Continued strong volume
growth leads to record revenues and 21 per cent increase in
adjusted diluted earnings per share (EPS)
(1)
MONTREAL, July 25,
2017 /CNW/ - CN (TSX: CNR) (NYSE: CNI) today reported
its financial and operating results for the second quarter and
six-month period ended June 30,
2017.
Second-quarter 2017 financial
highlights
- Net income increased 20 per cent to C$1,031 million, while diluted EPS increased 24
per cent to C$1.36, compared with the
second quarter of 2016.
- Adjusted net income increased 17 per cent to C$1,013 million, with adjusted diluted EPS
increasing 21 per cent to C$1.34.
(1)
- Operating income increased 16 per cent to C$1,495 million.
- Revenues increased by 17 per cent to a quarterly record of
C$3,329 million. Carloadings
increased 14 per cent, and revenue ton-miles increased 18 per
cent.
- Operating expenses increased 18 per cent to C$1,834 million.
- Operating ratio of 55.1 per cent, an increase of 0.6 points
over the prior-year quarter.
- Free cash flow (1) for second-quarter 2017 was
C$811 million, up from C$585 million for the year-earlier quarter.
Luc Jobin,
president and chief executive officer, said: "Once again, CN
delivered solid quarterly performance with strong volume growth
across most commodity groups, building on the momentum started in
the fourth quarter of 2016. Our team of railroaders remained
focused on balancing operational and service excellence while
efficiently adjusting to the growing demand.
"The North American economic outlook continues to
be positive, and we remain committed to delivering on our 2017
financial outlook. However, volume comparisons in the second half
of the year will be more challenging, and the strengthening of the
Canadian dollar will constitute a headwind."
Reaffirmed 2017 financial outlook
(2)
CN aims to deliver 2017 adjusted diluted EPS in the range of
C$4.95 to C$5.10 compared to last
year's adjusted diluted EPS (1) of C$4.59.
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, (1) CN's net income for the second
quarter of 2017 would have been lower by C$28 million, or C$0.04 per diluted share.
Second-quarter 2017 revenues, traffic volumes
and expenses
Revenues for the second quarter of 2017 were C$3,329 million, an increase of 17 per cent, when
compared to the same period in 2016. Revenues increased for metals
and minerals (33 per cent), coal (33 per cent), grain and
fertilizers (23 per cent), automotive (20 per cent), intermodal (17
per cent), petroleum and chemicals (12 per cent), and forest
products (six per cent).
The increase in revenues was mainly attributable
to higher volumes across several sectors, such as Canadian grain
and fertilizers, overseas intermodal traffic, frac sand, coal and
petroleum coke exports, crude oil, and finished vehicles. Also
contributing to increased revenues were higher applicable fuel
surcharge rates, freight rate increases, and the positive
translation impact of a weaker Canadian dollar.
Carloadings for the quarter increased by 14 per
cent to 1.4 million.
Revenue ton-miles (RTMs), measuring the relative
weight and distance of rail freight transported by CN, increased by
18 per cent from the year-earlier quarter. Rail freight revenue per
RTM decreased by 1 per cent over the year-earlier period, mainly
driven by an increase in the average length of haul; partly offset
by higher applicable fuel surcharge rates, freight rate increases,
and the positive translation impact of a weaker Canadian
dollar.
Operating expenses for the second quarter
increased by 18 per cent to C$1,834
million, mainly due to higher fuel costs, increased
purchased services and material costs, and higher labor and fringe
benefits expense resulting from increased volumes, as well as
increased casualty and other expense, and the negative translation
impact of a weaker Canadian dollar.
(1) Non-GAAP Measures
CN reports its financial results in accordance with United States generally accepted accounting
principles (GAAP). CN also uses non-GAAP measures in this news
release that do not have any standardized meaning prescribed by
GAAP, including adjusted performance measures, constant currency,
and free cash flow. These non-GAAP measures may not be comparable
to similar measures presented by other companies. For further
details of these non-GAAP measures, including a reconciliation to
the most directly comparable GAAP financial measures, refer to the
attached supplementary schedule, Non-GAAP Measures.
CN's full-year adjusted EPS outlook
(2) excludes the expected impact of certain income and
expense items, as well as those items noted in the reconciliation
tables provided in the attached supplementary schedule, Non-GAAP
Measures. However, management cannot individually quantify on a
forward-looking basis the impact of these items on its EPS because
these items, which could be significant, are difficult to predict
and may be highly variable. As a result, CN does not provide a
corresponding GAAP measure for, or reconciliation to, its adjusted
EPS outlook.
