Adjusted Q3-2013 net income was C$724 million, with adjusted diluted EPS
rising 13 per cent to C$1.72 (1)
Railway achieved record quarterly revenues and a 59.8 per cent operating
ratio
MONTREAL, Oct. 22, 2013 /CNW Telbec/ - CN (TSX: CNR) (NYSE: CNI) today
reported its financial and operating results for the third quarter and
nine-month period ended Sept. 30, 2013.
Third-quarter 2013 highlights
-
Third-quarter 2013 net income was C$705 million, or C$1.67 per diluted
share, compared with net income of C$664 million, or C$1.52 per diluted
share, for third-quarter 2012. The third-quarter 2013 results included
a C$19 million (C$0.05 per diluted share) expense resulting from a
one-time deferred income tax adjustment.
-
Excluding the income tax expense, Q3-2013 adjusted diluted earnings per
share (EPS) increased 13 per cent to C$1.72 from Q3-2012 diluted EPS of
C$1.52. (1)
-
Revenues for the latest quarter increased eight per cent to a quarterly
record of C$2,698 million, driven by a four per cent increase in
revenue ton-miles, and a three per cent increase in carloadings.
-
Operating income increased 10 per cent to C$1,084 million.
-
The operating ratio improved by 0.8 of a point to 59.8 per cent.
-
Free cash flow totalled C$778 million for the first nine months of 2013,
compared with free cash flow of C$1,036 million in the comparable
period of 2012. (1)
Claude Mongeau, president and chief executive officer, said: "CN's
agenda of Operational and Service Excellence delivered outstanding
financial results for the quarter. All our key operating metrics
improved, service levels remained solid and we reached new levels of
safety in our train operations.
"With continued focus on supply chain collaboration and solid execution,
the CN team is determined to grow its business safely and efficiently
at a pace faster than the overall economy and to meet its full-year
2013 financial outlook." (2)
Foreign currency impact on results
Although CN reports its earnings in Canadian dollars, a large portion of
its revenues and expenses is denominated in U.S. dollars. As such, the
Company's results are affected by exchange-rate fluctuations. On a
constant currency basis that excludes the impact of fluctuations in
foreign currency exchange rates, CN's third-quarter 2013 net income
would have been lower by C$14 million, or C$0.03 per diluted share. (1)
Third-quarter 2013 revenues, traffic volumes and expenses
The eight per cent rise in third-quarter revenues was mainly
attributable to higher freight volumes due to strong energy markets,
market share gains, as well as growth in the North American economy;
the positive translation impact of the weaker Canadian dollar on
U.S.-dollar-denominated revenues; freight rate increases; and the
impact of a higher fuel surcharge as a result of year-over-year
increases in applicable fuel prices and higher volumes.
Revenues increased for petroleum and chemicals (17 per cent), intermodal
(13 per cent), metals and minerals (11 per cent), forest products
(eight per cent), and automotive (seven per cent). Revenues declined
for grain and fertilizers (three per cent) and coal (one per cent).
Carloads increased by three per cent while revenue ton-miles, measuring
the relative weight and distance of rail freight transported by CN,
increased four per cent over the same quarter in 2012.
Rail freight revenue per revenue ton-mile, a measurement of yield
defined as revenue earned on the movement of a ton of freight over one
mile, increased four per cent over the third quarter of 2012, driven by
freight rate increases and the positive translation impact of the
weaker Canadian dollar on U.S.-dollar-denominated revenues, partly
offset by an increase in the average length of haul.
Operating expenses increased seven per cent in the third quarter of
2013, mainly due to the negative translation impact of the weaker
Canadian dollar on U.S.-dollar-denominated expenses, higher labor and
fringe benefits expense, higher depreciation and amortization, as well
as increased purchased services and material expense.
(1) See discussion and reconciliation of non-GAAP adjusted
performance measures in the attached supplementary schedule, Non-GAAP
Measures.
(2) See Forward-Looking Statements for a summary of the key
assumptions and risks regarding CN's 2013 outlook.
Forward-Looking Statements
Certain information included in this news release constitutes
"forward-looking statements" within the meaning of the United States
Private Securities Litigation Reform Act of 1995 and under Canadian
securities laws. CN cautions that, by their nature, these
forward-looking statements involve risks, uncertainties and
assumptions. The Company cautions that its assumptions may not
materialize and that current economic conditions render such
assumptions, although reasonable at the time they were made, subject to
greater uncertainty. Such forward-looking statements are not guarantees
of future performance and involve known and unknown risks,
uncertainties and other factors which may cause the actual results or
performance of the Company or the rail industry to be materially
different from the outlook or any future results or performance implied
by such statements. To the extent that CN has provided guidance that
are non-GAAP financial measures, the Company may not be able to provide
a reconciliation to the GAAP measures, due to unknown variables and
uncertainty related to future results. Key assumptions used in
determining forward-looking information are set forth below.
Current assumptions
CN maintains the 2013 financial outlook it issued on Jan. 22, 2013, as
well as its plan to invest approximately C$2 billion in capital
programs in 2013, which it revised upward from C$1.9 billion on April
22, 2013. Approximately C$1.1 billion of the total expenditure will be
targeted on track infrastructure to maintain a safe and fluid railway
network. In addition, the Company will invest in projects to support a
number of productivity and growth initiatives.
CN made a number of economic and market assumptions in preparing its
2013 outlook. The Company is forecasting that North American industrial
production for the year will increase by about two per cent. CN also
expects U.S. housing starts to be approximately 950,000 units, and U.S.
motor vehicles sales to be approximately 15 million units. In addition,
for the 2013/2014 crop year, CN is now assuming Canadian grain
production will be well above the five-year average and that U.S. grain
production will be above the five-year average. With these assumptions,
CN assumes carload growth of two to three per cent, along with
continued pricing improvement above inflation. CN assumes the
Canadian-U.S. exchange rate to be in the range of C$0.95-C$1.00 for
2013, and that the price of crude oil (West Texas Intermediate) for the
year to be in the range of US$90-$100 per barrel.
Important risk factors that could affect the forward-looking statements
include, but are not limited to, the effects of general economic and
business conditions, industry competition, inflation, currency and
interest rate fluctuations, changes in fuel prices, legislative and/or
regulatory developments, compliance with environmental laws and
regulations, actions by regulators, various events which could disrupt
operations, including natural events such as severe weather, droughts,
floods and earthquakes, labor negotiations and disruptions,
environmental claims, uncertainties of investigations, proceedings or
other types of claims and litigation, risks and liabilities arising
from derailments, and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United States.
Reference should be made to "Management's Discussion and Analysis" in
CN's annual and interim reports, Annual Information Form and Form 40-F
filed with Canadian and U.S. securities regulators, available on CN's
website, for a summary of major risk factors.
CN assumes no obligation to update or revise forward-looking statements
to reflect future events, changes in circumstances, or changes in
beliefs, unless required by applicable Canadian securities laws. In the
event CN does update any forward-looking statement, no inference should
be made that CN will make additional updates with respect to that
statement, related matters, or any other forward-looking statement.
CN (TSX: CNR) (NYSE: CNI) is a true backbone of the economy,
transporting approximately C$250 billion worth of goods annually for a
wide range of business sectors, ranging from resource products to
manufactured products to consumer goods, across a rail network spanning
Canada and mid-America, from the Atlantic and Pacific oceans to the
Gulf of Mexico. CN - Canadian National Railway Company, along with its
operating railway subsidiaries -- serves the ports of Vancouver, Prince
Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the
metropolitan areas of Toronto, Chicago, Detroit, Duluth,
Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis,
and Jackson, Miss., with connections to all points in North America.
For more information on CN, visit the company's website at www.cn.ca.
CANADIAN NATIONAL RAILWAY COMPANY
|
CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP) - unaudited
|
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30
|
|
September 30
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
Revenues
|
$
|
2,698
|
|
$
|
2,497
|
|
$
|
7,830
|
|
$
|
7,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and fringe benefits
|
|
521
|
|
|
476
|
|
|
1,588
|
|
|
1,489
|
|
Purchased services and material
|
|
318
|
|
|
304
|
|
|
987
|
|
|
908
|
|
Fuel
|
|
390
|
|
|
369
|
|
|
1,197
|
|
|
1,124
|
|
Depreciation and amortization
|
|
241
|
|
|
227
|
|
|
726
|
|
|
687
|
|
Equipment rents
|
|
68
|
|
|
64
|
|
|
204
|
|
|
185
|
|
Casualty and other
|
|
76
|
|
|
72
|
|
|
222
|
|
|
230
|
Total operating expenses
|
|
1,614
|
|
|
1,512
|
|
|
4,924
|
|
|
4,623
|
Operating income
|
|
1,084
|
|
|
985
|
|
|
2,906
|
|
|
2,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(89)
|
|
|
(84)
|
|
|
(266)
|
|
|
(256)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (Note 3)
|
|
5
|
|
|
18
|
|
|
75
|
|
|
320
|
Income before income taxes
|
|
1,000
|
|
|
919
|
|
|
2,715
|
|
|
2,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note 7)
|
|
(295)
|
|
|
(255)
|
|
|
(738)
|
|
|
(757)
|
Net income
|
$
|
705
|
|
$
|
664
|
|
$
|
1,977
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.68
|
|
$
|
1.53
|
|
$
|
4.67
|
|
$
|
4.73
|
|
Diluted
|
$
|
1.67
|
|
$
|
1.52
|
|
$
|
4.66
|
|
$
|
4.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
419.6
|
|
|
433.9
|
|
|
423.1
|
|
|
437.3
|
|
Diluted
|
|
421.1
|
|
|
435.9
|
|
|
424.6
|
|
|
439.6
|
See accompanying notes to unaudited consolidated financial statements.
