents                $         164       $         650
                      Accounts receivable, net                 591                 645
                      Materials and supplies                   184                 188
                      Other current assets                     70                  54
                                                               1,009               1,537
Investments                                                    194                 152
Properties                                                     16,689              16,273
Goodwill and intangible assets                                 202                 211
Pension asset                                                  1,070               1,401
Other assets                                                   57                  63
Total assets                                                   $         19,221    $         19,637
Liabilities and shareholders’ equity
Current liabilities
                      Accounts payable and accrued liabilities $         1,322     $         1,417
                      Long-term debt maturing within one year  25                  30
                                                               1,347               1,447
Pension and other benefit liabilities                          734                 758
Other long-term liabilities                                    284                 318
Long-term debt                                                 8,659               8,927
Deferred income taxes                                          3,571               3,391
Total liabilities                                              14,595              14,841
Shareholders’ equity
                      Share capital                            2,002               2,058
                      Additional paid-in capital               52                  43
                      Accumulated other comprehensive loss     (1,799)             (1,477)
                      Retained earnings                        4,371               4,172
                                                               4,626               4,796
Total liabilities and shareholders’ equity                     $         19,221    $         19,637
See notes to interim consolidated financial information.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
                                                                         For the three months    For the year ended
                                                                         ended December 31       December 31
(in millions of Canadian dollars)                                        2016        2015        2016        2015
Operating activities
Net income                                                               $     384   $     319   $     1,599 $     1,352
Reconciliation of net income to cash provided by operating activities:
                                    Depreciation and amortization        162         155         640         595
                                    Deferred income taxes                87          128         320         234
                                    Pension funding in excess of expense (33)        (9)         (138)       (49)
Foreign exchange loss (gain) on long-term debt (Note 4)                  74          115         (79)        297
Other operating activities, net                                          (68)        (123)       (198)       (245)
Change in non-cash working capital balances related to operations        162         38          (55)        275
Cash provided by operating activities                                    768         623         2,089       2,459
Investing activities
Additions to properties                                                  (280)       (455)       (1,182)     (1,522)
Proceeds from the sale of Delaware & Hudson South                        --          --          --          281
Proceeds from sale of properties and other assets                        29          41          116         114
Other                                                                    (1)         (1)         (3)         4
Cash used in investing activities                                        (252)       (415)       (1,069)     (1,123)
Financing activities
Dividends paid                                                           (73)        (54)        (255)       (226)
Issuance of CP common shares                                             7           11          21          43
Purchase of CP common shares                                             (10)        (192)       (1,210)     (2,787)
Issuance of long-term debt, excluding commercial paper                   --          --          --          3,411
Repayment of long-term debt, excluding commercial paper                  (8)         (6)         (38)        (505)
Net repayment of commercial paper                                        (374)       --          (8)         (893)
Other                                                                    --          --          (3)         --
Cash used in financing activities                                        (458)       (241)       (1,493)     (957)
Effect of foreign currency fluctuations on U.S. dollar-denominated       3           22          (13)        45
cash and cash equivalents
Cash position
Increase (decrease) in cash and cash equivalents                         61          (11)        (486)       424
Cash and cash equivalents at beginning of period                         103         661         650         226
Cash and cash equivalents at end of period                               $     164   $     650   $     164   $     650
Supplemental disclosures of cash flow information:
                                    Income taxes paid                    $     48    $     69    $     322   $     176
                                    Interest paid                        $     93    $     94    $     488   $     336
See notes to interim consolidated financial information.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
(in millions of Canadian dollars, except                    Common     Share       Additional  Accumulated    Retained    Total
common share amounts)                                       shares (in capital     paid-in     other          earnings    shareholders’
                                                            millions)              capital     comprehensive              equity
                                                                                               loss
Balance at January 1, 2016                                  153.0      $     2,058 $     43    $      (1,477) $     4,172 $      4,796
                     Net income                             --         --          --          --             1,599       1,599
                     Other comprehensive loss               --         --          --          (322)          --          (322)
                     Dividends declared ($1.8500 per share) --         --          --          --             (274)       (274)
                     Effect of stock-based compensation     --         --          14          --             --          14
                     expense
                     CP common shares repurchased           (6.9)      (84)        --          --             (1,126)     (1,210)
                     Shares issued under stock option plan  0.2        28          (5)         --             --          23
Balance at December 31, 2016                                146.3      $     2,002 $     52    $      (1,799) $     4,371 $      4,626
Balance at January 1, 2015                                  166.1      $     2,185 $     36    $      (2,219) $     5,608 $      5,610
                     Net income                             --         --          --          --             1,352       1,352
                     Other comprehensive income             --         --          --          742            --          742
                     Dividends declared ($1.4000 per share) --         --          --          --             (221)       (221)
                     Effect of stock-based compensation     --         --          17          --             --          17
                     expense
                     CP common shares repurchased           (13.7)     (181)       --          --             (2,567)     (2,748)
                     Shares issued under stock option plan  0.6        54          (10)        --             --          44
Balance at December 31, 2015                                153.0      $     2,058 $     43    $      (1,477) $     4,172 $      4,796
See notes to interim consolidated financial information.

NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION December 31, 2016 (unaudited)

1 Basis of presentation

This unaudited interim consolidated financial information of Canadian Pacific Railway Limited ("CP" or "the Company"), expressed in Canadian dollars, reflects management’s estimates and assumptions that are necessary for presentation in conformity with accounting principles generally accepted in the United States of America ("GAAP"). They do not include all disclosures required under GAAP for financial statements and should be read in conjunction with the 2015 annual consolidated financial statements and 2016 consolidated interim financial statements. The accounting policies used are consistent with the accounting policies used in preparing the 2015 annual consolidated financial statements, except for the accounting changes discussed in Note 2.

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

In management’s opinion, the unaudited interim consolidated financial information includes all adjustments (consisting of normal and recurring adjustments) necessary to present such information.

2 Accounting changes

Implemented in 2016

Early Adoption of Restricted Cash

In November 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-18, Restricted Cash a consensus of the FASB Emerging Issues Task Force under FASB Accounting Standards Codification ("ASC") Topic 230 Statement of Cash Flows. The amendments required the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. Restricted cash will therefore be included in beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The updated standard does not provide a definition of restricted cash and restricted cash equivalents. This ASU is effective retrospectively for public entities for fiscal years and interim periods within those years, beginning on or after December 15, 2017. Early adoption of this ASU is permitted. The Company adopted the provisions of this ASU during the fourth quarter of 2016. As a result of the adoption of ASU 2016-18, no changes to disclosure or financial statement presentation were required for the 2015 comparative period.

Amendments to the Consolidation Analysis

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis under FASB ASC Topic 810 Consolidation. The amendments required reporting entities to evaluate whether they should consolidate certain legal entities under the revised consolidation model. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, eliminated the presumption that a general partner should consolidate a limited partnership and affected the consolidation analysis of reporting entities involved with VIEs, particularly those that have fee arrangements and related party relationships. This ASU was effective for public entities for fiscal years, and interim periods within those years, beginning on or after December 15, 2015. Entities had the option of using either a full retrospective or a modified retrospective approach to adopt this ASU. The Company evaluated all arrangements that might give rise to a VIE and all existing VIEs; no changes to disclosure or financial statement presentation were required as a result of this evaluation.

3 Gain on sale of properties

During the fourth quarter of 2016, the Company completed the sale of its Obico rail yard, for gross proceeds of $38 million. The Company recorded a gain on sale of $37 million before tax ($33 million after tax) within "Purchased services and other" in the interim consolidated statement of income.

