CN (TSX: CNR) (NYSE: CNI) today reported its financial and
operating results for the fourth quarter and year ended December
31, 2022. Diluted earnings per share (EPS) of C$2.10 grew by 23% on
an adjusted basis in the fourth quarter, and operating ratio
remained flat at 57.9% on an adjusted basis. (1) For the same
period, the Company reported diluted EPS growth of 24%, while
operating ratio improved 0.4 points.
“I am very proud of the work accomplished by our
team in the fourth quarter and throughout the year. Our approach to
scheduled railroading improved our service to our customers, drove
operational efficiency, and built the resiliency that enabled a
rapid recovery during the extreme winter conditions late in the
quarter. As we look to 2023, we believe our back-to-basics strategy
and disciplined operating model will continue to deliver despite
the softening economy."- Tracy Robinson, President and Chief
Executive Officer, CN
Financial results highlights
Fourth-quarter 2022 compared to fourth-quarter
2021
- Revenues of C$4,542 million, an
increase of C$789 million or 21%.
- Operating income of C$1,912
million, an increase of 22%, or an increase of 21% on an adjusted
basis. (1)
- Diluted EPS of C$2.10, an increase
of 24%, or an increase of 23% on an adjusted basis. (1)
- Operating ratio, defined as
operating expenses as a percentage of revenues, of 57.9%, an
improvement of 0.4 points, or remained flat on an adjusted basis.
(1)
Full-year 2022 compared to full-year
2021
- Revenues of C$17,107 million, an
increase of C$2,630 million or 18%.
- Operating income of C$6,840
million, an increase of 22%, and adjusted operating income of
C$6,862 million, an increase of 22%. (1)
- Diluted EPS of C$7.44, an increase
of 8%, and adjusted diluted EPS of C$7.46, an increase of
25%. (1)
- Operating ratio of 60.0%, an
improvement of 1.2 points, and adjusted operating ratio of 59.9%,
an improvement of 1.3 points. (1)
- Free cash flow of C$4,259 million
compared to C$3,296 million in 2021. (1)
- Return on invested capital (ROIC)
of 15.8%, a decrease of 0.6 points, and adjusted ROIC of 15.9%, an
increase of 1.8 points. (1)
Operating
performanceFourth-quarter 2022 compared to
fourth-quarter 2021 Operating performance improved across
most measures in the fourth quarter of 2022 when compared to the
same period in 2021.
- Injury frequency rate (3) improved
by 34% and the accident rate (4) improved by 13%.
- Fuel efficiency improved by 1% to
0.886 US gallons of locomotive fuel consumed per 1,000 gross ton
miles (GTMs).
- Car velocity (car miles per day)
improved by 10%.
- Through network train speed (mph)
improved by 1%.
- Through dwell (entire railroad,
hours) improved by 9%.
- Train length (in feet) decreased by
7%.
Full-year 2022 compared to full-year
2021The Company’s focus on scheduled railroading has
resulted in improvements in car velocity, through dwell and fuel
efficiency, as well as a decrease in train length and train weight,
despite negative impacts from the harsh winter in the first quarter
of 2022.
- Injury frequency rate (3) improved
by 19% and the accident rate (4) increased by 7%.
- Fuel efficiency improved by 2% to
0.867 US gallons of locomotive fuel consumed per 1,000 GTMs.
- Car velocity (car miles per day)
improved by 1%.
- Through network train speed (mph)
decreased by 2%.
- Through dwell (entire railroad,
hours) improved by 4%.
- Train length (in feet) decreased by
5%.
2023 outlook and shareholder
distributions(2)CN expects to deliver EPS growth in the
low single-digit range due to a softer economic outlook.
The Company’s Board of Directors approved an 8%
increase to CN’s 2023 quarterly cash dividend, effective for the
first quarter of 2023. This is the 27th consecutive year of
dividend increases, demonstrating our confidence in the long-term
financial health of the Company. In addition, the Company’s Board
of Directors also approved a new Normal course issuer bid (NCIB)
that permits CN to purchase, for cancellation, over a 12-month
period up to 32 million common shares, starting on February 1,
2023, and ending no later than January 31, 2024.
Fourth-quarter 2022 revenues, traffic
volumes and expenses Revenues for the quarter increased by
21% to C$4,542 million, when compared to the same period in 2021.
The increase in revenues was mainly attributable to higher fuel
surcharge revenue as a result of higher fuel prices, the positive
translation impact of a weaker Canadian dollar, freight rate
increases and higher volumes of Canadian grain.
RTMs, measuring the weight and distance of
freight transported by CN, increased by 6%. Freight revenue per RTM
increased by 15%, mainly driven by higher fuel surcharge revenue as
a result of higher fuel prices, the positive translation impact of
a weaker Canadian dollar and freight rate increases.
Operating expenses for the quarter increased by
20% to C$2,630 million, when compared to the same period in 2021.
The increase was mainly as a result of higher fuel prices and the
negative translation impact of a weaker Canadian dollar.
Full-year 2022 revenues, traffic volumes
and expenses Revenues for 2022 increased by 18% to
C$17,107 million, when compared to 2021. The increase in revenues
was mainly attributable to higher fuel surcharge revenue as a
result of higher fuel prices, freight rate increases, the positive
translation impact of a weaker Canadian dollar, higher Canadian
export volumes of coal via west coast ports and higher volumes of
U.S. grain; partly offset by lower international container traffic
volumes via the port of Vancouver as a result of supply chain
congestion and significantly lower export volumes of Canadian grain
in the first half of 2022.
