CN increasing capital investments to meet
demand and future growth
MONTREAL, Oct. 24,
2017 /CNW/ - CN (TSX: CNR) (NYSE: CNI) today reported its
financial and operating results for the third quarter ended
Sept. 30, 2017.
Financial results highlights
Third quarter 2017
compared to third quarter 2016
- Net income decreased by one per cent to C$958 million, while diluted EPS increased by two
per cent to C$1.27.
- Adjusted net income increased by two per cent to C$989 million, with adjusted diluted EPS
increasing by five per cent to C$1.31. (1)
- Operating income increased by four per cent to C$1,459 million.
- Revenues increased by seven per cent to C$3,221 million.
- Revenue ton-miles (RTMs) increased by 10 per cent and
carloadings increased by 11 per cent.
- Operating expenses increased by 10 per cent to C$1,762 million.
- Operating ratio of 54.7 per cent, an increase of 1.4
points.
- Free cash flow (1) for the first nine months of 2017
was C$2,321 million, compared with
C$1,743 million for the year-earlier
period.
Luc Jobin,
president and chief executive officer, said: "CN delivered strong
third-quarter financial results as we continued to see increased
demand across key business segments such as frac sand, intermodal,
coal and Canadian grain. I'm proud of what our team has
accomplished given the strength and speed of the volume growth
we've experienced this year.
"To meet the needs of an expanding North American
economy and new growth opportunities, we are increasing investments
in our infrastructure and equipment by C$100
million, for a total capital program of C$2.7 billion in 2017. During the third quarter,
and continuing through the rest of the year, we've been hiring
across our network, particularly in Western Canada, as we remain focused on
delivering superior service to our customers," Jobin continued.
"We are reaffirming our 2017 adjusted diluted EPS
outlook of C$4.95 to C$5.10, compared
to last year's adjusted diluted EPS (1) of C$4.59." (2)
Foreign currency impact on results
Although CN reports its earnings in Canadian dollars, a large
portion of its revenues and expenses is denominated in U.S.
dollars. 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 third
quarter of 2017 would have been higher by C$22 million, or C$0.03 per diluted share.
Third-quarter 2017 revenues, traffic volumes
and expenses
Revenues for the third quarter of 2017 were
C$3,221 million, an increase of seven
per cent, when compared to the same period in 2016. Revenues
increased for metals and minerals (31 per cent), coal (23 per
cent), intermodal (12 per cent), automotive (four per cent) and
other revenues (two per cent). Revenues declined for forest
products (two per cent), and grain and fertilizers (one per cent),
while petroleum and chemicals revenues remained essentially
flat.
The increase in revenues was mainly attributable
to higher volumes of traffic in overseas intermodal, frac sand,
coal and petroleum coke exports, and Canadian grain; freight rate
increases; and higher applicable fuel surcharge rates; partly
offset by the negative translation impact of a stronger Canadian
dollar.
Carloadings for the quarter increased by 11 per cent to 1,484
thousand.
RTMs, measuring the relative weight and distance
of rail freight transported by CN, increased by 10 per cent from
the year-earlier quarter. Rail freight revenue per RTM decreased by
three per cent over the year-earlier period, mainly driven by an
increase in the average length of haul and the negative translation
impact of a stronger Canadian dollar; partly offset by freight rate
increases and higher applicable fuel surcharge rates.