4 Other income and charges

                                               For the three months    For the year ended
                                               ended December 31       December 31
(in millions of Canadian dollars)              2016        2015        2016      2015
Foreign exchange loss (gain) on long-term debt $     74    $     115   $    (79) $    297
Other foreign exchange gains                   --          (20)        (5)       (24)
Early redemption premium on notes              --          --          --        47
Legal settlement                               --          --          25        --
Other                                          --          4           14        15
Total other income and charges                 $     74    $     99    $    (45) $    335
Summary of Rail Data
                                                                    Fourth Quarter                        Year
Financial (millions, except per share data)                         2016     2015     Change   %          2016     2015     Change    %
Revenues
                      Freight                                       $  1,596 $  1,645 $   (49) (3)        $  6,060 $  6,552 $   (492) (8)
                      Non-freight                                   41       42       (1)      (2)        172      160      12        8
Total revenues                                                      1,637    1,687    (50)     (3)        6,232    6,712    (480)     (7)
Operating expenses
                      Compensation and benefits                     282      333      (51)     (15)       1,189    1,371    (182)     (13)
                      Fuel                                          173      166      7        4          567      708      (141)     (20)
                      Materials                                     47       40       7        18         180      184      (4)       (2)
                      Equipment rents                               41       44       (3)      (7)        173      174      (1)       (1)
                      Depreciation and amortization                 162      155      7        5          640      595      45        8
                      Purchased services and other                  215      272      (57)     (21)       905      1,060    (155)     (15)
                      Gain on sale of Delaware & Hudson South       --       --       --       --         --       (68)     68        (100)
Total operating expenses                                            920      1,010    (90)     (9)        3,654    4,024    (370)     (9)
Operating income                                                    717      677      40       6          2,578    2,688    (110)     (4)
Less:
                      Other income and charges                      74       99       (25)     (25)       (45)     335      (380)     (113)
                      Net interest expense                          116      122      (6)      (5)        471      394      77        20
Income before income tax expense                                    527      456      71       16         2,152    1,959    193       10
                      Income tax expense                            143      137      6        4          553      607      (54)      (9)
Net income                                                          $  384   $  319   $   65   20         $  1,599 $  1,352 $   247   18
Operating ratio (%)                                                 56.2     59.8     (3.6)    (360) bps  58.6     60.0     (1.4)     (140) bps
                      Basic earnings per share                      $  2.63  $  2.09  $   0.54 26         $  10.69 $  8.47  $   2.22  26
                      Diluted earnings per share                    $  2.61  $  2.08  $   0.53 25         $  10.63 $  8.40  $   2.23  27
Shares Outstanding
                      Weighted average number of shares outstanding 146.3    153.0    (6.7)    (4)        149.6    159.7    (10.1)    (6)
                      (millions)
                      Weighted average number of diluted shares     147.3    154.0    (6.7)    (4)        150.5    161.0    (10.5)    (7)
                      outstanding (millions)
Foreign Exchange
                      Average foreign exchange rate (US$/Canadian$) 0.75     0.75     --       --         0.75     0.78     (0.03)    (4)
                      Average foreign exchange rate (Canadian$/US$) 1.33     1.34     (0.01)   (1)        1.33     1.28     0.05      4
Summary of Rail Data (Page 2)
                                                             Fourth Quarter                                                                                                   Year
                                                             2016                        2015                        Change                      %             FX             2016                        2015                        Change                      %             FX
                                                                                                                                                               Adjusted                                                                                                         Adjusted
                                                                                                                                                               %(1)                                                                                                             %(1)
Commodity Data
Freight Revenues (millions)
                   - Canadian Grain                          $             285           $             296           $             (11)          (4)           (4)            $             962           $             1,068         $             (106)         (10)          (11)
                   - U.S. Grain                              154                         131                         23                          18            18             518                         522                         (4)                         (1)           (5)
                   - Coal                                    152                         149                         3                           2             2              606                         639                         (33)                        (5)           (6)
                   - Potash                                  96                          78                          18                          23            23             338                         359                         (21)                        (6)           (8)
                   - Fertilizers and sulphur                 66                          72                          (6)                         (8)           (8)            284                         272                         12                          4             2
                   - Forest products                         63                          65                          (2)                         (3)           (3)            275                         249                         26                          10            7
                   - Chemicals and plastics                  184                         187                         (3)                         (2)           (2)            714                         709                         5                           1             (3)
                   - Crude                                   30                          105                         (75)                        (71)          (71)           138                         393                         (255)                       (65)          (66)
                   - Metals, minerals, and consumer products 149                         151                         (2)                         (1)           (1)            564                         643                         (79)                        (12)          (15)
                   - Automotive                              80                          89                          (9)                         (10)          (10)           350                         349                         1                           --            (3)
                   - Domestic intermodal                     187                         182                         5                           3             3              721                         757                         (36)                        (5)           (5)
                   - International intermodal                150                         140                         10                          7             7              590                         592                         (2)                         --            (2)
