Adjusted Q2-2013 net income was C$704
million, with adjusted diluted EPS rising 11 per cent to
C$1.66 (1)
MONTREAL,
July 22, 2013 /CNW Telbec/ - CN (TSX:
CNR) (NYSE: CNI) today reported its financial and operating results
for the second quarter and six-month period ended June 30, 2013.
Second-quarter 2013 highlights
- Second-quarter 2013 net income was C$717
million, or C$1.69 per diluted
share, compared with net income of C$631
million, or C$1.44 per diluted
share, for second-quarter 2012. The second-quarter 2013
results included a net gain of C$13
million (C$0.03 per diluted
share) resulting from a gain on a non-monetary transaction with
another railway that was partly offset by the effect of the
enactment of higher provincial corporate income tax rates.
- Excluding the net gain, Q2-2013 adjusted diluted earnings per
share (EPS) increased 11 per cent to C$1.66 from Q2-2012 adjusted diluted EPS of
C$1.50. (1)
- Revenues for the latest quarter increased five per cent to
C$2,666 million, driven by a five per
cent increase in revenue ton-miles and a two per cent increase in
carloadings.
- Operating income increased six per cent to C$1,042 million.
- Operating ratio improved by 0.4 of a point to 60.9 per
cent.
- Free cash flow totalled C$437
million for the first half of 2013, compared with free cash
flow of C$703 million in the
comparable period of 2012. (1)
Claude Mongeau,
president and chief executive officer, said: "We executed strongly
during the second quarter, with service and operating metrics on a
steady improvement trend. This performance underscores our agenda
of Operational and Service Excellence, which is key to achieve
solid revenue growth at low incremental cost.
"Looking forward, despite slower volume growth
than anticipated, the CN team will maintain a keen focus on growing
revenues faster than the overall economy as well as on tightly
managing costs to meet our full-year financial outlook."
2013 financial outlook (2)
CN is maintaining the 2013 financial outlook issued on Jan. 22, 2013, as well as the plan to invest
approximately C$2 billion in capital
programs in 2013, which was revised upward from C$1.9 billion on April 22,
2013.
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 second-quarter 2013 net income would have been lower by
C$4 million, or C$0.01 per diluted share. (1)
Second-quarter 2013 revenues, traffic volumes
and expenses
The five per cent rise in second-quarter revenues was mainly
attributable to freight rate increases; higher freight volumes due
to strong energy markets, market share gains, as well as growth in
the North American economy; and the positive translation impact of
the weaker Canadian dollar on U.S.-dollar-denominated revenues.
CN's fuel surcharge had a minimal overall impact on the results as
higher volumes were offset by a decrease in applicable fuel
prices.
Revenues increased for petroleum and chemicals
(18 per cent), grain and fertilizers (five per cent), metals and
minerals (four per cent), forest products (four per cent), and
intermodal (three per cent). Coal revenues were flat and automotive
revenues declined by three per cent.
Carloads increased by two per cent while revenue
ton-miles, measuring the relative weight and distance of rail
freight transported by CN, increased five 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 one per cent over the
second 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 and the impact of a lower fuel
surcharge.
Operating expenses increased four per cent in
the second quarter of 2013, mainly due to increased purchased
services and material expense, higher fuel costs, and higher
depreciation and amortization.
(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, CN is
assuming that 2013/2014 grain crop production in both Canada and the U.S. will be in-line with their
respective five-year averages. With these assumptions, CN now
assumes carload growth of two to three per cent, down from three to
four per cent, along with continued pricing improvement above
inflation. CN also now assumes the Canadian-U.S. exchange rate to
be in the range of C$0.95-C$1.00 for
2013, versus the previous assumption of around parity, 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 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 |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,666 |
|
$ |
2,543 |
|
$ |
5,132 |
|
$ |
4,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and fringe benefits |
|
|
498 |
|
|
504 |
|
|
1,067 |
|
|
1,013 |
|
Purchased services and
material |
|
|
341 |
|
|
305 |
|
|
669 |
|
|
604 |
|
Fuel |
|
|
402 |
|
|
379 |
|
|
807 |
|
|
755 |
|
Depreciation and amortization |
|
|
250 |
|
|
230 |
|
|
485 |
|
|
460 |
|
Equipment rents |
|
|
68 |
|
|
59 |
|
|
136 |
|
|
121 |
|
Casualty and other |
|
|
65 |
|
|
81 |
|
|
146 |
|
|
158 |
Total operating expenses |
|
|
1,624 |
|
|
1,558 |
|
|
3,310 |
|
|
3,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,042 |
|
|
985 |
|
|
1,822 |
|
|
1,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(88) |
|
|
(86) |
|
|
(177) |
|
|