|
CANADIAN NATIONAL RAILWAY COMPANY
|
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (U.S. GAAP) - unaudited
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30
|
|
September 30
|
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
705
|
$
|
664
|
|
$
|
1,977
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
Translation of the net investment in foreign operations
|
|
(134)
|
|
(210)
|
|
|
221
|
|
(199)
|
|
|
Translation of US dollar-denominated long-term debt designated as a
hedge of the net investment in U.S. subsidiaries
|
|
123
|
|
202
|
|
|
(197)
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit plans (Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss included in net periodic benefit cost
|
|
56
|
|
30
|
|
|
169
|
|
92
|
|
|
Amortization of prior service cost included in net periodic benefit cost
|
|
1
|
|
1
|
|
|
4
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before income taxes
|
|
46
|
|
23
|
|
|
197
|
|
87
|
Income tax expense
|
|
(32)
|
|
(37)
|
|
|
(20)
|
|
(51)
|
Other comprehensive income (loss) (Note 11)
|
|
14
|
|
(14)
|
|
|
177
|
|
36
|
Comprehensive income
|
$
|
719
|
$
|
650
|
|
$
|
2,154
|
$
|
2,106
|
See accompanying notes to unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
CANADIAN NATIONAL RAILWAY COMPANY
|
CONSOLIDATED BALANCE SHEET (U.S. GAAP) - unaudited
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
December 31
|
|
September 30
|
|
|
2013
|
|
|
2012
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
182
|
|
$
|
155
|
|
$
|
175
|
|
Restricted cash and cash equivalents (Note 4)
|
|
529
|
|
|
521
|
|
|
518
|
|
Accounts receivable (Note 4)
|
|
868
|
|
|
831
|
|
|
845
|
|
Material and supplies
|
|
317
|
|
|
230
|
|
|
272
|
|
Deferred and receivable income taxes
|
|
74
|
|
|
43
|
|
|
37
|
|
Other
|
|
67
|
|
|
89
|
|
|
78
|
Total current assets
|
|
2,037
|
|
|
1,869
|
|
|
1,925
|
|
|
|
|
|
|
|
|
|
Properties
|
|
25,383
|
|
|
24,541
|
|
|
24,004
|
Intangible and other assets
|
|
377
|
|
|
249
|
|
|
349
|
Total assets
|
$
|
27,797
|
|
$
|
26,659
|
|
$
|
26,278
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and other
|
$
|
1,499
|
|
$
|
1,626
|
|
$
|
1,631
|
|
Current portion of long-term debt (Note 4)
|
|
1,488
|
|
|
577
|
|
|
678
|
Total current liabilities
|
|
2,987
|
|
|
2,203
|
|
|
2,309
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
5,884
|
|
|
5,555
|
|
|
5,603
|
Pension and other postretirement benefits, net of current portion
|
|
589
|
|
|
784
|
|
|
553
|
Other liabilities and deferred credits
|
|
760
|
|
|
776
|
|
|
738
|
Long-term debt
|
|
6,010
|
|
|
6,323
|
|
|
5,770
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
4,036
|
|
|
4,108
|
|
|
4,120
|
|
Accumulated other comprehensive loss (Note 11)
|
|
(3,080)
|
|
|
(3,257)
|
|
|
(2,803)
|
|
Retained earnings
|
|
10,611
|
|
|
10,167
|
|
|
9,988
|
Total shareholders' equity
|
|
11,567
|
|
|
11,018
|
|
|
11,305
|
Total liabilities and shareholders' equity
|
$
|
27,797
|
|
$
|
26,659
|
|
$
|
26,278
|
See accompanying notes to unaudited consolidated financial statements.
|
CANADIAN NATIONAL RAILWAY COMPANY
|
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. GAAP) - unaudited
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30
|
|
September 30
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Common shares (1)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
4,063
|
|
$
|
4,132
|
|
$
|
4,108
|
|
$
|
4,141
|
|
Stock options exercised and other
|
|
8
|
|
|
27
|
|
|
35
|
|
|
105
|
|
Share repurchase programs (Note 4)
|
|
(35)
|
|
|
(39)
|
|
|
(107)
|
|
|
(126)
|
Balance, end of period
|
$
|
4,036
|
|
$
|
4,120
|
|
$
|
4,036
|
|
$
|
4,120
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
(3,094)
|
|
$
|
(2,789)
|
|
$
|
(3,257)
|
|
$
|
(2,839)
|
|
Other comprehensive income (loss)
|
|
14
|
|
|
(14)
|
|
|
177
|
|
|
36
|
Balance, end of period
|
$
|
(3,080)
|
|
$
|
(2,803)
|
|
$
|
(3,080)
|
|
$
|
(2,803)
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
10,416
|
|
$
|
9,821
|
|
$
|
10,167
|
|
$
|
9,378
|
|
Net income
|
|
705
|
|
|
664
|
|
|
1,977
|
|
|
2,070
|
|
Share repurchase programs (Note 4)
|
|
(330)
|
|
|
(334)
|
|
|
(988)
|
|
|
(969)
|
|
Dividends
|
|
(180)
|
|
|
(163)
|
|
|
(545)
|
|
|
(491)
|
Balance, end of period
|
$
|
10,611
|
|
$
|
9,988
|
|
$
|
10,611
|
|
$
|
9,988
|
See accompanying notes to unaudited consolidated financial statements.
|
(1)
|
During the three and nine months ended September 30, 2013, the Company
issued 0.1 million and 0.7 million common shares, respectively, as a
result of stock options exercised and repurchased 3.6 million and 11.1
million common shares, respectively, under its current share repurchase
program. At September 30, 2013, the Company had 418.0 million common
shares outstanding.
|
CANADIAN NATIONAL RAILWAY COMPANY
|
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP) - unaudited
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30
|
|
September 30
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
705
|
|
$
|
664
|
|
$
|
1,977
|
|
$
|
2,070
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
241
|
|
|
227
|
|
|
726
|
|
|
687
|
|
Deferred income taxes
|
|
13
|
|
|
59
|
|
|
169
|
|
|
331
|
|
Gain on disposal of property (Note 3)
|
|
-
|
|
|
-
|
|
|
(69)
|
|
|
(281)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(3)
|
|
|
(25)
|
|
|
(23)
|
|
|
(37)
|
|
Material and supplies
|
|
11
|
|
|
3
|
|
|
(84)
|
|
|
(73)
|
|
Accounts payable and other
|
|
57
|
|
|
50
|
|
|
(146)
|
|
|
140
|
|
Other current assets
|
|
17
|
|
|
5
|
|
|
28
|
|
|
(6)
|
Pensions and other, net
|
|
25
|
|
|
17
|
|
|
(128)
|
|
|
(495)
|
Net cash provided by operating activities
|
|
1,066
|
|
|
1,000
|
|
|
2,450
|
|
|
2,336
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
Property additions
|
|
(539)
|
|
|
(508)
|
|
|
(1,185)
|
|
|
(1,121)
|
Disposal of property (Note 3)
|
|
-
|
|
|
-
|
|
|
52
|
|
|
311
|
Change in restricted cash and cash equivalents
|
|
(32)
|
|
|
(46)
|
|
|
(8)
|
|
|
(19)
|
Other, net
|
|
(8)
|
|
|
7
|
|
|
(10)
|
|
|
5
|
Net cash used in investing activities
|
|
(579)
|
|
|
(547)
|
|
|
(1,151)
|
|
|
(824)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt (Note 4)
|
|
1,096
|
|
|
230
|
|
|
3,228
|
|
|
1,861
|
Repayment of debt
|
|
(932)
|
|
|
(338)
|
|
|
(2,904)
|
|
|
(1,806)
|
Issuance of common shares due to exercise of stock options and related
excess tax benefits realized
|
|
5
|
|
|
24
|
|
|
28
|
|
|
97
|
Repurchase of common shares (Note 4)
|
|
(383)
|
|
|
(373)
|
|
|
(1,095)
|
|
|
(1,095)
|
Dividends paid
|
|
(180)
|
|
|
(163)
|
|
|
(545)
|
|
|
(491)
|
Net cash used in financing activities
|
|
(394)
|
|
|
(620)
|
|
|
(1,288)
|
|
|
(1,434)
|
Effect of foreign exchange fluctuations on US dollar-denominated cash
and cash equivalents
|
|
2
|
|
|
(3)
|
|
|
16
|
|
|
(4)
|
Net increase (decrease) in cash and cash equivalents
|
|
95
|
|
|
(170)
|
|
|
27
|
|
|
74
|
Cash and cash equivalents, beginning of period
|
|
87
|
|
|
345
|
|
|
155
|
|
|
101
|
Cash and cash equivalents, end of period
|
$
|
182
|
|
$
|
175
|
|
$
|
182
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
Net cash receipts from customers and other
|
$
|
2,633
|
|
$
|
2,476
|
|
$
|
7,798
|
|
$
|
7,396
|
Net cash payments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee services, suppliers and other expenses
|
|
(1,256)
|
|
|
(1,235)
|
|
|
(4,169)
|
|
|
(4,002)
|
|
Interest
|
|
(85)
|
|
|
(89)
|
|
|
(259)
|
|
|
(275)
|
|
Personal injury and other claims
|
|
(16)
|
|
|
(13)
|
|
|
(44)
|
|
|
(57)
|
|
Pensions (Note 6)
|
|
(11)
|
|
|
(29)
|
|
|
(221)
|
|
|
(587)
|
|
Income taxes
|
|
(199)
|
|
|
(110)
|
|
|
(655)
|
|
|
(139)
|
Net cash provided by operating activities
|
$
|
1,066
|
|
$
|
1,000
|
|
$
|
2,450
|
|
$
|
2,336
|
See accompanying notes to unaudited consolidated financial statements.
|
CANADIAN NATIONAL RAILWAY COMPANY
|
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
|
Note 1 - Basis of presentation
In management's opinion, the accompanying unaudited Interim Consolidated
Financial Statements and Notes thereto, expressed in Canadian dollars,
and prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP) for interim financial statements, contain all
adjustments (consisting of normal recurring accruals) necessary to
present fairly Canadian National Railway Company's (the Company)
financial position as at September 30, 2013, December 31, 2012 and
September 30, 2012, and its results of operations, changes in
shareholders' equity and cash flows for the three and nine months ended
September 30, 2013 and 2012.
These unaudited Interim Consolidated Financial Statements and Notes
thereto have been prepared using accounting policies consistent with
those used in preparing the Company's 2012 Annual Consolidated
Financial Statements. While management believes that the disclosures
presented are adequate to make the information not misleading, these
unaudited Interim Consolidated Financial Statements and Notes thereto
should be read in conjunction with the Company's Interim Management's
Discussion and Analysis (MD&A) and the 2012 Annual Consolidated
Financial Statements and Notes thereto.
Note 2 - Accounting change
In February 2013, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive
Income. ASU 2013-02 added new disclosure requirements to Accounting Standards
Codification (ASC) 220, Comprehensive Income, for items reclassified out of accumulated other comprehensive income
(AOCI) effective for reporting periods beginning after December 15,
2012. It requires entities to disclose additional information about
amounts reclassified out of AOCI by component including changes in AOCI
balances and significant items reclassified out of AOCI by the
respective line items of net income. The Company has adopted ASU
2013-02 for the reporting period beginning January 1, 2013 and the
prescribed disclosures are presented in Note 11 - Accumulated other
comprehensive income (loss).
Note 3 - Disposal of property
2013 - Exchange of easements
On June 8, 2013, the Company entered into an agreement with another
Class I railroad to exchange perpetual railroad operating easements
including the track and roadway assets on specific rail lines
(collectively the "exchange of easements") without monetary
consideration. The Company has accounted for the exchange of easements
at fair value pursuant to FASB ASC 845, Nonmonetary Transactions. The transaction resulted in a gain on exchange of easements of $29
million ($18 million after-tax) that was recorded in Other income.
2013 - Disposal of Lakeshore West
On March 19, 2013, the Company entered into an agreement with Metrolinx
to sell a segment of the Oakville subdivision in Oakville and
Burlington, Ontario, together with the rail fixtures and certain
passenger agreements (collectively the "Lakeshore West"), for cash
proceeds of $52 million before transaction costs. Under the agreement,
the Company obtained the perpetual right to operate freight trains over
the Lakeshore West at its then current level of operating activity,
with the possibility of increasing its operating activity for
additional consideration. The transaction resulted in a gain on
disposal of $40 million ($36 million after-tax) that was recorded in
Other income under the full accrual method of accounting for real
estate transactions.