Total Freight Revenues                                       $             1,596         $             1,645         $             (49)          (3)           (3)            $             6,060         $             6,552         $             (492)         (8)           (10)
Freight Revenue per Revenue Ton-Miles
(RTM) (cents)
                   - Canadian Grain                          3.89                        3.80                        0.09                        2                            3.70                        3.89                        (0.19)                      (5)
                   - U.S. Grain                              4.83                        4.71                        0.12                        3                            4.75                        4.91                        (0.16)                      (3)
                   - Coal                                    2.70                        2.85                        (0.15)                      (5)                          2.73                        2.88                        (0.15)                      (5)
                   - Potash                                  2.49                        2.32                        0.17                        7                            2.38                        2.37                        0.01                        --
                   - Fertilizers and sulphur                 6.68                        7.00                        (0.32)                      (5)                          6.87                        6.71                        0.16                        2
                   - Forest products                         5.86                        6.24                        (0.38)                      (6)                          5.86                        5.92                        (0.06)                      (1)
                   - Chemicals and plastics                  4.92                        5.49                        (0.57)                      (10)                         4.99                        5.21                        (0.22)                      (4)
                   - Crude                                   3.07                        2.80                        0.27                        10                           2.93                        2.96                        (0.03)                      (1)
                   - Metals, minerals and consumer products  6.59                        7.15                        (0.56)                      (8)                          6.77                        7.13                        (0.36)                      (5)
                   - Automotive                              22.31                       21.71                       0.60                        3                            21.02                       19.97                       1.05                        5
                   - Domestic intermodal                     6.10                        6.17                        (0.07)                      (1)                          6.01                        6.27                        (0.26)                      (4)
                   - International intermodal                4.74                        4.78                        (0.04)                      (1)                          4.59                        4.96                        (0.37)                      (7)
Total Freight Revenue per RTM                                4.48                        4.47                        0.01                        --                           4.46                        4.51                        (0.05)                      (1)
Freight Revenue per Carload
                   - Canadian Grain                          $             3,758         $             3,707         $             51            1                            $             3,559         $             3,750         $             (191)         (5)
                   - U.S. Grain                              3,488                       3,266                       222                         7                            3,202                       3,326                       (124)                       (4)
                   - Coal                                    1,932                       1,920                       12                          1                            1,984                       1,978                       6                           --
                   - Potash                                  2,973                       2,849                       124                         4                            2,904                       2,887                       17                          1
                   - Fertilizers and sulphur                 4,593                       4,604                       (11)                        --                           4,769                       4,410                       359                         8
                   - Forest products                         4,158                       4,227                       (69)                        (2)                          4,157                       4,026                       131                         3
                   - Chemicals and plastics                  3,292                       3,596                       (304)                       (8)                          3,368                       3,483                       (115)                       (3)
                   - Crude                                   3,361                       4,184                       (823)                       (20)                         3,646                       4,309                       (663)                       (15)
                   - Metals, minerals and consumer products  2,964                       3,005                       (41)                        (1)                          2,888                       2,963                       (75)                        (3)
                   - Automotive                              3,006                       2,698                       308                         11                           2,825                       2,659                       166                         6
                   - Domestic intermodal                     1,696                       1,822                       (126)                       (7)                          1,688                       1,831                       (143)                       (8)
                   - International intermodal                1,103                       1,058                       45                          4                            1,074                       1,061                       13                          1
Total Freight Revenue per Carload                            $             2,462         $             2,534         $             (72)          (3)                          $             2,400         $             2,493         $             (93)          (4)
(1) This earnings measure has no standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. This measure is defined and reconciled in Non-GAAP Measures of this Earnings Release.
Summary of Rail Data (Page 3)
                                                    Fourth Quarter              Year
                                                    2016   2015   Change  %     2016    2015    Change  %
Millions of RTM
           - Canadian Grain                         7,309  7,776  (467)   (6)   25,994  27,442  (1,448) (5)
           - U.S. Grain                             3,179  2,770  409     15    10,898  10,625  273     3
           - Coal                                   5,631  5,250  381     7     22,171  22,164  7       --
           - Potash                                 3,842  3,359  483     14    14,175  15,117  (942)   (6)
           - Fertilizers and sulphur                996    1,021  (25)    (2)   4,140   4,044   96      2
           - Forest products                        1,072  1,038  34      3     4,691   4,201   490     12
           - Chemicals and plastics                 3,737  3,391  346     10    14,294  13,611  683     5
           - Crude                                  989    3,749  (2,760) (74)  4,727   13,280  (8,553) (64)
           - Metals, minerals and consumer products 2,271  2,114  157     7     8,338   9,020   (682)   (8)
           - Automotive                             362    411    (49)    (12)  1,667   1,750   (83)    (5)
           - Domestic intermodal                    3,060  2,958  102     3     11,992  12,072  (80)    (1)
