26 October 2004 CPR Reports Continued Strong Business Growth, Higher Income in Third-Quarter 2004 Canadian Pacific Railway today reported third-quarter 2004 net income of $177 million, or $1.11 per diluted share, compared with net income of $91 million, or $0.57 per diluted share in the same period of 2003. The increase included an after-tax gain of $73 million on foreign exchange on long-term debt. Volumes grew in six of seven business lines, including a 9 percent jump in intermodal, which is on pace to become a $1-billion business line for CPR this year.   Excluding foreign exchange gains and losses on long-term debt, income in third-quarter 2004 increased 9 percent to $104 million, or $0.65 per diluted share, compared with $95 million, or $0.60 in third-quarter 2003.   Rob Ritchie, President and Chief Executive Officer of CPR, said: "I am very pleased with the ongoing growth in our business and the upward trend in CPR's yield and operating performance accomplished by our people, who are working to drive more of this growth to the bottom line. We successfully completed an unprecedented program of track maintenance on our busy western corridor in a compressed time period while moving more freight than ever before. With several pinch-points removed, more new locomotives arriving in the coming weeks and 500 new people now qualified to operate trains, CPR has entered the fall peak season well positioned to handle anticipated freight volumes and to keep our network fluid.   "Record world oil prices remain a challenge in the transportation sector. However, CPR's improved fuel surcharge program, which enables CPR to pass on higher prices more quickly, is generating solid results. The new surcharge program, in combination with indexing and a favourable hedge position, enabled CPR to recover about three-quarters of our price-related fuel cost increase in the third quarter", Mr. Ritchie said.   Summary of third-quarter 2004 compared with third-quarter 2003 Operating income of $219 million, an increase of 8 percent Revenue up $85 million, with increases in all business lines except grain, where a late harvest delayed rail shipments Operating expenses up $70 million, driven by higher freight volumes and fuel prices, temporary costs to train additional crews, and a return to a normal level of performance-based incentive compensation Operating ratio of 77.9 percent, compared with 77.5 percent Summary of first nine months 2004 compared with first nine months 2003 Net income of $284 million, or $1.79 per diluted share, compared with $227 million, or $1.43 per diluted share Excluding foreign exchange gains and losses on long-term debt and a special charge, income of $245 million, or $1.54 per diluted share, compared with $216 million, or $1.36 per diluted share (special charge in 2003 for job reductions, an asset write-down and network restructuring) Excluding the special charge in 2003, operating income of $556 million, up $48 million Revenue up $184 million, led by a $74 million increase in intermodal freight and a $60 million increase in coal Excluding the special charge in 2003, operating expenses up $136 million, largely due to a $75 million increase in compensation and benefits reflecting growth-generated hiring and training, and a return to a normal level of performance-based incentive compensation Excluding the special charge in 2003, operating ratio improved by 0.5 percentage point to 80.7 percent The translation impact of the stronger Canadian dollar reduced year-to-date revenues and operating income by $98 million and $22 million, respectively. Income, excluding foreign exchange gains and losses on long-term debt and the special charge, was reduced by $6 million.   Outlook   CPR expects continued strong freight volumes through the remainder of the year, including shipment of a near-normal grain crop, which entered the transportation system late after a delayed harvest.   Diluted earnings per share, excluding foreign exchange gains and losses on long-term debt and other specified items, are expected to grow by 5 percent to 10 percent in 2004, over restated and adjusted earnings per share of $2.07 in 2003. This is based on oil prices averaging US$50 per barrel and an average exchange rate of $1.29 per U.S. dollar (US$0.78) in the fourth quarter of 2004.   Restatement of comparative figures for 2003   Comparative figures for prior periods have been restated for retroactively applied accounting changes. The changes relate to the implementation of new accounting rules under Canadian Generally Accepted Accounting Principles (GAAP) for asset retirement obligations introduced in the first quarter of 2004 and for the expensing of stock options introduced in the fourth quarter of 2003. The combined impact of the changes is a decrease of $4 million in net income, or $0.03 in basic EPS previously reported for the third quarter of 2003. Notes 2, 7 and 10 to the financial statements further describe the impact of the accounting changes.   Foreign exchange gains and losses on long-term debt and other specified items   In the third quarter of 2004, CPR had a foreign exchange gain on long-term debt of $71 million ($73 million after tax), compared with a loss of $4 million ($4 million after tax) in the same period of 2003.   In the first nine months of 2004, CPR had a foreign exchange gain on long-term debt of $37 million ($39 million after tax), compared with a gain of $165 million ($152 million after tax) in the same period of 2003. There were no other specified items in the first nine months of 2004. Other specified items in the same period of 2003 totaled $215 million ($141 million after tax) for a program to eliminate 820 job positions over the 2003-2005 period, a write-down to fair value of under-performing assets, and the restructuring of CPR's northeastern U.S. network.   Presentation of non-GAAP earnings   CPR presents non-GAAP earnings to provide a basis for evaluating underlying earnings trends that can be compared with the prior period's results. Non-GAAP earnings exclude foreign currency translation effects on long-term debt, which can be volatile and short term, as well as other specified items, which are not among CPR'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. In compliance with Revised CSA Staff Notice 52-306, other specified items are no longer referred to as non-recurring items because it is not possible to conclude that an item or items similar to one or more of those so designated will not occur within the next two years. 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.   It should be noted that CPR's earnings, excluding foreign exchange gains and losses on long-term debt and other specified items, 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.   Note on forward-looking statements   This news release contains forward-looking information. Actual future results may differ materially. The risks, uncertainties and other factors that could influence actual results are described in CPR's annual report and annual information form, and may be updated in CPR's consolidated interim financial statements and interim Management's Discussion and Analysis, which are filed with securities regulators from time to time. However, CPR undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events, or otherwise. Financial results in this news release are reported in Canadian dollars.