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