           - International intermodal               3,163  2,938  225     8     12,865  11,931  934     8
Total RTMs                                          35,611 36,775 (1,164) (3)   135,952 145,257 (9,305) (6)
Carloads (thousands)
           - Canadian Grain                         75     80     (5)     (6)   270     285     (15)    (5)
           - U.S. Grain                             44     40     4       10    162     157     5       3
           - Coal                                   78     78     --      --    305     323     (18)    (6)
           - Potash                                 32     27     5       19    116     124     (8)     (6)
           - Fertilizers and sulphur                15     16     (1)     (6)   60      62      (2)     (3)
           - Forest products                        15     16     (1)     (6)   66      62      4       6
           - Chemicals and plastics                 56     51     5       10    212     203     9       4
           - Crude                                  9      25     (16)    (64)  38      91      (53)    (58)
           - Metals, minerals and consumer products 51     50     1       2     196     217     (21)    (10)
           - Automotive                             27     33     (6)     (18)  124     131     (7)     (5)
           - Domestic intermodal                    110    100    10      10    427     414     13      3
           - International intermodal               136    133    3       2     549     559     (10)    (2)
Total Carloads                                      648    649    (1)     --    2,525   2,628   (103)   (4)
                                                       Fourth Quarter                                                                                                   Year
                                                       2016                        2015                        Change                      %             FX             2016                        2015                        Change                      %             FX
                                                                                                                                                         Adjusted                                                                                                         Adjusted
                                                                                                                                                         %(1)                                                                                                             %(1)
Operating Expenses (millions)
               Compensation and benefits               $             282           $             333           $             (51)          (15)          (15)           $             1,189         $             1,371         $             (182)         (13)          (14)
               Fuel                                    173                         166                         7                           4             4              567                         708                         (141)                       (20)          (23)
               Materials                               47                          40                          7                           18            18             180                         184                         (4)                         (2)           (3)
               Equipment rents                         41                          44                          (3)                         (7)           (7)            173                         174                         (1)                         (1)           (3)
               Depreciation and amortization           162                         155                         7                           5             5              640                         595                         45                          8             7
               Purchased services and other            215                         272                         (57)                        (21)          (21)           905                         1,060                       (155)                       (15)          (16)
               Gain on sale of Delaware & Hudson South --                          --                          --                          --            --             --                          (68)                        68                          (100)         (100)
Total Operating Expenses                               $             920           $             1,010         $             (90)          (9)           (9)            $             3,654         $             4,024         $             (370)         (9)           (11)
(1) This earnings measure has no standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. This measure is defined and reconciled in Non-GAAP Measures of this Earnings Release.
Summary of Rail Data (Page 4)
                                                       Fourth Quarter                                                                   Year
                                                       2016                2015 (1)            Change              %                    2016(1)             2015 (1)            Change              %
Operations Performance
Gross ton-miles ("GTMs") (millions)                    62,233              66,117              (3,884)             (6)                  242,694             263,344             (20,650)            (8)
Train miles (thousands)                                7,748               8,390               (642)               (8)                  30,373              34,064              (3,691)             (11)
Average train weight - excluding local traffic (tons)  8,588               8,505               83                  1                    8,614               8,314               300                 4
Average train length - excluding local traffic (feet)  7,100               7,036               64                  1                    7,217               6,935               282                 4
Average terminal dwell (hours)                         6.4                 6.6                 (0.2)               (3)                  6.7                 7.2                 (0.5)               (7)
Average train speed (mph)(2)                           22.9                22.8                0.1                 --                   23.5                21.4                2.1                 10
Fuel efficiency(3)                                     0.996               0.996               --                  --                   0.980               0.999               (0.019)             (2)
U.S. gallons of locomotive fuel consumed (millions)(4) 61.6                65.8                (4.2)               (6)                  236.2               261.7               (25.5)              (10)
Average fuel price (U.S. dollars per U.S. gallon)      2.01                1.91                0.10                5                    1.80                2.13                (0.33)              (15)
Total employees (average)(5)                           11,803              13,163              (1,360)             (10)                 12,082              13,858              (1,776)             (13)
Total employees (end of period)(5)                     11,653              12,817              (1,164)             (9)                  11,653              12,817              (1,164)             (9)
Workforce (end of period)(6)                           11,698              12,899              (1,201)             (9)                  11,698              12,899              (1,201)             (9)
Safety
FRA personal injuries per 200,000 employee-hours       1.90                1.99                (0.09)              (5)                  1.64                1.84                (0.20)              (11)
FRA train accidents per million train miles            1.19                1.41                (0.22)              (16)                 0.97                1.33                (0.36)              (27)
(1) Certain figures have been revised to conform with current presentation or have been updated to reflect new information.
(2) The reporting definition for average train speed measures the line-haul movement from origin to destination including terminal dwell hours, and excluding foreign railroad and customer delays.
(3) Fuel efficiency is defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs - freight and yard.
(4) Includes gallons of fuel consumed from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities.
(5) An employee is defined as an individual currently engaged in full-time or part-time employment with CP.
(6) Workforce is defined as total employees plus contractors and consultants.