2012 - Disposal of Bala-Oakville
On March 23, 2012, the Company entered into an agreement with Metrolinx
to sell a segment of the Bala and a segment of the Oakville
subdivisions in Toronto, Ontario, together with the rail fixtures and
certain passenger agreements (collectively the "Bala-Oakville"), for
cash proceeds of $311 million before transaction costs. Under the
agreement, the Company obtained the perpetual right to operate freight
trains over the Bala-Oakville at its then current level of operating
activity, with the possibility of increasing its operating activity for
additional consideration. The transaction resulted in a gain on
disposal of $281 million ($252 million after-tax) that was recorded in
Other income under the full accrual method of accounting for real
estate transactions.
Note 4 - Financing activities
Revolving credit facility
The Company has an $800 million revolving credit facility agreement with
a consortium of lenders. The agreement, which contains customary terms
and conditions, allows for an increase in the facility amount, up to a
maximum of $1.3 billion, as well as the option to extend the term by an
additional year at each anniversary date, subject to the consent of
individual lenders. The Company exercised such option and on March 22,
2013, the expiry date of the agreement was extended by one year to May
5, 2018. The Company plans to use the credit facility for working
capital and general corporate purposes, including backstopping its
commercial paper program. As at September 30, 2013, the Company had no
outstanding borrowings under its revolving credit facility (nil as at
December 31, 2012).
Commercial paper
The Company has a commercial paper program, which is backed by its
revolving credit facility, enabling it to issue commercial paper up to
a maximum aggregate principal amount of $800 million, or the US dollar
equivalent. As at September 30, 2013, the Company had total borrowings
of $613 million, of which $515 million was denominated in Canadian
dollars and $98 million was denominated in US dollars (US$95 million)
presented in Current portion of long-term debt on the Consolidated
Balance Sheet (nil as at December 31, 2012). The weighted-average
interest rate on these borrowings was 0.98%.
Accounts receivable securitization program
On December 20, 2012, the Company entered into a three-year agreement,
commencing on February 1, 2013, to sell an undivided co-ownership
interest in a revolving pool of accounts receivable to unrelated trusts
for maximum cash proceeds of $450 million. The trusts are multi-seller
trusts and the Company is not the primary beneficiary. Funding for the
acquisition of these assets is customarily through the issuance of
asset-backed commercial paper notes by the unrelated trusts.
The Company has retained the responsibility for servicing, administering
and collecting the receivables sold. The average servicing period is
approximately one month. Subject to customary indemnifications, each
trust's recourse is limited to the accounts receivable transferred.
The Company is subject to customary reporting requirements for which
failure to perform could result in termination of the program. In
addition, the program is subject to customary credit rating
requirements, which if not met, could also result in termination of the
program. The Company monitors the reporting requirements and is
currently not aware of any trends, events or conditions that could
cause such termination.
The accounts receivable securitization program provides the Company with
readily available short-term financing for general corporate use. In
the event the program is terminated before its scheduled maturity, the
Company expects to meet its future payment obligations through its
various sources of financing including its revolving credit facility
and commercial paper program, and/or access to capital markets.
The Company accounts for its accounts receivable securitization program
under ASC 860, Transfers and Servicing. Based on the structure of the program, the Company accounts for the
proceeds as a secured borrowing. As such, as at September 30, 2013, the
Company recorded $400 million of proceeds received under the accounts
receivable securitization program in the Current portion of long-term
debt on the Consolidated Balance Sheet at a weighted-average interest
rate of 1.16% which is secured by and limited to $463 million of
accounts receivable.
Bilateral letter of credit facilities and Restricted cash and cash
equivalents
The Company has a series of bilateral letter of credit facility
agreements with various banks to support its requirements to post
letters of credit in the ordinary course of business. On March 22,
2013, the expiry date of these agreements was extended by one year to
April 28, 2016. Under these agreements, the Company has the option from
time to time to pledge collateral in the form of cash or cash
equivalents, for a minimum term of one month, equal to at least the
face value of the letters of credit issued. As at September 30, 2013,
the Company had letters of credit drawn of $559 million ($551 million
as at December 31, 2012) from a total committed amount of $590 million
($562 million as at December 31, 2012) by the various banks. As at
September 30, 2013, cash and cash equivalents of $529 million ($521
million as at December 31, 2012) were pledged as collateral and
recorded as Restricted cash and cash equivalents on the Consolidated
Balance Sheet.
Share repurchase programs
On October 22, 2012, the Board of Directors of the Company had approved
a share repurchase program which allowed for the repurchase of up to
$1.4 billion in common shares, not to exceed 18.0 million common
shares, between October 29, 2012 and October 28, 2013 pursuant to a
normal course issuer bid at prevailing market prices plus brokerage
fees, or such other prices as may be permitted by the Toronto Stock
Exchange. The Company repurchased a total of 14.7 million common shares
for $1.4 billion under this share repurchase program.
The following table provides the activity under such share repurchase
program as well as the share repurchase programs of the prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
In millions, except per share data
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Number of common shares repurchased (1)
|
|
3.6
|
|
|
4.1
|
|
|
11.1
|
|
|
13.3
|
Weighted-average price per share (2)
|
$
|
102.34
|
|
$
|
89.82
|
|
$
|
99.01
|
|
$
|
82.32
|
Amount of repurchase
|
$
|
365
|
|
$
|
373
|
|
$
|
1,095
|
|
$
|
1,095
|
(1)
|
Includes common shares purchased in the first quarters of 2013 and 2012
pursuant to private agreements between the Company and arm's length
third-party sellers.
|
(2)
|
Includes brokerage fees.
|
See Note 12 - Subsequent events for additional information on the
Company's new share repurchase program approved on October 22, 2013.
Note 5 - Stock plans
The Company has various stock-based incentive plans for eligible
employees. A description of the Company's major plans is provided in
Note 10 - Stock plans to the Company's 2012 Annual Consolidated
Financial Statements. The following table provides total stock-based
compensation expense for awards under all plans, as well as the related
tax benefit recognized in income, for the three and nine months ended
September 30, 2013 and 2012.
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
In millions
|
|
2013
|
|
2012
|
|
|
2013
|
|
2012
|
Cash settled awards
|
|
|
|
|
|
|
|
|
|
Restricted share unit plan (1)
|
$
|
17
|
$
|
17
|
|
$
|
38
|
$
|
47
|
Voluntary Incentive Deferral Plan (VIDP)
|
|
4
|
|
4
|
|
|
17
|
|
14
|
|
|
21
|
|
21
|
|
|
55
|
|
61
|
Stock option awards
|
|
3
|
|
3
|
|
|
7
|
|
8
|
Total stock-based compensation expense
|
$
|
24
|
$
|
24
|
|
$
|
62
|
$
|
69
|
Tax benefit recognized in income
|
$
|
7
|
$
|
7
|
|
$
|
15
|
$
|
16
|
(1)
|
The nine months ended September 30, 2013 includes the reversal of
approximately $20 million of stock-based compensation expense related
to the forfeiture of restricted share units by the Company's former
Chief Executive Officer and Chief Operating Officer.
|
Cash settled awards
Following approval by the Board of Directors in January 2013, the
Company granted 0.4 million restricted share units (RSUs) to designated
management employees entitling them to receive payout in cash based on
the Company's share price. The RSUs granted are generally scheduled for
payout after three years ("plan period") and vest conditionally upon
the attainment of a target relating to return on invested capital over
the plan period.
Payout is conditional upon the attainment of a minimum share price
calculated using the average of the last three months of the plan
period. In addition, commencing at various dates, for senior and
executive management employees ("executive employees"), payout is
conditional on compliance with the conditions of their benefit plans,
award or employment agreements, including but not limited to
non-compete, non-solicitation, and non-disclosure of confidential
information conditions. Current or former executive employees who
breach such conditions of their benefit plans, award or employment
agreements will forfeit the RSU payout. Should the Company reasonably
determine that a current or former executive employee may have violated
the conditions of their benefit plans, award or employment agreement,
the Company may at its discretion change the manner of vesting of the
RSUs to suspend payout on any RSUs pending resolution of such matter.
As at September 30, 2013, 0.1 million RSUs remained authorized for
future issuance under this plan.
In February 2013, the Company entered into confidential agreements to
settle compensation amounts subject to non-compete and non-solicitation
with its former Chief Executive Officer (CEO) and Chief Operating
Officer (COO). As a result, in the quarter ended March 31, 2013, the
stock-based compensation liability was reduced by approximately $20
million.
The following table provides the 2013 activity for all cash settled
awards:
|
RSUs
|
|
|
VIDP
|
In millions
|
Nonvested
|
|
Vested
|
|
|
Nonvested
|
|
Vested
|
Outstanding at December 31, 2012
|
0.9
|
|
0.7
|
(1)
|
|
-
|
|
1.4
|
Granted (Payout)
|
0.4
|
|
(0.5)
|
|
|
-
|
|
(0.3)
|
Forfeited/Settled
|
(0.1)
|
|
(0.2)
|
(1)
|
|
-
|
|
-
|
Outstanding at September 30, 2013
|
1.2
|
|
-
|
|
|
-
|
|
1.1
|
(1)
|
The balance outstanding at December 31, 2012 included the units of the
RSU payout otherwise due to the Company's former CEO that were in
dispute that were settled in the first quarter of 2013.
|
The following table provides valuation and expense information for all
cash settled awards:
In millions, unless otherwise indicated
|
RSUs (1)
|
|
VIDP (2)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of grant
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense recognized over requisite service
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2013 (3)
|
$
|
12
|
|
$
|
22
|
|
$
|
17
|
|
$
|
(4)
|
|
$
|
(9)
|
|
$
|
17
|
|
|
$
|
55
|
Nine months ended September 30, 2012
|
|
N/A
|
|
$
|
10
|
|
$
|
18
|
|
$
|
19
|
|
$
|
-
|
|
$
|
14
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
$
|
12
|
|
$
|
46
|
|
$
|
63
|
|
$
|
-
|
|
$
|
-
|
|
$
|
125
|
|
|
$
|
246
|
December 31, 2012
|
|
N/A
|
|
$
|
24
|
|
$
|
45
|
|
$
|
70
|
|
$
|
18
|
|
$
|
134
|
|
|
$
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013 ($)
|
$
|
78.34
|
|
$
|
99.10
|
|
$
|
103.94
|
|
|
N/A
|
|
|
N/A
|
|
$
|
104.37
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of awards vested during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2013
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
N/A
|
|
$
|
1
|
|
|
$
|
1
|
Nine months ended September 30, 2012
|
|
N/A
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
N/A
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation cost
|
$
|
17
|
|
$
|
17
|
|
$
|
4
|
|
$
|
-
|
|
|
N/A
|
|
$
|
1
|
|
|
$
|
39
|
Remaining recognition period (years)
|
|
2.3
|
|
|
1.3
|
|
|
0.3
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
(4)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock price ($)
|
$
|
104.37
|
|
$
|
104.37
|
|
$
|
104.37
|
|
|
N/A
|
|
|
N/A
|
|
$
|
104.37
|
|
|
|
N/A
|
Expected stock price volatility (6)
|
|
15%
|
|
|
14%
|
|
|
13%
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
Expected term (years) (7)
|
|
2.3
|
|
|
1.3
|
|
|
0.3
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
Risk-free interest rate (8)
|
|
1.25%
|
|
|
1.09%
|
|
|
0.98%
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
Dividend rate ($) (9)
|
$
|
1.72
|
|
$
|
1.72
|
|
$
|
1.72
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
(1)
|
Compensation cost is based on the fair value of the awards at period-end
using the lattice-based valuation model that uses the assumptions as
presented herein.