RTMs increased by 1%. Freight revenue per RTM
increased by 18%, mainly driven by higher fuel surcharge revenue as
a result of higher fuel prices, freight rate increases, a decrease
in the average length of haul and the positive translation impact
of a weaker Canadian dollar.
Operating expenses increased by 16% to C$10,267
million, mainly due to higher fuel prices and the negative
translation impact of a weaker Canadian dollar.
(1) Non-GAAP MeasuresCN 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 net income, adjusted
diluted earnings per share (EPS), adjusted operating income and
adjusted operating ratio (referred to as adjusted performance
measures), free cash flow, return on invested capital (ROIC) and
adjusted ROIC. 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 diluted EPS outlook (2)
excludes the expected impact of certain income and expense items,
which are expected to be comparable to adjustments made in prior
years. However, management cannot individually quantify on a
forward-looking basis the impact of these adjustments, which could
be significant, as they 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 diluted 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, including statements based on
management’s assessment and assumptions and publicly available
information with respect to CN. By their nature, forward-looking
statements involve risks, uncertainties and assumptions. CN
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.
2023 key assumptionsCN has made
a number of economic and market assumptions in preparing its 2023
outlook. The Company assumes negative North American industrial
production in 2023. For the 2022/2023 crop year, the grain crop in
Canada was above its three-year average (or in line when excluding
the significantly lower 2021/2022 crop year) and the U.S. grain
crop was in line with its three-year average. The Company assumes
that the 2023/2024 grain crops in Canada and the U.S. will be in
line with their respective three-year averages (excluding the
significantly lower 2021/2022 crop year in Canada). CN assumes
continued pricing above rail inflation upon contract renewals. CN
assumes that in 2023, the value of the Canadian dollar in U.S.
currency will be approximately $0.75, and assumes that in 2023 the
average price of crude oil (West Texas Intermediate) will be
approximately in the US$75 - US$80 range per barrel.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause actual results, performance or achievements
of CN to be materially different from the outlook or any future
results, performance or achievements 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, general economic and business conditions, including factors
impacting global supply chains such as pandemics and geopolitical
conflicts and tensions; 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 and
related cybersecurity risk; trade restrictions or other changes to
international trade arrangements; transportation of hazardous
materials; various events which could disrupt operations, including
illegal blockades of rail networks, and 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 also 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 relating to CN.
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.
Information contained on, or accessible through, our website is not
a part of this news release.
(3) Per 200,000 person hours,
based on Federal Railroad Administration (FRA) reporting
criteria.
(4) Per million train miles,
based on FRA reporting criteria.
This earnings news release is available on the
Company's website at www.cn.ca/financial-results and on SEDAR at
www.sedar.com as well as on the U.S. Securities and Exchange
Commission's website at www.sec.gov through EDGAR.
About CNCN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. CN's network connects Canada’s Eastern and Western
coasts with the U.S. South through a 18,600-mile rail network. CN
and its affiliates have been contributing to community prosperity
and sustainable trade since 1919. CN is committed to programs
supporting social responsibility and environmental stewardship.
|
Contacts: |
|
| Media |
Investment
Community |
| Jonathan Abecassis |
Paul Butcher |
| Senior Manager |
Vice-President |
| Media Relations |
Investor Relations |
| (438) 455-3692 |
(514) 399-0052 |
| media@cn.ca |
investor.relations@cn.ca |
Selected Railroad Statistics – unaudited
| |
Three months ended December 31 |
|
Year ended December 31 |
|
|
2022 |
2021 |
|
2022 |
2021 |
|
Financial measures |
|
|
|
|
|
| Key financial
performance indicators (1) |
|
|
|
|
|
| Total revenues ($
millions) |
4,542 |
3,753 |
|
17,107 |
14,477 |
| Freight revenues ($
millions) |
4,400 |
3,586 |
|
16,569 |
13,888 |
| Operating income ($
millions) |
1,912 |
1,566 |
|
6,840 |
5,616 |
| Adjusted operating income ($
millions) (2)(3) |
1,912 |
1,579 |
|
6,862 |
5,622 |
| Net income ($ millions)
(4) |
1,420 |
1,201 |
|
5,118 |
4,899 |
| Adjusted net income ($
millions) (2)(3)(4) |