Non-GAAP Measures - Unaudited

The Company presents non-GAAP measures and cash flow information to provide a basis for evaluating underlying earnings and liquidity trends in the Company’s business that can be compared with the results of operations in prior periods. In addition, these non-GAAP measures facilitate a multi-period assessment of long-term profitability allowing management and other external users of the Company’s consolidated financial information to compare profitability on a long-term basis, including assessing future profitability, with that of the Company’s peers.

These non-GAAP measures have no standardized meaning and are not defined by GAAP and, therefore, may not be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures is not intended to be considered in isolation from, as a substitute for, or as superior to, the financial information presented in accordance with GAAP.

Adjusted Performance Measures The Company uses Adjusted income, Adjusted diluted earnings per share, Adjusted operating income and Adjusted operating ratio to evaluate the Company’s operating performance and for planning and forecasting future business operations and future profitability. These non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends either by nature or amount. As a result, these items are excluded for management assessment of operational performance, allocation of resources and preparation of annual budgets. These significant items may include, but are not limited to, restructuring and asset impairment charges, individually significant gains and losses from sales of assets and certain items outside the control of management. These items may not be non-recurring. However, excluding these significant items from GAAP results allows for a consistent understanding of the Company’s consolidated financial performance when performing a multi-period assessment including assessing the likelihood of future results. Accordingly, these non-GAAP financial measures may provide insight to investors and other external users of the Company’s consolidated financial information.

Significant items that impacted reported fourth-quarter 2016 and 2015 earnings include:

2016:

-- $74 million non-cash loss ($64 million after deferred tax) due to foreign exchange ("FX") translation on U.S. dollar denominated long-term debt which unfavourably impacted diluted earnings per share ("Diluted EPS") by 43 cents; and

2015:

-- $115 million non-cash loss ($100 million after deferred tax) due to FX translation on U.S. dollar denominated long-term debt which unfavourably impacted Diluted EPS by 64 cents.