(2) Forward-Looking Statements
Certain statements included in this news release constitute
"forward-looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and under
Canadian securities laws. By their nature, 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. Forward-looking statements may be identified by the
use of terminology such as "believes," "expects," "anticipates,"
"assumes," "outlook," "plans," "targets," or other similar
words.
2017 key assumptions
CN has made a number of economic and market assumptions in
preparing its 2017 outlook. The Company assumes that North American
industrial production for the year will increase by approximately
two per cent, and assumes U.S. housing starts in the range of 1.25
million units. The Company now assumes U.S. motor vehicle sales of
approximately 17 million units (compared to its April 24, 2017 assumption of approximately 17.5
million units.) For the 2016/2017 crop year, the grain crops in
both the United States and
Canada were above their respective
five-year averages. The Company assumes that the 2017/2018 grain
crops in both Canada and
the United States will be in line
with their respective five-year averages. With these assumptions,
CN assumes total RTMs in 2017 will increase by approximately 10 per
cent versus 2016. CN expects continued pricing improvement above
inflation. CN now assumes that in 2017 the value of the Canadian
dollar in U.S. currency will be in the range of $0.75 to $0.80 (compared to its April 24, 2017 assumption in the range of
$0.75), and that the average price of
crude oil (West Texas Intermediate) will be in the range of
US$40 to US$50 per barrel (compared
to its April 24, 2017 assumption in
the range of US$50 to US$60 per
barrel.) In 2017, CN plans to invest approximately C$2.6 billion in its capital program, of which
C$1.6 billion is targeted toward
track infrastructure.
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 to be materially different from the
outlook or any future results or performance implied by such
statements. Accordingly, readers are advised not to place undue
reliance on forward-looking statements. 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; increases in maintenance and
operating costs; security threats; reliance on technology; trade
restrictions; transportation of hazardous materials; various events
which could disrupt operations, including natural events such as
severe weather, droughts, floods and earthquakes; climate change;
labor negotiations and disruptions; environmental claims;
uncertainties of investigations, proceedings or other types of
claims and litigation; risks and liabilities arising from
derailments; timing and completion of capital programs; 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 (MD&A)
in CN's annual and interim reports, Annual Information Form and
Form 40-F, filed with Canadian and U.S. securities regulators and
available on CN's website, for a description of major risk
factors.
Forward-looking statements reflect information as
of the date on which they are made. 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 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.
This earnings news release, as well as additional
information, including the Financial Statements, Notes thereto and
MD&A, is contained in CN's Quarterly Review available on the
Company's website at www.cn.ca/financial-results and on SEDAR
at www.sedar.com as well as on EDGAR at www.sec.gov.
CN is a true backbone of the economy whose team
of approximately 23,000 railroaders transports more than
C$250 billion worth of goods annually
for a wide range of business sectors, ranging from resource
products to manufactured products to consumer goods, across a rail
network of approximately 20,000 route-miles spanning Canada and mid-America. CN – Canadian National
Railway Company, along with its operating railway subsidiaries –
serves the cities and ports of Vancouver, Prince
Rupert, B.C., Montreal,
Halifax, New Orleans, and Mobile, Ala., and the metropolitan areas of
Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth,
Minn./Superior, Wis., and
Jackson, Miss., with connections
to all points in North America.
For more information about CN, visit the Company's website at
www.cn.ca.