1,420 |
1,211 |
|
5,134 |
4,225 |
| Diluted earnings per share ($)
(4) |
2.10 |
1.70 |
|
7.44 |
6.90 |
| Adjusted diluted earnings per
share ($) (2)(3)(4) |
2.10 |
1.71 |
|
7.46 |
5.95 |
| Free cash flow ($ millions)
(2)(5) |
1,335 |
1,262 |
|
4,259 |
3,296 |
| Gross property additions ($
millions) |
927 |
920 |
|
2,757 |
2,897 |
| Share repurchases ($
millions) |
1,065 |
1,059 |
|
4,709 |
1,582 |
| Dividends per share ($) |
0.7325 |
0.6150 |
|
2.9300 |
2.4600 |
|
Financial ratio |
|
|
|
|
|
| Operating ratio (%) (6) |
57.9 |
58.3 |
|
60.0 |
61.2 |
|
Adjusted operating ratio (%) (2)(3) |
57.9 |
57.9 |
|
59.9 |
61.2 |
|
Operational measures (7) |
|
|
|
|
|
| Statistical operating
data |
|
|
|
|
|
| Gross ton miles (GTMs)
(millions) |
116,317 |
110,196 |
|
463,710 |
458,401 |
| Revenue ton miles (RTMs)
(millions) |
60,143 |
56,563 |
|
235,788 |
233,138 |
| Carloads (thousands) |
1,408 |
1,374 |
|
5,697 |
5,701 |
| Route miles (includes Canada
and the U.S.) |
18,600 |
19,500 |
|
18,600 |
19,500 |
| Employees (end of period) |
23,971 |
22,604 |
|
23,971 |
22,604 |
|
Employees (average for the period) |
23,998 |
23,107 |
|
23,396 |
24,084 |
|
Key operating measures |
|
|
|
|
|
| Freight revenue per RTM
(cents) |
7.32 |
6.34 |
|
7.03 |
5.96 |
| Freight revenue per carload
($) |
3,125 |
2,610 |
|
2,908 |
2,436 |
| GTMs per average number of
employees (thousands) |
4,847 |
4,769 |
|
19,820 |
19,033 |
| Operating expenses per GTM
(cents) |
2.26 |
1.98 |
|
2.21 |
1.93 |
| Labor and fringe benefits
expense per GTM (cents) |
0.63 |
0.61 |
|
0.63 |
0.63 |
| Diesel fuel consumed (US
gallons in millions) |
103.0 |
98.3 |
|
402.2 |
405.2 |
| Average fuel price ($/US
gallon) |
5.73 |
3.70 |
|
5.42 |
3.28 |
| Fuel efficiency (US gallons of
locomotive fuel consumed per 1,000 GTMs) |
0.886 |
0.892 |
|
0.867 |
0.884 |
| Train weight (tons) |
9,148 |
9,665 |
|
9,324 |
9,658 |
| Train length (feet) |
7,870 |
8,491 |
|
8,160 |
8,559 |
| Car velocity (car miles per
day) |
207 |
189 |
|
196 |
195 |
| Through dwell (entire
railroad, hours) |
7.2 |
7.9 |
|
7.6 |
7.9 |
| Through network train speed
(miles per hour) |
19.6 |
19.5 |
|
18.9 |
19.2 |
|
Locomotive utilization (trailing GTMs per total horsepower) |
196 |
194 |
|
197 |
198 |
|
Safety indicators (8) |
|
|
|
|
|
| Injury frequency rate (per
200,000 person hours) |
0.93 |
1.40 |
|
1.10 |
1.36 |
|
Accident rate (per million train miles) |
1.82 |
2.08 |
|
1.97 |
1.84 |
|
(1) |
Amounts expressed in Canadian dollars and prepared in accordance
with United States generally accepted accounting principles (GAAP),
unless otherwise noted. |
| (2) |
These non-GAAP measures do not
have any standardized meaning prescribed by GAAP and therefore, may
not be comparable to similar measures presented by other
companies. |
| (3) |
See the supplementary schedule
entitled Non-GAAP Measures – Adjusted performance measures for an
explanation of these non-GAAP measures. |
| (4) |
In the first quarter of 2022, the
Company changed its method of calculating market-related values of
pension assets for its defined benefit plans using a retrospective
approach. Comparative figures have been restated to conform to the
change in methodology. See Note 2 – Change in accounting policy to
the Company's unaudited Interim Consolidated Financial Statements
for additional information. |
| (5) |
See the supplementary schedule
entitled Non-GAAP Measures – Free cash flow for an explanation of
this non-GAAP measure. |
| (6) |
Operating ratio is defined as
operating expenses as a percentage of revenues. |
| (7) |
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 gross
ton miles, fuel efficiency, train weight, train length, car
velocity, through dwell and through network train speed are
included within the Company’s Management’s Discussion and Analysis.
Definitions of all other indicators are provided on CN's website,
www.cn.ca/glossary. |
| (8) |
Based on Federal Railroad
Administration (FRA) reporting criteria. |
| |
|
Supplementary Information – unaudited
| |
Three months ended December 31 |
|
Year ended December 31 |
|
|
2022 |
2021 |
% ChangeFav (Unfav) |
|
% Change atconstantcurrency (1)Fav (Unfav) |
|
|
2022 |
2021 |
% ChangeFav (Unfav) |
|
% Change atconstantcurrency (1)Fav (Unfav) |
|
|
Revenues ($ millions) (2) |
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
794 |
755 |
5 |
% |
— |
% |
|
3,229 |
2,816 |
15 |
% |
12 |
% |
| Metals and minerals |
500 |
393 |
27 |
% |
20 |
% |
|
1,911 |
1,548 |
23 |
% |
20 |
% |
| Forest products |
517 |
435 |
19 |
% |
12 |
% |
|
2,006 |
1,740 |
15 |
% |
12 |
% |
| Coal |
235 |
165 |
42 |
% |
39 |
% |
|
937 |
618 |
52 |
% |
50 |
% |
| Grain and fertilizers |
954 |
643 |
48 |
% |
43 |
% |
|
2,783 |
2,475 |
12 |
% |
10 |
% |
| Intermodal |
1,184 |
1,049 |
13 |
% |
10 |
% |
|
4,906 |
4,115 |
19 |
% |
18 |
% |
|
Automotive |
216 |
146 |
48 |
% |
39 |
% |
|
797 |
576 |
38 |
% |
34 |
% |
|
Total freight revenues |
4,400 |
3,586 |
23 |
% |
18 |
% |
|
16,569 |
13,888 |
19 |
% |
17 |
% |
| Other
revenues |