Operating expenses for the third quarter
increased by 10 per cent to C$1,762
million, mainly due to higher costs from increased volumes
and higher fuel prices, partly offset by the positive translation
impact of a stronger 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 and U.S. motor vehicle sales of approximately 17 million
units. For the 2016/2017 crop year, the grain crops in both
Canada and the United States 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. CN assumes total RTMs in
2017 will increase by approximately 10 per cent versus 2016. CN
expects continued pricing improvement above inflation. CN 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,
and that the average price of crude oil (West Texas Intermediate)
will be in the range of US$40 to
US$50 per barrel. In 2017, CN now plans to invest
approximately C$2.7 billion in its
capital program, compared to its July 25,
2017 plan to invest approximately C$2.6 billion in its capital program, of which
C$1.6 billion is still 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, fires, 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$250 billion worth of goods annually
for a wide range of business sectors, ranging from resource
products to manufactured products to consumer goods, across a rail
network of approximately 20,000 route-miles spanning Canada and mid-America. CN – Canadian National
Railway Company, along with its operating railway subsidiaries –
serves the cities and ports of Vancouver, Prince
Rupert, B.C., Montreal,
Halifax, New Orleans, and Mobile, Ala., and the metropolitan areas of
Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth,
Minn./Superior, Wis., and
Jackson, Miss., with connections
to all points in North America.
For more information about CN, visit the Company's website at
www.cn.ca.
Selected Railroad Statistics - unaudited
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
2017
|
2016
|
|
2017
|
2016
|
Financial
measures
|
|
|
|
|
|
Key financial
performance indicators (1)
|
|
|
|
|
|
Total revenues ($
millions)
|
3,221
|
3,014
|
|
9,756
|
8,820
|
Rail freight revenues
($ millions)
|
3,016
|
2,813
|
|
9,202
|
8,304
|
Operating income
($ millions)
|
1,459
|
1,407
|
|
4,257
|
3,917
|
Net income ($
millions)
|
958
|
972
|
|
2,873
|
2,622
|
Diluted earnings per
share ($)
|
1.27
|
1.25
|
|
3.78
|
3.35
|
Adjusted diluted
earnings per share ($) (2)
|
1.31
|
1.25
|
|
3.79
|
3.36
|
Free cash flow ($
millions) (2)
|
662
|
574
|
|
2,321
|
1,743
|
Gross property
additions ($ millions)
|
724
|
890
|
|
1,795
|
2,029
|
Share repurchases
($ millions)
|
532
|
501
|
|
1,544
|
1,554
|
Dividends per share
($)
|
0.4125
|
0.3750
|
|
1.2375
|
1.1250
|
Financial
position (1)
|
|
|
|
|
|
Total assets ($
millions)
|
37,104
|
37,068
|
|
37,104
|
37,068
|
Total liabilities
($ millions)
|
22,019
|
21,954
|
|
22,019
|
21,954
|
Shareholders' equity
($ millions)
|
15,085
|
15,114
|
|
15,085
|
15,114
|
Financial
ratio
|
|
|
|
|
|
Operating ratio
(%)
|
54.7
|
53.3
|
|
56.4
|
55.6
|
Operational
measures (3)
|
|
|
|
|
|
Statistical
operating data
|
|
|
|
|
|
Gross ton miles
(GTMs) (millions)
|
118,171
|
105,535
|
|
351,601
|
309,002
|
Revenue ton
miles (RTMs) (millions)
|
59,056
|
53,448
|
|
177,621
|
155,421
|
Carloads
(thousands)
|
1,484
|
1,332
|
|
4,276
|
3,836
|
Route miles
(includes Canada and the U.S.)
