Adjusted diluted earnings per share (EPS) for Q2-2015
increased by 12 per cent to C$1.15
(1)
MONTREAL,
July 20, 2015 /PRNewswire/ - CN (TSX:
CNR) (NYSE: CNI) today reported its financial and operating results
for the second quarter ended June 30,
2015.
Second-quarter 2015 financial
highlights
- Net income was C$886 million, or
C$1.10 per diluted share, compared
with net income of C$847 million, or
C$1.03 per diluted share, for
second-quarter 2014. The Q2-2015 results included a deferred
income tax expense of C$42 million
(C$0.05 per diluted share) resulting
from the enactment of a higher provincial corporate income tax
rate.
- Excluding the deferred income tax expense, Q2-2015 adjusted
diluted EPS increased 12 per cent to C$1.15 from year-earlier diluted EPS of
C$1.03. (1)
- Q2-2015 operating income increased eight per cent to
C$1,362 million.
- Second-quarter 2015 revenues were flat at C$3,125 million, carloadings decreased by three
per cent, and revenue ton-miles declined by seven per cent.
- CN's operating ratio for Q2-2015 improved by 3.2 points to 56.4
per cent from 59.6 per cent the year before.
- Free cash flow for the first six months of 2015 was
C$1,051 million, compared with
C$1,270 million for the year-earlier
period. (1)
Claude Mongeau,
president and chief executive officer, said: "I'm proud of our very
solid second-quarter results, driven by the team's swift action to
recalibrate resources and double-down on efficiency, while
continuing to improve customer service.
"CN is pleased to reaffirm its outlook for
double-digit adjusted EPS growth in 2015 versus last year's
adjusted diluted EPS of C$3.76
despite volume growth that remains constrained by weakness in
several markets, as well as challenging year-over-year comparables.
(2)
"We're focused on our long-term agenda and
investing C$2.7 billion in CN's
capital program this year to support it, with an emphasis on the
integrity and safety of the network."
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. The fluctuation of the Canadian dollar relative to the
U.S. dollar affects the conversion of the Company's
U.S.-dollar-denominated revenues and expenses. On a constant
currency basis, CN's net income for the second quarter of 2015
would have been lower by C$64
million, or C$0.08 per diluted
share. (1)
Second-quarter 2015 revenues, traffic volumes
and expenses
Revenues for the second quarter of 2015 were flat at C$3,125 million. Revenues increased for
automotive (17 per cent), forest products (eight per cent),
petroleum and chemicals (four per cent), and intermodal (two per
cent). Revenues declined for metals and minerals (five per cent),
grain and fertilizers (seven per cent), and coal (26 per cent).
The revenue performance was mainly attributable
to the positive translation impact of the weaker Canadian dollar on
U.S.-dollar-denominated revenues; freight rate increases; and
strong overseas intermodal demand and higher volumes of finished
vehicle traffic. These factors were almost entirely offset by a
lower applicable fuel surcharge rate; lower volumes of Canadian
grain versus the prior year's record crop; decreased shipments of
coal due to weaker global demand; reduced shipments of
energy-related commodities, including crude oil, frac sand, and
drilling pipe; as well as lower volumes of semi-finished steel
products and iron ore.
Carloadings for the quarter declined by three
per cent to 1,414 thousand.
Revenue ton-miles, measuring the relative weight
and distance of rail freight transported by CN, declined by seven
per cent over the year-earlier quarter. 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 by
seven per cent over the year-earlier period, driven by the positive
translation impact of the weaker Canadian dollar and freight rate
increases, partly offset by a lower applicable fuel surcharge rate
and an increase in the average length of haul.
Operating expenses for the quarter decreased by
five per cent to C$1,763 million,
mainly due to lower fuel costs and lower labor and fringe benefits
expense, partly offset by the negative translation impact of a
weaker Canadian dollar on U.S.-dollar-denominated expenses as well
as increased purchased services and material expense.
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.
2015 key assumptions
CN has made a number of economic and market assumptions in
preparing its 2015 outlook. The Company is now assuming that North
American industrial production for the year will increase by
approximately one per cent, compared with its April 20, 2015, assumption of three per cent,
that U.S. housing starts will be in the range of 1.2 million units,
and that U.S. motor vehicles sales will be approximately 16.7
million units. The 2014/2015 Canadian grain crop represented a
significant reduction toward the historical trend line while the
U.S. grain crop was above trend. CN assumes that the 2015/2016
grain crops in both Canada and
the United States will be in-line
with trend yields. CN is no longer counting on growth in customer
shipments of energy-related commodities, namely crude oil and frac
sand, compared with its previous assumption announced on
April 20, 2015, of 40,000 carloads of
growth. With these assumptions, CN now assumes total carloads for
all freight categories in 2015 will be generally comparable with
2014, versus its April 20, 2015,
forecast of three per cent growth. CN expects continued pricing
improvement above inflation. CN assumes that in 2015 the value of
the Canadian dollar in U.S. currency will be approximately
$0.80, and that the average price of
crude oil (West Texas Intermediate) will fluctuate around
US$50 per barrel. In 2015, CN plans
to invest approximately C$2.7 billion
in its capital program, of which approximately C$1.4 billion is targeted toward maintaining the
safety and integrity of the network, particularly track
infrastructure. The 2015 capital program also includes funds for
projects supporting growth and productivity.
Important risk factors that could affect the
forward-looking statements include, but are not limited to, the
effects of general economic and business conditions, industry
competition, inflation, currency and interest rate fluctuations,
changes in fuel prices, legislative and/or regulatory developments,
compliance with environmental laws and regulations, actions by
regulators, various events which could disrupt operations,
including natural events such as severe weather, droughts, floods
and earthquakes, labor negotiations and disruptions, environmental
claims, uncertainties of investigations, proceedings or other types
of claims and litigation, risks and liabilities arising from
derailments, and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the
United States. Reference should be made to "Management's
Discussion and Analysis" in CN's annual and interim reports, Annual
Information Form and Form 40-F filed with Canadian and U.S.
securities regulators, available on CN's website, for a summary of
major risk factors.
CN assumes no obligation to update or revise
forward-looking statements to reflect future events, changes in
circumstances, or changes in beliefs, unless required by applicable
Canadian securities laws. In the event CN does update any
forward-looking statement, no inference should be made that CN will
make additional updates with respect to that statement, related
matters, or any other forward-looking statement.
|
|
1) |
See discussion and reconciliation of non-GAAP adjusted
performance measures in the attached supplementary schedule,
Non-GAAP Measures. |
|
|
2) |
See Forward-Looking statements for a summary of the key
assumptions and risks regarding CN's 2015 outlook. |
CN is a true backbone of the economy,
transporting more than 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. CN - Canadian National
Railway Company, along with its operating railway subsidiaries --
serves the cities and ports of Vancouver, Prince
Rupert, B.C., Montreal,
Halifax, New Orleans, and Mobile, Ala., and the metropolitan areas of
Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth,
Minn./Superior, Wis., 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.