Selected Railroad Statistics –
unaudited
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
2017
|
2016
|
|
2017
|
2016
|
Financial
measures
|
|
|
|
|
|
Key financial
performance indicators (1)
|
|
|
|
|
|
Total revenues ($
millions)
|
3,329
|
2,842
|
|
6,535
|
5,806
|
Rail freight revenues
($ millions)
|
3,111
|
2,646
|
|
6,186
|
5,491
|
Operating income
($ millions)
|
1,495
|
1,293
|
|
2,798
|
2,510
|
Net income ($
millions)
|
1,031
|
858
|
|
1,915
|
1,650
|
Diluted earnings per
share ($)
|
1.36
|
1.10
|
|
2.51
|
2.10
|
Adjusted diluted
earnings per share ($) (2)
|
1.34
|
1.11
|
|
2.48
|
2.11
|
Free cash flow ($
millions) (2)
|
811
|
585
|
|
1,659
|
1,169
|
Gross property
additions ($ millions)
|
675
|
670
|
|
1,071
|
1,139
|
Share repurchases
($ millions)
|
521
|
533
|
|
1,012
|
1,053
|
Dividends per share
($)
|
0.4125
|
0.3750
|
|
0.8250
|
0.7500
|
Financial
position (1)
|
|
|
|
|
|
Total assets ($
millions)
|
37,245
|
36,094
|
|
37,245
|
36,094
|
Total liabilities
($ millions)
|
22,194
|
21,281
|
|
22,194
|
21,281
|
Shareholders' equity
($ millions)
|
15,051
|
14,813
|
|
15,051
|
14,813
|
Financial
ratio
|
|
|
|
|
|
Operating ratio
(%)
|
55.1
|
54.5
|
|
57.2
|
56.8
|
Operational
measures (3)
|
|
|
|
|
|
Statistical
operating data
|
|
|
|
|
|
Gross ton miles
(GTMs) (millions)
|
117,195
|
99,999
|
|
233,430
|
203,467
|
Revenue ton miles
(RTMs) (millions)
|
58,789
|
49,717
|
|
118,565
|
101,973
|
Carloads
(thousands)
|
1,424
|
1,249
|
|
2,792
|
2,504
|
Route miles
(includes Canada and the U.S.)
|
19,500
|
19,600
|
|
19,500
|
19,600
|
Employees (end of
period)
|
23,089
|
22,162
|
|
23,089
|
22,162
|
Employees (average
for the period)
|
22,858
|
22,230
|
|
22,627
|
22,462
|
Key operating
measures
|
|
|
|
|
|
Rail freight revenue
per RTM (cents)
|
5.29
|
5.32
|
|
5.22
|
5.38
|
Rail freight revenue
per carload ($)
|
2,185
|
2,118
|
|
2,216
|
2,193
|
GTMs per average
number of employees (thousands)
|
5,127
|
4,498
|
|
10,316
|
9,058
|
Operating expenses
per GTM (cents)
|
1.56
|
1.55
|
|
1.60
|
1.62
|
Labor and fringe
benefits expense per GTM (cents)
|
0.45
|
0.47
|
|
0.47
|
0.52
|
Diesel fuel consumed
(US gallons in millions)
|
108.6
|
93.6
|
|
221.5
|
197.3
|
Average fuel price
($/US gallon)
|
2.65
|
2.30
|
|
2.71
|
2.18
|
GTMs per US gallon of
fuel consumed
|
1,079
|
1,068
|
|
1,054
|
1,031
|
Terminal dwell
(hours)
|
14.6
|
13.6
|
|
15.0
|
14.0
|
Train velocity
(miles per hour)
|
26.1
|
27.6
|
|
25.9
|
27.5
|
Safety
indicators (4)
|
|
|
|
|
|
Injury frequency rate
(per 200,000 person hours)
|
1.54
|
1.48
|
|
1.71
|
1.57
|
Accident rate (per
million train miles)
|
1.61
|
1.57
|
|
1.58
|
1.33
|
(1)
|
Amounts expressed
in Canadian dollars and prepared in accordance with United States
generally accepted accounting principles (GAAP), unless otherwise
noted.
|
(2)
|
See supplementary
schedule entitled Non-GAAP Measures for an explanation of these
non-GAAP measures.
|
(3)
|
Statistical
operating data, key operating measures and safety indicators are
unaudited and based on estimated data available at such time and
are subject to change as more complete information becomes
available. Definitions of these indicators are provided on CN's
website, www.cn.ca/glossary.
|
(4)
|
Based on Federal
Railroad Administration (FRA) reporting criteria.