|
(2)
|
Compensation cost is based on intrinsic value.
|
(3)
|
Includes the reversal of stock-based compensation expense related to the
forfeiture of restricted share units by the Company's former CEO and
COO.
|
(4)
|
The remaining recognition period has not been quantified as it relates
solely to the 25% Company grant and the dividends earned thereon,
representing a minimal number of units.
|
(5)
|
Assumptions used to determine fair value are at September 30, 2013.
|
(6)
|
Based on the historical volatility of the Company's stock over a period
commensurate with the expected term of the award.
|
(7)
|
Represents the remaining period of time that awards are expected to be
outstanding.
|
(8)
|
Based on the implied yield available on zero-coupon government issues
with an equivalent term commensurate with the expected term of the
awards.
|
(9)
|
Based on the annualized dividend rate.
|
Stock option awards
Following approval by the Board of Directors in January 2013, the
Company granted 0.5 million conventional stock options to designated
senior management employees. The stock option plan allows eligible
employees to acquire common shares of the Company upon vesting at a
price equal to the market value of the common shares at the date of
grant. The options are exercisable during a period not exceeding 10
years. The right to exercise options generally accrues over a period of
four years of continuous employment. Options are not generally
exercisable during the first 12 months after the date of grant. At
September 30, 2013, 10.1 million common shares remained authorized for
future issuances under this plan. The total number of options
outstanding at September 30, 2013 was 3.9 million.
The following table provides the activity of stock option awards during
2013, and for options outstanding and exercisable at September 30,
2013, the weighted-average exercise price and the weighted-average
years to expiration. The table also provides the aggregate intrinsic
value for in-the-money stock options, which represents the value that
would have been received by option holders had they exercised their
options on September 30, 2013 at the Company's closing stock price of
$104.37 on the Toronto Stock Exchange.
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
|
|
|
|
Number
of options
|
|
Weighted-average
exercise price
|
|
Weighted-average
years to expiration
|
|
Aggregate
intrinsic value
|
|
In millions
|
|
|
|
|
|
|
In millions
|
Outstanding at December 31, 2012 (1)
|
4.3
|
|
$
|
52.09
|
|
|
|
|
|
Granted
|
0.5
|
|
$
|
94.94
|
|
|
|
|
|
Forfeited/Cancelled
|
(0.2)
|
|
$
|
70.03
|
|
|
|
|
|
Exercised
|
(0.7)
|
|
$
|
38.37
|
|
|
|
|
|
Outstanding at September 30, 2013 (1)
|
3.9
|
|
$
|
60.46
|
|
5.9
|
|
$
|
172
|
Exercisable at September 30, 2013 (1)
|
2.6
|
|
$
|
50.08
|
|
4.7
|
|
$
|
139
|
(1)
|
Stock options with a US dollar exercise price have been translated to
Canadian dollars using the foreign exchange rate in effect at the
balance sheet date.
|
The following table provides valuation and expense information for all
stock option awards:
In millions, unless otherwise indicated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of grant
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense recognized over requisite service
period (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2013
|
$
|
4
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
$
|
-
|
|
|
N/A
|
|
$
|
7
|
Nine months ended September 30, 2012
|
|
N/A
|
|
$
|
3
|
|
$
|
2
|
|
$
|
1
|
|
$
|
2
|
|
$
|
-
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At grant date ($)
|
$
|
17.04
|
|
$
|
15.49
|
|
$
|
15.66
|
|
$
|
13.09
|
|
$
|
12.60
|
|
$
|
12.44
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of awards vested during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2013
|
$
|
-
|
|
$
|
2
|
|
$
|
3
|
|
$
|
2
|
|
$
|
4
|
|
|
N/A
|
|
$
|
11
|
Nine months ended September 30, 2012
|
|
N/A
|
|
$
|
-
|
|
$
|
2
|
|
$
|
2
|
|
$
|
4
|
|
$
|
3
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation cost
|
$
|
4
|
|
$
|
3
|
|
$
|
1
|
|
$
|
-
|
|
$
|
-
|
|
|
N/A
|
|
$
|
8
|
Remaining recognition period (years)
|
|
3.3
|
|
|
2.3
|
|
|
1.3
|
|
|
0.3
|
|
|
-
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant price ($)
|
$
|
94.94
|
|
$
|
76.70
|
|
$
|
68.94
|
|
$
|
54.76
|
|
$
|
42.14
|
|
$
|
48.51
|
|
|
N/A
|
Expected stock price volatility (2)
|
|
23%
|
|
|
26%
|
|
|
26%
|
|
|
28%
|
|
|
39%
|
|
|
27%
|
|
|
N/A
|
Expected term (years) (3)
|
|
5.4
|
|
|
5.4
|
|
|
5.3
|
|
|
5.4
|
|
|
5.3
|
|
|
5.3
|
|
|
N/A
|
Risk-free interest rate (4)
|
|
1.41%
|
|
|
1.33%
|
|
|
2.53%
|
|
|
2.45%
|
|
|
1.97%
|
|
|
3.58%
|
|
|
N/A
|
Dividend rate ($) (5)
|
$
|
1.72
|
|
$
|
1.50
|
|
$
|
1.30
|
|
$
|
1.08
|
|
$
|
1.01
|
|
$
|
0.92
|
|
|
N/A
|
(1)
|
Compensation cost is based on the grant date fair value using the
Black-Scholes option-pricing model that uses the assumptions at the
grant date.
|
(2)
|
Based on the average of the historical volatility of the Company's stock
over a period commensurate with the expected term of the award and the
implied volatility from traded options on the Company's stock.
|
(3)
|
Represents the period of time that awards are expected to be
outstanding. The Company uses historical data to estimate option
exercise and employee termination, and groups of employees that have
similar historical exercise behavior are considered separately.
|
(4)
|
Based on the implied yield available on zero-coupon government issues
with an equivalent term commensurate with the expected term of the
awards.
|
(5)
|
Based on the annualized dividend rate.
|
Note 6 - Pensions and other postretirement benefits
The Company has various retirement benefit plans under which
substantially all of its employees are entitled to benefits at
retirement age, generally based on compensation and length of service
and/or contributions. Senior and executive management ("executive
employees") subject to certain minimum service and age requirements,
are also eligible for an additional retirement benefit under their
Special Retirement Stipend Agreements (SRS), the Supplemental Executive
Retirement Plan (SERP) or the Defined Contribution Supplemental
Executive Retirement Plan (DC SERP). Executive employees who breach the
non-compete, non-solicitation and non-disclosure of confidential
information conditions of the SRS, SERP or DC SERP plans or other
employment agreement will forfeit the retirement benefit under these
plans. Should the Company reasonably determine that a current or former
executive employee may have violated the conditions of their SRS, SERP,
or DC SERP plan or other employment agreement, the Company may at its
discretion withhold or suspend payout of the retirement benefit pending
resolution of such matter.
On February 4, 2013, the Company's COO resigned to join the Company's
major competitor in Canada. As a result, compensation amounts
accumulated under non-registered pension plans subject to non-compete
and non-solicitation agreements were forfeited. The Company will record
an actuarial gain related to the amounts forfeited upon the completion
of its next actuarial valuation for accounting purposes, as at December
31, 2013.
For the three and nine months ended September 30, 2013 and 2012, the
components of net periodic benefit cost for pensions and other
postretirement benefits were as follows:
(a) Components of net periodic benefit cost for pensions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
In millions
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Service cost
|
$
|
39
|
|
$
|
37
|
|
$
|
117
|
|
$
|
109
|
Interest cost
|
|
165
|
|
|
186
|
|
|
494
|
|
|
554
|
Settlement gain
|
|
-
|
|
|
-
|
|
|
(1)
|
|
|
-
|
Expected return on plan assets
|
|
(240)
|
|
|
(249)
|
|
|
(719)
|
|
|
(745)
|
Amortization of prior service cost
|
|
1
|
|
|
1
|
|
|
3
|
|
|
3
|
Amortization of net actuarial loss
|
|
57
|
|
|
30
|
|
|
170
|
|
|
92
|
Net periodic benefit cost
|
$
|
22
|
|
$
|
5
|
|
$
|
64
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Components of net periodic benefit cost for other postretirement
benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
In millions
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Service cost
|
$
|
1
|
|
$
|
1
|
|
$
|
2
|
|
$
|
3
|
Interest cost
|
|
3
|
|
|
4
|
|
|
8
|
|
|
10
|
Amortization of prior service cost
|
|
-
|
|
|
-
|
|
|
1
|
|
|
2
|
Amortization of net actuarial gain
|
|
(1)
|
|
|
-
|
|
|
(1)
|
|
|
-
|
Net periodic benefit cost
|
$
|
3
|
|
$
|
5
|
|
$
|
10
|
|
$
|
15
|
Company contributions to its various pension plans are made in
accordance with the applicable legislation in Canada and the United
States (U.S.) and are determined by actuarial valuations. Actuarial
valuations are required on an annual basis both in Canada and the U.S.
The actuarial valuations for funding purposes for the Company's
Canadian pension plans, based on a valuation date of December 31, 2012,
were filed in June 2013 and identified a going-concern surplus of
approximately $1.4 billion and a solvency deficit of approximately $2.1
billion calculated using the three-year average of the Company's
hypothetical wind-up ratio in accordance with the Pension Benefit Standards Regulations, 1985. Under Canadian legislation, the solvency deficit is required to be
funded through special solvency payments, for which each annual amount
is equal to one fifth of the solvency deficit, and is re-established at
each valuation date.
Pension contributions made in the first nine months of 2013 and 2012 of
$221 million and $587 million, respectively, mainly represent
contributions to the Company's main pension plan, the CN Pension Plan
and include voluntary contributions of $100 million and $450 million,
respectively. The pension contributions also include contributions for
the current service cost as determined under the Company's current
actuarial valuations for funding purposes. Voluntary contributions can
be treated as a prepayment against the Company's required special
solvency payments and as at September 30, 2013, the Company had
approximately $570 million of accumulated prepayments which remain
available to offset future required solvency deficit payments. The
Company expects to make total contributions in 2013 of approximately
$235 million for all the Company's pension plans and to apply
approximately $100 million from its accumulated prepayments to satisfy
the remainder of its estimated 2013 required solvency deficit payment.
Additional information relating to the pension plans is provided in Note
11 - Pensions and other postretirement benefits to the Company's 2012
Annual Consolidated Financial Statements.