Consolidated Statement of Income -
unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
June
30 |
|
June
30 |
In millions, except per share data |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Revenues |
$ |
3,125 |
|
$ |
3,116 |
|
$ |
6,223 |
|
$ |
5,809 |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
Labor and fringe benefits |
|
542 |
|
|
560 |
|
|
1,210 |
|
|
1,147 |
Purchased services and material |
|
434 |
|
|
390 |
|
|
891 |
|
|
778 |
Fuel |
|
327 |
|
|
484 |
|
|
688 |
|
|
952 |
Depreciation and amortization |
|
285 |
|
|
257 |
|
|
581 |
|
|
513 |
Equipment rents |
|
83 |
|
|
84 |
|
|
177 |
|
|
161 |
Casualty and other |
|
92 |
|
|
83 |
|
|
251 |
|
|
180 |
Total operating expenses |
|
1,763 |
|
|
1,858 |
|
|
3,798 |
|
|
3,731 |
Operating income |
|
1,362 |
|
|
1,258 |
|
|
2,425 |
|
|
2,078 |
Interest expense |
|
(105) |
|
|
(91) |
|
|
(209) |
|
|
(183) |
Other income (Note 3) |
|
16 |
|
|
2 |
|
|
20 |
|
|
96 |
Income before income taxes |
|
1,273 |
|
|
1,169 |
|
|
2,236 |
|
|
1,991 |
Income tax expense (Note 4) |
|
(387) |
|
|
(322) |
|
|
(646) |
|
|
(521) |
Net income |
$ |
886 |
|
$ |
847 |
|
$ |
1,590 |
|
$ |
1,470 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note 5) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
1.10 |
|
$ |
1.03 |
|
$ |
1.97 |
|
$ |
1.78 |
Diluted |
$ |
1.10 |
|
$ |
1.03 |
|
$ |
1.96 |
|
$ |
1.77 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares (Note
5) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
803.5 |
|
|
821.8 |
|
|
806.4 |
|
|
824.9 |
Diluted |
|
808.0 |
|
|
825.3 |
|
|
811.1 |
|
|
828.3 |
See accompanying notes to unaudited
consolidated financial statements. |
Consolidated Statement of Comprehensive Income
- unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
|
June
30 |
|
|
June
30 |
In millions |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Net income |
$ |
886 |
|
$ |
847 |
|
$ |
1,590 |
|
$ |
1,470 |
Other comprehensive income
(loss) (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on foreign currency
translation |
|
(18) |
|
|
(30) |
|
|
78 |
|
|
(5) |
Net change in pension and other
postretirement benefit plans |
|
54 |
|
|
30 |
|
|
115 |
|
|
63 |
Other comprehensive income before
income taxes |
|
36 |
|
|
- |
|
|
193 |
|
|
58 |
Income tax recovery (expense) |
|
(27) |
|
|
(38) |
|
|
42 |
|
|
(14) |
Other comprehensive income
(loss) |
|
9 |
|
|
(38) |
|
|
235 |
|
|
44 |
Comprehensive
income |
$ |
895 |
|
$ |
809 |
|
$ |
1,825 |
|
$ |
1,514 |
See accompanying notes to unaudited
consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet - unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
In millions |
|
2015 |
|
|
2014 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
86 |
|
$ |
52 |
Restricted cash and cash equivalents (Note
6) |
|
462 |
|
|
463 |
Accounts receivable |
|
910 |
|
|
928 |
Material and supplies |
|
463 |
|
|
335 |
Deferred and receivable income taxes |
|
76 |
|
|
163 |
Other |
|
162 |
|
|
125 |
Total current assets |
|
2,159 |
|
|
2,066 |
|
|
|
|
|
|
Properties |
|
30,053 |
|
|
28,514 |
Pension asset |
|
1,070 |
|
|
882 |
Intangible and other assets |
|
323 |
|
|
330 |
Total assets |
$ |
33,605 |
|
$ |
31,792 |
|
|
|
|
|
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Accounts payable and other |
$ |
1,596 |
|
$ |
1,657 |
Current portion of long-term debt |
|
1,502 |
|
|
544 |
Total current liabilities |
|
3,098 |
|
|
2,201 |
|
|
|
|
|
|
Deferred income taxes |
|
7,383 |
|
|
6,902 |
Other liabilities and deferred credits |
|
662 |
|
|
704 |
Pension and other postretirement benefits |
|
666 |
|
|
650 |
Long-term debt |
|
7,842 |
|
|
7,865 |
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
Common shares |
|
3,687 |
|
|
3,718 |
Common shares in Share Trusts (Note 6) |
|
(44) |
|
|
- |
Additional paid-in capital |
|
461 |
|
|
439 |
Accumulated other comprehensive loss (Note
9) |
|
(2,192) |
|
|
(2,427) |
Retained earnings |
|
12,042 |
|
|
11,740 |
Total shareholders' equity |
|
13,954 |
|
|
13,470 |
Total liabilities and shareholders'
equity |
$ |
33,605 |
|
$ |
31,792 |
See accompanying
notes to unaudited consolidated financial statements. |
Consolidated Statement of Changes in
Shareholders' Equity - unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Common |
|
|
|
Accumulated |
|
|
|
|
|
|
|
common
shares |
|
|
|
|
shares |
|
Additional |
|
other |
|
|
|
|
Total |
|
|
Share |
|
Common |
|
|
in Share |
|
paid-in |
|
comprehensive |
|
Retained |
|
shareholders' |
In millions |
Outstanding |
Trusts |
|
shares |
|
|
Trusts |
|
capital |
|
loss (Note 9) |
|
earnings |
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
809.4 |
- |
|
$ |
3,718 |
|
$ |
- |
|
$ |
439 |
|
$ |
(2,427) |
|
$ |
11,740 |
|
$ |
13,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,590 |
|
|
1,590 |
Stock-based compensation |
0.4 |
|
|
|
18 |
|
|
|
|
|
22 |
|
|
|
|
|
(2) |
|
|
38 |
Share repurchase program (Note
6) |
(10.7) |
|
|
|
(49) |
|
|
|
|
|
|
|
|
|
|
|
(784) |
|
|
(833) |
Share purchases by Share Trusts (Note
6) |
(0.6) |
0.6 |
|
|
|
|
|
(44) |
|
|
|
|
|
|
|
|
|
|
|
(44) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
|
|
|
235 |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(502) |
|
|
(502) |
Balance at June 30, 2015 |
798.5 |
0.6 |
|
$ |
3,687 |
|
$ |
(44) |
|
$ |
461 |
|
$ |
(2,192) |
|
$ |
12,042 |
|
$ |
13,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
Common |
|
|
|
Accumulated |
|
|
|
|
|
|
|
common
shares |
|
|
|
shares |
|
Additional |
|
other |
|
|
|
|
Total |
|
|
Share |
|
Common |
|
in Share |
|
paid-in |
|
comprehensive |
|
Retained |
|
shareholders' |
In millions |
Outstanding |
Trusts |
|
shares |
(1) |
Trusts |
|
capital |
(1) |
loss (Note 9) |
|
earnings |
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
830.6 |
- |
|
$ |
3,795 |
|
$ |
- |
|
$ |
220 |
|
$ |
(1,850) |
|
$ |
10,788 |
|
$ |
12,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,470 |
|
|
1,470 |
Stock-based compensation |
0.5 |
|
|
|
15 |
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
18 |
Share repurchase program (Note
6) |
(11.9) |
|
|
|
(58) |
|
|
|
|
|
|
|
|
|
|
|
(672) |
|
|
(730) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
44 |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(412) |
|
|
(412) |
Balance at June 30, 2014 |
819.2 |
- |
|
$ |
3,752 |
|
$ |
- |
|
$ |
223 |
|
$ |
(1,806) |
|
$ |
11,174 |
|
$ |
13,343 |
See accompanying notes to
unaudited consolidated financial statements. |
(1) The Company
reclassified certain 2014 balances from Common shares to Additional
paid-in capital to conform with the 2015 presentation. |
Consolidated Statement of Cash Flows -
unaudited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
June
30 |
|
June
30 |
In millions |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
886 |
|
$ |
847 |
|
$ |
1,590 |
|
$ |
1,470 |
Adjustments to reconcile net income to
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
285 |
|
|
257 |
|
|
581 |
|
|
513 |
|
Deferred income taxes |
|
|
147 |
|
|
53 |
|
|
217 |
|
|
148 |
|
Gain on disposal of property (Note 3) |
|
|
- |
|
|
- |
|
|
- |
|
|
(80) |
Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
5 |
|
|
(47) |
|
|
76 |
|
|
(99) |
|
Material and supplies |
|
|
(35) |
|
|
(27) |
|
|
(119) |
|
|
(81) |
|
Accounts payable and other |
|
|
(91) |
|
|
143 |
|
|
(70) |
|
|
96 |
|
Other current assets |
|
|
10 |
|
|
24 |
|
|
(7) |
|
|
11 |
Pensions and other, net |
|
|
(4) |
|
|
23 |
|
|
(73) |
|
|
(60) |
Net cash provided by operating
activities |
|
|
1,203 |
|
|
1,273 |
|
|
2,195 |
|
|
1,918 |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Property additions |
|
|
(659) |
|
|
(482) |
|
|
(1,127) |
|
|
(730) |
Disposal of property (Note
3) |
|
|
- |
|
|
- |
|
|
- |
|
|
97 |
Change in restricted cash and cash
equivalents |
|
|
11 |
|
|
3 |
|
|
1 |
|
|
(20) |
Other, net |
|
|
(14) |
|
|
(15) |
|
|
(17) |
|
|
(15) |
Net cash used in investing
activities |
|
|
(662) |
|
|
(494) |
|
|
(1,143) |
|
|
(668) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt |
|
|
- |
|
|
- |
|
|
- |
|
|
347 |
Repayment of debt |
|
|
(9) |