(172) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (Note 3) |
|
|
28 |
|
|
9 |
|
|
70 |
|
|
302 |
Income before income taxes |
|
|
982 |
|
|
908 |
|
|
1,715 |
|
|
1,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note
7) |
|
|
(265) |
|
|
(277) |
|
|
(443) |
|
|
(502) |
Net income |
|
$ |
717 |
|
$ |
631 |
|
$ |
1,272 |
|
$ |
1,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note
10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.69 |
|
$ |
1.44 |
|
$ |
2.99 |
|
$ |
3.20 |
|
Diluted |
|
$ |
1.69 |
|
$ |
1.44 |
|
$ |
2.98 |
|
$ |
3.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
423.1 |
|
|
437.2 |
|
|
424.9 |
|
|
439.1 |
|
Diluted |
|
|
424.6 |
|
|
439.5 |
|
|
426.4 |
|
|
441.5 |
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 |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
717 |
|
$ |
631 |
|
$ |
1,272 |
|
$ |
1,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
(loss) on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation of the net investment
in foreign operations |
|
|
225 |
|
|
128 |
|
|
355 |
|
|
11 |
|
|
Translation of US
dollar-denominated long-term debt designated as a hedge of the net
investment in U.S. subsidiaries |
|
|
(202) |
|
|
(125) |
|
|
(320) |
|
|
(13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other
postretirement benefit plans (Note 6): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
included in net periodic benefit cost (income) |
|
|
54 |
|
|
31 |
|
|
113 |
|
|
62 |
|
|
Amortization of prior service cost
included in net periodic benefit cost (income) |
|
|
2 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before
income taxes |
|
|
79 |
|
|
36 |
|
|
151 |
|
|
64 |
Income tax recovery (expense) |
|
|
14 |
|
|
9 |
|
|
12 |
|
|
(14) |
Other comprehensive income (Note
11) |
|
|
93 |
|
|
45 |
|
|
163 |
|
|
50 |
Comprehensive income |
|
$ |
810 |
|
$ |
676 |
|
$ |
1,435 |
|
$ |
1,456 |
See accompanying
notes to unaudited consolidated financial statements. |
CANADIAN NATIONAL
RAILWAY COMPANY |
CONSOLIDATED
BALANCE SHEET (U.S. GAAP) - unaudited |
(In
millions) |
|
|
|
June 30 |
|
December 31 |
|
June
30 |
|
|
|
2013 |
|
|
2012 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
87 |
|
$ |
155 |
|
$ |
345 |
|
Restricted cash and cash equivalents (Note
4) |
|
|
497 |
|
|
521 |
|
|
472 |
|
Accounts receivable (Note 4) |
|
|
876 |
|
|
831 |
|
|
833 |
|
Material and supplies |
|
|
330 |
|
|
230 |
|
|
277 |
|
Deferred and receivable income taxes |
|
|
34 |
|
|
43 |
|
|
47 |
|
Other |
|
|
81 |
|
|
89 |
|
|
85 |
Total current assets |
|
|
1,905 |
|
|
1,869 |
|
|
2,059 |
|
|
|
|
|
|
|
|
|
|
Properties |
|
|
25,305 |
|
|
24,541 |
|
|
24,078 |
Intangible and other assets |
|
|
335 |
|
|
249 |
|
|
329 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
27,545 |
|
$ |
26,659 |
|
$ |
26,466 |
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders'
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable and other |
|
$ |
1,469 |
|
$ |
1,626 |
|
$ |
1,609 |
|
Current portion of long-term debt (Note
4) |
|
|
1,322 |
|
|
577 |
|
|
784 |
Total current liabilities |
|
|
2,791 |
|
|
2,203 |
|
|
2,393 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
5,867 |
|
|
5,555 |
|
|
5,629 |
Pension and other postretirement
benefits, net of current portion |
|
|
594 |
|
|
784 |
|
|
576 |
Other liabilities and deferred
credits |
|
|
767 |
|
|
776 |
|
|
713 |
Long-term debt |
|
|
6,141 |
|
|
6,323 |
|
|
5,991 |
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
Common shares |
|
|
4,063 |
|
|
4,108 |
|
|
4,132 |
|
Accumulated other comprehensive loss (Note
11) |
|
|
(3,094) |
|
|
(3,257) |
|
|
(2,789) |
|
Retained earnings |
|
|
10,416 |
|
|
10,167 |
|
|
9,821 |
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
|
11,385 |
|
|
11,018 |
|
|
11,164 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders'
equity |
|
$ |
27,545 |
|
$ |
26,659 |
|
$ |
26,466 |
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 |
|
Six months ended |
|
|
June 30 |
|
June 30 |
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
4,088 |
|
$ |
4,153 |
|
$ |
4,108 |
|
$ |
4,141 |
|
Stock options exercised and other |
|
|
10 |
|
|
22 |
|
|
27 |
|
|
78 |
|
Share repurchase programs (Note 4) |
|
|
(35) |
|
|
(43) |
|
|
(72) |
|
|
(87) |
Balance, end of period |
|
$ |
4,063 |
|
$ |
4,132 |
|
$ |
4,063 |
|
$ |
4,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
(3,187) |
|
$ |
(2,834) |
|
$ |
(3,257) |
|
$ |
(2,839) |
|
Other comprehensive income |
|
|
93 |
|
|
45 |
|
|
163 |
|
|
50 |
Balance, end of period |
|
$ |
(3,094) |
|
$ |
(2,789) |
|
$ |
(3,094) |
|
$ |
(2,789) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
10,211 |
|
$ |
9,679 |
|
$ |
10,167 |
|
$ |
9,378 |
|
Net income |
|
|
717 |
|
|
631 |
|
|
1,272 |
|
|
1,406 |
|
Share repurchase programs (Note 4) |
|
|
(330) |
|
|
(326) |
|
|
(658) |
|
|
(635) |
|
Dividends |
|
|
(182) |
|
|
(163) |
|
|
(365) |
|
|
(328) |
Balance, end of period |
|
$ |
10,416 |
|
$ |
9,821 |
|
$ |
10,416 |
|
$ |
9,821 |
See accompanying notes to unaudited consolidated
financial statement. |
(1) |
During the three and six months ended June 30,