|
Supplementary Information – unaudited
|
Three months ended
June 30
|
Six months ended
June 30
|
|
2017
|
2016
|
% Change
Fav (Unfav)
|
% Change
at
constant
currency
Fav (Unfav) (1)
|
2017
|
2016
|
% Change
Fav (Unfav)
|
% Change
at
constant
currency
Fav (Unfav) (1)
|
Revenues ($
millions) (2)
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
549
|
492
|
12%
|
8%
|
1,133
|
1,070
|
6%
|
6%
|
Metals and
minerals
|
389
|
292
|
33%
|
29%
|
750
|
602
|
25%
|
24%
|
Forest
products
|
464
|
439
|
6%
|
2%
|
911
|
901
|
1%
|
1%
|
Coal
|
126
|
95
|
33%
|
29%
|
255
|
188
|
36%
|
36%
|
Grain and
fertilizers
|
530
|
432
|
23%
|
20%
|
1,137
|
954
|
19%
|
19%
|
Intermodal
|
815
|
697
|
17%
|
15%
|
1,557
|
1,390
|
12%
|
12%
|
Automotive
|
238
|
199
|
20%
|
16%
|
443
|
386
|
15%
|
15%
|
Total rail freight
revenues
|
3,111
|
2,646
|
18%
|
15%
|
6,186
|
5,491
|
13%
|
13%
|
Other
revenues
|
218
|
196
|
11%
|
8%
|
349
|
315
|
11%
|
10%
|
Total
revenues
|
3,329
|
2,842
|
17%
|
14%
|
6,535
|
5,806
|
13%
|
12%
|
Revenue ton miles
(RTMs) (millions) (3)
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
11,027
|
9,575
|
15%
|
15%
|
22,855
|
20,881
|
9%
|
9%
|
Metals and
minerals
|
6,887
|
4,751
|
45%
|
45%
|
13,330
|
9,454
|
41%
|
41%
|
Forest
products
|
7,789
|
7,807
|
-
|
-
|
15,479
|
15,736
|
(2%)
|
(2%)
|
Coal
|
3,355
|
2,686
|
25%
|
25%
|
6,957
|
4,934
|
41%
|
41%
|
Grain and
fertilizers
|
13,415
|
10,353
|
30%
|
30%
|
28,902
|
22,883
|
26%
|
26%
|
Intermodal
|
15,109
|
13,519
|
12%
|
12%
|
28,813
|
26,182
|
10%
|
10%
|
Automotive
|
1,207
|
1,026
|
18%
|
18%
|
2,229
|
1,903
|
17%
|
17%
|
Total
RTMs
|
58,789
|
49,717
|
18%
|
18%
|
118,565
|
101,973
|
16%
|
16%
|
Rail freight
revenue / RTM (cents) (2) (3)
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
4.98
|
5.14
|
(3%)
|
(6%)
|
4.96
|
5.12
|
(3%)
|
(3%)
|
Metals and
minerals
|
5.65
|
6.15
|
(8%)
|
(11%)
|
5.63
|
6.37
|
(12%)
|
(12%)
|
Forest
products
|
5.96
|
5.62
|
6%
|
2%
|
5.89
|
5.73
|
3%
|
2%
|
Coal
|
3.76
|
3.54
|
6%
|
4%
|
3.67
|
3.81
|
(4%)
|
(4%)
|
Grain and
fertilizers
|
3.95
|
4.17
|
(5%)
|
(7%)
|
3.93
|
4.17
|
(6%)
|
(6%)
|
Intermodal
|
5.39
|
5.16
|
4%
|
3%
|
5.40
|
5.31
|
2%
|
2%
|
Automotive
|
19.72
|
19.40
|
2%
|
(1%)
|
19.87
|
20.28
|
(2%)
|
(2%)
|
Total rail freight
revenue / RTM
|
5.29
|
5.32
|
(1%)
|
(3%)
|
5.22
|
5.38
|
(3%)
|
(3%)
|
Carloads
(thousands) (3)
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
149
|
141
|
6%
|
6%
|
306
|
294
|
4%
|
4%
|
Metals and
minerals
|
245
|
186
|
32%
|
32%
|
477
|
364
|
31%
|
31%
|
Forest
products
|
108
|
110
|
(2%)
|
(2%)
|
215
|
223
|
(4%)
|
(4%)
|
Coal
|
71
|
73
|
(3%)
|
(3%)
|
144
|
152
|
(5%)
|
(5%)
|
Grain and
fertilizers
|
149
|
129
|
16%
|
16%
|
313
|
275
|
14%
|
14%
|
Intermodal
|
628
|
542
|
16%
|
16%
|
1,196
|
1,065
|
12%
|
12%
|
Automotive
|
74
|
68
|
9%
|
9%
|
141
|
131
|
8%
|
8%
|
Total
carloads
|
1,424
|
1,249
|
14%
|
14%
|
2,792
|
2,504
|
12%
|
12%
|
Rail freight
revenue / carload ($) (2) (3)
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
3,685
|
3,489
|
6%
|
2%
|
3,703
|
3,639
|
2%
|
2%
|
Metals and
minerals
|
1,588
|
1,570
|
1%
|
(2%)
|
1,572
|
1,654
|
(5%)
|
(5%)
|
Forest
products
|
4,296
|
3,991
|
8%
|
4%
|
4,237
|
4,040
|
5%
|
5%
|
Coal
|
1,775
|
1,301
|
36%
|
33%
|
1,771
|
1,237
|
43%
|
43%
|
Grain and
fertilizers
|
3,557
|
3,349
|
6%
|
4%
|
3,633
|
3,469
|
5%
|
5%
|
Intermodal
|
1,298
|
1,286
|
1%
|
(1%)
|
1,302
|
1,305
|
-
|
-
|
Automotive
|
3,216
|
2,926
|
10%
|
7%
|
3,142
|
2,947
|
7%
|
6%
|
Total rail freight
revenue / carload
|
2,185
|
2,118
|
3%
|
1%
|
2,216
|
2,193
|
1%
|
1%
|
(1)
|
See supplementary
schedule entitled Non-GAAP Measures for an explanation of this
non-GAAP measure.