In addition to the fourth quarter significant items discussed above, other items that impacted full year 2016 and 2015 earnings include:

2016:

-- in the third quarter, a $25 million expense ($18 million after current tax) related to a legal settlement which unfavourably impacted Diluted EPS by 12 cents;

-- during the first nine months of the year, a net non-cash gain of $153 million ($132 million after deferred tax) due to FX translation of the Company’s U.S. dollar-denominated debt as follows:

-- in the third quarter, a $46 million loss ($40 million after deferred tax) which unfavourably impacted Diluted EPS by 27 cents;

-- in the second quarter, a $18 million gain ($16 million after deferred tax) which favourably impacted Diluted EPS by 10 cents; and

-- in the first quarter, a $181 million gain ($156 million after deferred tax) which favourably impacted Diluted EPS by $1.01;

2015:

-- in the third quarter, a $68 million gain ($42 million after current tax) related to the sale of Delaware and Hudson Railway south of Schenectady ("D&H South") which favourably impacted Diluted EPS by 26 cents;

-- in the third quarter, a $47 million charge ($35 million after deferred tax) related to the early redemption premium on notes which unfavourably impacted Diluted EPS by 22 cents;

-- in the second quarter, an income tax expense of $23 million as a result of the change in the Alberta provincial corporate income tax rate which unfavourably impacted Diluted EPS by 14 cents; and

-- during the first nine months of the year, a net non-cash loss of $182 million ($157 million after deferred tax) due to FX translation of the Company’s U.S. dollar-denominated debt as follows:

-- in the third quarter, a $128 million loss ($111 million after deferred tax) which unfavourably impacted Diluted EPS by 69 cents;

-- in the second quarter, a $10 million gain ($9 million after deferred tax) which favourably impacted Diluted EPS by 5 cents; and

-- in the first quarter, a $64 million loss ($55 million after deferred tax) which unfavourably impacted Diluted EPS by 34 cents.

Reconciliation of Non-GAAP performance measures to GAAP performance measures The following tables reconcile Adjusted income, Adjusted diluted earnings per share, Adjusted operating income and Adjusted operating ratio to Net income, Diluted earnings per share, Operating income and Operating ratio, respectively.

                                                                             For the three months                                                    For the year
Net income                                                                   ended December 31                                                       ended December 31
(in millions of Canadian dollars)                                            2016                                2015                                2016                                2015
Adjusted income                                                              $                 448               $                 419               $                 1,549             $                 1,625
Add significant items, pretax:
                    Legal settlement charge                                  --                                  --                                  (25)                                --
                    Gain on sale of D&H South                                --                                  --                                  --                                  68
                    Impact of FX translation on U.S. dollar-denominated debt (74)                                (115)                               79                                  (297)
                    Early redemption premium on notes                        --                                  --                                  --                                  (47)
                    Income tax rate change                                   --                                  --                                  --                                  (23)
Tax effect of adjustments(1)                                                 10                                  15                                  (4)                                 26
Net income as reported                                                       $                 384               $                 319               $                 1,599             $                 1,352
(1) Tax effect of adjustments was calculated as the pretax effect of the adjustments multiplied by the effective tax rate for each of the above items for the periods presented.
                                                                             For the three months                                                    For the year
Diluted earnings per share                                                   ended December 31                                                       ended December 31
                                                                             2016                                2015                                2016                                2015
Adjusted diluted earnings per share                                          $                 3.04              $                 2.72              $                 10.29             $                 10.10
Add significant items, pretax:
                    Legal settlement charge                                  --                                  --                                  (0.17)                              --
                    Gain on sale of D&H South                                --                                  --                                  --                                  0.42
                    Impact of FX translation on U.S. dollar-denominated debt (0.50)                              (0.74)                              0.53                                (1.84)
                    Early redemption premium on notes                        --                                  --                                  --                                  (0.30)
                    Income tax rate change                                   --                                  --                                  --                                  (0.14)
Tax effect of adjustments(1)                                                 0.07                                0.10                                (0.02)                              0.16
Diluted earnings per share as reported                                       $                 2.61              $                 2.08              $                 10.63             $                 8.40
(1) Tax effect of adjustments was calculated as the pretax effect of the adjustments multiplied by the effective tax rate for each of the above items for the periods presented.
                                                                             For the three months                                                    For the year
Operating income                                                             ended December 31                                                       ended December 31
(in millions of Canadian dollars)                                            2016                                2015                                2016                                2015
Adjusted operating income                                                    $                 717               $                 677               $                 2,578             $                 2,620
Add significant item:
                    Gain on sale of D&H South                                --                                  --                                  --                                  68
Operating income as reported                                                 $                 717               $                 677               $                 2,578             $                 2,688
                                                                             For the three months                                                    For the year
Operating ratio                                                              ended December 31                                                       ended December 31
                                                                             2016                                2015                                2016                                2015
Adjusted operating ratio                                                     56.2%                               59.8%                               58.6%                               61.0%
Add significant item:
                    Gain on sale of D&H South                                --%                                 --%                                 --%                                 (1.0)%
Operating ratio as reported                                                  56.2%                               59.8%                               58.6%                               60.0%