|
|
(117) |
|
|
(56) |
|
|
(573) |
Net issuance of commercial paper
(Note 6) |
|
|
69 |
|
|
(180) |
|
|
379 |
|
|
9 |
Common shares issued for stock options
exercised, equity award settlements, and excess tax
benefits |
|
|
3 |
|
|
6 |
|
|
13 |
|
|
13 |
Repurchase of common shares (Note
6) |
|
|
(402) |
|
|
(347) |
|
|
(812) |
|
|
(712) |
Purchase of common shares by Share
Trusts (Note 6) |
|
|
(44) |
|
|
- |
|
|
(44) |
|
|
- |
Dividends paid |
|
|
(250) |
|
|
(206) |
|
|
(502) |
|
|
(412) |
Net cash used in financing
activities |
|
|
(633) |
|
|
(844) |
|
|
(1,022) |
|
|
(1,328) |
Effect of foreign exchange
fluctuations on US dollar-denominated cash and cash
equivalents |
|
|
- |
|
|
(6) |
|
|
4 |
|
|
(9) |
Net increase (decrease) in cash and
cash equivalents |
|
|
(92) |
|
|
(71) |
|
|
34 |
|
|
(87) |
Cash and cash equivalents, beginning
of period |
|
|
178 |
|
|
198 |
|
|
52 |
|
|
214 |
Cash and cash equivalents, end
of period |
|
$ |
86 |
|
$ |
127 |
|
$ |
86 |
|
$ |
127 |
Supplemental cash flow
information |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash receipts from customers and
other |
|
$ |
3,083 |
|
$ |
3,060 |
|
$ |
6,295 |
|
$ |
5,732 |
Net cash payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee services, suppliers and other
expenses |
|
|
(1,564) |
|
|
(1,512) |
|
|
(3,364) |
|
|
(3,196) |
|
Interest |
|
|
(111) |
|
|
(105) |
|
|
(202) |
|
|
(210) |
|
Personal injury and other claims |
|
|
(13) |
|
|
(11) |
|
|
(28) |
|
|
(24) |
|
Pensions (Note 7) |
|
|
(6) |
|
|
(7) |
|
|
(92) |
|
|
(100) |
|
Income taxes |
|
|
(186) |
|
|
(152) |
|
|
(414) |
|
|
(284) |
Net cash provided by operating
activities |
|
$ |
1,203 |
|
$ |
1,273 |
|
$ |
2,195 |
|
$ |
1,918 |
See accompanying notes to
unaudited consolidated financial statements. |
Notes to Unaudited Consolidated Financial Statements
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 ("CN" or the "Company") financial position as at
June 30, 2015 and December 31, 2014, its results of operations and
cash flows for the three and six months ended June 30, 2015 and 2014, as well as changes in
shareholders' equity for the six months ended June 30, 2015 and 2014.
These unaudited Interim Consolidated Financial
Statements and Notes thereto have been prepared using accounting
policies consistent with those used in preparing the Company's 2014
Annual Consolidated Financial Statements and Notes thereto. While
management believes that the disclosures presented are adequate to
ensure that the information is not misleading, these unaudited
Interim Consolidated Financial Statements and Notes thereto should
be read in conjunction with the Company's 2014 Annual Consolidated
Financial Statements and Notes thereto.
2 - Recent accounting pronouncement
On April 7, 2015, the Financial
Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2015-03, Interest - Imputation of Interest.
This ASU simplifies the presentation of debt issuance costs by
requiring that such costs be presented in the balance sheet as a
deduction from the carrying amount of debt. This standard is
effective for annual and interim reporting periods beginning after
December 15, 2015. Early adoption is
permitted and the new guidance should be applied on a retrospective
basis. The Company plans to implement this standard in the fourth
quarter of 2015. The Company does not expect a significant impact
to its Consolidated Financial Statements from the adoption of this
standard.
On July 9, 2015,
the FASB affirmed its proposal to defer the effective date of ASU
2014-09, Revenue from Contracts with Customers, by one year.
As a result, this standard is effective for annual and interim
reporting periods beginning after December
15, 2017. The FASB further affirmed its proposal to permit
all entities to early adopt this standard, but not before the
original effective date for annual and interim reporting periods
beginning after December 15, 2016.
The Company is evaluating the effect that ASU 2014-09 will have on
its Consolidated Financial Statements, related disclosures, the
transition method to apply and adoption period. The Company does
not expect a significant impact to its Consolidated Financial
Statements from the adoption of this standard.
3 - Other income
Included in Other income are gains and losses on the disposal of
land and property, as well as foreign exchange gains and losses
related to foreign exchange forward contracts (see Note 11 -
Financial instruments) and the re-measurement of foreign currency
denominated monetary assets and liabilities.
Disposal of property
2014
Deux-Montagnes
On February 28, 2014, the Company
closed a transaction with Agence Métropolitaine de Transport to
sell the Deux-Montagnes
subdivision between Saint-Eustache
and Montreal, Quebec, including
the Mont-Royal tunnel, together
with the rail fixtures (collectively the "Deux-Montagnes"), for
cash proceeds of $97 million before
transaction costs. Under the agreement, the Company obtained the
perpetual right to operate freight trains over the Deux-Montagnes 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 $80
million ($72 million
after-tax) that was recorded in Other income under the full accrual
method of accounting for real estate transactions.
4 - Income taxes
The Company recorded income tax expense of $387 million and $646
million for the three and six months ended June 30, 2015, respectively, compared to
$322 million and $521 million, respectively, for the same periods
in 2014.
Included in the 2015 figures was a deferred income tax expense
of $42 million resulting from the
enactment of a higher provincial corporate income tax rate, which
was recorded in the second quarter.
Included in the 2014 figure was an income tax
recovery of $18 million resulting
from a change in estimate of the deferred income tax liability
related to properties, which was recorded in the first quarter.
5 - Earnings per share
|
|
Three
months ended June 30 |
|
Six
months ended June 30 |
In millions, except per share data |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
2014 |
Net income |
|
$ |
886 |
$ |
|
847 |
|
$ |
1,590 |
$ |
1,470 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding |
|
|
803.5 |
|
|
821.8 |
|
|
806.4 |
|
824.9 |
Effect of stock-based compensation |
|
|
4.5 |
|
|
3.5 |
|
|
4.7 |
|
3.4 |
Weighted-average diluted shares
outstanding |
|
|
808.0 |
|
|
825.3 |
|
|
811.1 |
|
828.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.10 |
$ |
|
1.03 |
|
$ |
1.97 |
$ |
1.78 |
Diluted earnings per share |
|
$ |
1.10 |
$ |
|
1.03 |
|
$ |
1.96 |
$ |
1.77 |
6 - 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. On March 12, 2015, the Company exercised such option
and extended the term of its agreement by one year to May 5, 2020. The credit facility is available for
general corporate purposes, including back-stopping the Company's
commercial paper program, and provides for borrowings at various
interest rates, including the Canadian prime rate, bankers'
acceptance rates, the U.S. federal funds effective rate and the
London Interbank Offered Rate (LIBOR), plus applicable margins. The
credit facility agreement has one financial covenant, which limits
debt as a percentage of total capitalization, and with which the
Company is in compliance. As at June 30,
2015 and December 31, 2014,
the Company had no outstanding borrowings under its revolving
credit facility and there were no draws during the six months ended
June 30, 2015.
Commercial paper
The Company has a commercial paper program in Canada and a new commercial paper program was
established in the U.S. during the second quarter of 2015. Both
programs are back-stopped by the Company's revolving credit
facility, enabling it to issue commercial paper up to a maximum
aggregate principal amount of $800
million, or the US dollar equivalent on a combined basis. As
at June 30, 2015, the Company had
total commercial paper borrowings of $380
million (nil as at December 31,
2014) at a weighted-average interest rate of 0.87% presented
in Current portion of long-term debt on the Consolidated Balance
Sheet.