142 |
167 |
(15 |
%) |
(19 |
%) |
|
538 |
589 |
(9 |
%) |
(11 |
%) |
|
Total revenues |
4,542 |
3,753 |
21 |
% |
16 |
% |
|
17,107 |
14,477 |
18 |
% |
16 |
% |
|
Revenue ton miles (RTMs)
(millions) (3) |
|
|
|
|
|
|
|
|
|
| Petroleum and chemicals |
10,669 |
10,955 |
(3 |
%) |
(3 |
%) |
|
46,273 |
42,436 |
9 |
% |
9 |
% |
| Metals and minerals |
6,753 |
6,617 |
2 |
% |
2 |
% |
|
27,606 |
26,743 |
3 |
% |
3 |
% |
| Forest products |
5,937 |
6,087 |
(2 |
%) |
(2 |
%) |
|
25,020 |
25,948 |
(4 |
%) |
(4 |
%) |
| Coal |
5,415 |
4,608 |
18 |
% |
18 |
% |
|
22,679 |
18,471 |
23 |
% |
23 |
% |
| Grain and fertilizers |
17,611 |
14,196 |
24 |
% |
24 |
% |
|
55,359 |
58,733 |
(6 |
%) |
(6 |
%) |
| Intermodal |
13,063 |
13,529 |
(3 |
%) |
(3 |
%) |
|
56,029 |
58,412 |
(4 |
%) |
(4 |
%) |
|
Automotive |
695 |
571 |
22 |
% |
22 |
% |
|
2,822 |
2,395 |
18 |
% |
18 |
% |
|
Total RTMs |
60,143 |
56,563 |
6 |
% |
6 |
% |
|
235,788 |
233,138 |
1 |
% |
1 |
% |
|
Freight revenue / RTM (cents) (2)
(3) |
|
|
|
|
|
|
|
|
|
| Petroleum and chemicals |
7.44 |
6.89 |
8 |
% |
3 |
% |
|
6.98 |
6.64 |
5 |
% |
3 |
% |
| Metals and minerals |
7.40 |
5.94 |
25 |
% |
17 |
% |
|
6.92 |
5.79 |
20 |
% |
16 |
% |
| Forest products |
8.71 |
7.15 |
22 |
% |
15 |
% |
|
8.02 |
6.71 |
20 |
% |
16 |
% |
| Coal |
4.34 |
3.58 |
21 |
% |
19 |
% |
|
4.13 |
3.35 |
23 |
% |
22 |
% |
| Grain and fertilizers |
5.42 |
4.53 |
20 |
% |
16 |
% |
|
5.03 |
4.21 |
19 |
% |
17 |
% |
| Intermodal |
9.06 |
7.75 |
17 |
% |
14 |
% |
|
8.76 |
7.04 |
24 |
% |
23 |
% |
|
Automotive |
31.08 |
25.57 |
22 |
% |
14 |
% |
|
28.24 |
24.05 |
17 |
% |
14 |
% |
|
Total freight revenue / RTM |
7.32 |
6.34 |
15 |
% |
11 |
% |
|
7.03 |
5.96 |
18 |
% |
15 |
% |
|
Carloads (thousands) (3) |
|
|
|
|
|
|
|
|
|
| Petroleum and chemicals |
154 |
153 |
1 |
% |
1 |
% |
|
636 |
596 |
7 |
% |
7 |
% |
| Metals and minerals |
247 |
239 |
3 |
% |
3 |
% |
|
956 |
969 |
(1 |
%) |
(1 |
%) |
| Forest products |
80 |
81 |
(1 |
%) |
(1 |
%) |
|
330 |
339 |
(3 |
%) |
(3 |
%) |
| Coal |
126 |
101 |
25 |
% |
25 |
% |
|
503 |
379 |
33 |
% |
33 |
% |
| Grain and fertilizers |
192 |
159 |
21 |
% |
21 |
% |
|
614 |
628 |
(2 |
%) |
(2 |
%) |
| Intermodal |
556 |
595 |
(7 |
%) |
(7 |
%) |
|
2,450 |
2,611 |
(6 |
%) |
(6 |
%) |
|
Automotive |
53 |
46 |
15 |
% |
15 |
% |
|
208 |
179 |
16 |
% |
16 |
% |
|
Total carloads |
1,408 |
1,374 |
2 |
% |
2 |
% |
|
5,697 |
5,701 |
— |
% |
— |
% |
|
Freight revenue / carload ($) (2)
(3) |
|
|
|
|
|
|
|
|
|
| Petroleum and chemicals |
5,156 |
4,935 |
4 |
% |
— |
% |
|
5,077 |
4,725 |
7 |
% |
5 |
% |
| Metals and minerals |
2,024 |
1,644 |
23 |
% |
16 |
% |
|
1,999 |
1,598 |
25 |
% |
21 |
% |
| Forest products |
6,463 |
5,370 |
20 |
% |
14 |
% |
|
6,079 |
5,133 |
18 |
% |
15 |
% |
| Coal |
1,865 |
1,634 |
14 |
% |
12 |
% |
|
1,863 |
1,631 |
14 |
% |
13 |
% |
| Grain and fertilizers |
4,969 |
4,044 |
23 |
% |
19 |
% |
|
4,533 |
3,941 |
15 |
% |
13 |
% |
| Intermodal |
2,129 |
1,763 |
21 |
% |
18 |
% |
|
2,002 |
1,576 |
27 |
% |
26 |
% |
|
Automotive |
4,075 |
3,174 |
28 |
% |
21 |
% |
|
3,832 |
3,218 |
19 |
% |
15 |
% |
|
Total freight revenue / carload |
3,125 |
2,610 |
20 |
% |
15 |
% |
|
2,908 |
2,436 |
19 |
% |
17 |
% |
|
(1) |
This non-GAAP measure does not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies. See the supplementary
schedule entitled Non-GAAP Measures – Constant currency for an
explanation of this non-GAAP measure. |
| (2) |
Amounts expressed in Canadian
dollars. |
| (3) |
Statistical operating data and
related key operating measures are unaudited and 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 “Company” or
“CN” refers to Canadian National Railway Company, together with 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, adjusted
debt-to-adjusted EBITDA multiple, return on invested capital (ROIC)
and adjusted ROIC. 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
Adjusted net income, adjusted diluted earnings
per share, adjusted operating income, adjusted operating expenses
and adjusted operating ratio are non-GAAP measures that are used to
set performance goals and to measure CN's performance. Management
believes that these adjusted performance measures provide
additional insight to management and investors into the Company's
operations and underlying business trends as well as facilitate
period-to-period comparisons, as they exclude certain significant
items that are not reflective of CN's underlying business
operations and could distort the analysis of trends in business
performance. These items may include:
- operating expense adjustments:
workforce reduction program, depreciation expense on the deployment
of replacement system, advisory fees related to shareholder
matters, losses and recoveries from assets held for sale, business
acquisition-related costs;
- non-operating expense adjustments:
business acquisition-related financing fees, merger termination
income, gains and losses on disposal of property; and
- the effect of tax law changes and
rate enactments.