Free Cash Free cash is calculated as Cash provided by operating activities, less Cash used in investing activities, adjusted for changes in cash and cash equivalents balances resulting from FX fluctuations. Free cash is a measure that management considers to be an indicator of liquidity. Free cash is useful to investors and other external users of the consolidated financial information as it assists with the evaluation of the Company’s ability to generate cash from its operations without incurring additional external financing. Positive Free cash indicates the amount of cash available for reinvestment in the business, or cash that can be returned to investors through dividends, stock repurchase programs, debt retirements or a combination of these. Conversely, negative Free cash indicates the amount of cash that must be raised from investors through new debt or equity issues, reduction in available cash balances or a combination of these. Free cash should be considered in addition to, rather than as a substitute for, Cash provided by operating activities.

Reconciliation of Cash provided by operating activities to Free cash

                                                                         For the three months                        For the year
                                                                         ended December 31                           ended December 31
(in millions of Canadian dollars)                                        2016                  2015(1)               2016                  2015(1)
Cash provided by operating activities                                    $          768        $          623        $          2,089      $          2,459
Cash used in investing activities                                        (252)                 (415)                 (1,069)               (1,123)
Effect of foreign currency fluctuations on U.S. dollar- denominated cash 3                     22                    (13)                  45
and cash equivalents
Free cash                                                                $          519        $          230        $          1,007      $          1,381
(1) The definition of Free cash has been revised to exclude the deduction of dividends paid.

Foreign Exchange Adjusted Variance Foreign exchange adjusted variance ("FX adj. variance") allows certain financial results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Financial results at constant currency are obtained by translating the comparable period of the prior year results denominated in U.S. dollars at the foreign exchange rates of the current period. Measures at constant currency are considered non-GAAP measures and do not have any standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.

                              For the three months ended December 31             For the year ended December 31
(in millions of               Reported   Reported   Variance  Adjusted   FX Adj. Reported   Reported   Variance  Adjusted   FX Adj.
Canadian dollars)             2016       2015       due to FX 2015       %       2016       2015       due to FX 2015       %
Freight revenues              $    1,596 $    1,645 $    --   $    1,645 (3)%    $    6,060 $    6,552 $    145  $    6,697 (10)%
Non-freight revenues          41         42         --        42         (2)%    172        160        1         161        7%
Total revenues                1,637      1,687      --        1,687      (3)%    6,232      6,712      146       6,858      (9)%
Compensation and benefits     282        333        --        333        (15)%   1,189      1,371      18        1,389      (14)%
Fuel                          173        166        --        166        4%      567        708        25        733        (23)%
Materials                     47         40         --        40         18%     180        184        2         186        (3)%
Equipment rents               41         44         --        44         (7)%    173        174        5         179        (3)%
Depreciation and amortization 162        155        --        155        5%      640        595        5         600        7%
Purchased services and other  215        272        --        272        (21)%   905        1,060      21        1,081      (16)%
Gain on sale of D&H South     --         --         --        --         --%     --         (68)       1         (67)       (100)%
Total operating expenses      920        1,010      --        1,010      (9)%    3,654      4,024      77        4,101      (11)%
Operating income              $    717   $    677   $    --   $    677   6%      $    2,578 $    2,688 $    69   $    2,757 (6)%

SOURCE Canadian Pacific

https://rt.prnewswire.com/rt.gif?NewsItemId=CA90326&Transmission_Id=201701181601PR_NEWS_USPR_____CA90326&DateId=20170118



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