Diluted Q3-2012 EPS increased 10 per cent over adjusted
diluted EPS of C$1.38 for Q3-2011
(1)
MONTREAL,
Oct. 22, 2012 /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, 2012.
Third-quarter 2012 highlights
- Net income was C$664 million, or
C$1.52 per diluted share, compared
with year-earlier net income of C$659
million, or C$1.46 per diluted
share.
- Q3-2012 diluted earnings per share (EPS) increased 10 per cent
over year-earlier adjusted diluted EPS of C$1.38 that excluded an after-tax gain of
C$0.08 per diluted share on the sale
of substantially all of the assets of IC RailMarine Terminal
Company during Q3-2011. (1)
- Revenues for the most recent quarter increased eight per cent
to C$2,497 million, while revenue
ton-miles rose seven per cent and carloadings increased three per
cent.
- Operating income increased five per cent to C$985 million.
- The operating ratio increased by 1.3 points to 60.6 per
cent.
- Free cash flow for the first nine months of 2012 was
C$1,036 million, including the impact
of Q1-2012 voluntary pension plan contributions totalling
C$450 million, compared with free
cash flow of C$1,328 million for the
same period of 2011. (1)
Claude Mongeau, president and
chief executive officer, said: "CN's focus on operational and
service excellence helped the Company post a solid third-quarter
performance, with revenue growth in all our business segments and
solid improvement in most of our key operating metrics.
"Petroleum and chemicals led the way with a 15 per cent increase
in revenues, largely as a result of higher shipments of crude oil
originating in western Canada.
CN's crude oil volume in the quarter rose to a run rate of 40,000
carloads on an annualized basis.
"We continued to improve service and were able to make solid
progress in our key velocity, efficiency and safety metrics across
our network."
Mongeau also said: "While cautious about the strength of the
economy, we see continued opportunities to grow our business in the
longer term. Through our agenda of supply chain collaboration, CN
expects to increase revenues slightly faster than general growth in
the North American economy and to accommodate this growth at low
incremental cost."
New CN share repurchase program
Mongeau said: "With our strong balance sheet and expectations of
continued shareholder value creation, we are pleased to announce
that CN's Board of Directors has approved a new share repurchase
program for up to C$1.4 billion in
common shares. This will be executed through a normal course issuer
bid to purchase for cancellation a maximum of 18 million
shares."
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 and first nine-month 2012 net income
would have been lower by C$8 million,
or C$0.02 per diluted share and
C$25 million, or C$0.06 per diluted share, respectively.
(1)
Third-quarter 2012 revenues, traffic volumes and
expenses
The eight per cent rise in third-quarter revenues mainly resulted
from higher freight volumes, due in part to growth in North
American and Asian economies and the Company's performance above
market conditions in a number of segments; freight rate increases;
and the positive translation impact of the weaker Canadian dollar
on U.S.-dollar-denominated revenues.
Revenues increased for petroleum and chemicals (15 per cent),
coal (13 per cent), grain and fertilizers (10 per cent), automotive
(nine per cent), metals and minerals (seven per cent), intermodal
(six per cent), and forest products (three per cent).
Revenue ton-miles, measuring the relative weight and distance of
rail freight transported by CN, increased seven per cent from the
year-earlier period.
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 two per cent over the third-quarter 2011
performance, driven by freight rate increases and the positive
translation impact of the weaker Canadian dollar, partly offset by
a lower fuel surcharge and an increase in the average length of
haul.
Operating expenses for the third quarter increased by 10 per
cent to C$1,512 million, mainly due
to higher labor and fringe benefits expense, increased purchased
services and material expense, as well as increased volume-related
fuel costs.
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.
Key assumptions
CN remains comfortable with the 2012 financial guidance issued
on July 25, 2012, in its
second-quarter 2012 financial and operational results news release.
CN expects to deliver up to 15 per cent growth in adjusted diluted
EPS for 2012, over adjusted diluted EPS of C$4.84 in 2011. Also, CN expects to generate free
cash flow of approximately C$1
billion for 2012 - taking into consideration a potential
C$250 million additional voluntary
pension contribution in the fourth quarter. (1)
CN's 2012 outlook is based on a number of economic and market
assumptions. The Company is forecasting that North American
industrial production for 2012 will increase by about 3.0 per cent.
For the year, CN also expects U.S. housing starts to be
approximately 750,000 units, and U.S. motor vehicles sales to be
approximately 14.5 million units. In addition, CN is assuming the
2012/2013 U.S. grain crop will be well below, and the 2012/2013
Canadian grain crop will be slightly higher, than the five-year
average. With the assumptions above, CN assumes carload growth in
the mid-single digit range, along with continued pricing
improvement above inflation. CN also assumes the Canadian-U.S.
exchange rate to be around parity for 2012 and that the price of
crude oil (West Texas Intermediate) for the year to be
approximately US$95 per barrel. In
2012, CN plans to invest approximately C$1.8
billion in capital programs, of which more than C$1 billion 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.
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.