|
(2)
|
Amounts expressed
in Canadian dollars.
|
(3)
|
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.
|
Non-GAAP Measures – unaudited
In this supplementary schedule, the word
"Company" or "CN" means Canadian National Railway Company and, as
the context requires, its wholly-owned subsidiaries. Financial
information included in this schedule is expressed in Canadian
dollars, unless otherwise noted.
CN reports its financial results in accordance
with United States generally
accepted accounting principles (GAAP). The Company also uses
non-GAAP measures that do not have any standardized meaning
prescribed by GAAP, including adjusted performance measures,
constant currency, free cash flow, and adjusted debt-to-adjusted
EBITDA multiple. These non-GAAP measures may not be comparable to
similar measures presented by other companies. From management's
perspective, these non-GAAP measures are useful measures of
performance and provide investors with supplementary information to
assess the Company's results of operations and liquidity. These
non-GAAP measures should not be considered in isolation or as a
substitute for financial measures prepared in accordance with
GAAP.
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 CN's normal day-to-day
operations and could distort the analysis of trends in business
performance. Management uses these measures, which exclude certain
income and expense items in its results that management believes
are not reflective of CN's underlying business operations, to set
performance goals and as a means to measure CN's performance. The
exclusion of items in adjusted net income and adjusted earnings per
share does not, however, imply that these items are necessarily
non-recurring. These measures do not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies.
For the three and six months ended June 30, 2017, the Company reported adjusted net
income of $1,013 million, or
$1.34 per diluted share, and
$1,892 million, or $2.48 per diluted share, respectively. The
adjusted figures for the three months ended June 30, 2017 exclude a deferred income tax
recovery of $18 million ($0.02 per diluted share), resulting from the
enactment of a lower provincial corporate income tax rate. The
adjusted figures for the six months ended June 30, 2017 exclude a deferred income tax
recovery of $18 million ($0.02 per diluted share) in the second quarter
and $5 million ($0.01 per diluted share) in the first quarter,
resulting from the enactment of lower provincial corporate income
tax rates.
For the three and six months ended June 30, 2016, the Company reported adjusted net
income of $865 million, or
$1.11 per diluted share, and
$1,657 million, or $2.11 per diluted share, respectively, which
exclude a deferred income tax expense of $7
million ($0.01 per diluted
share) in the second quarter, resulting from the enactment of a
higher provincial corporate income tax rate.