Accounts receivable securitization
program
The Company has an agreement to sell an undivided co-ownership
interest in a revolving pool of accounts receivable to unrelated
trusts for maximum cash proceeds of $450
million. On June 18, 2015, the
Company extended the term of its agreement by one year to
February 1, 2018. As at June 30, 2015, the Company had borrowings of
$50 million ($50 million as at December
31, 2014) under the accounts receivable securitization
program presented in Current portion of long-term debt on the
Consolidated Balance Sheet at a weighted-average interest rate of
0.96% (1.24% as at December 31, 2014)
which is secured by, and limited to, $56
million ($56 million as at
December 31, 2014) 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 12, 2015, the Company extended
the expiry date of its agreements by one year to April 28, 2018. Under these agreements, the
Company has the option from time to time to pledge collateral in
the form of cash or cash equivalents, for a minimum term of one
month, equal to at least the face value of the letters of credit
issued. As at June 30, 2015, the
Company had letters of credit drawn of $485
million ($487 million as at
December 31, 2014) from a total
committed amount of $517 million
($511 million as at December 31, 2014) by the various banks. As at
June 30, 2015, cash and cash
equivalents of $462 million
($463 million as at December 31, 2014) were pledged as collateral and
recorded as Restricted cash and cash equivalents on the
Consolidated Balance Sheet.
Share purchases
Share repurchase programs
The Company may repurchase shares pursuant to a normal course
issuer bid (NCIB) at prevailing market prices plus brokerage fees,
or such other prices as may be permitted by the Toronto Stock
Exchange. Under its current NCIB, the Company may repurchase up to
28.0 million common shares between October
24, 2014 and October 23, 2015.
As at June 30, 2015, the Company had
repurchased 16.3 million common shares for $1,243 million under its current program.
The following table provides the information related to the
share repurchase programs for the three and six months ended
June 30, 2015 and 2014:
|
|
Three
months ended June 30 |
|
Six
months ended June 30 |
In millions, except per share
data |
2015 |
2014 |
|
2015 |
2014 |
Number of common shares repurchased
(1) (3) |
|
5.3 |
|
5.6 |
|
|
10.7 |
|
11.9 |
Weighted-average price per share
(2) |
$ |
77.14 |
$ |
64.70 |
|
$ |
78.17 |
$ |
61.29 |
Amount of repurchase
(3) |
$ |
404 |
$ |
365 |
|
$ |
833 |
$ |
730 |
(1) |
Includes
repurchase of common shares in the first quarters of 2015 and 2014
pursuant to private agreements
between the Company and arm's length third-party
sellers. |
(2) |
Includes brokerage fees.
|
(3) |
Includes shares repurchased in the
periods presented and settled in subsequent periods. |
Share purchases by Share Trusts
In 2014, the Company established Employee Benefit Plan Trusts (the
"Share Trusts") to purchase common shares on the open market, which
will be used to deliver common shares under the Share Units Plan
(see Note 8 - Stock-based compensation). For the three and six
months ended June 30, 2015, the Share
Trusts purchased 0.6 million common shares for $44 million at a weighted-average price per share
of $74.39, including brokerage fees.
Additional information relating to the share purchases by Share
Trusts is provided in Note 13 - Share capital to the Company's 2014
Annual Consolidated Financial Statements.
7 - 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. Additional information relating to
the retirement benefit plans is provided in Note 12 - Pensions and
other postretirement benefits to the Company's 2014 Annual
Consolidated Financial Statements.
Components of net periodic
benefit cost (income) for pensions and other postretirement
benefits (OPEB) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30 |
|
Six
months ended June 30 |
|
|
Pensions |
OPEB |
|
Pensions |
OPEB |
In millions |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Current service cost |
$ |
35 |
$ |
31 |
$ |
- |
$ |
- |
|
$ |
78 |
$ |
66 |
$ |
1 |
$ |
1 |
Interest cost |
|
162 |
|
177 |
|
2 |
|
4 |
|
|
325 |
|
355 |
|
5 |
|
6 |
Expected return on plan assets |
|
(251) |
|
(244) |
|
|
|
|
|
|
(502) |
|
(489) |
|
|
|
|
Amortization of prior service
cost |
|
1 |
|
1 |
|
1 |
|
- |
|
|
2 |
|
2 |
|
1 |
|
1 |
Amortization of net actuarial loss
(gain) |
|
53 |
|
30 |
|
(1) |
|
(1) |
|
|
114 |
|
62 |
|
(2) |
|
(2) |
Net periodic benefit cost
(income) (1) |
$ |
- |
$ |
(5) |
$ |
2 |
$ |
3 |
|
$ |
17 |
$ |
(4) |
$ |
5 |
$ |
6 |
(1) |
In the second
quarter of 2015, the Company revised its estimate of full year Net
periodic benefit cost (income) for pensions to
reflect updated plan demographic information. |
Pension contributions for the six months ended
June 30, 2015 and 2014 of
$92 million and $100 million, respectively, primarily represent
contributions to the Company's main pension plan, the CN Pension
Plan, for the current service cost as determined under the
Company's current actuarial valuations for funding purposes. In
2015, the Company expects to make total cash contributions of
approximately $115 million for all of
the Company's pension plans.
8 - Stock-based compensation
The Company has various stock-based compensation plans for eligible
employees. A description of the Company's major plans is provided
in Note 14 - Stock plans to the Company's 2014 Annual Consolidated
Financial Statements.
|
|
Three
months ended June 30 |
|
Six
months ended June 30 |
In millions |
|
2015 |
|
2014 |
|
|
2015 |
|
2014 |
Equity settled awards |
|
|
|
|
|
|
|
|
|
Share Units Plan (1) |
$ |
9 |
$ |
- |
|
$ |
17 |
$ |
- |
Stock option awards |
|
2 |
|
3 |
|
|
5 |
|
5 |
Equity settled awards
expense |
$ |
11 |
$ |
3 |
|
$ |
22 |
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Cash settled awards |
|
|
|
|
|
|
|
|
|
Share Units Plan (1) |
$ |
(7) |
$ |
31 |
|
$ |
2 |
$ |
45 |
Voluntary Incentive Deferral Plan
(2) |
|
(5) |
|
20 |
|
|
(4) |
|
21 |
Cash settled awards expense
(recovery) |
$ |
(12) |
$ |
51 |
|
|
(2) |
|
66 |
Total stock-based compensation
expense (recovery) |
$ |
(1) |
$ |
54 |
|
$ |
20 |
$ |
71 |
Tax benefit recognized in income |
$ |
- |
$ |
15 |
|
$ |
5 |
$ |
19 |
(1) |
Performance share unit (PSU)
awards are granted under the Share Units Plan. |
(2) |
Deferred share unit (DSU) awards
are granted under the Voluntary Incentive Deferral Plan. |
Equity settled awards
Share Units Plan
Under the Share Units Plan, the Company grants performance share
unit (PSU) awards.
PSU-ROIC awards vest from 0% to 200%, subject to
the attainment of a return on invested capital (ROIC) performance
condition (previously from 0% to 150% for PSUs-ROIC outstanding as
at December 31, 2014) over the plan
period. Payout of PSU-ROIC awards is conditional upon the
attainment of a minimum share price.
PSU-TSR awards, introduced in 2015, vest from 0%
to 200%, subject to the attainment of a total shareholder return
(TSR) market condition over the plan period of three years based on
the Company's TSR relative to a Class I Railways peer group and
components of the S&P/TSX 60 Index.
Equity settled PSUs are settled in common shares
of the Company, subject to the attainment of their respective
vesting conditions, by way of disbursement from the Share Trusts.
The number of shares remitted to the participant upon settlement is
equal to the number of PSUs awarded multiplied by their respective
vesting factor less amounts withheld to satisfy the participant's
minimum statutory withholding tax requirement.
The settlement of PSUs, for senior and executive
management employees, 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.