1) |
See discussion and reconciliation of non-GAAP adjusted
performance-measures in the attached supplementary schedule,
Non-GAAP Measures. |
CN - Canadian National Railway Company and its operating railway
subsidiaries - spans Canada and
mid-America, from the Atlantic and Pacific oceans to the
Gulf of Mexico, serving the ports
of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New
Orleans, and Mobile, Ala.,
and the key metropolitan areas of Toronto, Buffalo, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
Revenues |
$ |
2,497 |
|
$ |
2,307 |
|
$ |
7,386 |
|
$ |
6,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Labor and fringe benefits |
|
476 |
|
|
396 |
|
|
1,489 |
|
|
1,301 |
|
Purchased services and material |
|
304 |
|
|
271 |
|
|
908 |
|
|
825 |
|
Fuel |
|
369 |
|
|
350 |
|
|
1,124 |
|
|
1,030 |
|
Depreciation and amortization |
|
227 |
|
|
218 |
|
|
687 |
|
|
653 |
|
Equipment rents |
|
64 |
|
|
60 |
|
|
185 |
|
|
165 |
|
Casualty and other |
|
72 |
|
|
74 |
|
|
230 |
|
|
220 |
Total operating expenses |
|
1,512 |
|
|
1,369 |
|
|
4,623 |
|
|
4,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
985 |
|
|
938 |
|
|
2,763 |
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(84) |
|
|
(85) |
|
|
(256) |
|
|
(256) |
|
|
|
|
|
|
|
|
|
|
|
|
Other income (Note 3) |
|
18 |
|
|
70 |
|
|
320 |
|
|
380 |
Income before income taxes |
|
919 |
|
|
923 |
|
|
2,827 |
|
|
2,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note
7) |
|
(255) |
|
|
(264) |
|
|
(757) |
|
|
(716) |
Net income |
$ |
664 |
|
$ |
659 |
|
$ |
2,070 |
|
$ |
1,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note
10) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
1.53 |
|
$ |
1.47 |
|
$ |
4.73 |
|
$ |
4.11 |
|
Diluted |
$ |
1.52 |
|
$ |
1.46 |
|
$ |
4.71 |
|
$ |
4.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of
shares |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
433.9 |
|
|
448.3 |
|
|
437.3 |
|
|
453.4 |
|
Diluted |
|
435.9 |
|
|
451.4 |
|
|
439.6 |
|
|
456.9 |
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 September 30 |
|
|
Nine months
ended September 30 |
|
|
|
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
664 |
$ |
659 |
|
$ |
2,070 |
$ |
1,865 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
(loss) |
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss) on: |
|
|
|
|
|
|
|
|
|
|
|
Translation of the net investment in foreign
operations |
|
(210) |
|
495 |
|
|
(199) |
|
315 |
|
|
Translation of US
dollar-denominated long-term debt designated as a hedge of
the
net investment in U.S. subsidiaries |
|
202 |
|
(471) |
|
|
189 |
|
(302) |
|
Pension and other postretirement
benefit plans (Note 6) |
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
included in net periodic benefit cost (income) |
|
30 |
|
2 |
|
|
92 |
|
6 |
|
|
Amortization of prior service cost
included in net periodic benefit cost (income) |
|
1 |
|
1 |
|
|
5 |
|
2 |
|
Derivative instruments |
|
- |
|
- |
|
|
- |
|
(1) |
Other comprehensive income before
income taxes |
|
23 |
|
27 |
|
|
87 |
|
20 |
Income tax recovery (expense) |
|
(37) |
|
67 |
|
|
(51) |
|
42 |
Other comprehensive income (loss) |
|
(14) |
|
94 |
|
|
36 |
|
62 |
Comprehensive income |
$ |
650 |
$ |
753 |
|
$ |
2,106 |
$ |
1,927 |
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 |
|
|
2012 |
|
|
2011 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
175 |
|
$ |
101 |
|
$ |
192 |
|
Restricted cash and cash equivalents (Note
4) |
|
518 |
|
|
499 |
|
|
489 |
|
Accounts receivable |
|
845 |
|
|
820 |
|
|
801 |
|
Material and supplies |
|
272 |
|
|
201 |
|
|
272 |
|
Deferred and receivable income taxes |
|
37 |
|
|
122 |
|
|
52 |
|
Other |
|
78 |
|
|
105 |
|
|
62 |
Total current assets |
|
1,925 |
|
|
1,848 |
|
|
1,868 |
|
|
|
|
|
|
|
|
|
Properties |
|
24,004 |
|
|
23,917 |
|
|
23,800 |
Intangible and other assets |
|
349 |
|
|
261 |
|
|
899 |
Total assets |
$ |
26,278 |
|
$ |
26,026 |
|
$ |
26,567 |
|
|
|
|
|
|
|
|
|
Liabilities and shareholders'
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and other |
$ |
1,631 |
|
$ |
1,580 |
|
$ |
1,565 |
|
Current portion of long-term debt (Note
4) |
|
678 |
|
|
135 |
|
|
525 |
Total current liabilities |
|
2,309 |
|
|
1,715 |
|
|
2,090 |
|
|
|
|
|
|
|
|
|
Deferred income
taxes |
|
5,603 |
|
|
5,333 |
|
|
5,613 |
Pension and other postretirement
benefits, net of current portion |
|
553 |
|
|
1,095 |
|
|
530 |
Other liabilities and deferred
credits |
|
738 |
|
|
762 |
|
|
800 |
Long-term debt |
|
5,770 |
|
|
6,441 |
|
|
5,878 |
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
Common shares |
|
4,120 |
|
|
4,141 |
|
|
4,149 |
|
Accumulated other comprehensive loss |
|
(2,803) |
|
|
(2,839) |
|
|
(1,647) |
|
Retained earnings |
|
9,988 |
|
|
9,378 |
|
|
9,154 |
Total shareholders' equity |
|
11,305 |
|
|
10,680 |
|
|
11,656 |
Total liabilities and shareholders'
equity |
$ |
26,278 |
|
$ |
26,026 |
|
$ |
26,567 |
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 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
Common shares
(1) |
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
$ |
4,132 |
|
$ |
4,211 |
|
$ |
4,141 |
|
$ |
4,252 |
|
Stock options exercised and other |
|
27 |
|
|
(6) |
|
|
105 |
|
|
50 |
|
Share repurchase programs (Note 4) |
|
(39) |
|
|
(56) |
|
|
(126) |
|
|
(153) |
Balance, end of period |
$ |
4,120 |
|
$ |
4,149 |
|
$ |
4,120 |
|
$ |
4,149 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
loss |
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
$ |
(2,789) |
|
$ |
(1,741) |
|
$ |
(2,839) |
|
$ |
(1,709) |
|
Other comprehensive income (loss) |
|
(14) |
|
|
94 |
|
|
36 |
|
|
62 |
Balance, end of period |
$ |
(2,803) |
|
$ |
(1,647) |
|
$ |
(2,803) |
|
$ |
(1,647) |
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
$ |
9,821 |
|
$ |
9,001 |
|
$ |
9,378 |
|
$ |
8,741 |
|
Net income |
|
664 |
|
|
659 |
|
|
2,070 |
|
|
1,865 |
|
Share repurchase programs (Note
4) |
|
(334) |
|
|
(361) |
|
|
(969) |
|
|
(1,011) |
|
Dividends |
|
(163) |
|
|
(145) |
|
|
(491) |
|
|
(441) |
Balance, end of period |
$ |
9,988 |
|
$ |
9,154 |
|
$ |
9,988 |
|
$ |
9,154 |
See accompanying notes to unaudited consolidated financial
statements.