These non-GAAP 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 months and year ended December 31,
2022, the Company's adjusted net income was $1,420 million, or
$2.10 per diluted share, and $5,134 million, or $7.46 per diluted
share, respectively. The adjusted figures for the year ended
December 31, 2022 exclude advisory fees related to shareholder
matters of $22 million, or $16 million after-tax ($0.02 per diluted
share) recorded in Casualty and other within the Consolidated
Statements of Income.
For the three months and year ended December 31,
2021, the Company's adjusted net income was $1,211 million, or
$1.71 per diluted share, and $4,225 million, or $5.95 per diluted
share, respectively.(1) The adjusted figures exclude:
- employee termination benefits and
severance costs related to a workforce reduction program of $39
million, or $29 million after-tax ($0.04 per diluted share)
recorded in the third quarter in Labor and fringe benefits within
the Consolidated Statements of Income;
- advisory fees related to
shareholder matters of $20 million, or $15 million after-tax ($0.02
per diluted share) of which $13 million, or $10 million after-tax
($0.01 per diluted share) was recorded in the fourth quarter and $7
million, or $5 million after-tax ($0.01 per diluted share) was
recorded in the third quarter in Casualty and other within the
Consolidated Statements of Income;
- the recovery of $137 million, or
$102 million after-tax ($0.14 per diluted share) recorded in the
first quarter related to the loss on assets held for sale in the
second quarter of 2020, to reflect an agreement for the sale for
on-going rail operations, certain non-core rail lines in Wisconsin,
Michigan and Ontario to a short line operator;
- transaction-related costs,
consisting of an advance to Kansas City Southern (KCS) and a
related refund, net of transaction costs, of $84 million, or $70
million after-tax ($0.10 per diluted share), recorded in the third
quarter resulting from the terminated CN Merger Agreement with
KCS;
- amortization of bridge financing
and other fees of $97 million, or $84 million after-tax ($0.11 per
diluted share), of which $65 million, or $60 million after-tax
($0.08 per diluted share) was recorded in the third quarter and $32
million, or $24 million after-tax ($0.03 per diluted share) was
recorded in the second quarter, resulting from the KCS transaction,
recorded in Interest expense within the Consolidated Statements of
Income; and
- merger termination fee paid by KCS
to CN of $886 million, or $770 million after-tax ($1.08 per diluted
share), recorded in the third quarter resulting from KCS' notice of
termination of the CN Merger Agreement with KCS.
|
(1) |
See Note 2 – Change in accounting policy to the Company's unaudited
Interim Consolidated Financial Statements for additional
information. |
|
|
|
Adjusted net income is defined as Net income in
accordance with GAAP adjusted for certain significant items.
Adjusted diluted earnings per share is defined as adjusted net
income divided by the weighted-average diluted shares outstanding.