|
19,500
|
19,600
|
|
19,500
|
19,600
|
Employees (end of
period)
|
23,428
|
22,166
|
|
23,428
|
22,166
|
Employees (average
for the period)
|
23,183
|
22,134
|
|
22,812
|
22,353
|
Key operating
measures
|
|
|
|
|
|
Rail freight revenue
per RTM (cents)
|
5.11
|
5.26
|
|
5.18
|
5.34
|
Rail freight revenue
per carload ($)
|
2,032
|
2,112
|
|
2,152
|
2,165
|
GTMs per average
number of employees (thousands)
|
5,097
|
4,768
|
|
15,413
|
13,824
|
Operating expenses
per GTM (cents)
|
1.49
|
1.52
|
|
1.56
|
1.59
|
Labor and fringe
benefits expense per GTM (cents)
|
0.44
|
0.47
|
|
0.46
|
0.50
|
Diesel fuel consumed
(US gallons in millions)
|
107.1
|
94.3
|
|
329.2
|
291.6
|
Average fuel price
($/US gallon)
|
2.56
|
2.43
|
|
2.66
|
2.26
|
GTMs per US gallon of
fuel consumed
|
1,103
|
1,119
|
|
1,068
|
1,060
|
Terminal dwell
(hours)
|
16.0
|
13.5
|
|
15.4
|
13.8
|
Train velocity
(miles per hour)
|
25.6
|
27.4
|
|
25.8
|
27.5
|
Safety
indicators (4)
|
|
|
|
|
|
Injury frequency rate
(per 200,000 person hours)
|
1.72
|
1.91
|
|
1.72
|
1.68
|
Accident rate (per
million train miles)
|
2.03
|
1.31
|
|
1.72
|
1.32
|
(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, as such, certain of the comparative data have been
restated. 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
September 30
|
|
Nine months ended
September 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
|
532
|
532
|
-
|
|
3%
|
|
1,665
|
1,602
|
4%
|
|
5%
|
Metals and
minerals
|
396
|
303
|
31%
|
|
35%
|
|
1,146
|
905
|
27%
|
|
28%
|
Forest
products
|
440
|
449
|
(2%)
|
|
1%
|
|
1,351
|
1,350
|
-
|
|
1%
|
Coal
|
135
|
110
|
23%
|
|
26%
|
|
390
|
298
|
31%
|
|
32%
|
Grain and
fertilizers
|
492
|
497
|
(1%)
|
|
1%
|
|
1,629
|
1,451
|
12%
|
|
13%
|
Intermodal
|
827
|
736
|
12%
|
|
14%
|
|
2,384
|
2,126
|
12%
|
|
13%
|
Automotive
|
194
|
186
|
4%
|
|
8%
|
|
637
|
572
|
11%
|
|
12%
|
Total rail freight
revenues
|
3,016
|
2,813
|
7%
|
|
10%
|
|
9,202
|
8,304
|
11%
|
|
12%
|
Other
revenues
|
205
|
201
|
2%
|
|
5%
|
|
554
|
516
|
7%
|
|
8%
|
Total
revenues
|
3,221
|
3,014
|
7%
|
|
9%
|
|
9,756
|
8,820
|
11%
|
|
11%
|
Revenue ton miles
(RTMs) (millions) (3)
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
10,823
|
10,711
|
1%
|
|
1%
|
|
33,678
|
31,592
|
7%
|
|
7%
|
Metals and
minerals
|
7,775
|
5,186
|
50%
|
|
50%
|
|
21,105
|
14,640
|
44%
|
|
44%
|
Forest
products
|
7,613
|
7,914
|
(4%)
|
|
(4%)
|
|
23,092
|
23,650
|
(2%)
|
|
(2%)
|
Coal
|
3,716
|
2,652
|
40%
|
|
40%
|
|
10,673
|
7,586
|
41%
|
|
41%
|
Grain and
fertilizers
|
12,631
|
12,399
|
2%
|
|
2%
|
|
41,533
|
35,282
|
18%
|
|
18%
|
Intermodal
|
15,416
|
13,680
|
13%
|
|
13%
|
|
44,229
|
39,862
|
11%
|
|
11%
|
Automotive
|
1,082
|
906
|
19%
|
|
19%
|
|
3,311
|
2,809
|
18%
|
|
18%
|
Total
RTMs
|
59,056
|
53,448
|
10%
|
|
10%
|
|
177,621
|
155,421
|
14%
|
|
14%
|
Rail freight
revenue / RTM (cents) (2) (3)
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
4.92
|
4.97
|
(1%)
|
|
2%
|
|
4.94