(1) |
During the three and nine months ended
September 30, 2012, the Company issued 0.8 million and 2.7 million
common shares, respectively, as a result of stock options exercised
and repurchased 4.1 million and 13.3 million common shares,
respectively, under its share repurchase program. At
September 30, 2012, the Company had 431.5 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 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
Operating
activities |
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
664 |
|
$ |
659 |
|
$ |
2,070 |
|
$ |
1,865 |
Adjustments to reconcile net income to
net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
227 |
|
|
218 |
|
|
687 |
|
|
653 |
|
Deferred income taxes |
|
59 |
|
|
104 |
|
|
331 |
|
|
327 |
|
Gain on disposal of property (Note 3) |
|
- |
|
|
(60) |
|
|
(281) |
|
|
(348) |
Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
(25) |
|
|
55 |
|
|
(37) |
|
|
(17) |
|
Material and supplies |
|
3 |
|
|
(27) |
|
|
(73) |
|
|
(59) |
|
Accounts payable and other |
|
50 |
|
|
60 |
|
|
140 |
|
|
102 |
|
Other current assets |
|
5 |
|
|
16 |
|
|
(6) |
|
|
9 |
Pensions and other, net |
|
17 |
|
|
(38) |
|
|
(495) |
|
|
(147) |
Net cash provided by operating
activities |
|
1,000 |
|
|
987 |
|
|
2,336 |
|
|
2,385 |
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
|
|
|
|
|
|
|
Property additions |
|
(508) |
|
|
(415) |
|
|
(1,121) |
|
|
(1,012) |
Disposal of property (Note
3) |
|
- |
|
|
70 |
|
|
311 |
|
|
369 |
Change in restricted cash and cash
equivalents (Note 4) |
|
(46) |
|
|
(22) |
|
|
(19) |
|
|
(489) |
Other, net |
|
7 |
|
|
5 |
|
|
5 |
|
|
22 |
Net cash used in investing
activities |
|
(547) |
|
|
(362) |
|
|
(824) |
|
|
(1,110) |
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities |
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt (Note 4) |
|
230 |
|
|
132 |
|
|
1,861 |
|
|
196 |
Repayment of debt |
|
(338) |
|
|
(186) |
|
|
(1,806) |
|
|
(225) |
Issuance of common
shares due to exercise of stock
options and related excess tax benefits realized |
|
24 |
|
|
5 |
|
|
97 |
|
|
56 |
Repurchase of common shares (Note
4) |
|
(373) |
|
|
(417) |
|
|
(1,095) |
|
|
(1,164) |
Dividends paid |
|
(163) |
|
|
(145) |
|
|
(491) |
|
|
(441) |
Net cash used in financing
activities |
|
(620) |
|
|
(611) |
|
|
(1,434) |
|
|
(1,578) |
Effect of foreign exchange
fluctuations on US dollar-denominated
cash and cash equivalents |
|
(3) |
|
|
3 |
|
|
(4) |
|
|
5 |
Net increase (decrease) in cash and
cash equivalents |
|
(170) |
|
|
17 |
|
|
74 |
|
|
(298) |
Cash and cash equivalents, beginning
of period |
|
345 |
|
|
175 |
|
|
101 |
|
|
490 |
Cash and cash equivalents, end of
period |
$ |
175 |
|
$ |
192 |
|
$ |
175 |
|
$ |
192 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow
information |
|
|
|
|
|
|
|
|
|
|
|
Net cash receipts from customers and
other |
$ |
2,476 |
|
$ |
2,326 |
|
$ |
7,396 |
|
$ |
6,659 |
Net cash payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee services, suppliers and other
expenses |
|
(1,235) |
|
|
(1,124) |
|
|
(4,002) |
|
|
(3,551) |
|
Interest |
|
(89) |
|
|
(87) |
|
|
(275) |
|
|
(249) |
|
Personal injury and other claims |
|
(13) |
|
|
(15) |
|
|
(57) |
|
|
(48) |
|
Pensions (Note 6) |
|
(29) |
|
|
(5) |
|
|
(587) |
|
|
(103) |
|
Income taxes |
|
(110) |
|
|
(108) |
|
|
(139) |
|
|
(323) |
Net cash provided by operating
activities |
$ |
1,000 |
|
$ |
987 |
|
$ |
2,336 |
|
$ |
2,385 |
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, 2012, December 31, 2011 and September 30, 2011, and its results of
operations, changes in shareholders' equity and cash flows for the
three and nine months ended September 30,
2012 and 2011.
These unaudited Interim Consolidated Financial
Statements and Notes thereto have been prepared using accounting
policies consistent with those used in preparing the Company's 2011
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 2011 Annual Consolidated Financial Statements and Notes
thereto.
Note 2 - Accounting change
In June 2011, the
Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2011-05, Presentation of Comprehensive
Income, giving companies the option to present the components of
net income and comprehensive income in either one or two
consecutive financial statements. ASU 2011-05 eliminates the option
to present the components of other comprehensive income in the
statement of changes in shareholders' equity. ASU 2011-05 also
requires reclassification adjustments for each component of
accumulated other comprehensive income (AOCI) in both net income
and other comprehensive income (OCI) to be separately disclosed on
the face of the financial statements. In December 2011, the FASB issued ASU 2011-12,
Deferral of the Effective Date for Amendments to the Presentation
of Reclassifications of Items Out of Accumulated Other
Comprehensive Income, which deferred the effective date to present
reclassification adjustments in net income. The effective date of
the deferral is consistent with the effective date of ASU 2011-05
which is effective for fiscal years beginning on or after
December 15, 2011. The FASB is
currently re-evaluating the requirements, with a final decision
expected in 2012. The Company has adopted the requirements of these
ASUs.
Note 3 - Disposal of property
2012 - Disposal of Bala-Oakville
In March 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.
2011 - Disposal of IC RailMarine
Terminal
In August 2011, the Company sold
substantially all of the assets of IC RailMarine Terminal Company
(ICRMT), an indirect subsidiary of the Company, to Raven Energy,
LLC, an affiliate of Foresight Energy, LLC (Foresight) and the
Cline Group (Cline), for cash proceeds of $70 million (US$73
million) before transaction costs. ICRMT is located on the
east bank of the Mississippi River and stores and transfers bulk
commodities and liquids between rail, ship and barge, serving
customers in North American and global markets. Under the sale
agreement, the Company will benefit from a 10-year rail
transportation agreement with Savatran, LLC, an affiliate of
Foresight and Cline, to haul a minimum annual volume of coal from
four Illinois mines to the ICRMT
transfer facility. The transaction resulted in a gain on disposal
of $60 million ($38 million after-tax) that was recorded in Other
income.
2011 - Disposal of Lakeshore East
In March 2011, the Company entered
into an agreement with Metrolinx to sell a segment of the
Kingston subdivision known as the
Lakeshore East in Pickering and
Toronto, Ontario, together with
the rail fixtures and certain passenger agreements (collectively
the "Lakeshore East"), for cash proceeds of $299 million before transaction costs. Under the
agreement, the Company obtained the perpetual right to operate
freight trains over the Lakeshore East 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 $288
million ($254 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
In May 2011, the Company entered into
an $800 million four-year revolving
credit facility agreement with a consortium of lenders. In
March 2012, the agreement was amended
to extend the term to May 2017. The
agreement, which contains customary terms and conditions, allows
for increases in the facility amount, up to a maximum of
$1,300 million, 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 plans to
use the credit facility for working capital and general corporate
purposes, including backstopping its commercial paper program. As
at September 30, 2012, the Company
had no outstanding borrowings under its revolving credit facility
(nil as at December 31, 2011).
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, 2012, the Company had
borrowings of $171 million of
commercial paper ($82 million
(US$81 million) as at December 31, 2011) presented in Current portion
of long-term debt on the Consolidated Balance Sheet. The
weighted-average interest rate on these borrowings was 1.06% (0.20%
as at December 31, 2011).
Bilateral letter of credit facilities and
Restricted cash and cash equivalents
In April 2011, the Company entered
into a series of three-year bilateral letter of credit facility
agreements with various banks to support its requirements to post
letters of credit in the ordinary course of business. In
March 2012, the agreements were
amended to extend the maturity by one year to April 2015 and an additional letter of credit
agreement was signed with an additional bank. Under these
agreements as amended, 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, 2012, from a total committed amount of $559 million ($520
million as at December 31,
2011) by the various banks, the Company had letters of
credit drawn of $549 million
($499 million as at December 31, 2011). As at September 30, 2012, cash and cash equivalents of
$518 million ($499 million as at December 31, 2011) were pledged as collateral and
recorded as Restricted cash and cash equivalents on the
Consolidated Balance Sheet.