2013, the Company issued 0.2 million and 0.6 million common shares,
respectively, as a result of stock options exercised and
repurchased 3.6 million and 7.5 million common shares,
respectively, under its current share repurchase program. At June
30, 2013, the Company had 421.5 million common shares
outstanding. |
CANADIAN NATIONAL
RAILWAY COMPANY |
CONSOLIDATED
STATEMENT OF CASH FLOWS (U.S. GAAP) -
unaudited
|
(In
millions) |
|
|
|
Three months ended |
|
Six months ended
|
|
|
June 30 |
|
June 30
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
717 |
|
$ |
631 |
|
$ |
1,272 |
|
$ |
1,406
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
250 |
|
|
230 |
|
|
485 |
|
|
460
|
|
Deferred income taxes |
|
|
73 |
|
|
78 |
|
|
156 |
|
|
272
|
|
Gain on disposal of property (Note 3) |
|
|
(29) |
|
|
- |
|
|
(69) |
|
|
(281)
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
39 |
|
|
(56) |
|
|
(20) |
|
|
(12) |
|
Material and supplies |
|
|
(38) |
|
|
(15) |
|
|
(95) |
|
|
(76)
|
|
Accounts payable and other |
|
|
118 |
|
|
290 |
|
|
(203) |
|
|
90
|
|
Other current assets |
|
|
14 |
|
|
19 |
|
|
11 |
|
|
(11)
|
Pensions and other, net |
|
|
(81) |
|
|
34 |
|
|
(153) |
|
|
(512)
|
Net cash provided by operating activities |
|
|
1,063 |
|
|
1,211 |
|
|
1,384 |
|
|
1,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Property additions |
|
|
(418) |
|
|
(389) |
|
|
(646) |
|
|
(613)
|
Disposal of property (Note 3) |
|
|
- |
|
|
- |
|
|
52 |
|
|
311
|
Change in restricted cash and cash equivalents |
|
|
15 |
|
|
27 |
|
|
24 |
|
|
27
|
Other, net |
|
|
(8) |
|
|
(4) |
|
|
(2) |
|
|
(2)
|
Net cash used in investing activities |
|
|
(411) |
|
|
(366) |
|
|
(572) |
|
|
(277)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt (Note 4) |
|
|
872 |
|
|
554 |
|
|
2,132 |
|
|
1,631
|
Repayment of debt |
|
|
(1,043) |
|
|
(723) |
|
|
(1,972) |
|
|
(1,468)
|
Issuance of common shares due to exercise of stock
options and related excess tax benefits realized |
|
|
9 |
|
|
19 |
|
|
23 |
|
|
73
|
Repurchase of common shares (Note 4) |
|
|
(351) |
|
|
(369) |
|
|
(712) |
|
|
(722)
|
Dividends paid |
|
|
(182) |
|
|
(163) |
|
|
(365) |
|
|
(328)
|
Net cash used in financing activities |
|
|
(695) |
|
|
(682) |
|
|
(894) |
|
|
(814)
|
Effect of foreign exchange fluctuations on US
dollar-denominated cash and cash equivalents |
|
|
2 |
|
|
- |
|
|
14 |
|
|
(1)
|
Net increase (decrease) in cash and cash
equivalents |
|
|
(41) |
|
|
163 |
|
|
(68) |
|
|
244
|
Cash and cash equivalents, beginning of period |
|
|
128 |
|
|
182 |
|
|
155 |
|
|
101
|
Cash and cash equivalents, end of
period |
|
$ |
87 |
|
$ |
345 |
|
$ |
87 |
|
$ |
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash receipts from customers and other |
|
$ |
2,656 |
|
$ |
2,541 |
|
$ |
5,165 |
|
$ |
4,920
|
Net cash payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee services, suppliers and other expenses |
|
|
(1,241) |
|
|
(1,233) |
|
|
(2,913) |
|
|
(2,767)
|
|
Interest |
|
|
(84) |
|
|
(76) |
|
|
(174) |
|
|
(186)
|
|
Personal injury and other claims |
|
|
(14) |
|
|
(14) |
|
|
(28) |
|
|
(44)
|
|
Pensions (Note 6) |
|
|
(109) |
|
|
(5) |
|
|
(210) |
|
|
(558)
|
|
Income taxes |
|
|
(145) |
|
|
(2) |
|
|
(456) |
|
|
(29)
|
Net cash provided by operating activities |
|
$ |
1,063 |
|
$ |
1,211 |
|
$ |
1,384 |
|
$ |
1,336
|
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
June 30, 2013, December 31, 2012 and June
30, 2012, and its results of operations, changes in
shareholders' equity and cash flows for the three and six months
ended June 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
$1,300 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 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 June 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
June 30, 2013, the Company had total
borrowings of $554 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
1.14%.
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
June 30, 2013, the Company recorded
$270 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 $308 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 June 30, 2013, the
Company had letters of credit drawn of $527
million ($551 million as at
December 31, 2012) from a total
committed amount of $559 million
($562 million as at December 31, 2012) by the various banks. As at
June 30, 2013, cash and cash
equivalents of $497 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 approved a 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.
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 June 30 |
|
Six months ended June 30 |
In millions, except per share
data |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
Number of common shares
repurchased (1) |
|
|
3.6 |
|
|
4.5 |
|
|
7.5 |
|
|
9.2 |
Weighted-average price per share
(2) |
|
$ |
101.04 |
|
$ |
82.96 |
|
$ |
97.43 |
|
$ |
78.92 |
Amount of repurchase |
|
$ |
365 |
|
$ |
369 |
|
$ |
730 |
|
$ |
722 |
(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.
|
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 six months ended June 30,
2013 and 2012.