Equity settled awards (excluding stock option
awards)
|
PSUs-ROIC (1) |
|
PSUs-TSR (2) |
|
DSUs (3) |
|
Units |
|
Weighted-
average
grant date
fair value |
|
Units |
|
Weighted-
average
grant date
fair value |
|
Units |
|
Weighted-
average
grant date
fair value |
|
In millions |
|
|
|
In millions |
|
|
|
In millions |
|
|
Outstanding at December 31, 2014 |
0.9 |
$ |
71.05 |
|
- |
|
N/A |
|
1.7 |
$ |
76.29 |
Granted |
0.4 |
$ |
50.87 |
|
0.1 |
$ |
114.86 |
|
- |
$ |
81.18 |
Outstanding at June 30, 2015 |
1.3 |
$ |
64.32 |
|
0.1 |
$ |
114.86 |
|
1.7 |
$ |
76.44 |
(1) |
The grant date fair value of
PSUs-ROIC granted in 2015 of $22 million is calculated using a
lattice-based valuation
model. As at June 30, 2015, total unrecognized compensation cost
related to non-vested PSUs-ROIC outstanding
was $30 million and is expected to be recognized over a
weighted-average period of 1.7 years. |
(2) |
The grant date fair value of
PSUs-TSR granted in 2015 of $16 million is calculated using a Monte
Carlo simulation
model. As at June 30, 2015, the total unrecognized compensation
cost related to non-vested PSUs-TSR
outstanding was $11 million and is expected to be recognized
over a weighted-average period of 2.1 years. |
(3) |
The grant date fair value of DSUs
granted in 2015 of $2 million is calculated using an intrinsic
value model and
represents deferrals of the annual incentive bonus payment and
other eligible incentive payments. As at June 30,
2015, the total unrecognized compensation cost related to
non-vested DSUs outstanding was $1 million. The
remaining recognition period has not been quantified as it
relates solely to the 25% Company grant, representing a
minimal number of units. As at June 30, 2015, the aggregate
intrinsic value of DSUs outstanding amounted to $127
million. |
Stock option awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
options |
exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
|
Outstanding at December 31, 2014
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5 |
$ |
37.37 |
Granted
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8 |
$ |
84.49 |
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4) |
$ |
29.71 |
Outstanding at June 30, 2015 (1) (3)
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9 |
$ |
44.41 |
Exercisable at June 30, 2015 (1)
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6 |
$ |
35.14 |
(1) |
Stock options with
a US dollar exercise price have been translated into Canadian
dollars using the foreign
exchange rate in effect at the balance sheet date. |
(2) |
The grant date fair
value of options awarded in 2015 of $11 million ($13.21 per unit)
is calculated using the
Black-Scholes option-pricing model. |
(3) |
As at June 30,
2015, total unrecognized compensation cost related to non-vested
options outstanding was
$12 million and is expected to be recognized over a
weighted-average period of 2.1 years. |
(4) |
As at June 30,
2015, substantially all stock options were in-the-money. The
weighted-average term to
expiration of outstanding options was 5.7 years and the
weighted-average term to expiration of exercisable
stock options was 4.6 years. As at June 30, 2015, the aggregate
intrinsic value of in-the-money stock
options outstanding amounted to $229 million and aggregate
intrinsic value of stock options exercisable
amounted to $207 million. |
Cash settled awards
Number of units - In millions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs-ROIC (1) |
|
DSUs (2) |
Outstanding at December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
0.5 |
Settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9) |
|
(0.1) |
Outstanding at June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
0.4 |
(1) |
As at
June 30, 2015, total unrecognized compensation cost related to
non-vested PSUs-ROIC outstanding
was $15 million and is expected to be recognized over a
weighted-average period of 1.3 years. As at June
30, 2015 the PSU liability was $52 million ($157 million as at
December 31, 2014). |
(2) |
As at
June 30, 2015, total unrecognized compensation cost related to
non-vested DSUs outstanding was
minimal. 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. As at June 30, 2015 the
DSU liability was $36 million ($40 million as at December 31,
2014). |
9 - Accumulated other comprehensive
loss
In
millions |
Foreign
currency
translation
adjustments |
|
Pension
and other
postretirement
benefit plans |
|
Derivative
instruments |
|
Total
before tax |
|
|
Income tax
recovery
(expense) |
|
|
Total
net of tax |
Balance at March 31, 2015 |
$ |
(362) |
$ |
(2,449) |
$ |
7 |
$ |
(2,804) |
|
$ |
603 |
|
$ |
(2,201) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of net
investment in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign operations |
(120) |
|
|
|
|
|
(120) |
|
|
- |
|
|
(120) |
|
Foreign exchange gain
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of US
dollar- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
denominated debt
designated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a hedge of the net
investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in U.S. subsidiaries
(1) |
|
102 |
|
|
|
|
|
102 |
|
|
(13) |
|
|
89 |
Amounts reclassified from
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive
loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net
actuarial loss |
|
|
52 |
|
|
|
52 |
(2) |
(13) |
(3) |
39 |
|
Amortization of prior
service cost |
|
|
2 |
|
|
|
2 |
(2) |
(1) |
(3) |
1 |
Other comprehensive income
(loss) |
(18) |
|
54 |
|
- |
|
36 |
|
|
(27) |
|
|
9 |
Balance at June 30, 2015 |
$ |
(380) |
$ |
(2,395) |
$ |
7 |
$ |
(2,768) |
|
$ |
576 |
|
$ |
(2,192) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
millions |
|
Foreign
currency
translation
adjustments |
|
Pension
and other
postretirement
benefit plans |
|
Derivative
instruments |
|
Total
before tax |
|
|
Income tax
recovery
(expense) |
|
|
Total
net of tax |
Balance at December 31, 2014 |
$ |
(458) |
$ |
(2,510) |
$ |
7 |
$ |
(2,961) |
|
$ |
534 |
|
$ |
(2,427) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of net
investment in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign operations |
622 |
|
|
|
|
|
622 |
|
|
- |
|
|
622 |
|
Foreign exchange loss
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of US
dollar- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
denominated debt
designated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a hedge of the net
investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in U.S. subsidiaries
(1) |
|
(544) |
|
|
|
|
|
(544) |
|
|
72 |
|
|
(472) |
Amounts reclassified from
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive
loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net
actuarial loss |
|
|
112 |
|
|
|
112 |
(2) |
(29) |
(3) |
83 |
|
|
Amortization of prior
service cost |
|
|
3 |
|
|
|
3 |
(2) |
(1) |
(3) |
2 |
Other comprehensive income |
78 |
|
115 |
|
- |
|
193 |
|
|
42 |
|
|
235 |
Balance at June 30, 2015 |
$ |
(380) |
$ |
(2,395) |
$ |
7 |
$ |
(2,768) |
|
$ |
576 |
|
$ |
(2,192) |
(1) |
The
Company designates US dollar-denominated debt of the parent company
as a foreign currency hedge of its net investment in U.S.
subsidiaries. As a result, from the dates of designation,
foreign exchange gains and losses on translation of the Company's
US dollar-
denominated debt are recorded in Accumulated other comprehensive
loss, which minimizes volatility of earnings resulting from
the
conversion of US dollar-denominated debt into Canadian
dollars. |
(2) |
Reclassified to Labor and fringe benefits on the Consolidated
Statement of Income and included in components of net periodic
benefit
cost. See Note 7 - Pensions and other postretirement
benefits. |
(3) |
Included in Income tax expense on the Consolidated Statement of
Income. |
In
millions |
|
Foreign
currency
translation
adjustments |
|
Pension
and other
postretirement
benefit plans |
|
Derivative
instruments |
|
Total
before tax |
|
|
Income tax
recovery
(expense) |
|
|
Total
net of tax |
Balance at March 31, 2014 |
$ |
(508) |
$ |
(1,482) |
$ |
8 |
$ |
(1,982) |
|
$ |
214 |
|
$ |
(1,768) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of net
investment in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign operations |
(257) |
|
|
|
|
|
(257) |
|
|
- |
|
|
(257) |
|
Foreign exchange gain
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of US
dollar- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
denominated debt
designated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a hedge of the net
investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in U.S. subsidiaries
(1) |
|
227 |
|
|
|
|
|
227 |
|
|
(31) |
|
|
196 |
Amounts reclassified from
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive
loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net
actuarial loss |
|
|
29 |
|
|
|
29 |
(2) |
(7) |
(3) |
22 |
|
|
Amortization of prior
service cost |
|
|
1 |
|
|
|
1 |
(2) |
- |
|
1 |
Other comprehensive income
(loss) |
|
(30) |
|
30 |
|
- |
|
- |
|
|
(38) |
|
|
(38) |
Balance at June 30, 2014 |
$ |
(538) |
$ |
(1,452) |
$ |
8 |
$ |
(1,982) |
|
$ |
176 |
|
$ |
(1,806) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
millions |
|
Foreign
currency
translation
adjustments |
|
Pension
and other
postretirement
benefit plans |
|
Derivative
instruments |
|
Total
before tax |
|
|
Income tax
recovery
(expense) |
|
|
Total
net of tax |
Balance at December 31, 2013 |
$ |
(533) |
$ |
(1,515) |
$ |
8 |
$ |
(2,040) |
|
$ |
190 |
|
$ |
(1,850) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of net
investment in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign operations |
19 |
|
|
|
|
|
19 |
|
|
- |
|
|
19 |
|
Foreign exchange loss
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation of US
dollar- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
denominated debt
designated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a hedge of the net
investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in U.S. subsidiaries
(1) |
|
(24) |
|
|
|
|
|
(24) |
|
|
1 |
|
|
(23) |
Amounts reclassified from
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive
loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net
actuarial loss |
|
|
60 |
|
|
|
60 |
(2) |
(15) |
(3) |
45 |
|
Amortization of prior
service cost |
|
|
3 |
|
|
|
3 |
(2) |
- |
|
3 |
Other comprehensive income
(loss) |
|
(5) |
|
63 |
|
- |
|
58 |
|
|
(14) |
|
|
44 |
Balance at June 30, 2014 |
$ |
(538) |
$ |
(1,452) |
$ |
8 |
$ |
(1,982) |
|
$ |
176 |
|
$ |
(1,806) |
(1) |
The
Company designates US dollar-denominated debt of the parent company
as a foreign currency hedge of its net investment in U.S.