Note 7 - Income taxes
The Company recorded income tax expense of $295 million for the three
months ended September 30, 2013 and $738 million for the nine months
ended September 30, 2013, compared to $255 million and $757 million,
respectively, for the same periods in 2012. Included in the 2013
figures was a net income tax recovery of $7 million consisting of a
third quarter $19 million and a second quarter $5 million income tax
expense from the enactment of higher provincial corporate income tax
rates; a second quarter $15 million income tax recovery from the
recognition of U.S. state income tax losses; and a first quarter $16
million income tax recovery from a revision of the apportionment of
U.S. state income taxes. Included in the 2012 figures was a second
quarter $28 million net income tax expense consisting of a $35 million
income tax expense from the enactment of higher provincial corporate
income tax rates that was partly offset by a $7 million income tax
recovery from the recapitalization of a foreign investment.
Note 8 - Major commitments and contingencies
A. Commitments
As at September 30, 2013, the Company had commitments to acquire
railroad ties, rail, freight cars, locomotives, and other equipment and
services, as well as outstanding information technology service
contracts and licenses, at an aggregate cost of $616 million ($735
million as at December 31, 2012). The Company also has estimated
remaining commitments of approximately $285 million (US$275 million),
in relation to the U.S. federal government legislative requirement to
implement positive train control (PTC) by 2015. In addition, it has
estimated remaining commitments of approximately $90 million (US$85
million), in relation to the acquisition of the principal lines of the
former Elgin, Joliet and Eastern Railway Company, for railroad
infrastructure improvements, grade separation projects as well as
commitments under a series of agreements with individual communities
and a comprehensive voluntary mitigation program established to address
surrounding municipalities' concerns. The Company also has agreements
with fuel suppliers to purchase all of its estimated 2013 volume,
approximately 90% of its anticipated 2014 volume, 65% of its
anticipated 2015 volume, 60% of its anticipated 2016 volume and 20% of
its anticipated 2017 volume at market prices prevailing on the date of
the purchase.
B. Contingencies
In the normal course of business, the Company becomes involved in
various legal actions seeking compensatory and occasionally punitive
damages, including actions brought on behalf of various purported
classes of claimants and claims relating to employee and third-party
personal injuries, occupational disease and property damage, arising
out of harm to individuals or property allegedly caused by, but not
limited to, derailments or other accidents.
Canada
Employee injuries are governed by the workers' compensation legislation
in each province whereby employees may be awarded either a lump sum or
a future stream of payments depending on the nature and severity of the
injury. As such, the provision for employee injury claims is
discounted. In the provinces where the Company is self-insured, costs
related to employee work-related injuries are accounted for based on
actuarially developed estimates of the ultimate cost associated with
such injuries, including compensation, health care and third-party
administration costs. A comprehensive actuarial study is generally
performed at least on a triennial basis. For all other legal actions,
the Company maintains, and regularly updates on a case-by-case basis,
provisions for such items when the expected loss is both probable and
can be reasonably estimated based on currently available information.
United States
Personal injury claims by the Company's employees, including claims
alleging occupational disease and work-related injuries, are subject to
the provisions of the Federal Employers' Liability Act (FELA).
Employees are compensated under FELA for damages assessed based on a
finding of fault through the U.S. jury system or through individual
settlements. As such, the provision is undiscounted. With limited
exceptions where claims are evaluated on a case-by-case basis, the
Company follows an actuarial-based approach and accrues the expected
cost for personal injury, including asserted and unasserted
occupational disease claims, and property damage claims, based on
actuarial estimates of their ultimate cost. A comprehensive actuarial
study is performed annually.
For employee work-related injuries, including asserted occupational
disease claims, and third-party claims, including grade crossing,
trespasser and property damage claims, the actuarial valuation
considers, among other factors, the Company's historical patterns of
claims filings and payments. For unasserted occupational disease
claims, the actuarial study includes the projection of the Company's
experience into the future considering the potentially exposed
population. The Company adjusts its liability based upon management's
assessment and the results of the study. On an ongoing basis,
management reviews and compares the assumptions inherent in the latest
actuarial study with the current claim experience and, if required,
adjustments to the liability are recorded.
As at September 30, 2013, the Company had aggregate reserves for
personal injury and other claims of $321 million, of which $52 million
was recorded as a current liability ($314 million as at December 31,
2012, of which $82 million was recorded as a current liability).
Although the Company considers such provisions to be adequate for all
its outstanding and pending claims, the final outcome with respect to
actions outstanding or pending at September 30, 2013, or with respect
to future claims, cannot be reasonably determined. When establishing
provisions for contingent liabilities the Company considers, where a
probable loss estimate cannot be made with reasonable certainty, a
range of potential probable losses for each such matter, and records
the amount it considers the most reasonable estimate within the range.
However, when no amount within the range is a better estimate than any
other amount, the minimum amount in the range is accrued. For matters
where a loss is reasonably possible but not probable, a range of
potential losses cannot be estimated due to various factors which may
include the limited availability of facts, the lack of demand for
specific damages and the fact that proceedings were at an early stage.
Based on information currently available, the Company believes that the
eventual outcome of the actions against the Company will not,
individually or in the aggregate, have a material adverse effect on the
Company's consolidated financial position. However, due to the inherent
inability to predict with certainty unforeseeable future developments,
there can be no assurance that the ultimate resolution of these actions
will not have a material adverse effect on the Company's results of
operations, financial position or liquidity in a particular quarter or
fiscal year.
C. Environmental matters
The Company's operations are subject to numerous federal, provincial,
state, municipal and local environmental laws and regulations in Canada
and the U.S. concerning, among other things, emissions into the air;
discharges into waters; the generation, handling, storage,
transportation, treatment and disposal of waste, hazardous substances,
and other materials; decommissioning of underground and aboveground
storage tanks; and soil and groundwater contamination. A risk of
environmental liability is inherent in railroad and related
transportation operations; real estate ownership, operation or control;
and other commercial activities of the Company with respect to both
current and past operations.
Known existing environmental concerns
The Company has identified approximately 280 sites at which it is or may
be liable for remediation costs, in some cases along with other
potentially responsible parties, associated with alleged contamination
and is subject to environmental clean-up and enforcement actions,
including those imposed by the United States Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(CERCLA), also known as the Superfund law, or analogous state laws.
CERCLA and similar state laws, in addition to other similar Canadian
and U.S. laws, generally impose joint and several liability for
clean-up and enforcement costs on current and former owners and
operators of a site, as well as those whose waste is disposed of at the
site, without regard to fault or the legality of the original conduct.
The Company has been notified that it is a potentially responsible
party for study and clean-up costs at approximately 10 sites governed
by the Superfund law (and analogous state laws) for which investigation
and remediation payments are or will be made or are yet to be
determined and, in many instances, is one of several potentially
responsible parties.
The ultimate cost of addressing these known contaminated sites cannot be
definitely established given that the estimated environmental liability
for any given site may vary depending on the nature and extent of the
contamination; the nature of anticipated response actions, taking into
account the available clean-up techniques; evolving regulatory
standards governing environmental liability; and the number of
potentially responsible parties and their financial viability. As a
result, liabilities are recorded based on the results of a four-phase
assessment conducted on a site-by-site basis. A liability is initially
recorded when environmental assessments occur, remedial efforts are
probable, and when the costs, based on a specific plan of action in
terms of the technology to be used and the extent of the corrective
action required, can be reasonably estimated. The Company estimates the
costs related to a particular site using cost scenarios established by
external consultants based on the extent of contamination and expected
costs for remedial efforts. In the case of multiple parties, the
Company accrues its allocable share of liability taking into account
the Company's alleged responsibility, the number of potentially
responsible parties and their ability to pay their respective share of
the liability. Adjustments to initial estimates are recorded as
additional information becomes available.
The Company's provision for specific environmental sites is undiscounted
and includes costs for remediation and restoration of sites, as well as
monitoring costs. Environmental accruals, which are classified as
Casualty and other in the Consolidated Statement of Income, include
amounts for newly identified sites or contaminants as well as
adjustments to initial estimates. Recoveries of environmental
remediation costs from other parties are recorded as assets when their
receipt is deemed probable.
As at September 30, 2013, the Company had aggregate accruals for
environmental costs of $124 million, of which $41 million was recorded
as a current liability ($123 million as at December 31, 2012, of which
$31 million was recorded as a current liability). The Company
anticipates that the majority of the liability at September 30, 2013
will be paid out over the next five years. However, some costs may be
paid out over a longer period. Based on the information currently
available, the Company considers its provisions to be adequate.
Unknown existing environmental concerns
While the Company believes that it has identified the costs likely to be
incurred for environmental matters in the next several years based on
known information, the discovery of new facts, future changes in laws,
the possibility of releases of hazardous materials into the environment
and the Company's ongoing efforts to identify potential environmental
liabilities that may be associated with its properties may result in
the identification of additional environmental liabilities and related
costs. The magnitude of such additional liabilities and the costs of
complying with future environmental laws and containing or remediating
contamination cannot be reasonably estimated due to many factors,
including:
(i)
|
the lack of specific technical information available with respect to
many sites;
|
(ii)
|
the absence of any government authority, third-party orders, or claims
with respect to particular sites;
|
(iii)
|
the potential for new or changed laws and regulations and for
development of new remediation technologies and uncertainty regarding
the timing of the work with respect to particular sites; and
|
(iv)
|
the determination of the Company's liability in proportion to other
potentially responsible parties and the ability to recover costs from any third
parties with respect to particular sites.
|
Therefore, the likelihood of any such costs being incurred or whether
such costs would be material to the Company cannot be determined at
this time. There can thus be no assurance that liabilities or costs
related to environmental matters will not be incurred in the future, or
will not have a material adverse effect on the Company's financial
position or results of operations in a particular quarter or fiscal
year, or that the Company's liquidity will not be adversely impacted by
such liabilities or costs, although management believes, based on
current information, that the costs to address environmental matters
will not have a material adverse effect on the Company's financial
position or liquidity. Costs related to any unknown existing or future
contamination will be accrued in the period in which they become
probable and reasonably estimable.
D. Guarantees and indemnifications
In the normal course of business, the Company, including certain of its
subsidiaries, enters into agreements that may involve providing
guarantees or indemnifications to third parties and others, which may
extend beyond the term of the agreements. These include, but are not
limited to, residual value guarantees on operating leases, standby
letters of credit, surety and other bonds, and indemnifications that
are customary for the type of transaction or for the railway business.
The Company is required to recognize a liability for the fair value of
the obligation undertaken in issuing certain guarantees on the date the
guarantee is issued or modified. In addition, where the Company expects
to make a payment in respect of a guarantee, a liability will be
recognized to the extent that one has not yet been recognized.
(i) Guarantee of residual values of operating leases
The Company has guaranteed a portion of the residual values of certain
of its assets under operating leases with expiry dates between 2013 and
2021, for the benefit of the lessor. If the fair value of the assets at
the end of their respective lease term is less than the fair value, as
estimated at the inception of the lease, then the Company must, under
certain conditions, compensate the lessor for the shortfall. As at
September 30, 2013, the maximum exposure in respect of these guarantees
was $170 million. There are no recourse provisions to recover any
amounts from third parties.