Share repurchase programs
In October 2011, the Board of
Directors of the Company approved a share repurchase program which
allowed for the repurchase of up to 17.0 million common shares
between October 28, 2011 and
October 27, 2012 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 16.7 million common shares under this share
repurchase program.
The following table provides the activity under
such share repurchase program as well as the share repurchase
program of the prior year:
|
|
|
|
|
Three
months ended September 30 |
|
Nine
months ended September 30 |
In millions, except per share data |
2012 |
2011 |
|
2012 |
2011 |
Number of common shares
repurchased (1) |
|
4.1 |
|
6.0 |
|
|
13.3 |
|
16.5 |
Weighted-average price per share
(2) |
$ |
89.82 |
$ |
69.48 |
|
$ |
82.32 |
$ |
70.56 |
Amount of repurchase |
$ |
373 |
$ |
417 |
|
$ |
1,095 |
$ |
1,164 |
(1) |
Includes common shares purchased in the first quarters of
2012 and 2011 pursuant to private agreements between the Company
and arm's length third-party sellers. |
(2) |
Includes brokerage fees. |
See Note 11 - Subsequent event for additional information on the
Company's new share repurchase program approved on October 22, 2012.
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 11 - Stock plans to the Company's 2011
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, 2012 and 2011.
|
|
Three
months ended September 30 |
|
Nine
months ended September 30 |
In millions |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
Cash settled awards |
|
|
|
|
|
|
|
|
|
Restricted share unit plan |
$ |
17 |
$ |
(8) |
|
$ |
47 |
$ |
39 |
Voluntary Incentive Deferral Plan (VIDP) |
|
4 |
|
(13) |
|
|
14 |
|
5 |
|
|
21 |
|
(21) |
|
|
61 |
|
44 |
Stock option awards |
|
3 |
|
2 |
|
|
8 |
|
7 |
Total stock-based compensation
expense (benefit) |
$ |
24 |
$ |
(19) |
|
$ |
69 |
$ |
51 |
Tax benefit (expense) recognized in
income |
$ |
7 |
$ |
(6) |
|
$ |
16 |
$ |
12 |
Cash settled awards
Following approval by the Board of Directors in January 2012, the Company granted 0.5 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 by the Company are generally
scheduled for payout in cash 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 agreements, 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.
In February 2012,
the Company's Board of Directors unanimously voted to forfeit and
cancel the RSU payout of approximately $18
million otherwise due in February
2012 to its former Chief Executive Officer (CEO) after
determining that the former CEO was likely in breach of his
non-compete and non-disclosure of confidential information
conditions contained in the former CEO's employment agreement.
Pending a final resolution of the legal proceedings, the Company,
without prejudice, has not recorded a gain from the cancellation of
the RSU payout. See Note 8 - Major commitments and contingencies to
the Company's unaudited Interim Consolidated Financial
Statements.
As at September 30,
2012, 0.1 million RSUs remained authorized for future
issuance under this plan.
The following table provides the 2012 activity
for all cash settled awards:
|
|
RSUs |
|
|
VIDP |
In millions |
Nonvested |
Vested |
|
|
Nonvested |
Vested |
Outstanding at December 31, 2011 |
0.9 |
0.9 |
|
|
- |
1.4 |
Granted (Payout) |
0.5 |
(0.7) |
|
|
- |
- |
Outstanding at
September 30, 2012 |
1.4 |
0.2 |
(1) |
|
- |
1.4 |
(1) |
Consists of the units of the RSU payout currently in
dispute. See Note 8 - Major commitments and contingencies to the
Company's unaudited Interim Consolidated Financial
Statements. |
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 |
2012 |
|
2011 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense recognized
over
requisite service period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2012 |
$ |
10 |
|
$ |
18 |
|
$ |
19 |
|
$ |
- |
|
|
$ |
14 |
|
|
$ |
61 |
Nine months ended September 30, 2011 |
|
N/A |
|
$ |
6 |
|
$ |
12 |
|
$ |
21 |
|
|
$ |
5 |
|
|
$ |
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
$ |
10 |
|
$ |
38 |
|
$ |
63 |
|
$ |
18 |
(3) |
|
$ |
128 |
|
|
$ |
257 |
December 31, 2011 |
|
N/A |
|
$ |
19 |
|
$ |
44 |
|
$ |
82 |
|
|
$ |
119 |
|
|
$ |
264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value per unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 ($) |
$ |
58.67 |
|
$ |
79.45 |
|
$ |
86.62 |
|
|
N/A |
|
|
$ |
86.99 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of awards vested during the
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2012 |
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
N/A |
|
|
$ |
1 |
|
|
$ |
1 |
Nine months ended September 30, 2011 |
|
N/A |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at September 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation cost |
$ |
16 |
|
$ |
15 |
|
$ |
4 |
|
|
N/A |
|
|
$ |
1 |
|
|
$ |
36 |
Remaining recognition period
(years) |
|
2.3 |
|
|
1.3 |
|
|
0.3 |
|
|
N/A |
|
|
|
N/A |
(4) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock price ($) |
$ |
86.99 |
|
$ |
86.99 |
|
$ |
86.99 |
|
|
N/A |
|
|
$ |
86.99 |
|
|
|
N/A |
Expected stock price volatility
(6) |
|
18% |
|
|
16% |
|
|
16% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
Expected term (years) (7) |
|
2.3 |
|
|
1.3 |
|
|
0.3 |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
Risk-free interest rate (8) |
|
1.12% |
|
|
1.08% |
|
|
0.97% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
Dividend rate ($) (9) |
$ |
1.50 |
|
$ |
1.50 |
|
$ |
1.50 |
|
|
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) |
Consists of the carrying value of the RSU
payout currently in dispute. See Note 8 - Major Commitments and
contingencies to the Company's unaudited Interim Consolidated
Financial Statements. |
(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, 2012. |
(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 2012, the Company granted 0.6 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, 2012, 10.4 million
common shares remained authorized for future issuances under this
plan. The total number of options outstanding at September 30, 2012, including conventional and
performance-accelerated options, was 4.4 million and 0.4 million,
respectively. As at September 30,
2012, the performance-accelerated stock options were fully
vested.