The following table provides a reconciliation of
net income and earnings per share, as reported for the three and
six months ended June 30, 2017 and
2016, to the adjusted performance measures presented herein:
|
Three months ended
June 30
|
|
Six months ended
June 30
|
In millions,
except per share data
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
Net income as
reported
|
$
|
1,031
|
$
|
858
|
|
$
|
1,915
|
$
|
1,650
|
Adjustment:
Income tax expense (recovery)
|
|
(18)
|
|
7
|
|
|
(23)
|
|
7
|
Adjusted net
income
|
$
|
1,013
|
$
|
865
|
|
$
|
1,892
|
$
|
1,657
|
Basic earnings per
share as reported
|
$
|
1.36
|
$
|
1.10
|
|
$
|
2.52
|
$
|
2.11
|
Impact of
adjustments, per share
|
|
(0.02)
|
|
0.01
|
|
|
(0.03)
|
|
0.01
|
Adjusted basic
earnings per share
|
$
|
1.34
|
$
|
1.11
|
|
$
|
2.49
|
$
|
2.12
|
Diluted earnings per
share as reported
|
$
|
1.36
|
$
|
1.10
|
|
$
|
2.51
|
$
|
2.10
|
Impact of
adjustments, per share
|
|
(0.02)
|
|
0.01
|
|
|
(0.03)
|
|
0.01
|
Adjusted diluted
earnings per share
|
$
|
1.34
|
$
|
1.11
|
|
$
|
2.48
|
$
|
2.11
|
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
in the prior year. The average foreign exchange rates were
$1.35 and $1.33 per US$1.00,
respectively, for the three and six months ended June 30, 2017, and $1.29 and $1.33 per
US$1.00, respectively, for the three
and six months ended June 30,
2016.
On a constant currency basis, the Company's net
income for the three and six months ended June 30, 2017 would have been lower by
$28 million ($0.04 per diluted share) and $6 million ($0.01
per diluted share), respectively.
Free cash flow
Management believes that free cash flow is a
useful measure of liquidity as it demonstrates the Company's
ability to generate cash for debt obligations and for discretionary
uses such as payment of dividends, share repurchases, 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 the impact
of major acquisitions, if any. 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 following table provides a reconciliation of
net cash provided by operating activities as reported for the three
and six months ended June 30, 2017
and 2016, to free cash flow:
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
In
millions
|
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
Net cash provided by
operating activities
|
|
$
|
1,505
|
$
|
1,271
|
|
$
|
2,761
|
$
|
2,336
|
Net cash used in
investing activities (1)
|
|
|
(694)
|
|
(686)
|
|
|
(1,102)
|
|
(1,167)
|
Free cash
flow
|
|
$
|
811
|
$
|
585
|
|
$
|
1,659
|
$
|
1,169
|
(1)
|
As a result of the
retrospective adoption of Accounting Standards Update 2016-18 in
the first quarter of 2017, changes in restricted cash and cash
equivalents are no longer classified as investing activities within
the Consolidated Statements of Cash Flows and are no longer
included as an adjustment in the Company's definition of free cash
flow. There is no impact to free cash flow resulting from this
reclassification.
|
Adjusted debt-to-adjusted EBITDA
multiple
Management believes that the adjusted
debt-to-adjusted earnings before interest, income taxes,
depreciation and amortization (EBITDA) multiple is a useful credit
measure because it reflects the Company's ability to service its
debt and other long term obligations. The Company calculates the
adjusted debt-to-adjusted EBITDA multiple as adjusted debt divided
by adjusted EBITDA. These measures do not have any standardized
meaning prescribed by GAAP and therefore, may not be comparable to
similar measures presented by other companies.
The following table provides a reconciliation of
debt and net income to the adjusted measures presented below, which
have been used to calculate the adjusted debt-to-adjusted EBITDA
multiple:
In millions,
unless otherwise indicated
|
As at and for the
twelve months ended June 30,
|
|
2017
|
|
2016
|
Debt
|
$
|
10,557
|
$
|
10,322
|
Adjustment:
Present value of operating lease commitments
(1)
|
|
488
|
|
561
|
Adjusted
debt
|
$
|
11,045
|
$
|
10,883
|
|
|
|
|
|
Net income
|
$
|
3,905
|
$
|
3,598
|
Interest
expense
|
|
486
|
|
469
|
Income tax
expense
|
|
1,303
|
|
1,315
|
Depreciation and
amortization
|
|
1,271
|
|
1,180
|
EBITDA
|
|
6,965
|
|
6,562
|
Adjustments:
|
|
|
|
|
|
Other
income
|
|
|
(94)
|
|
(31)
|
|
Deemed interest on
operating leases
|
|
|
22
|
|
27
|
Adjusted
EBITDA
|
$
|
6,893
|
$
|
6,558
|
Adjusted
debt-to-adjusted EBITDA multiple (times)
|
|
1.60
|
|
1.66
|
(1)
|
The operating
lease commitments have been discounted using the Company's implicit
interest rate for each of the periods presented.
|
SOURCE CN