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
In millions |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash settled awards |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted share unit plan
(1) |
|
$ |
11 |
|
$ |
21 |
|
$ |
21 |
|
$ |
30 |
Voluntary Incentive Deferral Plan
(VIDP) |
|
|
(1) |
|
|
9 |
|
|
13 |
|
|
10 |
|
|
|
10 |
|
|
30 |
|
|
34 |
|
|
40 |
Stock option awards |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
5 |
Total stock-based compensation
expense |
|
$ |
12 |
|
$ |
33 |
|
$ |
38 |
|
$ |
45 |
Tax benefit recognized in
income |
|
$ |
2 |
|
$ |
8 |
|
$ |
8 |
|
$ |
9 |
(1) |
The six months ended June 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 June 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 June 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2013
(3) |
|
$ |
7 |
|
$ |
15 |
|
$ |
12 |
|
$ |
(4) |
|
$ |
(9) |
|
$ |
13 |
|
|
$ |
34 |
Six months ended June 30,
2012 |
|
|
N/A |
|
$ |
6 |
|
$ |
12 |
|
$ |
12 |
|
$ |
- |
|
$ |
10 |
|
|
$ |
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013 |
|
$ |
7 |
|
$ |
39 |
|
$ |
58 |
|
$ |
- |
|
$ |
- |
|
$ |
135 |
|
|
$ |
239 |
December 31, 2012 |
|
|
N/A |
|
$ |
24 |
|
$ |
45 |
|
$ |
70 |
|
$ |
18 |
|
$ |
134 |
|
|
$ |
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value per unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013 ($) |
|
$ |
68.86 |
|
$ |
91.61 |
|
$ |
101.55 |
|
|
N/A |
|
|
N/A |
|
$ |
102.40 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of awards vested
during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2013 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
N/A |
|
$ |
1 |
|
|
$ |
1 |
Six months ended June 30,
2012 |
|
|
N/A |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
N/A |
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at June 30,
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation
cost |
|
$ |
19 |
|
$ |
19 |
|
$ |
7 |
|
$ |
- |
|
|
N/A |
|
$ |
2 |
|
|
$ |
47 |
Remaining recognition period
(years) |
|
|
2.5 |
|
|
1.5 |
|
|
0.5 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
(4) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock price ($) |
|
$ |
102.40 |
|
$ |
102.40 |
|
$ |
102.40 |
|
|
N/A |
|
|
N/A |
|
$ |
102.40 |
|
|
|
N/A |
Expected stock price volatility
(6) |
|
|
16% |
|
|
16% |
|
|
14% |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
|
N/A |
Expected term (years)
(7) |
|
|
2.5 |
|
|
1.5 |
|
|
0.5 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
|
N/A |
Risk-free interest rate
(8) |
|
|
1.26% |
|
|
1.17% |
|
|
1.05% |
|
|
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 June 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
June 30, 2013, 10.1 million common
shares remained authorized for future issuances under this plan.
The total number of options outstanding at June 30, 2013 was 4.0 million.
The following table provides the activity of
stock option awards during 2013, and for options outstanding and
exercisable at June 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 June 30, 2013 at the
Company's closing stock price of $102.40.
|
|
|
|
|
Options
outstanding |
|
|
Number |
|
Weighted-average |
|
Weighted-average |
|
Aggregate |
|
|
of options |
|
exercise price |
|
years to
expiration |
|
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) |
|
$ |
70.86 |
|
|
|
|
|
Exercised |
|
(0.6) |
|
$ |
37.52 |
|
|
|
|
|
Outstanding at June 30,
2013 (1) |
|
4.0 |
|
$ |
60.94 |
|
6.2 |
|
$ |
166 |
Exercisable at June 30,
2013 (1) |
|
2.6 |
|
$ |
50.47 |
|
5.0 |
|
$ |
137 |
(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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2013 |
|
$ |
2 |
|
$ |
1 |
|
$ |
1 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
4 |
Six months ended June 30,
2012 |
|
|
N/A |
|
$ |
2 |
|
$ |
1 |
|
$ |
1 |
|
$ |
1 |
|
$ |
- |
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2013 |
|
$ |
- |
|
$ |
2 |
|
$ |
3 |
|
$ |
2 |
|
$ |
4 |
|
$ |
- |
|
$ |
11 |
Six months ended June 30,
2012 |
|
|
N/A |
|
$ |
- |
|
$ |
2 |
|
$ |
2 |
|
$ |
4 |
|
$ |
3 |
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at June 30,
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation
cost |
|
$ |
6 |
|
$ |
3 |
|
$ |
1 |
|
$ |
1 |
|
$ |
- |
|
$ |
- |
|
$ |
11 |
Remaining recognition period
(years) |
|
|
3.5 |
|
|
2.5 |
|
|
1.5 |
|
|
0.5 |
|
|
- |
|
|
- |
|
|
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 six months ended June 30, 2013 and 2012, 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 |
|
Six months ended |
|
|
June 30 |
|
June 30 |
In millions |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
Service cost |
|
$ |
37 |
|
$ |
36 |
|
$ |
78 |
|
$ |
72 |
Interest cost |
|
|
165 |
|
|
184 |
|
|
329 |
|
|
368 |
Settlement gain |
|
|
- |
|
|
- |
|
|
(1) |
|
|
- |
Expected return on plan assets |
|
|
(240) |
|
|
(248) |
|
|
(479) |
|
|
(496) |
Amortization of prior service cost |
|
|
1 |
|
|
1 |
|
|
2 |
|
|
2 |
Amortization of net actuarial loss |
|
|
54 |
|
|
31 |
|
|
113 |
|
|
62 |
Net periodic benefit cost |
|
$ |
17 |
|
$ |
4 |
|
$ |
42 |
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Components
of net periodic benefit cost for other postretirement
benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June 30 |
|
June 30 |
In millions |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
Service cost |
|
$ |
- |
|
$ |
1 |
|
$ |
1 |
|
$ |
2 |
Interest cost |
|
|
3 |
|
|
3 |
|
|
5 |
|
|
6 |
Amortization of prior service cost |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
2 |
Net periodic benefit cost |
|
$ |
4 |
|
$ |
5 |
|
$ |
7 |
|
$ |
10 |
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 six
months of 2013 and 2012 of $210
million and $558 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 June 30,
2013, the Company had approximately $675 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 $205 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
$265 million for the three months
ended June 30, 2013 and $443 million for the six months ended
June 30, 2013, compared to
$277 million and $502 million, respectively, for the same periods
in 2012. Included in the 2013 figures was a net income tax recovery
of $26 million consisting of a
$5 million income tax expense
resulting from the enactment of higher provincial corporate income
tax rates and $15 million income tax
recovery resulting from the recognition of U.S. state income tax
losses, which were both recorded in the second quarter; and a
$16 million income tax recovery
resulting from a revision of the apportionment of U.S. state income
taxes, which was recorded in the first quarter. Included in the
2012 figures was a net income tax expense of $28 million recorded in the second quarter
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.