The following table provides the activity of
stock option awards in 2012. 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,
2012 at the Company's closing stock price of $86.99.
|
|
|
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, 2011
(1) |
6.9 |
$ |
40.80 |
|
|
|
|
Granted |
0.6 |
$ |
76.70 |
|
|
|
|
Exercised |
(2.7) |
$ |
30.90 |
|
|
|
|
Outstanding at September 30,
2012 (1) |
4.8 |
$ |
49.67 |
5.8 |
|
$ |
178 |
Exercisable at September 30,
2012 (1) |
3.1 |
$ |
42.53 |
4.5 |
|
$ |
136 |
(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 |
|
2012 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
expense
recognized over requisite service period (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
2012 |
$ |
3 |
|
$ |
2 |
|
$ |
1 |
|
$ |
2 |
|
$ |
- |
|
$ |
- |
|
$ |
8 |
Nine months ended September 30,
2011 |
|
N/A |
|
$ |
3 |
|
$ |
1 |
|
$ |
2 |
|
$ |
1 |
|
$ |
- |
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value per unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At grant date ($) |
$ |
15.49 |
|
$ |
15.66 |
|
$ |
13.09 |
|
$ |
12.60 |
|
$ |
12.44 |
|
$ |
13.37 |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of awards vested
during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
2012 |
$ |
- |
|
$ |
2 |
|
$ |
2 |
|
$ |
4 |
|
$ |
3 |
|
$ |
- |
|
$ |
11 |
Nine months ended September 30,
2011 |
|
N/A |
|
$ |
- |
|
$ |
2 |
|
$ |
4 |
|
$ |
3 |
|
$ |
3 |
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at September
30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation
cost |
$ |
5 |
|
$ |
3 |
|
$ |
2 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
10 |
Remaining recognition period
(years) |
|
3.3 |
|
|
2.3 |
|
|
1.3 |
|
|
0.3 |
|
|
- |
|
|
- |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant price ($) |
$ |
76.70 |
|
$ |
68.94 |
|
$ |
54.76 |
|
$ |
42.14 |
|
$ |
48.51 |
|
$ |
52.79 |
|
|
N/A |
Expected stock price volatility
(2) |
|
26% |
|
|
26% |
|
|
28% |
|
|
39% |
|
|
27% |
|
|
24% |
|
|
N/A |
Expected term (years)
(3) |
|
5.4 |
|
|
5.3 |
|
|
5.4 |
|
|
5.3 |
|
|
5.3 |
|
|
5.2 |
|
|
N/A |
Risk-free interest rate
(4) |
|
1.33% |
|
|
2.53% |
|
|
2.44% |
|
|
1.97% |
|
|
3.58% |
|
|
4.12% |
|
|
N/A |
Dividend rate ($)
(5) |
$ |
1.50 |
|
$ |
1.30 |
|
$ |
1.08 |
|
$ |
1.01 |
|
$ |
0.92 |
|
$ |
0.84 |
|
|
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") and/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 and/or DC SERP plans or
other employment agreements 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, and/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.
In February 2012,
the Company's Board of Directors unanimously voted to forfeit and
cancel the $1.5 million annual
retirement benefit otherwise due to its former CEO after
determining that the former CEO was likely in breach of the
non-compete and non-disclosure of confidential information
conditions contained in the former CEO's employment agreement.
Pending a final resolution of the legal proceedings, the Company,
without prejudice, has not recorded a settlement gain of
approximately $21 million from the
termination of the former CEO's retirement benefit plan. See Note 8
- Major commitments and contingencies to the Company's unaudited
Interim Consolidated Financial Statements.
For the three and nine months ended September 30, 2012 and 2011, the components of
net periodic benefit cost (income) for pensions and other
postretirement benefits were as follows:
(a) Components of net periodic
benefit cost (income) for pensions |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
September 30 |
|
September 30 |
In millions |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
Service cost |
$ |
37 |
$ |
31 |
|
$ |
109 |
$ |
93 |
Interest cost |
|
186 |
|
196 |
|
|
554 |
|
589 |
Expected return on plan assets |
|
(249) |
|
(251) |
|
|
(745) |
|
(753) |
Amortization of prior service cost |
|
1 |
|
1 |
|
|
3 |
|
1 |
Recognized net actuarial loss |
|
30 |
|
2 |
|
|
92 |
|
6 |
Net periodic benefit cost (income) |
$ |
5 |
$ |
(21) |
|
$ |
13 |
$ |
(64) |
|
|
|
|
|
|
|
|
|
|
(b) Components of net periodic
benefit cost for other postretirement benefits |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
September 30 |
|
September 30 |
In millions |
|
2012 |
|
2011 |
|
|
2012 |
|
2011 |
Service cost |
$ |
1 |
$ |
1 |
|
$ |
3 |
$ |
3 |
Interest cost |
|
4 |
|
4 |
|
|
10 |
|
11 |
Amortization of prior service cost |
|
- |
|
- |
|
|
2 |
|
1 |
Net periodic benefit cost |
$ |
5 |
$ |
5 |
|
$ |
15 |
$ |
15 |
Company contributions to its various pension
plans are made in accordance with the applicable legislation in
Canada and the United States and are determined by
actuarial valuations. Actuarial valuations are generally required
on an annual basis both in Canada
and the United States. The latest
actuarial valuations for funding purposes for the Company's
Canadian pension plans, based on a valuation date of December 31, 2011, were filed in June 2012 and identified a going concern surplus
of approximately $1.1 billion and a
solvency deficit of approximately $1.3
billion calculated using the three-year average of the
Company's hypothetical windup 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.
In anticipation of its future funding
requirements, the Company made voluntary contributions of
$450 million in the first quarter of
2012 and $350 million in the fourth
quarter of 2011 in excess of the required contributions mainly to
strengthen the financial position of its main pension plan, the CN
Pension Plan. These voluntary contributions can be treated as a
prepayment against its required special solvency payments. As such,
as at September 30, 2012, based on
the Company's last filed actuarial valuations, these voluntary
contributions are expected to be sufficient to meet the Company's
special solvency payment requirements for the CN Pension Plan to
the end of 2014. Since 2010, the Company has made total voluntary
contributions of $1.1 billion.
Pension contributions made in the first nine
months of 2012 and 2011 of $587
million and $103 million,
respectively, mainly represent contributions to the Company's main
pension plan, the CN Pension Plan.
The Company continuously monitors the various
economic elements that affect the level of contribution it
considers necessary to maintain the financial health of its various
pension plans. Currently, the Company expects to make total
contributions in 2012 of approximately $600
million for all its pension plans, including its defined
contribution plans. These contributions are for the current service
cost as determined under its current actuarial valuations and
include voluntary contributions of $450
million made in the first quarter.
In view of the uncertainty associated with
future pension plan returns and level of interest rates in the
current economic environment, the Company is reviewing the merits
of contributing an additional $250
million in 2012.
Additional information relating to the pension
plans is provided in Note 12 - Pensions and other postretirement
benefits to the Company's 2011 Annual Consolidated Financial
Statements.
Note 7 - Income taxes
The Company recorded income tax expense of
$255 million for the three months
ended September 30, 2012 and
$757 million for the nine months
ended September 30, 2012, compared to
$264 million and $716 million, respectively, for the same periods
in 2011. A net income tax expense of $28
million, which consisted 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, was
recorded in the second quarter of 2012. A net income tax expense of
$40 million, resulting from the
enactment of state corporate income tax rate changes and other
legislated state tax revisions, was recorded in the second quarter
of 2011.