The following table provides a reconciliation of Net income and
Earnings per share in accordance with GAAP, as reported for the
three months and years ended December 31, 2022 and 2021, to the
non-GAAP adjusted performance measures presented herein:
| |
Three months ended December 31 |
|
Year ended December 31 |
|
In millions, except per share data |
|
2022 |
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
| Net income (1) |
$ |
1,420 |
|
$ |
1,201 |
|
|
$ |
5,118 |
|
|
$ |
4,899 |
|
| Adjustments: |
|
|
|
|
|
|
|
| Operating expense
adjustments: |
|
|
|
|
|
|
|
|
Workforce reduction program |
|
— |
|
|
— |
|
|
|
— |
|
|
|
39 |
|
|
Advisory fees related to shareholder matters |
|
— |
|
|
13 |
|
|
|
22 |
|
|
|
20 |
|
|
Recovery of loss on assets held for sale |
|
— |
|
|
— |
|
|
|
— |
|
|
|
(137 |
) |
|
Transaction-related costs |
|
— |
|
|
— |
|
|
|
— |
|
|
|
84 |
|
| Non-operating expense
adjustments: |
|
|
|
|
|
|
|
|
Amortization of bridge financing and other fees |
|
— |
|
|
— |
|
|
|
— |
|
|
|
97 |
|
|
Merger termination fee |
|
— |
|
|
— |
|
|
|
— |
|
|
|
(886 |
) |
| Tax adjustments: |
|
|
|
|
|
|
|
|
Tax effect of adjustments (2) |
|
— |
|
|
(3 |
) |
|
|
(6 |
) |
|
|
109 |
|
|
Total adjustments |
|
— |
|
|
10 |
|
|
|
16 |
|
|
|
(674 |
) |
| Adjusted net income (1) |
$ |
1,420 |
|
$ |
1,211 |
|
|
$ |
5,134 |
|
|
$ |
4,225 |
|
|
Diluted earnings per share (1) |
$ |
2.10 |
|
$ |
1.70 |
|
|
$ |
7.44 |
|
|
$ |
6.90 |
|
| Impact
of adjustments, per share |
|
— |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
(0.95 |
) |
|
Adjusted diluted earnings per share (1) |
$ |
2.10 |
|
$ |
1.71 |
|
|
$ |
7.46 |
|
|
$ |
5.95 |
|
|
(1) |
See Note 2 – Change in accounting policy to the Company's unaudited
Interim Consolidated Financial Statements for additional
information. |
| (2) |
The tax impact of adjustments is
based on the nature of the item for tax purposes and related tax
rates in the applicable jurisdiction. |
| |
|
Adjusted operating income is defined as
Operating income in accordance with GAAP adjusted for certain
significant operating expense items. Adjusted operating expenses is
defined as Operating expenses in accordance with GAAP adjusted for
certain significant operating expense items. Adjusted operating
ratio is defined as adjusted operating expenses as a percentage of
revenues. The following table provides a reconciliation of
Operating income, Operating expenses and operating ratio, as
reported for the three months and years ended December 31, 2022 and
2021, to the non-GAAP adjusted performance measures presented
herein:
| |
Three months ended December 31 |
Year ended December 31 |
|
In millions, except percentages |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| Operating income |
$ |
1,912 |
|
$ |
1,566 |
|
$ |
6,840 |
|
$ |
5,616 |
|
| Operating expense
adjustments: |
|
|
|
|
|
Workforce reduction program |
|
— |
|
|
— |
|
|
— |
|
|
39 |
|
|
Advisory fees related to shareholder matters |
|
— |
|
|
13 |
|
|
22 |
|
|
20 |
|
|
Recovery of loss on assets held for sale |
|
— |
|
|
— |
|
|
— |
|
|
(137 |
) |
|
Transaction-related costs |
|
— |
|
|
— |
|
|
— |
|
|
84 |
|
| Total
operating expense adjustments |
|
— |
|
|
13 |
|
|
22 |
|
|
6 |
|
|
Adjusted operating income |
$ |
1,912 |
|
$ |
1,579 |
|
$ |
6,862 |
|
$ |
5,622 |
|
| Operating expenses |
$ |
2,630 |
|
$ |
2,187 |
|
$ |
10,267 |
|
$ |
8,861 |
|
| Total
operating expense adjustments |
|
— |
|
|
(13 |
) |
|
(22 |
) |
|
(6 |
) |
|
Adjusted operating expenses |
$ |
2,630 |
|
$ |
2,174 |
|
$ |
10,245 |
|
$ |
8,855 |
|
| Operating ratio |
|
57.9 |
% |
|
58.3 |
% |
|
60.0 |
% |
|
61.2 |
% |
| Impact
of adjustments |
|
— |
% |
|
(0.4 |
)% |
|
(0.1 |
)% |
|
— |
% |
|
Adjusted operating ratio |
|
57.9 |
% |
|
57.9 |
% |
|
59.9 |
% |
|
61.2 |
% |
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 weighted average foreign exchange rates used to
translate transactions denominated in US dollars of the comparable
period of the prior year.
The average foreign exchange rates were $1.36
and $1.30 per US$1.00 for the three months and year ended December
31, 2022, respectively, and $1.26 and $1.25 per US$1.00 for the
three months and year ended December 31, 2021, respectively.
On a constant currency basis, the Company’s Net
income for the three months and year ended December 31, 2022 would
have been lower by $49 million ($0.07 per diluted share) and lower
by $90 million ($0.13 per diluted share), respectively.