Note 8 - Major commitments and
contingencies
A. Commitments
As at June 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 $637 million
($735 million as at December 31, 2012). The Company also has
estimated remaining commitments of approximately $185 million (US$175
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 $105 million
(US$100 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 approximately 95% of its
estimated 2013 volume, 80% of its anticipated 2014 volume, 60% 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 June 30,
2013, the Company had aggregate reserves for personal injury
and other claims of $321 million, of
which $58 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
June 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 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 June 30,
2013, the Company had aggregate accruals for environmental
costs of $119 million, of which
$33 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 June 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 June 30,
2013, the maximum exposure in respect of these guarantees
was $169 million. There are no
recourse provisions to recover any amounts from third parties.
(ii) Other guarantees
As at June 30, 2013, the Company,
including certain of its subsidiaries, had granted $527 million of irrevocable standby letters of
credit and $35 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 June 30, 2013, the maximum potential liability
under these guarantee instruments was $562
million, of which $493 million
related to workers' compensation and other employee benefit
liabilities and $69 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
June 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 June 30, 2013 and
December 31, 2012 for which the
carrying values on the Consolidated Balance Sheet are different
from their fair values:
In
millions |
|
June 30, 2013 |
|
December 31, 2012 |
|
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
|
amount |
|
value |
|
amount |
|
value |
Financial
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
33 |
|
$ |
136 |
|
$ |
30 |
|
$ |
125 |
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
7,463 |
|
$ |
8,513 |
|
$ |
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 June 30 |
|
Six months ended June 30 |
In millions, except per share data |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
717 |
|
$ |
631 |
|
$ |
1,272 |
|
$ |
1,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
423.1 |
|
|
437.2 |
|
|
424.9 |
|
|
439.1 |
Effect of stock options |
|
|
1.5 |
|
|
2.3 |
|
|
1.5 |
|
|
2.4 |
Weighted-average diluted shares outstanding |
|
|
424.6 |
|
|
439.5 |
|
|
426.4 |
|
|
441.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.69 |
|
$ |
1.44 |
|
$ |
2.99 |
|
$ |
3.20 |
Diluted earnings per share |
|
$ |
1.69 |
|
$ |
1.44 |
|
$ |
2.98 |
|
$ |
3.18 |
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 six months ended June 30,
2013, respectively, and 0.1 million for both 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 six months ended June 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
April 1, 2013 |
$ |
8 |
$ |
(3,230) |
$ |
(567) |
$ |
(3,789) |
$ |
602 |
$ |
(3,187) |
Other comprehensive
income (loss) before reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments |
|
- |
|
- |
|
23 |
|
23 |
|
28 |
|
51 |
Amounts reclassified from
accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial
loss |
|
- |
|
54 |
|
- |
|
54 |
(1) |
(13) |
(2) |
41 |
|
Amortization of prior service
cost |
|
- |
|
2 |
|
- |
|
2 |
(1) |
(1) |
(2) |
1 |
Other comprehensive
income |
|
- |
|
56 |
|
23 |
|
79 |
|
14 |
|
93 |
Ending balance at
June 30, 2013 |
$ |
8 |
$ |
(3,174) |
$ |
(544) |
$ |
(3,710) |
$ |
616 |
$ |
(3,094) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
- |
|
- |
|
35 |
|
35 |
|
42 |
|
77 |
Amounts reclassified from
accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial
loss |
|
- |
|
113 |
|
- |
|
113 |
(1) |
(29) |
(2) |
84 |
|
Amortization of prior service
cost |
|
- |
|
3 |
|
- |
|
3 |
(1) |
(1) |
(2) |
2 |
Other comprehensive
income |
|
- |
|
116 |
|
35 |
|
151 |
|
12 |
|
163 |
Ending balance at
June 30, 2013 |
$ |
8 |
$ |
(3,174) |
$ |
(544) |
$ |
(3,710) |
$ |
616 |
$ |
(3,094) |
(1) |
Reclassified to Labor and fringe
benefits on the Consolidated Statement of Income and included in
components of net periodic benefit cost (income). 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 six months ended June 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
April 1, 2012 |
$ |
8 |
$ |
(2,717) |
$ |
(579) |
$ |
(3,288) |
$ |
454 |
$ |
(2,834) |
Other comprehensive
income (loss) before reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments |
|
- |
|
- |
|
3 |
|
3 |
|
17 |
|
20 |
Amounts reclassified from
accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial
loss |
|
- |
|
31 |
|
- |
|
31 |
(1) |
(7) |
(2) |
24 |
|
Amortization of prior service
cost |
|
- |
|
2 |
|
- |
|
2 |
(1) |
(1) |
(2) |
1 |
Other comprehensive
income |
|
- |
|
33 |
|
3 |
|
36 |
|
9 |
|
45 |
Ending balance at
June 30, 2012 |
$ |
8 |
$ |
(2,684) |
$ |
(576) |
$ |
(3,252) |
$ |
463 |
$ |
(2,789) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
- |
|
- |
|
(2) |
|
(2) |
|
- |
|
(2) |
Amounts reclassified from
accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial
loss |
|
- |
|
62 |
|
- |
|
62 |
(1) |
(12) |
(2) |
50 |
|
Amortization of prior service
cost |
|
- |
|
4 |
|
- |
|
4 |
(1) |
(2) |
(2) |
2 |
Other comprehensive
income (loss) |
|
- |
|
66 |
|
(2) |
|
64 |
|
(14) |
|
50 |
Ending balance at
June 30, 2012 |
$ |
8 |
$ |
(2,684) |
$ |
(576) |
$ |
(3,252) |
$ |
463 |
$ |
(2,789) |
(1) |
Reclassified to Labor and fringe
benefits on the Consolidated Statement of Income and included in
components of net periodic benefit cost (income). 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.