Note 8 - Major commitments and
contingencies
A. Commitments
As at September 30, 2012, 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 $846 million
($727 million as at December 31, 2011). The Company also has
remaining estimated commitments in relation to the acquisition of
the principal lines of the former Elgin, Joliet
and Eastern Railway Company of approximately $110 million to be spent over the next few years
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 commitment for the grade separation projects is based
on estimated costs provided by the Surface Transportation Board
(STB) at the time of acquisition and could be subject to
adjustment. In addition, remaining implementation costs associated
with the U.S. federal government legislative requirement to
implement positive train control (PTC) by 2015 are estimated to be
approximately $180 million
(US$180 million). The Company also
has agreements with fuel suppliers to purchase approximately 91% of
its estimated remaining 2012 volume, 71% of its anticipated 2013
volume and 20% of its anticipated 2014 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.
Proceedings against former CEO
In February 2012, the Company's Board
of Directors unanimously voted to forfeit and cancel the RSU payout
of approximately $18 million, the
$1.5 million annual retirement
benefit, and other benefits (collectively the "Benefits") otherwise
due to its former CEO, after determining that the former CEO was
likely in breach of his non-compete and non-disclosure of
confidential information conditions contained in the former CEO's
employment agreement. The Company's determination was based on
certain facts, including the former CEO's active participation in
concert with the largest shareholder of its major competitor in
Canada for the express purpose of
installing the former CEO as Chief Executive Officer of the
competitor; the former CEO's admission that he has taken a personal
$5 million stock position in the
competitor; and statements by the former CEO and the largest
shareholder to the effect that the former CEO has developed a
strategic plan for the operation of the Company's competitor to
make it a stronger competitor to the Company; the Company
reasonably believes that any such strategic plan would necessarily
draw upon the Company's confidential information, which would
constitute a clear and material breach of the former CEO's
employment agreement. The Company has filed legal proceedings in
the United States District Court for the Northern District of
Illinois seeking, among other
things, a declaration that the Company's termination of the
Benefits is valid. In June 2012, the
former CEO was named President and CEO and a member of the Board of
Directors of the Company's major competitor in Canada.
Liabilities can be derecognized only if the
Company is legally and irrevocably released from its obligation,
either judicially or by the creditor. As such, the Company, without
prejudice, has not recorded a gain of approximately $18 million from the cancellation of the former
CEO's RSU payout pending a final resolution of the legal
proceedings. In addition, a retirement benefit liability can only
be terminated when the Company is relieved of its obligation under
the benefit plan. The Company estimates the settlement gain
associated with the former CEO's retirement benefit liability to be
approximately $21 million, which
would be partially offset by past accumulated actuarial losses of
approximately $4 million. Pending a
final resolution of the legal proceedings, the Company, without
prejudice, has not recorded the net settlement gain that would
result from the termination of the former CEO's retirement benefit
plan.
The Company is also seeking to recover
$3 million of retirement benefits
paid to the former CEO as the Company believes that the former CEO
has failed to fulfill the terms of his employment agreement as well
as reasonable legal fees and other costs. The Company has not
recognized the recovery of these amounts.
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,
2012, the Company had aggregate reserves for personal injury
and other claims of $299 million, of
which $82 million was recorded as a
current liability ($310 million as at
December 31, 2011, of which
$84 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, 2012, 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
could not 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 300 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,
2012, the Company had aggregate accruals for environmental
costs of $126 million, of which
$28 million was recorded as a current
liability ($152 million as at
December 31, 2011, of which
$63 million was recorded as a current
liability). The Company anticipates that the majority of the
liability at September 30, 2012 will
be paid out over the next five years. However, some costs may be
paid out over a longer period. In situations where the Company
expects to recover certain accrued remediation costs associated
with alleged contamination, a receivable is recorded in Intangible
and other assets for such recoverable amount. 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 and 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 2012 and 2020, 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. At September
30, 2012, the maximum exposure in respect of these
guarantees was $146 million. There
are no recourse provisions to recover any amounts from third
parties.
(ii) Other guarantees
As at September 30, 2012, the
Company, including certain of its subsidiaries, has granted
$549 million of irrevocable standby
letters of credit and $11 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, 2012, the maximum
potential liability under these guarantee instruments was
$560 million, of which $488 million related to workers' compensation and
other employee benefit liabilities and $72
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 has not recorded
a liability as at September 30, 2012
with respect to these guarantee instruments as they relate to the
Company's future performance and the Company does not expect to
make any payments under these guarantee instruments. The majority
of the guarantee instruments mature at various dates between 2012
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. Debt is
classified as Level 2 as it may not be priced using quoted prices
for identical instruments in active markets, but rather determined
from quoted prices for similar instruments in active markets.
The following table presents the carrying
amounts and estimated fair values of the Company's financial
instruments as at September 30, 2012
and December 31, 2011 for which the
carrying values on the Consolidated Balance Sheet are different
from their fair values:
In millions |
|
September 30,
2012 |
|
|
December 31,
2011 |
|
|
|
Carrying
amount |
|
Fair
value |
|
|
Carrying
amount |
|
Fair
value |
Financial
assets |
|
|
|
|
|
|
|
|
|
|
Investments |
$ |
30 |
$ |
123 |
|
$ |
31 |
$ |
126 |
Financial
liabilities |
|
|
|
|
|
|
|
|
|
|
Total debt |
$ |
6,448 |
$ |
8,000 |
|
$ |
6,576 |
$ |
7,978 |
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 |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
664 |
|
$ |
659 |
|
$ |
2,070 |
|
$ |
1,865 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
433.9 |
|
|
448.3 |
|
|
437.3 |
|
|
453.4 |
Effect of stock options |
|
2.0 |
|
|
3.1 |
|
|
2.3 |
|
|
3.5 |
Weighted-average diluted shares outstanding |
|
435.9 |
|
|
451.4 |
|
|
439.6 |
|
|
456.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
1.53 |
|
$ |
1.47 |
|
$ |
4.73 |
|
$ |
4.11 |
Diluted earnings per share |
$ |
1.52 |
|
$ |
1.46 |
|
$ |
4.71 |
|
$ |
4.08 |
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 and 0.1 million for
the three and nine months ended September
30, 2012, respectively, and 0.1 million for both the
corresponding periods in 2011.
Note 11 - Subsequent event
On October 22,
2012, the Board of Directors of the Company approved a new
share repurchase program which allows for the repurchase of up to
$1.4 billion in common shares, not to
exceed 18.0 million common shares, between October 29, 2012 and October 28, 2013 pursuant to a normal course
issuer bid at prevailing market prices plus brokerage fees, or such
other prices as may be permitted by the Toronto Stock Exchange.
Note 12 - Comparative figures
Certain figures previously reported in 2011 have been
reclassified to conform with the basis of presentation adopted in
2012.
CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP) -
unaudited |
|
Three months
ended |
|
Nine months
ended |
|
September 30 |
|
September 30 |
|
2012 |
2011 |
|
2012 |
2011 |
|
|
Statistical operating data |
|
|
|
|
|
|
|
|
|
|
|
Rail freight revenues ($ millions) |
2,237 |
2,059 |
|
6,658 |
5,979 |
Gross ton miles (GTM) (millions) |
96,402 |
89,517 |
|
285,881 |
265,799 |
Revenue ton miles (RTM) (millions) |
49,999 |
46,761 |
|
149,372 |
139,597 |
Carloads (thousands) |
1,298 |
1,261 |
|
3,789 |
3,641 |
Route miles (includes Canada and the U.S.)