subsidiaries. As a result, from the dates of designation,
foreign exchange gains and losses on translation of the Company's
US dollar-
denominated debt are recorded in Accumulated other comprehensive
loss, which minimizes volatility of earnings resulting from
the
conversion of US dollar-denominated debt into Canadian
dollars. |
(2) |
Reclassified to Labor and fringe benefits on the Consolidated
Statement of Income and included in components of net periodic
benefit
cost. See Note 7 - Pensions and other postretirement
benefits. |
(3) |
Included in Income tax expense on the Consolidated Statement of
Income. |
10 - Major commitments and
contingencies
Commitments
As at June 30, 2015, 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 $1,525
million ($1,054 million as at
December 31, 2014). The Company also
has estimated remaining commitments of approximately $527 million (US$422
million), in relation to the U.S. federal government
legislative requirement to implement Positive Train Control
(PTC).
In addition, the Company has estimated remaining
commitments, through to December 31,
2016, of approximately $60
million (US$48 million), in
relation to the acquisition of the principal lines of the former
Elgin, Joliet and Eastern Railway Company. These
commitments are 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.
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.
As at June 30,
2015, the Company had aggregate reserves for personal injury
and other claims of $305 million, of
which $49 million was recorded as a
current liability ($298 million as at
December 31, 2014, of which
$48 million was recorded as a current
liability).
Although the Company considers such provisions
to be adequate for all its outstanding and pending claims, the
final outcome with respect to actions outstanding or pending at
June 30, 2015, 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
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.
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.
The Company has identified 245 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 7 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 definitively 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.
Costs related to any unknown existing or future contamination will
be accrued in the period in which they become probable and
reasonably estimable.
As at June 30,
2015, the Company had aggregate accruals for environmental
costs of $133 million, of which
$67 million was recorded as a current
liability ($114 million as at
December 31, 2014, of which
$45 million was recorded as a current
liability). The Company anticipates that the majority of the
liability at June 30, 2015 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 accruals to be adequate.
Guarantees and
indemnifications
A list of indemnifications found in various types of contracts with
third parties is provided in Note 16 - Major commitments and
contingencies to the Company's 2014 Annual Consolidated Financial
Statements.
Guarantees
(a) 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 2015 and 2022, for the benefit of the lessor. If the fair
value of the assets at the end of their respective lease term is
less than the fair value, as estimated at the inception of the
lease, then the Company must, under certain conditions, compensate
the lessor for the shortfall. As at June 30,
2015, the maximum exposure in respect of these guarantees
was $195 million ($194 million as at December 31, 2014). There are no recourse
provisions to recover any amounts from third parties.
(b) Other guarantees
As at June 30, 2015, the Company,
including certain of its subsidiaries, had granted $485 million ($487
million as at December 31,
2014) of irrevocable standby letters of credit and
$115 million ($106 million as at December 31, 2014) of surety and other bonds,
issued by highly rated financial institutions, to third parties to
indemnify them in the event the Company does not perform its
contractual obligations. As at June 30,
2015, the maximum potential liability under these guarantee
instruments was $600 million
($593 million as at December 31, 2014), of which $524 million ($525
million as at December 31,
2014) related to workers' compensation and other employee
benefit liabilities and $76 million
($68 million as at December 31, 2014) related to other liabilities.
The letters of credit were drawn on the Company's bilateral letter
of credit facilities. The guarantee instruments expire at various
dates between 2015 and 2018.
The Company had not recorded a liability as at
June 30, 2015 with respect to its
guarantee instruments as they related to the Company's future
performance and the Company did not expect to make any payments
under its guarantee instruments.
11 - Financial instruments
Derivative financial instruments
The Company uses derivative financial instruments from time to time
in the management of its foreign currency and interest rate
exposures. The Company has limited involvement with derivative
financial instruments in the management of its risks and does not
hold or issue them for trading or speculative purposes. As at
June 30, 2015, the Company had
outstanding foreign exchange forward contracts with a notional
value of US$350 million (US$350 million as at December 31, 2014). Changes in the fair value of
forward contracts, resulting from changes in foreign exchange
rates, are recognized in Other income in the Consolidated Statement
of Income as they occur. For the three and six months ended
June 30, 2015, the Company recorded a
pre-tax loss of $7 million and a
pre-tax gain of $29 million,
respectively, related to foreign exchange forward contracts,
compared to nil and a pre-tax gain of $10
million, respectively, for the same periods in 2014. As at
June 30, 2015, the Company recorded
an unrealized gain of $38 million
($9 million as at December 31, 2014) related to foreign exchange
forward contracts in Other current assets in the Consolidated
Balance Sheet.
Fair value of financial
instruments
The carrying amounts of Cash and cash equivalents, Restricted cash
and cash equivalents, Accounts receivable, Other current assets,
and Accounts payable and other, approximate fair value.
Included in Intangible and other assets are
equity investments for which the carrying amount 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. Investments are
classified as Level 3 as their fair value is based on significant
unobservable inputs. As at June 30,
2015, the Company's investments had a carrying amount of
$63 million ($58 million as at December
31, 2014) and a fair value of $196
million ($183 million as at
December 31, 2014).
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. As
at June 30, 2015, the Company's debt
had a carrying amount of $9,344
million ($8,409 million as at
December 31, 2014) and a fair value
of $10,488 million ($9,767 million as at December 31, 2014).
Additional information related to the fair value
of financial instruments, including a description of the fair value
hierarchy which defines the criteria used to classify financial
instruments as Level 1, Level 2 or Level 3 is provided in Note 17 -
Financial instruments to the Company's 2014 Annual Consolidated
Financial Statements.