|
5.07
|
(3%)
|
|
(2%)
|
Metals and
minerals
|
5.09
|
5.84
|
(13%)
|
|
(10%)
|
|
5.43
|
6.18
|
(12%)
|
|
(11%)
|
Forest
products
|
5.78
|
5.67
|
2%
|
|
5%
|
|
5.85
|
5.71
|
2%
|
|
3%
|
Coal
|
3.63
|
4.15
|
(13%)
|
|
(10%)
|
|
3.65
|
3.93
|
(7%)
|
|
(6%)
|
Grain and
fertilizers
|
3.90
|
4.01
|
(3%)
|
|
(1%)
|
|
3.92
|
4.11
|
(5%)
|
|
(4%)
|
Intermodal
|
5.36
|
5.38
|
-
|
|
1%
|
|
5.39
|
5.33
|
1%
|
|
2%
|
Automotive
|
17.93
|
20.53
|
(13%)
|
|
(10%)
|
|
19.24
|
20.36
|
(6%)
|
|
(5%)
|
Total rail freight
revenue / RTM
|
5.11
|
5.26
|
(3%)
|
|
(1%)
|
|
5.18
|
5.34
|
(3%)
|
|
(2%)
|
Carloads
(thousands) (3)
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
154
|
149
|
3%
|
|
3%
|
|
460
|
443
|
4%
|
|
4%
|
Metals and
minerals
|
261
|
213
|
23%
|
|
23%
|
|
738
|
577
|
28%
|
|
28%
|
Forest
products
|
107
|
109
|
(2%)
|
|
(2%)
|
|
322
|
332
|
(3%)
|
|
(3%)
|
Coal
|
83
|
89
|
(7%)
|
|
(7%)
|
|
227
|
241
|
(6%)
|
|
(6%)
|
Grain and
fertilizers
|
145
|
150
|
(3%)
|
|
(3%)
|
|
458
|
425
|
8%
|
|
8%
|
Intermodal
|
671
|
557
|
20%
|
|
20%
|
|
1,867
|
1,622
|
15%
|
|
15%
|
Automotive
|
63
|
65
|
(3%)
|
|
(3%)
|
|
204
|
196
|
4%
|
|
4%
|
Total
carloads
|
1,484
|
1,332
|
11%
|
|
11%
|
|
4,276
|
3,836
|
11%
|
|
11%
|
Rail freight
revenue / carload ($) (2)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
3,455
|
3,570
|
(3%)
|
|
(1%)
|
|
3,620
|
3,616
|
-
|
|
1%
|
Metals and
minerals
|
1,517
|
1,423
|
7%
|
|
10%
|
|
1,553
|
1,568
|
(1%)
|
|
-
|
Forest
products
|
4,112
|
4,119
|
-
|
|
3%
|
|
4,196
|
4,066
|
3%
|
|
4%
|
Coal
|
1,627
|
1,236
|
32%
|
|
35%
|
|
1,718
|
1,237
|
39%
|
|
40%
|
Grain and
fertilizers
|
3,393
|
3,313
|
2%
|
|
4%
|
|
3,557
|
3,414
|
4%
|
|
5%
|
Intermodal
|
1,232
|
1,321
|
(7%)
|
|
(5%)
|
|
1,277
|
1,311
|
(3%)
|
|
(2%)
|
Automotive
|
3,079
|
2,862
|
8%
|
|
11%
|
|
3,123
|
2,918
|
7%
|
|
8%
|
Total rail freight
revenue / carload
|
2,032
|
2,112
|
(4%)
|
|
(2%)
|
|
2,152
|
2,165
|
(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 nine months ended September 30, 2017, the Company reported adjusted
net income of $989 million, or
$1.31 per diluted share, and
$2,881 million, or $3.79 per diluted share, respectively. The
adjusted figures for the three months ended September 30, 2017 exclude a deferred income tax
expense of $31 million ($0.04 per diluted share), resulting from the
enactment of a higher state corporate income tax rate. The adjusted
figures for the nine months ended September
30, 2017 exclude a net deferred income tax expense of
$8 million ($0.01 per diluted share) consisting of a deferred
income tax expense of $31 million
($0.04 per diluted share) in the
third quarter, resulting from the enactment of a higher state
corporate income tax rate, and deferred income tax recoveries of
$18 million ($0.02 per diluted share) in the second quarter
and $5 million ($0.01 per diluted share) in the first quarter,
both resulting from the enactment of lower provincial corporate
income tax rates.