(ii) Other guarantees
As at September 30, 2013, the Company, including certain of its
subsidiaries, had granted $559 million of irrevocable standby letters
of credit and $36 million of surety and other bonds, issued by highly
rated financial institutions, to third parties to indemnify them in the
event the Company does not perform its contractual obligations. As at
September 30, 2013, the maximum potential liability under these
guarantee instruments was $595 million, of which $525 million related
to workers' compensation and other employee benefit liabilities and $70
million related to equipment under leases and other liabilities. The
letters of credit were drawn on the Company's bilateral letter of
credit facilities. The Company had not recorded a liability as at
September 30, 2013 with respect to these guarantee instruments as they
related to the Company's future performance and the Company did not
expect to make any payments under these guarantee instruments. The
majority of the guarantee instruments mature at various dates between
2013 and 2015.
(iii) General indemnifications
In the normal course of business, the Company has provided
indemnifications, customary for the type of transaction or for the
railway business, in various agreements with third parties, including
indemnification provisions where the Company would be required to
indemnify third parties and others. Indemnifications are found in
various types of contracts with third parties which include, but are
not limited to:
|
(a)
|
contracts granting the Company the right to use or enter upon property
owned by third parties such as leases, easements, trackage rights and
sidetrack agreements;
|
|
(b)
|
contracts granting rights to others to use the Company's property, such
as leases, licenses and easements;
|
|
(c)
|
contracts for the sale of assets;
|
|
(d)
|
contracts for the acquisition of services;
|
|
(e)
|
financing agreements;
|
|
(f)
|
trust indentures, fiscal agency agreements, underwriting agreements or
similar agreements relating to debt or equity securities of the Company
and engagement agreements with financial advisors;
|
|
(g)
|
transfer agent and registrar agreements in respect of the Company's
securities;
|
|
(h)
|
trust and other agreements relating to pension plans and other plans,
including those establishing trust funds to secure payment to certain
officers and senior employees of special retirement compensation
arrangements;
|
|
(i)
|
pension transfer agreements;
|
|
(j)
|
master agreements with financial institutions governing derivative
transactions;
|
|
(k)
|
settlement agreements with insurance companies or other third parties
whereby such insurer or third-party has been indemnified for any
present or future claims relating to insurance policies, incidents or
events covered by the settlement agreements; and
|
|
(l)
|
acquisition agreements.
|
To the extent of any actual claims under these agreements, the Company
maintains provisions for such items, which it considers to be adequate.
Due to the nature of the indemnification clauses, the maximum exposure
for future payments may be material. However, such exposure cannot be
reasonably determined.
During the period, the Company entered into various indemnification
contracts with third parties for which the maximum exposure for future
payments cannot be reasonably determined. As a result, the Company was
unable to determine the fair value of these guarantees and accordingly,
no liability was recorded. There are no recourse provisions to recover
any amounts from third parties.
Note 9 - Financial instruments
For financial assets and liabilities measured at fair value on a
recurring basis, fair value is the price the Company would receive to
sell an asset or pay to transfer a liability in an orderly transaction
with a market participant at the measurement date. In the absence of
active markets for identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in
the absence of such data, internal information that is believed to be
consistent with what market participants would use in a hypothetical
transaction that occurs at the measurement date. Observable inputs
reflect market data obtained from independent sources, while
unobservable inputs reflect the Company's market assumptions.
Preference is given to observable inputs. These two types of inputs
create the following fair value hierarchy:
Level 1:
|
|
Quoted prices for identical instruments in active markets.
|
Level 2:
|
|
Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
|
Level 3:
|
|
Significant inputs to the valuation model are unobservable.
|
The Company uses the following methods and assumptions to estimate the
fair value of each class of financial instruments for which the
carrying amounts are included in the Consolidated Balance Sheet under
the following captions:
(i) Cash and cash equivalents, Restricted cash and cash equivalents,
Accounts receivable, Other current assets, Accounts payable and other:
The carrying amounts approximate fair value because of the short
maturity of these instruments. Cash and cash equivalents and Restricted
cash and cash equivalents include highly liquid investments purchased
three months or less from maturity and are classified as Level 1.
Accounts receivable, Other current assets, and Accounts payable and
other are classified as Level 2 as they may not be priced using quoted
prices, but rather determined from market observable information.
(ii) Intangible and other assets:
Included in Intangible and other assets are equity investments for which
the carrying value approximates the fair value, with the exception of
certain cost investments for which the fair value is estimated based on
the Company's proportionate share of the underlying net assets.
Intangible and other assets are classified as Level 3 as their fair
value is based on significant unobservable inputs.
(iii) Debt:
The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar debt instruments, as well as
discounted cash flows using current interest rates for debt with
similar terms, company rating, and remaining maturity. The Company's
debt is classified as Level 2.
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments as at September 30, 2013
and December 31, 2012 for which the carrying values on the Consolidated
Balance Sheet are different from their fair values:
In millions
|
September 30, 2013
|
|
December 31, 2012
|
|
|
Carrying
amount
|
|
Fair
value
|
|
Carrying
amount
|
|
Fair
value
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
$
|
34
|
|
$
|
134
|
|
$
|
30
|
|
$
|
125
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
$
|
7,498
|
|
$
|
8,423
|
|
$
|
6,900
|
|
$
|
8,379
|
Note 10 - Earnings per share
The following table provides a reconciliation between basic and diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
In millions, except per share data
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
705
|
|
$
|
664
|
|
$
|
1,977
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
419.6
|
|
|
433.9
|
|
|
423.1
|
|
|
437.3
|
Effect of stock options
|
|
1.5
|
|
|
2.0
|
|
|
1.5
|
|
|
2.3
|
Weighted-average diluted shares outstanding
|
|
421.1
|
|
|
435.9
|
|
|
424.6
|
|
|
439.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
1.68
|
|
$
|
1.53
|
|
$
|
4.67
|
|
$
|
4.73
|
Diluted earnings per share
|
$
|
1.67
|
|
$
|
1.52
|
|
$
|
4.66
|
|
$
|
4.71
|
Basic earnings per share are calculated based on the weighted-average
number of common shares outstanding over each period. Diluted earnings
per share are calculated based on the weighted-average diluted shares
outstanding using the treasury stock method, which assumes that any
proceeds received from the exercise of in-the-money stock options would
be used to purchase common shares at the average market price for the
period. The weighted-average number of stock options that were not
included in the calculation of diluted earnings per share, as their
inclusion would have had an anti-dilutive impact, was nil for both the
three and nine months ended September 30, 2013, and nil and 0.1
million, respectively, for the corresponding periods in 2012.
Note 11 - Accumulated other comprehensive income (loss)
The following tables provide the components, the change and the
reclassifications out of Accumulated other comprehensive income (loss)
for the three and nine months ended September 30, 2013:
In millions
|
Derivative
instruments
|
|
Pension
and other
postretirement
benefit plans
|
|
Foreign
currency items
|
|
Total
before tax
|
|
|
Tax recovery
(expense)
|
|
Total
net of tax
|
Beginning balance at July 1, 2013
|
$
|
8
|
|
$
|
(3,174)
|
|
$
|
(544)
|
|
$
|
(3,710)
|
|
|
$
|
616
|
|
$
|
(3,094)
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
-
|
|
|
-
|
|
|
(11)
|
|
|
(11)
|
|
|
|
(17)
|
|
|
(28)
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
-
|
|
|
56
|
|
|
-
|
|
|
56
|
(1)
|
|
|
(15)
|
(2)
|
|
41
|
|
Amortization of prior service cost
|
|
-
|
|
|
1
|
|
|
-
|
|
|
1
|
(1)
|
|
|
-
|
(2)
|
|
1
|
Other comprehensive income (loss)
|
|
-
|
|
|
57
|
|
|
(11)
|
|
|
46
|
|
|
|
(32)
|
|
|
14
|
Ending balance at September 30, 2013
|
$
|
8
|
|
$
|
(3,117)
|
|
$
|
(555)
|
|
$
|
(3,664)
|
|
|
$
|
584
|
|
$
|
(3,080)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Derivative
instruments
|
|
Pension
and other
postretirement
benefit plans
|
|
Foreign
currency items
|
|
Total
before tax
|
|
|
Tax recovery
(expense)
|
|
Total
net of tax
|
Beginning balance at January 1, 2013
|
$
|
8
|
|
$
|
(3,290)
|
|
$
|
(579)
|
|
$
|
(3,861)
|
|
|
$
|
604
|
|
$
|
(3,257)
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
-
|
|
|
-
|
|
|
24
|
|
|
24
|
|
|
|
25
|
|
|
49
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
-
|
|
|
169
|
|
|
-
|
|
|
169
|
(1)
|
|
|
(44)
|
(2)
|
|
125
|
|
Amortization of prior service cost
|
|
-
|
|
|
4
|
|
|
-
|
|
|
4
|
(1)
|
|
|
(1)
|
(2)
|
|
3
|
Other comprehensive income (loss)
|
|
-
|
|
|
173
|
|
|
24
|
|
|
197
|
|
|
|
(20)
|
|
|
177
|
Ending balance at September 30, 2013
|
$
|
8
|
|
$
|
(3,117)
|
|
$
|
(555)
|
|
$
|
(3,664)
|
|
|
$
|
584
|
|
$
|
(3,080)
|
(1)
|
Reclassified to Labor and fringe benefits on the Consolidated Statement
of Income and included in components of net periodic benefit cost. See
Note 6 - Pensions and other postretirement benefits to the Company's
unaudited Interim Consolidated Financial Statements.
|
(2)
|
Included in Income tax expense on the Consolidated Statement of Income.