Selected Railroad Statistics -
unaudited |
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30 |
|
Six
months ended June 30 |
|
2015 |
2014 |
|
2015 |
2014 |
|
|
|
|
|
|
Financial measures |
|
|
|
|
|
Key financial performance
indicators |
|
|
|
|
|
Total revenues ($
millions) |
3,125 |
3,116 |
|
6,223 |
5,809 |
Rail freight revenues ($
millions) |
2,927 |
2,942 |
|
5,907 |
5,520 |
Operating income ($
millions) |
1,362 |
1,258 |
|
2,425 |
2,078 |
Adjusted diluted earnings per share
($) (1) |
1.15 |
1.03 |
|
2.01 |
1.68 |
Free cash flow ($ millions)
(1) |
530 |
776 |
|
1,051 |
1,270 |
Property additions ($
millions) |
659 |
482 |
|
1,127 |
730 |
Share repurchases ($
millions) |
404 |
365 |
|
833 |
730 |
Dividends per share ($) |
0.3125 |
0.2500 |
|
0.6250 |
0.5000 |
|
|
|
|
|
|
Financial position |
|
|
|
|
|
Total assets ($ millions) |
33,605 |
30,634 |
|
33,605 |
30,634 |
Total liabilities ($
millions) |
19,651 |
17,291 |
|
19,651 |
17,291 |
Shareholders' equity ($
millions) |
13,954 |
13,343 |
|
13,954 |
13,343 |
|
|
|
|
|
|
Financial ratio |
|
|
|
|
|
Operating ratio (%) |
56.4 |
59.6 |
|
61.0 |
64.2 |
|
|
|
|
|
|
Operational measures
(2) |
|
|
|
|
|
Statistical operating
data |
|
|
|
|
|
Gross ton miles (GTM)
(millions) |
110,709 |
116,243 |
|
222,099 |
217,719 |
Revenue ton miles (RTM)
(millions) |
55,713 |
60,081 |
|
112,842 |
113,415 |
Carloads (thousands) |
1,414 |
1,463 |
|
2,767 |
2,702 |
Route miles (includes Canada and
the U.S.) |
19,500 |
19,800 |
|
19,500 |
19,800 |
Employees (end of period) |
24,761 |
24,875 |
|
24,761 |
24,875 |
Employees (average for the
period) |
25,177 |
24,565 |
|
25,206 |
24,161 |
|
|
|
|
|
|
Key operating
measures |
|
|
|
|
|
Rail freight revenue per RTM
(cents) |
5.25 |
4.90 |
|
5.23 |
4.87 |
Rail freight revenue per carload
($) |
2,070 |
2,011 |
|
2,135 |
2,043 |
GTMs per average number of employees
(thousands) |
4,397 |
4,732 |
|
8,811 |
9,011 |
Operating expenses per GTM
(cents) |
1.59 |
1.60 |
|
1.71 |
1.71 |
Labor and fringe benefits expense per
GTM (cents) |
0.49 |
0.48 |
|
0.54 |
0.53 |
Diesel fuel consumed (US gallons in
millions) |
106.0 |
112.3 |
|
220.3 |
219.2 |
Average fuel price ($ per US
gallon) |
2.73 |
3.84 |
|
2.79 |
3.90 |
GTMs per US gallon of fuel
consumed |
1,044 |
1,035 |
|
1,008 |
993 |
Terminal dwell (hours) |
14.6 |
15.4 |
|
15.7 |
17.4 |
Train velocity (miles per
hour) |
26.2 |
26.2 |
|
25.5 |
25.1 |
|
|
|
|
|
|
Safety indicators
(3) |
|
|
|
|
|
Injury frequency rate (per 200,000
person hours) |
1.46 |
1.47 |
|
1.55 |
1.78 |
Accident rate (per million train
miles) |
2.49 |
2.42 |
|
2.48 |
2.40 |
(1) |
See supplementary
schedule entitled Non-GAAP Measures for an explanation of this
non-GAAP measure. |
(2) |
Statistical operating
data, key operating measures and safety indicators 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
comparative data have been restated. Definitions of these
indicators are provided on our website,
www.cn.ca/glossary. |
(3) |
Based on Federal
Railroad Administration (FRA) reporting
criteria. |
Supplementary Information - unaudited |
|
|
|
|
|
|
|
|
Three
months ended June 30 |
|
Six
months ended June 30 |
|
2015 |
2014 |
% Change
Fav
(Unfav) |
|
% Change at
constant
currency
Fav (Unfav) (1) |
|
2015 |
2014 |
% Change
Fav
(Unfav) |
|
% Change at
constant
currency
Fav (Unfav) (1) |
Revenues (millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
586 |
564 |
4% |
|
(4%) |
|
1,229 |
1,132 |
9% |
|
- |
Metals and minerals |
351 |
370 |
(5%) |
|
(14%) |
|
728 |
678 |
7% |
|
(2%) |
Forest products |
424 |
393 |
8% |
|
(1%) |
|
842 |
732 |
15% |
|
6% |
Coal |
148 |
201 |
(26%) |
|
(32%) |
|
307 |
383 |
(20%) |
|
(26%) |
Grain and fertilizers |
489 |
526 |
(7%) |
|
(12%) |
|
1,024 |
957 |
7% |
|
1% |
Intermodal |
728 |
716 |
2% |
|
(3%) |
|
1,417 |
1,337 |
6% |
|
2% |
Automotive |
201 |
172 |
17% |
|
7% |
|
360 |
301 |
20% |
|
9% |
Total rail freight revenues |
2,927 |
2,942 |
(1%) |
|
(7%) |
|
5,907 |
5,520 |
7% |
|
- |
Other revenues |
198 |
174 |
14% |
|
5% |
|
316 |
289 |
9% |
|
1% |
Total revenues |
3,125 |
3,116 |
- |
|
(7%) |
|
6,223 |
5,809 |
7% |
|
- |
Revenue ton miles (millions) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
12,425 |
12,779 |
(3%) |
|
(3%) |
|
26,042 |
25,658 |
1% |
|
1% |
Metals and minerals |
5,430 |
6,018 |
(10%) |
|
(10%) |
|
11,141 |
11,027 |
1% |
|
1% |
Forest products |
7,605 |
7,582 |
- |
|
- |
|
14,847 |
14,137 |
5% |
|
5% |
Coal |
3,916 |
5,733 |
(32%) |
|
(32%) |
|
8,126 |
11,027 |
(26%) |
|
(26%) |
Grain and fertilizers |
11,783 |
14,073 |
(16%) |
|
(16%) |
|
24,727 |
25,386 |
(3%) |
|
(3%) |
Intermodal |
13,493 |
13,048 |
3% |
|
3% |
|
26,086 |
24,709 |
6% |
|
6% |
Automotive |
1,061 |
848 |
25% |
|
25% |
|
1,873 |
1,471 |
27% |
|
27% |
Total revenue ton miles |
55,713 |
60,081 |
(7%) |
|
(7%) |
|
112,842 |
113,415 |
(1%) |
|
(1%) |
Rail freight revenue / RTM
(cents) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
4.72 |
4.41 |
7% |
|
(1%) |
|
4.72 |
4.41 |
7% |
|
(1%) |
Metals and minerals |
6.46 |
6.15 |
5% |
|
(4%) |
|
6.53 |
6.15 |
6% |
|
(3%) |
Forest products |
5.58 |
5.18 |
8% |
|
(1%) |
|
5.67 |
5.18 |
9% |
|
1% |
Coal |
3.78 |
3.51 |
8% |
|
(1%) |
|
3.78 |
3.47 |
9% |
|
1% |
Grain and fertilizers |
4.15 |
3.74 |
11% |
|
5% |
|
4.14 |
3.77 |
10% |
|
4% |
Intermodal |
5.40 |
5.49 |
(2%) |
|
(6%) |
|
5.43 |
5.41 |
- |
|
(4%) |
Automotive |
18.94 |
20.28 |
(7%) |
|
(14%) |
|
19.22 |
20.46 |
(6%) |
|
(14%) |
Total rail freight revenue per RTM |
5.25 |
4.90 |
7% |
|
- |
|
5.23 |
4.87 |
7% |
|
- |
Carloads (thousands) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
158 |
160 |
(1%) |
|
(1%) |
|
322 |
321 |
- |
|
- |
Metals and minerals |
243 |
267 |
(9%) |
|
(9%) |
|
480 |
474 |
1% |
|
1% |
Forest products |
112 |
113 |
(1%) |
|
(1%) |
|
221 |
213 |
4% |
|
4% |
Coal |
105 |
141 |
(26%) |
|
(26%) |
|
220 |
266 |
(17%) |
|
(17%) |
Grain and fertilizers |
147 |
172 |
(15%) |
|
(15%) |
|
301 |
312 |
(4%) |
|
(4%) |
Intermodal |
581 |
547 |
6% |
|
6% |
|
1,103 |
1,004 |
10% |
|
10% |
Automotive |
68 |
63 |
8% |
|
8% |
|
120 |
112 |
7% |
|
7% |
Total carloads |
1,414 |
1,463 |
(3%) |
|
(3%) |
|
2,767 |
2,702 |
2% |
|
2% |
Rail freight revenue / carload
(dollars) |
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
3,709 |
3,525 |
5% |
|
(3%) |
|
3,817 |
3,526 |
8% |
|
- |
Metals and minerals |
1,444 |
1,386 |
4% |
|
(5%) |
|
1,517 |
1,430 |
6% |
|
(3%) |
Forest products |
3,786 |
3,478 |
9% |
|
- |
|
3,810 |
3,437 |
11% |
|
2% |
Coal |
1,410 |
1,426 |
(1%) |
|
(9%) |
|
1,395 |
1,440 |
(3%) |
|
(10%) |
Grain and fertilizers |
3,327 |
3,058 |
9% |
|
3% |
|
3,402 |
3,067 |
11% |
|
5% |
Intermodal |
1,253 |
1,309 |
(4%) |
|
(8%) |
|
1,285 |
1,332 |
(4%) |
|
(8%) |
Automotive |
2,956 |
2,730 |
8% |
|
(1%) |
|
3,000 |
2,688 |
12% |
|
2% |
Total rail freight revenue per carload |
2,070 |
2,011 |
3% |
|
(4%) |
|
2,135 |
2,043 |
5% |
|
(2%) |
Statistical operating data and
related key operating measures are based on estimated data
available at such time and are subject to change
as more complete information becomes available. |
(1) See supplementary
schedule entitled Non-GAAP Measures for an explanation of this
non-GAAP measure. |
Non-GAAP Measures - unaudited
Adjusted performance measures
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 therefore, may
not be comparable to similar measures presented by other companies.
