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CPR numbers up for the first quarter despite drop in freight revenues

Bucking the economic slowdown and sour results for many carriers, Canadian Pacific Railway has announced its net income for first-quarter 2002 was $136 million, an increase of $101 million over net income of $35 million in the first quarter of 2001.

However, CPR couldn’t completely escape the effects of the economic slowdown. Freight revenues in the first quarter of 2002 were $40 million lower than in the first quarter of 2001. Grain revenues were down 20 per cent as
volumes fell following the lowest Canadian grain crop production in 12 years. A reduction in Canadian grain volumes to the U.S. also contributed to the revenue decline. Industrial products were down 7 per cent due to
weak economic conditions.

On the plus side, automotive revenues increased 10 per cent as consumers continued to respond positively to manufacturer incentives. Forest products revenues were up 4 per cent as pending countervailing duties and strong housing starts resulted in increased lumber shipments
which more than offset lower pulp and paper volumes.

In the first quarter of 2002, CPR had a non-recurring income tax benefit of $72 million resulting from a court ruling and subsequent settlement related to prior years’ taxes, partially offset by a foreign exchange loss on
long-term debt of $4 million after tax. In first-quarter 2001, non-recurring items generated a net benefit of $10 million after tax, and CPR incurred a foreign exchange loss on long-term debt of $37 million after tax.

Excluding non-recurring items and foreign exchange loss on long-term debt, net income in first-quarter 2002 was $68 million, an increase of $6 million, or 10 per cent, over first-quarter 2001.

Operating income improved by 16 per cent to $176 million, largely due to cost reduction measures and lower fuel prices. Operating income before non-recurring items was $152 million in first-quarter 2001. The operating ratio improved 3.5 points to 79.9 per cent, from 83.4 per cent.

Robert Ritchie, President and Chief Executive Officer of CPR, said: “Going into the quarter, we fully expected to face challenges on revenue and responded quickly by bringing expenses down at a rate that exceeded the
revenue decline. CPR demonstrated again this quarter that it can generate value for shareholders even in the face of a soft economy.”

Expenses in the first quarter of 2002 were $699 million, a decrease of $67 million compared with $766 million before non-recurring items in first-quarter 2001. Fuel expense fell 26 per cent, reflecting an easing in fuel prices and lower workload. Materials and purchased services expenses
were down 15 per cent overall. Costs generated by a derailment at Minot, North Dakota, were more than offset by insurance recoveries from previous years, ongoing cost containment initiatives and reduced train accidents
through safer operations. Compensation and benefits expense fell 2 per cent mainly due to lower traffic volumes and ongoing productivity initiatives that led to workforce reductions. There were about 1,700 fewer
employees in first-quarter 2002 than in the same period of 2001.

“CPR is well positioned for an upturn in the economy and there are now prospects for modest recovery in the second half of the year,” Ritchie said. “At the same time, our team will not let up on expenses. We will maintain tight cost control going forward while managing our people,
resources and processes to enhance safety and service.”

Net income was affected by a $19-million increase in interest expense as a result of higher debt levels, largely attributable to CPR’s increased debt following its spin-off last year from Canadian Pacific Limited. CPR has
announced its intention to redeem US$250 million (CDN$399 million) of 8.85% Debentures with funding derived principally from available cash balances. This resulted in a redemption premium reflected in other income and charges. Also included in other income and charges was interest income related to the tax settlement.

CPR’s 14,000-mile network serves the principal centres of Canada, from Montreal to Vancouver, and the U.S. Northeast and Midwest regions. CPR’s track feeds directly into the Chicago hub from the East and West coasts. Alliances with other carriers extend CPR’s market reach beyond its own
network and into the major business centres of Mexico. For more information, visit CPR’s website at

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