The following table provides a reconciliation of
the impact of constant currency and related percentage change at
constant currency on the financial results, as reported for the
three months and year ended December 31, 2022:
| |
Three months ended December 31 |
Year ended December 31 |
| In
millions, except per share data |
|
2022 |
|
Constantcurrencyimpact |
|
|
2021 |
|
% Changeat constantcurrencyFav (Unfav) |
|
|
2022 |
|
Constantcurrencyimpact |
|
|
2021 |
|
% Changeat constantcurrencyFav (Unfav) |
|
| Revenues |
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
$ |
794 |
|
$ |
(37 |
) |
$ |
755 |
|
— |
% |
$ |
3,229 |
|
$ |
(74 |
) |
$ |
2,816 |
|
12 |
% |
| Metals and minerals |
|
500 |
|
|
(29 |
) |
|
393 |
|
20 |
% |
|
1,911 |
|
|
(57 |
) |
|
1,548 |
|
20 |
% |
| Forest products |
|
517 |
|
|
(29 |
) |
|
435 |
|
12 |
% |
|
2,006 |
|
|
(57 |
) |
|
1,740 |
|
12 |
% |
| Coal |
|
235 |
|
|
(5 |
) |
|
165 |
|
39 |
% |
|
937 |
|
|
(11 |
) |
|
618 |
|
50 |
% |
| Grain and fertilizers |
|
954 |
|
|
(32 |
) |
|
643 |
|
43 |
% |
|
2,783 |
|
|
(56 |
) |
|
2,475 |
|
10 |
% |
| Intermodal |
|
1,184 |
|
|
(29 |
) |
|
1,049 |
|
10 |
% |
|
4,906 |
|
|
(58 |
) |
|
4,115 |
|
18 |
% |
|
Automotive |
|
216 |
|
|
(13 |
) |
|
146 |
|
39 |
% |
|
797 |
|
|
(24 |
) |
|
576 |
|
34 |
% |
|
Total freight revenues |
|
4,400 |
|
|
(174 |
) |
|
3,586 |
|
18 |
% |
|
16,569 |
|
|
(337 |
) |
|
13,888 |
|
17 |
% |
| Other
revenues |
|
142 |
|
|
(7 |
) |
|
167 |
|
(19 |
%) |
|
538 |
|
|
(15 |
) |
|
589 |
|
(11 |
%) |
|
Total revenues |
|
4,542 |
|
|
(181 |
) |
|
3,753 |
|
16 |
% |
|
17,107 |
|
|
(352 |
) |
|
14,477 |
|
16 |
% |
| Operating
expenses |
|
|
|
|
|
|
|
|
| Labor and fringe benefits |
|
731 |
|
|
(20 |
) |
|
674 |
|
(5 |
%) |
|
2,935 |
|
|
(43 |
) |
|
2,879 |
|
— |
% |
| Purchased services and
material |
|
576 |
|
|
(16 |
) |
|
504 |
|
(11 |
%) |
|
2,191 |
|
|
(33 |
) |
|
2,082 |
|
(4 |
%) |
| Fuel |
|
672 |
|
|
(46 |
) |
|
419 |
|
(49 |
%) |
|
2,518 |
|
|
(88 |
) |
|
1,513 |
|
(61 |
%) |
| Depreciation and
amortization |
|
451 |
|
|
(13 |
) |
|
383 |
|
(14 |
%) |
|
1,729 |
|
|
(25 |
) |
|
1,598 |
|
(7 |
%) |
| Equipment rents |
|
84 |
|
|
(5 |
) |
|
82 |
|
4 |
% |
|
338 |
|
|
(10 |
) |
|
336 |
|
2 |
% |
| Casualty and other |
|
116 |
|
|
(5 |
) |
|
125 |
|
11 |
% |
|
556 |
|
|
(15 |
) |
|
506 |
|
(7 |
%) |
| Recovery of loss on assets
held for sale |
|
— |
|
|
— |
|
|
— |
|
— |
% |
|
— |
|
|
— |
|
|
(137 |
) |
(100 |
%) |
|
Transaction-related costs |
|
— |
|
|
— |
|
|
— |
|
— |
% |
|
— |
|
|
— |
|
|
84 |
|
100 |
% |
| Total
operating expenses |
|
2,630 |
|
|
(105 |
) |
|
2,187 |
|
(15 |
%) |
|
10,267 |
|
|
(214 |
) |
|
8,861 |
|
(13 |
%) |
| Operating income |
|
1,912 |
|
|
(76 |
) |
|
1,566 |
|
17 |
% |
|
6,840 |
|
|
(138 |
) |
|
5,616 |
|
19 |
% |
| Interest expense |
|
(153 |
) |
|
11 |
|
|
(125 |
) |
(14 |
%) |
|
(548 |
) |
|
18 |
|
|
(610 |
) |
13 |
% |
| Other components of net
periodic benefit income (1) |
|
124 |
|
|
— |
|
|
112 |
|
11 |
% |
|
498 |
|
|
— |
|
|
407 |
|
22 |
% |
| Merger termination fee |
|
— |
|
|
— |
|
|
— |
|
— |
% |
|
— |
|
|
— |
|
|
886 |
|
(100 |
%) |
| Other
income (loss) |
|
(2 |
) |
|
— |
|
|
21 |
|
(110 |
%) |
|
(27 |
) |
|
— |
|
|
43 |
|
(163 |
%) |
| Income before income taxes
(1) |
|
1,881 |
|
|
(65 |
) |
|
1,574 |
|
15 |
% |
|
6,763 |
|
|
(120 |
) |
|
6,342 |
|
5 |
% |
| Income
tax expense (1) |
|
(461 |
) |
|
16 |
|
|
(373 |
) |
(19 |
%) |
|
(1,645 |
) |
|
30 |
|
|
(1,443 |
) |
(12 |
%) |
|
Net income (1) |
$ |
1,420 |
|
$ |
(49 |
) |
$ |
1,201 |
|
14 |
% |
$ |
5,118 |
|
$ |
(90 |
) |
$ |
4,899 |
|
3 |
% |
|
Diluted earnings per share (1) |
$ |
2.10 |
|
$ |
(0.07 |
) |
$ |
1.70 |
|
19 |
% |
$ |
7.44 |
|
$ |
(0.13 |
) |
$ |
6.90 |
|
6 |
% |
|
(1) |
See Note 2 – Change in accounting policy to the Company's unaudited
Interim Consolidated Financial Statements for additional
information. |
|
|
|
Free cash flow
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 (i) business
acquisitions and (ii) merger transaction-related payments, cash
receipts and cash income taxes, which are items that are not
indicative of operating trends. 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 in accordance with GAAP,
as reported for the three months and years ended December 31, 2022
and 2021, to the non-GAAP free cash flow presented herein:
| |
Three months ended December 31 |
|
Year ended December 31 |
|
In millions |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
| Net cash provided by operating