(1) |
20,000 |
20,500 |
|
20,000 |
20,500 |
Employees (end of period) |
23,610 |
23,441 |
|
23,610 |
23,441 |
Employees (average for the period) |
23,573 |
23,318 |
|
23,444 |
22,961 |
|
|
|
|
|
|
Productivity |
|
|
|
|
|
|
|
|
|
|
|
Operating ratio (%) |
60.6 |
59.3 |
|
62.6 |
63.1 |
Rail freight revenue per RTM (cents) |
4.47 |
4.40 |
|
4.46 |
4.28 |
Rail freight revenue per carload ($) |
1,723 |
1,633 |
|
1,757 |
1,642 |
Operating expenses per GTM (cents) |
1.57 |
1.53 |
|
1.62 |
1.58 |
Labor and fringe benefits expense per GTM
(cents) |
0.49 |
0.44 |
|
0.52 |
0.49 |
GTMs per average number of employees
(thousands) |
4,090 |
3,839 |
|
12,194 |
11,576 |
Diesel fuel consumed (US gallons in millions) |
94.5 |
89.2 |
|
288.8 |
273.4 |
Average fuel price ($/US gallon) |
3.40 |
3.37 |
|
3.45 |
3.33 |
GTMs per US gallon of fuel consumed |
1,020 |
1,004 |
|
990 |
972 |
|
|
|
|
|
|
Safety indicators |
|
|
|
|
|
|
|
|
|
|
|
Injury frequency rate per 200,000 person hours
(2) |
1.32 |
1.73 |
|
1.30 |
1.63 |
Accident rate per million train miles
(2) |
2.30 |
2.33 |
|
2.22 |
2.35 |
|
|
|
|
|
|
Financial ratio |
|
|
|
|
|
|
|
|
|
|
|
Debt-to-total capitalization ratio (% at end of
period) (3) |
36.3 |
35.5 |
|
36.3 |
35.5 |
(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.
|
Certain of the 2011 comparative figures have
been restated to conform with the 2012 presentation. Such
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
SUPPLEMENTARY INFORMATION (U.S. GAAP) -
unaudited |
|
Three
months ended September 30 |
|
Nine
months ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
2011 |
% Change
Fav (Unfav) |
|
% Change at
constant
currency
Fav (Unfav) (1) |
|
2012 |
2011 |
% Change
Fav (Unfav) |
|
% Change at
constant
currency
Fav (Unfav) (1) |
|
|
Revenues (millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
416 |
361 |
15% |
|
14% |
|
1,213 |
1,043 |
16% |
|
14% |
Metals and minerals |
293 |
274 |
7% |
|
5% |
|
859 |
728 |
18% |
|
16% |
Forest products |
336 |
325 |
3% |
|
2% |
|
1,008 |
941 |
7% |
|
5% |
Coal |
187 |
166 |
13% |
|
11% |
|
541 |
469 |
15% |
|
14% |
Grain and fertilizers |
368 |
336 |
10% |
|
9% |
|
1,131 |
1,110 |
2% |
|
1% |
Intermodal |
510 |
480 |
6% |
|
6% |
|
1,496 |
1,326 |
13% |
|
12% |
Automotive |
127 |
117 |
9% |
|
7% |
|
410 |
362 |
13% |
|
11% |
Total rail freight revenues |
2,237 |
2,059 |
9% |
|
8% |
|
6,658 |
5,979 |
11% |
|
10% |
Other revenues |
260 |
248 |
5% |
|
4% |
|
728 |
672 |
8% |
|
7% |
Total revenues |
2,497 |
2,307 |
8% |
|
7% |
|
7,386 |
6,651 |
11% |
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue ton miles (millions) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
9,461 |
8,354 |
13% |
|
13% |
|
27,295 |
24,430 |
12% |
|
12% |
Metals and minerals |
5,229 |
5,212 |
- |
|
- |
|
15,236 |
13,780 |
11% |
|
11% |
Forest products |
7,545 |
7,558 |
- |
|
- |
|
22,533 |
21,991 |
2% |
|
2% |
Coal |
6,216 |
5,346 |
16% |
|
16% |
|
17,816 |
15,295 |
16% |
|
16% |
Grain and fertilizers |
10,394 |
9,452 |
10% |
|
10% |
|
32,591 |
33,568 |
(3%) |
|
(3%) |
Intermodal |
10,492 |
10,239 |
2% |
|
2% |
|
31,782 |
28,613 |
11% |
|
11% |
Automotive |
662 |
600 |
10% |
|
10% |
|
2,119 |
1,920 |
10% |
|
10% |
|
49,999 |
46,761 |
7% |
|
7% |
|
149,372 |
139,597 |
7% |
|
7% |
Rail freight revenue / RTM
(cents) |
|
|
|
|
|
|
|
|
|
|
|
Total rail freight revenue per RTM |
4.47 |
4.40 |
2% |
|
1% |
|
4.46 |
4.28 |
4% |
|
3% |
Commodity groups: |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
4.40 |
4.32 |
2% |
|
- |
|
4.44 |
4.27 |
4% |
|
2% |
Metals and minerals |
5.60 |
5.26 |
6% |
|
5% |
|
5.64 |
5.28 |
7% |
|
5% |
Forest products |
4.45 |
4.30 |
3% |
|
2% |
|
4.47 |
4.28 |
4% |
|
3% |
Coal |
3.01 |
3.11 |
(3%) |
|
(4%) |
|
3.04 |
3.07 |
(1%) |
|
(2%) |
Grain and fertilizers |
3.54 |
3.55 |
- |
|
(1%) |
|
3.47 |
3.31 |
5% |
|
4% |
Intermodal |
4.86 |
4.69 |
4% |
|
3% |
|
4.71 |
4.63 |
2% |
|
1% |
Automotive |
19.18 |
19.50 |
(2%) |
|
(3%) |
|
19.35 |
18.85 |
3% |
|
1% |
|
|
|
|
|
|
|
|
|
|
|
|
Carloads (thousands) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
152 |
143 |
6% |
|
6% |
|
444 |
421 |
5% |
|
5% |
Metals and minerals |
265 |
272 |
(3%) |
|
(3%) |
|
778 |
752 |
3% |
|
3% |
Forest products |
111 |
113 |
(2%) |
|
(2%) |
|
336 |
334 |
1% |
|
1% |
Coal |
117 |
122 |
(4%) |
|
(4%) |
|
332 |
354 |
(6%) |
|
(6%) |
Grain and fertilizers |
144 |
135 |
7% |
|
7% |
|
426 |
440 |
(3%) |
|
(3%) |
Intermodal |
455 |
424 |
7% |
|
7% |
|
1,305 |
1,176 |
11% |
|
11% |
Automotive |
54 |
52 |
4% |
|
4% |
|
168 |
164 |
2% |
|
2% |
|
1,298 |
1,261 |
3% |
|
3% |
|
3,789 |
3,641 |
4% |
|
4% |
Rail freight revenue / carload
(dollars) |
|
|
|
|
|
|
|
|
|
|
|
Total rail freight revenue per carload |
1,723 |
1,633 |
6% |
|
4% |
|
1,757 |
1,642 |
7% |
|
6% |
Commodity groups: |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
2,737 |
2,524 |
8% |
|
7% |
|
2,732 |
2,477 |
10% |
|
8% |
Metals and minerals |
1,106 |
1,007 |
10% |
|
8% |
|
1,104 |
968 |
14% |
|
12% |
Forest products |
3,027 |
2,876 |
5% |
|
4% |
|
3,000 |
2,817 |
6% |
|
5% |
Coal |
1,598 |
1,361 |
17% |
|
16% |
|
1,630 |
1,325 |
23% |
|
21% |
Grain and fertilizers |
2,556 |
2,489 |
3% |
|
2% |
|
2,655 |
2,523 |
5% |
|
4% |
Intermodal |
1,121 |
1,132 |
(1%) |
|
(1%) |
|
1,146 |
1,128 |
2% |
|
1% |
Automotive |
2,352 |
2,250 |
5% |
|
3% |
|
2,440 |
2,207 |
11% |
|
8% |
(1) |
See supplementary schedule entitled Non-GAAP Measures for an
explanation of this Non-GAAP measure. |
Such 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, 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 for the nine months ended September 30, 2012 exclude a 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 gain on disposal of
a segment of the Bala and a
segment of the Oakville
subdivisions of $281 million, or
$252 million after-tax ($0.57 per diluted share).