|
The following tables provide the components, the change and the
reclassifications out of Accumulated other comprehensive income (loss)
for the three and nine months ended September 30, 2012:
In millions
|
Derivative
instruments
|
|
Pension
and other
postretirement
benefit plans
|
|
Foreign
currency items
|
|
Total
before tax
|
|
|
Tax recovery
(expense)
|
|
Total
net of tax
|
Beginning balance at July 1, 2012
|
$
|
8
|
|
$
|
(2,684)
|
|
$
|
(576)
|
|
$
|
(3,252)
|
|
|
$
|
463
|
|
$
|
(2,789)
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
-
|
|
|
-
|
|
|
(8)
|
|
|
(8)
|
|
|
|
(28)
|
|
|
(36)
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
-
|
|
|
30
|
|
|
-
|
|
|
30
|
(1)
|
|
|
(8)
|
(2)
|
|
22
|
|
Amortization of prior service cost
|
|
-
|
|
|
1
|
|
|
-
|
|
|
1
|
(1)
|
|
|
(1)
|
(2)
|
|
-
|
Other comprehensive income (loss)
|
|
-
|
|
|
31
|
|
|
(8)
|
|
|
23
|
|
|
|
(37)
|
|
|
(14)
|
Ending balance at September 30, 2012
|
$
|
8
|
|
$
|
(2,653)
|
|
$
|
(584)
|
|
$
|
(3,229)
|
|
|
$
|
426
|
|
$
|
(2,803)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Derivative
instruments
|
|
Pension
and other
postretirement
benefit plans
|
|
Foreign
currency items
|
|
Total
before tax
|
|
|
Tax recovery
(expense)
|
|
Total
net of tax
|
Beginning balance at January 1, 2012
|
$
|
8
|
|
$
|
(2,750)
|
|
$
|
(574)
|
|
$
|
(3,316)
|
|
|
$
|
477
|
|
$
|
(2,839)
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
-
|
|
|
-
|
|
|
(10)
|
|
|
(10)
|
|
|
|
(28)
|
|
|
(38)
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
-
|
|
|
92
|
|
|
-
|
|
|
92
|
(1)
|
|
|
(20)
|
(2)
|
|
72
|
|
Amortization of prior service cost
|
|
-
|
|
|
5
|
|
|
-
|
|
|
5
|
(1)
|
|
|
(3)
|
(2)
|
|
2
|
Other comprehensive income (loss)
|
|
-
|
|
|
97
|
|
|
(10)
|
|
|
87
|
|
|
|
(51)
|
|
|
36
|
Ending balance at September 30, 2012
|
$
|
8
|
|
$
|
(2,653)
|
|
$
|
(584)
|
|
$
|
(3,229)
|
|
|
$
|
426
|
|
$
|
(2,803)
|
(1)
|
Reclassified to Labor and fringe benefits on the Consolidated Statement
of Income and included in components of net periodic benefit cost. See
Note 6 - Pensions and other postretirement benefits to the Company's
unaudited Interim Consolidated Financial Statements.
|
(2)
|
Included in Income tax expense on the Consolidated Statement of Income.
|
Note 12 - Subsequent events
Common stock split
On October 22, 2013, the Board of Directors of the Company approved a
two-for-one common stock split which is to be effected in the form of a
stock dividend of one additional common share of CN for each share
outstanding, payable on November 29, 2013, to shareholders of record on
November 15, 2013. At the effective date of the stock split, all
equity-based benefit plans and the current share repurchase program
will be adjusted to reflect the issuance of additional shares. All
share and per share data for future periods will also reflect the stock
split.
Share repurchase program
On October 22, 2013, the Board of Directors of the Company approved a
new share repurchase program which allows for the repurchase of up to
15.0 million common shares before adjusting for the stock split,
between October 29, 2013 and October 23, 2014 pursuant to a normal
course issuer bid at prevailing market prices plus brokerage fees, or
such other prices as may be permitted by the Toronto Stock Exchange.
CANADIAN NATIONAL RAILWAY COMPANY
|
SELECTED RAILROAD STATISTICS (U.S. GAAP) - unaudited
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 30
|
|
September 30
|
|
2013
|
2012
|
|
2013
|
2012
|
|
|
Statistical operating data
|
|
|
|
|
|
|
|
|
|
|
|
Rail freight revenues ($ millions)
|
2,427
|
2,237
|
|
7,093
|
6,658
|
Gross ton miles (GTM) (millions)
|
100,321
|
96,402
|
|
298,169
|
285,881
|
Revenue ton miles (RTM) (millions)
|
52,188
|
49,999
|
|
155,466
|
149,372
|
Carloads (thousands)
|
1,333
|
1,298
|
|
3,880
|
3,789
|
Route miles (includes Canada and the U.S.) (1)
|
20,000
|
20,000
|
|
20,000
|
20,000
|
Employees (end of period)
|
23,664
|
23,610
|
|
23,664
|
23,610
|
Employees (average for the period)
|
23,756
|
23,573
|
|
23,706
|
23,444
|
|
|
|
|
|
|
Productivity
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio (%)
|
59.8
|
60.6
|
|
62.9
|
62.6
|
Rail freight revenue per RTM (cents)
|
4.65
|
4.47
|
|
4.56
|
4.46
|
Rail freight revenue per carload ($)
|
1,821
|
1,723
|
|
1,828
|
1,757
|
Operating expenses per GTM (cents)
|
1.61
|
1.57
|
|
1.65
|
1.62
|
Labor and fringe benefits expense per GTM (cents)
|
0.52
|
0.49
|
|
0.53
|
0.52
|
GTMs per average number of employees (thousands)
|
4,223
|
4,090
|
|
12,578
|
12,194
|
Diesel fuel consumed (US gallons in millions)
|
96.8
|
94.5
|
|
302.0
|
288.8
|
Average fuel price ($/US gallon)
|
3.52
|
3.40
|
|
3.52
|
3.45
|
GTMs per US gallon of fuel consumed
|
1,036
|
1,020
|
|
987
|
990
|
|
|
|
|
|
|
Safety indicators
|
|
|
|
|
|
|
|
|
|
|
|
Injury frequency rate per 200,000 person hours (2)
|
1.67
|
1.40
|
|
1.50
|
1.40
|
Accident rate per million train miles (2)
|
1.31
|
2.30
|
|
1.84
|
2.22
|
|
|
|
|
|
|
Financial ratio
|
|
|
|
|
|
|
|
|
|
|
|
Debt-to-total capitalization ratio (% at end of period) (3)
|
39.3
|
36.3
|
|
39.3
|
36.3
|
(1)
|
Rounded to the nearest hundred miles.
|
(2)
|
Based on Federal Railroad Administration (FRA) reporting criteria.
|
(3)
|
Debt-to-total capitalization is calculated as total long-term debt plus
current portion of long-term debt, divided by the sum of total debt
plus total shareholders' equity.
|
Statistical data and related productivity measures are based on
estimated data available at such time and are subject to change as more
complete information becomes available, as such certain of the 2012
comparative data and related productivity measures have been restated.
CANADIAN NATIONAL RAILWAY COMPANY
|
SUPPLEMENTARY INFORMATION (U.S. GAAP) - unaudited
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
2012
|
% Change
Fav (Unfav)
|
|
% Change at
constant
currency
Fav (Unfav) (1)
|
|
2013
|
2012
|
% Change
Fav (Unfav)
|
|
% Change at
constant
currency
Fav (Unfav) (1)
|
|
|
Revenues (millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals
|
485
|
416
|
17%
|
|
13%
|
|
1,420
|
1,213
|
17%
|
|
15%
|
Metals and minerals
|
324
|
293
|
11%
|
|
7%
|
|
910
|
859
|
6%
|
|
4%
|
Forest products
|
362
|
336
|
8%
|
|
5%
|
|
1,056
|
1,008
|
5%
|
|
3%
|
Coal
|
186
|
187
|
(1%)
|
|
(3%)
|
|
538
|
541
|
(1%)
|
|
(1%)
|
Grain and fertilizers
|
357
|
368
|
(3%)
|
|
(5%)
|
|
1,141
|
1,131
|
1%
|
|
-
|
Intermodal
|
577
|
510
|
13%
|
|
12%
|
|
1,612
|
1,496
|
8%
|
|
7%
|
Automotive
|
136
|
127
|
7%
|
|
4%
|
|
416
|
410
|
1%
|
|
-
|
Total rail freight revenues
|
2,427
|
2,237
|
8%
|
|
6%
|
|
7,093
|
6,658
|
7%
|
|
5%
|
Other revenues
|
271
|
260
|
4%
|
|
2%
|
|
737
|
728
|
1%
|
|
-
|
Total revenues
|
2,698
|
2,497
|
8%
|
|
6%
|
|
7,830
|
7,386
|
6%
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue ton miles (millions)
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals
|
11,033
|
9,461
|
17%
|
|
17%
|
|
32,428
|
27,295
|
19%
|
|
19%
|
Metals and minerals
|
5,825
|
5,229
|
11%
|
|
11%
|
|
16,022
|
15,236
|
5%
|
|
5%
|
Forest products
|
7,508
|
7,545
|
-
|
|
-
|
|
22,317
|
22,533
|
(1%)
|
|
(1%)
|
Coal
|
6,057
|
6,216
|
(3%)
|
|
(3%)
|
|
17,342
|
17,816
|
(3%)
|
|
(3%)
|
Grain and fertilizers
|
9,105
|
10,394
|
(12%)
|
|
(12%)
|
|
30,556
|
32,591
|
(6%)
|
|
(6%)
|
Intermodal
|
11,986
|
10,492
|
14%
|
|
14%
|
|
34,722
|
31,782
|
9%
|
|
9%
|
Automotive
|
674
|
662
|
2%
|
|
2%
|
|
2,079
|
2,119
|
(2%)
|
|
(2%)
|
|
52,188
|
49,999
|
4%
|
|
4%
|
|
155,466
|
149,372
|
4%
|
|
4%
|
Rail freight revenue / RTM (cents)
|
|
|
|
|
|
|
|
|
|
|
|
Total rail freight revenue per RTM
|
4.65
|
4.47
|
4%
|
|
2%
|
|
4.56
|
4.46
|
2%
|
|
1%
|
Commodity groups:
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals
|
4.40
|
4.40
|
-
|
|
(3%)
|
|
4.38
|
4.44
|
(1%)
|
|
(3%)
|
Metals and minerals
|
5.56
|
5.60
|
(1%)
|
|
(4%)
|
|
5.68
|
5.64
|
1%
|
|
(1%)
|
Forest products
|
4.82
|
4.45
|
8%
|
|
5%
|
|
4.73
|
4.47
|
6%
|
|
4%
|
Coal
|
3.07
|
3.01
|
2%
|
|
-
|
|
3.10
|
3.04
|
2%
|
|
1%
|
Grain and fertilizers
|
3.92
|
3.54
|
11%
|
|
8%
|
|
3.73
|
3.47
|
7%
|
|
7%
|
Intermodal
|
4.81
|
4.86
|
(1%)
|
|
(2%)
|
|
4.64
|
4.71
|
(1%)
|
|
(2%)
|
Automotive
|
20.18
|
19.18
|
5%
|
|
2%
|
|
20.01
|
19.35
|
3%
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
Carloads (thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals
|
152
|
152
|
-
|
|
-
|
|
452
|
444
|
2%
|
|
2%
|
Metals and minerals
|
285
|
265
|
8%
|
|
8%
|
|
803
|
778
|
3%
|
|
3%
|
Forest products
|
114
|
111
|
3%
|
|
3%
|
|
338
|
336
|
1%
|
|
1%
|
Coal
|
109
|
117
|
(7%)
|
|
(7%)
|
|
316
|
332
|
(5%)
|
|
(5%)
|
Grain and fertilizers
|
126
|
144
|
(13%)
|
|
(13%)
|
|
401
|
426
|
(6%)
|
|
(6%)
|
Intermodal
|
493
|
455
|
8%
|
|
8%
|
|
1,402
|
1,305
|
7%
|
|
7%
|
Automotive
|
54
|
54
|
-
|
|
-
|
|
168
|
168
|
-
|
|
-
|
|
1,333
|
1,298
|
3%
|
|
3%
|
|
3,880
|
3,789
|
2%
|
|
2%
|
Rail freight revenue / carload (dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Total rail freight revenue per carload
|
1,821
|
1,723
|
6%
|
|
3%
|
|
1,828
|
1,757
|
4%
|
|
3%
|
Commodity groups:
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals
|
3,191
|
2,737
|
17%
|
|
13%
|
|
3,142
|
2,732
|
15%
|
|
13%
|
Metals and minerals
|
1,137
|
1,106
|
3%
|
|
-
|
|
1,133
|
1,104
|
3%
|
|
1%
|
Forest products
|
3,175
|
3,027
|
5%
|
|
2%
|
|
3,124
|
3,000
|
4%
|
|
3%
|
Coal
|
1,706
|
1,598
|
7%
|
|
5%
|
|
1,703
|
1,630
|
4%
|
|
3%
|
Grain and fertilizers
|
2,833
|
2,556
|
11%
|
|
8%
|
|
2,845
|
2,655
|
7%
|
|
6%
|
Intermodal
|
1,170
|
1,121
|
4%
|
|
3%
|
|
1,150
|
1,146
|
-
|
|
-
|
Automotive
|
2,519
|
2,352
|
7%
|
|
4%
|
|
2,476
|
2,440
|
1%
|
|
-
|
(1)
|
See supplementary schedule entitled Non-GAAP Measures for an explanation
of this Non-GAAP measure.
|
Statistical data and related productivity measures are based on
estimated data available at such time and are subject to change as more
complete information becomes available.