|
CANADIAN NATIONAL
RAILWAY COMPANY |
SELECTED RAILROAD
STATISTICS (U.S. GAAP) - unaudited |
|
|
|
|
|
|
|
Three months
ended |
|
Six months
ended |
|
June 30 |
|
June 30 |
|
2013 |
2012 |
|
2013 |
2012 |
|
|
Statistical operating
data |
|
|
|
|
|
|
|
|
|
|
|
Rail freight revenues ($
millions) |
2,401 |
2,274 |
|
4,666 |
4,421 |
Gross ton miles (GTM) (millions) |
101,547 |
96,886 |
|
197,848 |
189,479 |
Revenue ton miles (RTM)
(millions) |
52,702 |
50,324 |
|
103,278 |
99,373 |
Carloads (thousands) |
1,316 |
1,286 |
|
2,547 |
2,491 |
Route miles (includes Canada and the
U.S.) (1) |
20,000 |
20,000 |
|
20,000 |
20,000 |
Employees (end of period) |
23,925 |
23,667 |
|
23,925 |
23,667 |
Employees (average for the
period) |
23,926 |
23,603 |
|
23,681 |
23,380 |
|
|
|
|
|
|
Productivity |
|
|
|
|
|
|
|
|
|
|
|
Operating ratio (%) |
60.9 |
61.3 |
|
64.5 |
63.6 |
Rail freight revenue per RTM
(cents) |
4.56 |
4.52 |
|
4.52 |
4.45 |
Rail freight revenue per carload
($) |
1,824 |
1,768 |
|
1,832 |
1,775 |
Operating expenses per GTM
(cents) |
1.60 |
1.61 |
|
1.67 |
1.64 |
Labor and fringe benefits expense per
GTM (cents) |
0.49 |
0.52 |
|
0.54 |
0.53 |
GTMs per average number of employees
(thousands) |
4,244 |
4,105 |
|
8,355 |
8,104 |
Diesel fuel consumed (US gallons in
millions) |
103.5 |
97.4 |
|
205.2 |
194.3 |
Average fuel price ($/US gallon) |
3.43 |
3.41 |
|
3.52 |
3.47 |
GTMs per US gallon of fuel
consumed |
981 |
995 |
|
964 |
975 |
|
|
|
|
|
|
Safety indicators |
|
|
|
|
|
|
|
|
|
|
|
Injury frequency rate per 200,000
person hours (2) |
1.41 |
1.35 |
|
1.39 |
1.29 |
Accident rate per million train miles
(2) |
2.10 |
2.19 |
|
2.11 |
2.18 |
|
|
|
|
|
|
Financial ratio |
|
|
|
|
|
|
|
|
|
|
|
Debt-to-total capitalization ratio (%
at end of period) (3) |
39.6 |
37.8 |
|
39.6 |
37.8 |
(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 June 30 |
|
Six months ended June 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 |
478 |
405 |
18% |
|
17% |
|
935 |
797 |
17% |
|
17% |
Metals and minerals |
304 |
293 |
4% |
|
3% |
|
586 |
566 |
4% |
|
3% |
Forest products |
358 |
344 |
4% |
|
3% |
|
694 |
672 |
3% |
|
3% |
Coal |
187 |
187 |
- |
|
(1%) |
|
352 |
354 |
(1%) |
|
(1%) |
Grain and fertilizers |
383 |
366 |
5% |
|
4% |
|
784 |
763 |
3% |
|
2% |
Intermodal |
543 |
526 |
3% |
|
3% |
|
1,035 |
986 |
5% |
|
5% |
Automotive |
148 |
153 |
(3%) |
|
(4%) |
|
280 |
283 |
(1%) |
|
(2%) |
Total rail freight revenues |
2,401 |
2,274 |
6% |
|
5% |
|
4,666 |
4,421 |
6% |
|
5% |
Other
revenues |
265 |
269 |
(1%) |
|
(2%) |
|
466 |
468 |
- |
|
(1%) |
Total revenues |
2,666 |
2,543 |
5% |
|
4% |
|
5,132 |
4,889 |
5% |
|
4% |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue ton miles
(millions) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
10,841 |
8,967 |
21% |
|
21% |
|
21,395 |
17,834 |
20% |
|
20% |
Metals and minerals |
5,207 |
5,069 |
3% |
|
3% |
|
10,197 |
10,007 |
2% |
|
2% |
Forest products |
7,543 |
7,522 |
- |
|
- |
|
14,809 |
14,988 |
(1%) |
|
(1%) |
Coal |
5,945 |
6,091 |
(2%) |
|
(2%) |
|
11,285 |
11,600 |
(3%) |
|
(3%) |
Grain and fertilizers |
10,442 |
10,616 |
(2%) |
|
(2%) |
|
21,451 |
22,197 |
(3%) |
|
(3%) |
Intermodal |
11,989 |
11,272 |
6% |
|
6% |
|
22,736 |
21,290 |
7% |
|
7% |
Automotive |
735 |
787 |
(7%) |
|
(7%) |
|
1,405 |
1,457 |
(4%) |
|
(4%) |
|
52,702 |
50,324 |
5% |
|
5% |
|
103,278 |
99,373 |
4% |
|
4% |
Rail freight revenue / RTM
(cents) |
|
|
|
|
|
|
|
|
|
|
|
Total rail freight revenue per
RTM |
4.56 |
4.52 |
1% |
|
- |
|
4.52 |
4.45 |
2% |
|
1% |
Commodity groups: |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
4.41 |
4.52 |
(2%) |
|
(3%) |
|
4.37 |
4.47 |
(2%) |
|
(3%) |
Metals and minerals |
5.84 |
5.78 |
1% |
|
- |