For the three and nine months ended September 30, 2011, the Company reported adjusted
net income of $621 million, or
$1.38 per diluted share and
$1,613 million, or $3.53 per diluted share, respectively. The
adjusted figures for the three and nine months ended September 30, 2011 exclude a gain on disposal of
substantially all of the assets of IC RailMarine Terminal Company
(ICRMT) of $60 million, or
$38 million after-tax ($0.08 per diluted share). The adjusted figures
for the nine months ended September 30,
2011 also exclude a net income tax expense of $40 million ($0.08
per diluted share) resulting from the enactment of state corporate
income tax rate changes and other legislated state tax revisions;
and a gain on disposal of a segment of the Company's Kingston subdivision of $288 million, or $254
million after-tax ($0.55 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 2012 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, 2012 and 2011, to the adjusted
performance measures presented herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
September 30, 2012 |
|
|
September 30, 2012 |
In millions, except per share data |
|
Reported |
|
|
Adjustments |
|
|
Adjusted |
|
|
Reported |
|
|
Adjustments |
|
|
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% |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
September 30, 2011 |
|
|
September 30, 2011 |
In millions, except per share data |
|
Reported |
|
|
Adjustments |
|
|
Adjusted |
|
|
Reported |
|
|
Adjustments |
|
|
Adjusted |
Revenues |
$ |
2,307 |
|
$ |
- |
|
$ |
2,307 |
|
$ |
6,651 |
|
$ |
- |
|
$ |
6,651 |
Operating expenses |
|
1,369 |
|
|
- |
|
|
1,369 |
|
|
4,194 |
|
|
- |
|
|
4,194 |
Operating income |
|
938 |
|
|
- |
|
|
938 |
|
|
2,457 |
|
|
- |
|
|
2,457 |
Interest expense |
|
(85) |
|
|
- |
|
|
(85) |
|
|
(256) |
|
|
- |
|
|
(256) |
Other income |
|
70 |
|
|
(60) |
|
|
10 |
|
|
380 |
|
|
(348) |
|
|
32 |
Income before income taxes |
|
923 |
|
|
(60) |
|
|
863 |
|
|
2,581 |
|
|
(348) |
|
|
2,233 |
Income tax expense |
|
(264) |
|
|
22 |
|
|
(242) |
|
|
(716) |
|
|
96 |
|
|
(620) |
Net income |
$ |
659 |
|
$ |
(38) |
|
$ |
621 |
|
$ |
1,865 |
|
$ |
(252) |
|
$ |
1,613 |
Operating ratio |
|
59.3% |
|
|
|
|
|
59.3% |
|
|
63.1% |
|
|
|
|
|
63.1% |
Basic earnings per share |
$ |
1.47 |
|
$ |
(0.08) |
|
$ |
1.39 |
|
$ |
4.11 |
|
$ |
(0.55) |
|
$ |
3.56 |
Diluted earnings per share |
$ |
1.46 |
|
$ |
(0.08) |
|
$ |
1.38 |
|
$ |
4.08 |
|
$ |
(0.55) |
|
$ |
3.53 |
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 $0.99 and $1.00 per
US$1.00, respectively, for the three
and nine months ended September 30,
2012, and $0.98 per
US$1.00 for both the three and nine
months ended September 30, 2011.
On a constant currency basis, the Company's 2012
third quarter and first nine-month net income would have been lower
by $8 million, or $0.02 per diluted share and $25 million, or $0.06 per diluted share, respectively. The
following table presents a reconciliation of 2012 net income as
reported to net income on a constant currency basis:
|
|
|
|
|
|
|
|
Three months ended |
Nine months ended |
In millions |
September 30, 2012 |
September 30, 2012 |
|
|
|
|
Net income, as reported |
$ |
664 |
$ |
2,070 |
|
|
|
|
|
|
Add back: |
|
|
|
|
|
Positive impact due to the weakening Canadian
dollar included in
net income |
|
(7) |
|
(20) |
Add: |
|
|
|
|
|
Decrease due to the weakening
Canadian dollar on additional
year-over-year US$ net income |
|
(1) |
|
(5) |
Impact of foreign exchange using
constant currency rates |
|
(8) |
|
(25) |
Net income, on a constant currency
basis |
$ |
656 |
$ |
2,045 |
Free cash flow
The Company generated $333 million and $1,036
million of free cash flow for the three and nine months
ended September 30, 2012,
respectively, compared to $505
million and $1,328 million for
the same periods in 2011, 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 |
|
Nine months ended |
|
September 30 |
|
September 30 |
In millions |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
$ |
1,000 |
|
$ |
987 |
|
$ |
2,336 |
|
$ |
2,385 |
Net cash used in investing
activities |
|
(547) |
|
|
(362) |
|
|
(824) |
|
|
(1,110) |
Net cash provided before financing
activities |
|
453 |
|
|
625 |
|
|
1,512 |
|
|
1,275 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
(163) |
|
|
(145) |
|
|
(491) |
|
|
(441) |
|
Change in restricted cash and cash
equivalents |
|
46 |
|
|
22 |
|
|
19 |
|
|
489 |
|
Effect of foreign exchange
fluctuations on US
dollar-denominated cash and cash equivalents |
|
(3) |
|
|
3 |
|
|
(4) |
|
|
5 |
Free cash flow |
$ |
333 |
|
$ |
505 |
|
$ |
1,036 |
|
$ |
1,328 |
SOURCE CN