CANADIAN NATIONAL RAILWAY COMPANY
|
NON-GAAP MEASURES - unaudited
|
Adjusted performance measures
For the three and nine months ended September 30, 2013, the Company
reported adjusted net income of $724 million, or $1.72 per diluted
share and $1,947 million, or $4.60 per diluted share, respectively. The
adjusted figures exclude a $19 million ($0.05 per diluted share) income
tax expense in the third quarter and a $5 million ($0.01 per diluted
share) income tax expense in the second quarter, both resulting from
the enactment of higher provincial corporate income tax rates. The
adjusted figures also exclude a second quarter gain on exchange of
perpetual railroad operating easements including the track and roadway
assets on specific rail lines (collectively the "exchange of
easements") in the amount of $29 million, or $18 million after-tax
($0.04 per diluted share); and a first quarter gain on disposal of a
segment of the Oakville subdivision, together with the rail fixtures
and certain passenger agreements (collectively the "Lakeshore West"),
of $40 million, or $36 million after-tax ($0.08 per diluted share).
For the three and nine months ended September 30, 2012, the Company
reported adjusted net income of $664 million, or $1.52 per diluted
share and $1,846 million, or $4.20 per diluted share, respectively. The
adjusted figures exclude a second quarter net income tax expense of $28
million ($0.06 per diluted share) consisting of a $35 million income
tax expense resulting from the enactment of higher provincial corporate
income tax rates that was partly offset by a $7 million income tax
recovery resulting from the recapitalization of a foreign investment;
and a first quarter gain on disposal of a segment of the Bala and a
segment of the Oakville subdivisions, together with the rail fixtures
and certain passenger agreements (collectively the "Bala-Oakville"), of
$281 million, or $252 million after-tax ($0.57 per diluted share).
Management believes that adjusted net income and adjusted earnings per
share are useful measures of performance that can facilitate
period-to-period comparisons, as they exclude items that do not
necessarily arise as part of the normal day-to-day operations of the
Company and could distort the analysis of trends in business
performance. The exclusion of such items in adjusted net income and
adjusted earnings per share does not, however, imply that such items
are necessarily non-recurring. These adjusted measures do not have any
standardized meaning prescribed by GAAP and may, therefore, not be
comparable to similar measures presented by other companies. The reader
is advised to read all information provided in the Company's 2013
unaudited Interim Consolidated Financial Statements and Notes thereto.
The following tables provide a reconciliation of net income and
earnings per share, as reported for the three and nine months ended
September 30, 2013 and 2012, to the adjusted performance measures
presented herein.
|
|
|
|
|
Three months ended September 30, 2013
|
|
Nine months ended September 30, 2013
|
In millions, except per share data
|
|
Reported
|
|
Adjustments
|
|
Adjusted
|
|
|
Reported
|
|
Adjustments
|
|
Adjusted
|
Revenues
|
$
|
2,698
|
$
|
-
|
$
|
2,698
|
|
$
|
7,830
|
$
|
-
|
$
|
7,830
|
Operating expenses
|
|
1,614
|
|
-
|
|
1,614
|
|
|
4,924
|
|
-
|
|
4,924
|
Operating income
|
|
1,084
|
|
-
|
|
1,084
|
|
|
2,906
|
|
-
|
|
2,906
|
Interest expense
|
|
(89)
|
|
-
|
|
(89)
|
|
|
(266)
|
|
-
|
|
(266)
|
Other income
|
|
5
|
|
-
|
|
5
|
|
|
75
|
|
(69)
|
|
6
|
Income before income taxes
|
|
1,000
|
|
-
|
|
1,000
|
|
|
2,715
|
|
(69)
|
|
2,646
|
Income tax expense
|
|
(295)
|
|
19
|
|
(276)
|
|
|
(738)
|
|
39
|
|
(699)
|
Net income
|
$
|
705
|
$
|
19
|
$
|
724
|
|
$
|
1,977
|
$
|
(30)
|
$
|
1,947
|
Operating ratio
|
|
59.8%
|
|
|
|
59.8%
|
|
|
62.9%
|
|
|
|
62.9%
|
Effective tax rate
|
|
29.5%
|
|
|
|
27.6%
|
|
|
27.2%
|
|
|
|
26.4%
|
Basic earnings per share
|
$
|
1.68
|
$
|
0.05
|
$
|
1.73
|
|
$
|
4.67
|
$
|
(0.06)
|
$
|
4.61
|
Diluted earnings per share
|
$
|
1.67
|
$
|
0.05
|
$
|
1.72
|
|
$
|
4.66
|
$
|
(0.06)
|
$
|
4.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2012
|
|
Nine months ended September 30, 2012
|
In millions, except per share data
|
|
Reported
|
|
Adjustments
|
|
Adjusted
|
|
|
Reported
|
|
Adjustment
|
|
Adjusted
|
Revenues
|
$
|
2,497
|
$
|
-
|
$
|
2,497
|
|
$
|
7,386
|
$
|
-
|
$
|
7,386
|
Operating expenses
|
|
1,512
|
|
-
|
|
1,512
|
|
|
4,623
|
|
-
|
|
4,623
|
Operating income
|
|
985
|
|
-
|
|
985
|
|
|
2,763
|
|
-
|
|
2,763
|
Interest expense
|
|
(84)
|
|
-
|
|
(84)
|
|
|
(256)
|
|
-
|
|
(256)
|
Other income
|
|
18
|
|
-
|
|
18
|
|
|
320
|
|
(281)
|
|
39
|
Income before income taxes
|
|
919
|
|
-
|
|
919
|
|
|
2,827
|
|
(281)
|
|
2,546
|
Income tax expense
|
|
(255)
|
|
-
|
|
(255)
|
|
|
(757)
|
|
57
|
|
(700)
|
Net income
|
$
|
664
|
$
|
-
|
$
|
664
|
|
$
|
2,070
|
$
|
(224)
|
$
|
1,846
|
Operating ratio
|
|
60.6%
|
|
|
|
60.6%
|
|
|
62.6%
|
|
|
|
62.6%
|
Effective tax rate
|
|
27.7%
|
|
|
|
27.7%
|
|
|
26.8%
|
|
|
|
27.5%
|
Basic earnings per share
|
$
|
1.53
|
$
|
-
|
$
|
1.53
|
|
$
|
4.73
|
$
|
(0.51)
|
$
|
4.22
|
Diluted earnings per share
|
$
|
1.52
|
$
|
-
|
$
|
1.52
|
|
$
|
4.71
|
$
|
(0.51)
|
$
|
4.20
|
Constant currency
Although CN conducts its business and reports its earnings in Canadian
dollars, a large portion of revenues and expenses is denominated in US
dollars. As such, the Company's results are affected by exchange-rate
fluctuations.
Financial results at "constant currency" allow 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. Measures at constant currency are
considered non-GAAP measures and do not have any standardized meaning
prescribed by GAAP and may, therefore, not be comparable to similar
measures presented by other companies. Financial results at constant
currency are obtained by translating the current period results
denominated in US dollars at the foreign exchange rates of the
comparable period of the prior year. The average foreign exchange rates
were $1.04 and $1.02 per US$1.00, respectively, for the three and nine
months ended September 30, 2013, and $0.99 and $1.00 per US$1.00,
respectively, for the corresponding periods in 2012.
On a constant currency basis, the Company's 2013 third quarter and first
nine-month net income would have been lower by $14 million, or $0.03
per diluted share and $18 million, or $0.04 per diluted share,
respectively. The following table presents a reconciliation of 2013 net
income as reported to net income on a constant currency basis:
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
In millions
|
September 30, 2013
|
|
September 30, 2013
|
Net income, as reported
|
$
|
705
|
|
$
|
1,977
|
Add back:
|
|
|
|
|
|
|
Positive impact due to the weakening Canadian dollar included in net
income
|
|
(12)
|
|
|
(15)
|
Add:
|
|
|
|
|
|
|
Decrease due to the weakening Canadian dollar on additional
year-over-year US$ net income
|
|
(2)
|
|
|
(3)
|
Impact of foreign exchange using constant currency rates
|
|
(14)
|
|
|
(18)
|
Net income, on a constant currency basis
|
$
|
691
|
|
$
|
1,959
|
Free cash flow
The Company generated $341 million and $778 million of free cash flow
for the three and nine months ended September 30, 2013, respectively,
compared to $333 million and $1,036 million for the same periods in
2012, respectively. Free cash flow does not have any standardized
meaning prescribed by GAAP and may, therefore, not be comparable to
similar measures presented by other companies. The Company believes
that free cash flow is a useful measure of performance as it
demonstrates the Company's ability to generate cash after the payment
of capital expenditures and dividends. The Company defines free cash
flow as the sum of net cash provided by operating activities, adjusted
for changes in cash and cash equivalents resulting from foreign
exchange fluctuations; and net cash used in investing activities,
adjusted for changes in restricted cash and cash equivalents, if any,
the impact of major acquisitions, if any; and the payment of dividends,
calculated as follows:
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended September 30
|
In millions
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
1,066
|
|
$
|
1,000
|
|
$
|
2,450
|
|
$
|
2,336
|
Net cash used in investing activities
|
|
(579)
|
|
|
(547)
|
|
|
(1,151)
|
|
|
(824)
|
Net cash provided before financing activities
|
|
487
|
|
|
453
|
|
|
1,299
|
|
|
1,512
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
(180)
|
|
|
(163)
|
|
|
(545)
|
|
|
(491)
|
|
Change in restricted cash and cash equivalents
|
|
32
|
|
|
46
|
|
|
8
|
|
|
19
|
|
Effect of foreign exchange fluctuations on US dollar-denominated cash
and cash equivalents
|
|
2
|
|
|
(3)
|
|
|
16
|
|
|
(4)
|
Free cash flow
|
$
|
341
|
|
$
|
333
|
|
$
|
778
|
|
$
|
1,036
|
SOURCE CN