|
5.75 |
5.66 |
2% |
|
1% |
Forest products |
4.75 |
4.57 |
4% |
|
3% |
|
4.69 |
4.48 |
5% |
|
4% |
Coal |
3.15 |
3.07 |
3% |
|
2% |
|
3.12 |
3.05 |
2% |
|
2% |
Grain and fertilizers |
3.67 |
3.45 |
6% |
|
6% |
|
3.65 |
3.44 |
6% |
|
6% |
Intermodal |
4.53 |
4.67 |
(3%) |
|
(3%) |
|
4.55 |
4.63 |
(2%) |
|
(2%) |
Automotive |
20.14 |
19.44 |
4% |
|
3% |
|
19.93 |
19.42 |
3% |
|
2% |
|
|
|
|
|
|
|
|
|
|
|
|
Carloads
(thousands) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
149 |
146 |
2% |
|
2% |
|
300 |
292 |
3% |
|
3% |
Metals and minerals |
274 |
268 |
2% |
|
2% |
|
518 |
513 |
1% |
|
1% |
Forest products |
113 |
113 |
- |
|
- |
|
224 |
225 |
- |
|
- |
Coal |
110 |
109 |
1% |
|
1% |
|
207 |
215 |
(4%) |
|
(4%) |
Grain and fertilizers |
133 |
139 |
(4%) |
|
(4%) |
|
275 |
282 |
(2%) |
|
(2%) |
Intermodal |
477 |
451 |
6% |
|
6% |
|
909 |
850 |
7% |
|
7% |
Automotive |
60 |
60 |
- |
|
- |
|
114 |
114 |
- |
|
- |
|
1,316 |
1,286 |
2% |
|
2% |
|
2,547 |
2,491 |
2% |
|
2% |
Rail freight revenue / carload
(dollars) |
|
|
|
|
|
|
|
|
|
|
|
Total rail freight revenue per
carload |
1,824 |
1,768 |
3% |
|
2% |
|
1,832 |
1,775 |
3% |
|
3% |
Commodity groups: |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
3,208 |
2,774 |
16% |
|
15% |
|
3,117 |
2,729 |
14% |
|
13% |
Metals and minerals |
1,109 |
1,093 |
1% |
|
1% |
|
1,131 |
1,103 |
3% |
|
2% |
Forest products |
3,168 |
3,044 |
4% |
|
3% |
|
3,098 |
2,987 |
4% |
|
3% |
Coal |
1,700 |
1,716 |
(1%) |
|
(1%) |
|
1,700 |
1,647 |
3% |
|
3% |
Grain and fertilizers |
2,880 |
2,633 |
9% |
|
9% |
|
2,851 |
2,706 |
5% |
|
5% |
Intermodal |
1,138 |
1,166 |
(2%) |
|
(3%) |
|
1,139 |
1,160 |
(2%) |
|
(2%) |
Automotive |
2,467 |
2,550 |
(3%) |
|
(4%) |
|
2,456 |
2,482 |
(1%) |
|
(2%) |
(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 six months ended June 30, 2013, the Company reported adjusted net
income of $704 million, or
$1.66 per diluted share and
$1,223 million, or $2.87 per diluted share, respectively. The
adjusted figures for the three and six months ended June 30, 2013 exclude an income tax expense of
$5 million ($0.01 per diluted share) resulting from the
enactment of higher provincial corporate income tax rates and a
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). The adjusted figures
for the six months ended June 30,
2013 also exclude a 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 six months ended June 30, 2012, the Company reported adjusted net
income of $659 million, or
$1.50 per diluted share and
$1,182 million, or $2.67 per diluted share, respectively. The
adjusted figures for the three and six months ended June 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. The adjusted figures for
the six months ended June 30, 2012
also exclude a 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 six months ended June 30, 2013 and 2012, to the adjusted
performance measures presented herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended |
|
|
Six months
ended |
|
|
June 30, 2013 |
|
|
June 30, 2013 |
In millions, except per share
data |
|
Reported |
|
Adjustments |
|
Adjusted |
|
|
Reported |
|
Adjustments |
|
Adjusted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
2,666 |
$ |
- |
$ |
2,666 |
|
$ |
5,132 |
$ |
- |
$ |
5,132 |
Operating expenses |
|
1,624 |
|
- |
|
1,624 |
|
|
3,310 |
|
- |
|
3,310 |
Operating income |
|
1,042 |
|
- |
|
1,042 |
|
|
1,822 |
|
- |
|
1,822 |
Interest expense |
|
(88) |
|
- |
|
(88) |
|
|
(177) |
|
- |
|
(177) |
Other income |
|
28 |
|
(29) |
|
(1) |
|
|
70 |
|
(69) |
|
1 |
Income before income taxes |
|
982 |
|
(29) |
|
953 |
|
|
1,715 |
|
(69) |
|
1,646 |
Income tax expense |
|
(265) |
|
16 |
|
(249) |
|
|
(443) |
|
20 |
|
(423) |
Net income |