The reader is advised to read all information provided in the
Company's 2015 unaudited Interim Consolidated Financial Statements,
and Notes thereto.
For the three and six months ended June 30, 2015, the Company reported adjusted net
income of $928 million, or
$1.15 per diluted share and
$1,632 million, or $2.01 per diluted share, respectively. The
adjusted figures for the three and six months ended June 30, 2015 exclude a deferred income tax
expense of $42 million ($0.05 per diluted share) resulting from the
enactment of a higher provincial corporate income tax rate.
For the three and six months ended June 30, 2014, the Company reported adjusted net
income of $847 million, or
$1.03 per diluted share and
$1,398 million, or $1.68 per diluted share, respectively. The
adjusted figures for the six months ended June 30, 2014 exclude a gain on disposal of the
Deux-Montagnes subdivision,
including the Mont-Royal tunnel,
together with the rail fixtures (collectively the
"Deux-Montagnes"), of $80 million, or
$72 million after-tax ($0.09 per diluted share).
The following table provides a reconciliation of
net income and earnings per share, as reported for the three and
six months ended June 30, 2015 and
2014, to the adjusted performance measures presented herein.
|
|
Three
months ended June 30 |
|
Six
months ended June 30 |
In millions, except per share
data |
|
2015 |
|
2014 |
|
|
2015 |
|
2014 |
Net income as reported |
$ |
886 |
$ |
847 |
|
$ |
1,590 |
$ |
1,470 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
Other income |
|
- |
|
- |
|
|
- |
|
(80) |
|
Income tax expense |
|
42 |
|
- |
|
|
42 |
|
8 |
Adjusted net income |
$ |
928 |
$ |
847 |
|
$ |
1,632 |
$ |
1,398 |
Basic earnings per share as
reported |
$ |
1.10 |
$ |
1.03 |
|
$ |
1.97 |
$ |
1.78 |
Impact of adjustments, per
share |
|
0.05 |
|
- |
|
|
0.05 |
|
(0.09) |
Adjusted basic earnings per
share |
$ |
1.15 |
$ |
1.03 |
|
$ |
2.02 |
$ |
1.69 |
Diluted earnings per share as
reported |
$ |
1.10 |
$ |
1.03 |
|
$ |
1.96 |
$ |
1.77 |
Impact of adjustments, per
share |
|
0.05 |
|
- |
|
|
0.05 |
|
(0.09) |
Adjusted diluted earnings per
share |
$ |
1.15 |
$ |
1.03 |
|
$ |
2.01 |
$ |
1.68 |
Constant currency
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 therefore, may 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 $1.23 per US$1.00,
for both the three and six months ended June
30, 2015, and $1.09 and
$1.10 per US$1.00, respectively, for the three and six
months ended June 30, 2014.
On a constant currency basis, the Company's net
income for the three and six months ended June 30, 2015 would have been lower by
$64 million, or $0.08 per diluted share and $120 million, or $0.15 per diluted share, respectively.
Free cash flow
Free cash flow does not have any standardized meaning prescribed by
GAAP and therefore, may 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 for debt obligations and for
discretionary uses such as payment of dividends and strategic
opportunities.
The Company defines its free cash flow measure
as the difference between net cash provided by operating activities
and net cash used in investing activities; adjusted for changes in
restricted cash and cash equivalents and the impact of major
acquisitions, if any.
|
Three
months ended June 30 |
|
Six
months ended June 30 |
In millions |
|
2015 |
|
2014 |
|
|
2015 |
|
2014 |
Net cash provided by operating activities |
$ |
1,203 |
$ |
1,273 |
|
$ |
2,195 |
$ |
1,918 |
Net cash used in investing activities |
|
(662) |
|
(494) |
|
|
(1,143) |
|
(668) |
Net cash provided before financing
activities |
|
541 |
|
779 |
|
|
1,052 |
|
1,250 |
|
|
|
|
|
|
|
|
|
|
Adjustment: Change in restricted cash and
cash equivalents |
|
(11) |
|
(3) |
|
|
(1) |
|
20 |
Free cash flow |
$ |
530 |
$ |
776 |
|
$ |
1,051 |
$ |
1,270 |
Credit measures
Management believes that the adjusted debt-to-total capitalization
ratio is a useful credit measure that aims to show the true
leverage of the Company. Similarly, the adjusted debt-to-adjusted
earnings before interest, income taxes, depreciation and
amortization (EBITDA) multiple is another useful credit measure
because it reflects the Company's ability to service its debt. The
Company excludes Other income in the calculation of EBITDA.
However, since these measures do not have any standardized meaning
prescribed by GAAP, they may not be comparable to similar measures
presented by other companies and, as such, should not be considered
in isolation.
Adjusted debt-to-total
capitalization ratio |
|
|
|
|
|
|
|
|
|
June 30, |
|
2015 |
|
2014 |
Debt-to-total capitalization ratio
(1) |
|
|
|
40.1% |
|
36.5% |
Add: Impact of present value of
operating lease commitments (2) |
|
|
1.6% |
|
1.6% |
Adjusted debt-to-total
capitalization ratio |
|
|
|
41.7% |
|
38.1% |
|
|
|
|
|
|
|
|
Adjusted debt-to-adjusted EBITDA
multiple |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, unless otherwise
indicated |
|
Twelve months ended June 30, |
|
2015 |
|
2014 |
Debt |
|
|
$ |
9,344 |
$ |
7,661 |
Add: Present value of operating
lease commitments (2) |
|
|
|
647 |
|
563 |
Adjusted debt |
|
|
|
9,991 |
|
8,224 |
|
|
|
|
|
|
|
|
Operating income |
|
|
|
4,971 |
|
4,129 |
Add: Depreciation and
amortization |
|
|
|
1,118 |
|
1,008 |
EBITDA (excluding Other income) |
|
|
|
6,089 |
|
5,137 |
Add: Deemed interest on
operating leases |
|
|
|
30 |
|
28 |
Adjusted EBITDA |
|
|
$ |
6,119 |
$ |
5,165 |
Adjusted debt-to-adjusted EBITDA
multiple |
|
|
|
1.63 times |
|
1.59 times |
(1) |
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. |
(2) |
The operating lease
commitments have been discounted using the Company's implicit
interest rate for each of the periods
presented. |
The increase in the Company's adjusted
debt-to-total capitalization ratio at June
30, 2015, as compared to the same period in 2014, was mainly
due to an increased debt level, primarily caused by a weaker
Canadian-to-US dollar foreign exchange rate in effect at the
balance sheet date. The Company's adjusted debt-to-adjusted EBITDA
multiple also increased, driven by a higher debt level as at
June 30, 2015, which was partly
offset by a higher operating income earned for the twelve months
ended June 30, 2015, as compared to
the twelve months ended June 30,
2014.
SOURCE CN