For the nine months ended September 30,
2016, the Company reported adjusted net income of
$2,629 million, or $3.36 per diluted share, which excludes 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 nine months ended
September 30, 2017 and 2016, to the
adjusted performance measures presented herein:
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
In millions,
except per share data
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
Net income as
reported
|
$
|
958
|
$
|
972
|
|
$
|
2,873
|
$
|
2,622
|
Adjustment:
Income tax expense
|
|
31
|
|
-
|
|
|
8
|
|
7
|
Adjusted net
income
|
$
|
989
|
$
|
972
|
|
$
|
2,881
|
$
|
2,629
|
Basic earnings per
share as reported
|
$
|
1.28
|
$
|
1.26
|
|
$
|
3.80
|
$
|
3.37
|
Impact of
adjustment, per share
|
|
0.04
|
|
-
|
|
|
0.01
|
|
0.01
|
Adjusted basic
earnings per share
|
$
|
1.32
|
$
|
1.26
|
|
$
|
3.81
|
$
|
3.38
|
Diluted earnings per
share as reported
|
$
|
1.27
|
$
|
1.25
|
|
$
|
3.78
|
$
|
3.35
|
Impact of
adjustment, per share
|
|
0.04
|
|
-
|
|
|
0.01
|
|
0.01
|
Adjusted diluted
earnings per share
|
$
|
1.31
|
$
|
1.25
|
|
$
|
3.79
|
$
|
3.36
|
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 $1.25 and $1.31 per
US$1.00, respectively, for the three
and nine months ended September 30,
2017, and $1.31 and
$1.32 per US$1.00, respectively, for the three and nine
months ended September 30, 2016.
On a constant currency basis, the Company's net income for the
three and nine months ended September 30,
2017 would have been higher by $22
million ($0.03 per diluted
share) and $16 million ($0.02 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 nine
months ended September 30, 2017 and
2016, to free cash flow:
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
In
millions
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
Net cash provided by
operating activities
|
$
|
1,406
|
$
|
1,488
|
|
$
|
4,167
|
$
|
3,824
|
Net cash used in
investing activities (1)
|
|
(744)
|
|
(914)
|
|
|
(1,846)
|
|
(2,081)
|
Free cash
flow
|
$
|
662
|
$
|
574
|
|
$
|
2,321
|
$
|
1,743
|
(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 September 30,
|
|
2017
|
|
2016
|
Debt
|
|
|
$
|
10,414
|
$
|
10,693
|
Adjustment:
Present value of operating lease commitments
(1)
|
|
480
|
|
552
|
Adjusted
debt
|
|
|
$
|
10,894
|
$
|
11,245
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
3,891
|
$
|
3,563
|
Interest
expense
|
|
|
|
487
|
|
476
|
Income tax
expense
|
|
|
|
1,373
|
|
1,252
|
Depreciation and
amortization
|
|
|
|
1,275
|
|
1,205
|
EBITDA
|
|
|
|
7,026
|
|
6,496
|
Adjustments:
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
(99)
|
|
(20)
|
|
Deemed interest on
operating leases
|
|
|
|
22
|
|
26
|
Adjusted
EBITDA
|
|
|
$
|
6,949
|
$
|
6,502
|
Adjusted
debt-to-adjusted EBITDA multiple (times)
|
|
|
1.57
|
|
1.73
|
(1)
|
The operating
lease commitments have been discounted using the Company's implicit
interest rate for each of the periods presented.
|
SOURCE CN