$ |
717 |
$ |
(13) |
$ |
704 |
|
$ |
1,272 |
$ |
(49) |
$ |
1,223 |
Operating ratio |
|
60.9% |
|
|
|
60.9% |
|
|
64.5% |
|
|
|
64.5% |
Effective tax rate |
|
27.0% |
|
|
|
26.1% |
|
|
25.8% |
|
|
|
25.7% |
Basic earnings per share |
$ |
1.69 |
$ |
(0.03) |
$ |
1.66 |
|
$ |
2.99 |
$ |
(0.11) |
$ |
2.88 |
Diluted earnings per
share |
$ |
1.69 |
$ |
(0.03) |
$ |
1.66 |
|
$ |
2.98 |
$ |
(0.11) |
$ |
2.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended |
|
|
Six months
ended |
|
|
June 30, 2012 |
|
|
June 30, 2012 |
In millions, except per share
data |
|
Reported |
|
Adjustments |
|
Adjusted |
|
|
Reported |
|
Adjustments |
|
Adjusted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
2,543 |
$ |
- |
$ |
2,543 |
|
$ |
4,889 |
$ |
- |
$ |
4,889 |
Operating expenses |
|
1,558 |
|
- |
|
1,558 |
|
|
3,111 |
|
- |
|
3,111 |
Operating income |
|
985 |
|
- |
|
985 |
|
|
1,778 |
|
- |
|
1,778 |
Interest expense |
|
(86) |
|
- |
|
(86) |
|
|
(172) |
|
- |
|
(172) |
Other income |
|
9 |
|
- |
|
9 |
|
|
302 |
|
(281) |
|
21 |
Income before income taxes |
|
908 |
|
- |
|
908 |
|
|
1,908 |
|
(281) |
|
1,627 |
Income tax expense |
|
(277) |
|
28 |
|
(249) |
|
|
(502) |
|
57 |
|
(445) |
Net income |
$ |
631 |
$ |
28 |
$ |
659 |
|
$ |
1,406 |
$ |
(224) |
$ |
1,182 |
Operating ratio |
|
61.3% |
|
|
|
61.3% |
|
|
63.6% |
|
|
|
63.6% |
Effective tax rate |
|
30.5% |
|
|
|
27.4% |
|
|
26.3% |
|
|
|
27.4% |
Basic earnings per share |
$ |
1.44 |
$ |
0.06 |
$ |
1.50 |
|
$ |
3.20 |
$ |
(0.51) |
$ |
2.69 |
Diluted earnings per
share |
$ |
1.44 |
$ |
0.06 |
$ |
1.50 |
|
$ |
3.18 |
$ |
(0.51) |
$ |
2.67 |
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 rate was $1.02 per US$1.00
for both the three and six months ended June
30, 2013, and $1.01 per
US$1.00 for both the three and six
months ended June 30, 2012.
On a constant currency basis, the Company's 2013
second quarter and first half net income would have both been lower
by $4 million, or $0.01 per diluted share. The following table
presents a reconciliation of 2013 net income as reported to net
income on a constant currency basis:
|
|
|
|
|
|
Three months ended |
Six months ended |
In millions |
June 30, 2013 |
June 30, 2013 |
|
|
|
|
Net income, as
reported |
$ |
717 |
$ |
1,272 |
Add back: |
|
|
|
|
|
Positive impact due to the weakening
Canadian dollar included in net income |
|
(3) |
|
(3) |
Add: |
|
|
|
|
|
Decrease due to the weakening
Canadian dollar on additional year-over-year US$ net income |
|
(1) |
|
(1) |
Impact of foreign
exchange using constant currency rates |
|
(4) |
|
(4) |
Net income, on a
constant currency basis |
$ |
713 |
$ |
1,268 |
Free cash flow
The Company generated $457 million and $437
million of free cash flow for the three and six months ended
June 30, 2013, respectively, compared
to $655 million and $703 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 provided
by (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 |
|
Six months
ended |
|
June 30 |
|
June 30 |
In millions |
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
Net cash provided by
operating activities |
$ |
1,063 |
|
$ |
1,211 |
|
$ |
1,384 |
|
$ |
1,336 |
Net cash used in
investing activities |
|
(411) |
|
|
(366) |
|
|
(572) |
|
|
(277) |
Net cash provided before
financing activities |
|
652 |
|
|
845 |
|
|
812 |
|
|
1,059 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
(182) |
|
|
(163) |
|
|
(365) |
|
|
(328) |
|
Change in restricted cash and cash
equivalents |
|
(15) |
|
|
(27) |
|
|
(24) |
|
|
(27) |
|
Effect of foreign exchange
fluctuations on US dollar-denominated cash and cash
equivalents |
|
2 |
|
|
- |
|
|
14 |
|
|
(1) |
Free cash
flow |
$ |
457 |
|
$ |
655 |
|
$ |
437 |
|
$ |
703 |
SOURCE CN