activities |
$ |
2,272 |
|
|
$ |
2,086 |
|
|
$ |
6,667 |
|
|
$ |
6,971 |
|
| Net
cash used in investing activities |
|
(937 |
) |
|
|
(860 |
) |
|
|
(2,510 |
) |
|
|
(2,873 |
) |
| Net cash provided before
financing activities |
|
1,335 |
|
|
|
1,226 |
|
|
|
4,157 |
|
|
|
4,098 |
|
| Adjustments: |
|
|
|
|
|
|
|
|
Cash income taxes for merger transaction-related payments and cash
receipts (1) |
|
— |
|
|
|
— |
|
|
|
102 |
|
|
|
— |
|
|
Transaction-related costs (2) |
|
— |
|
|
|
36 |
|
|
|
— |
|
|
|
125 |
|
|
Advance for acquisition (3) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
845 |
|
|
Refund of advance for acquisition (3) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(886 |
) |
|
Merger termination fee (3) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(886 |
) |
|
Total adjustments |
|
— |
|
|
|
36 |
|
|
|
102 |
|
|
|
(802 |
) |
|
Free cash flow |
$ |
1,335 |
|
|
$ |
1,262 |
|
|
$ |
4,259 |
|
|
$ |
3,296 |
|
|
(1) |
Relates to income tax payments of $102 million for KCS merger
transaction-related payments and cash receipts. See Note 4 –
Acquisition to the Company's unaudited Interim Consolidated
Financial Statements for additional information. |
| (2) |
Relates to transaction-related
costs of $125 million paid. See Note 4 – Acquisition to the
Company's unaudited Interim Consolidated Financial Statements for
additional information. |
| (3) |
See Note 4 – Acquisition to the
Company's unaudited Interim Consolidated Financial Statements for
additional information. |
| |
|
Adjusted debt-to-adjusted EBITDA multiple
Management believes that the adjusted
debt-to-adjusted 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 the
last twelve months of adjusted EBITDA. Adjusted debt is
defined as the sum of Long-term debt and Current portion of
long-term debt as reported on the Company’s Consolidated Balance
Sheets as well as Operating lease liabilities, including current
portion and pension plans in deficiency recognized on the Company's
Consolidated Balance Sheets due to the debt-like nature of their
contractual and financial obligations. Adjusted EBITDA is
calculated as Net income excluding Interest expense, Income tax
expense, Depreciation and amortization, operating lease cost, Other
components of net periodic benefit income, Other income (loss), and
other significant items that are not reflective of CN's underlying
business operations and which could distort the analysis of trends
in business performance. Adjusted debt and adjusted EBITDA are
non-GAAP measures used to compute the Adjusted debt-to-adjusted
EBITDA multiple. 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 in accordance with GAAP, reported as at and for
the years ended December 31, 2022 and 2021, respectively, to
the adjusted measures presented herein, which have been used to
calculate the non-GAAP adjusted debt-to-adjusted EBITDA
multiple:
|
In millions, unless otherwise indicated |
As at and for the year ended December 31, |
|
2022 |
|
|
|
2021 |
|
| Debt |
$ |
15,429 |
|
|
$ |
12,485 |
|
| Adjustments: |
|
|
|
|
Operating lease liabilities, including current portion (1) |
|
466 |
|
|
|
430 |
|
|
Pension plans in deficiency (2) |
|
353 |
|
|
|
447 |
|
|
Adjusted debt |
$ |
16,248 |
|
|
$ |
13,362 |
|
| Net income
(3) |
$ |
5,118 |
|
|
$ |
4,899 |
|
| Interest
expense |
|
548 |
|
|
|
610 |
|
| Income tax expense
(3) |
|
1,645 |
|
|
|
1,443 |
|
| Depreciation and
amortization |
|
1,729 |
|
|
|
1,598 |
|
| Operating lease
cost (4) |
|
142 |
|
|
|
131 |
|
| Other components
of net periodic benefit income (3) |
|
(498 |
) |
|
|
(407 |
) |
| Other loss
(income) |
|
27 |
|
|
|
(43 |
) |
| Adjustments: |
|
|
|
|
Workforce reduction program (5) |
|
|
— |
|
|
|
39 |
|
|
Advisory fees related to shareholder matters (6) |
|
22 |
|
|
|
20 |
|
|
Recovery of loss on assets held for sale (7) |
|
— |
|
|
|
(137 |
) |
|
Transaction-related costs (8) |
|
|
— |
|
|
|
84 |
|
|
Merger termination fee (9) |
|
— |
|
|
|
(886 |
) |
|
Adjusted EBITDA |
$ |
8,733 |
|
|
$ |
7,351 |
|
|
Adjusted debt-to-adjusted EBITDA multiple (times) |
|
1.86 |
|
|
|
1.82 |
|
|
(1) |
Represents the present value of operating lease payments. |
| (2) |
Represents the total funded
deficit of all defined benefit pension plans with a projected
benefit obligation in excess of plan assets. |
| (3) |
In the first quarter of 2022, the
Company changed its method of calculating market-related values of
pension assets for its defined benefit plans using a retrospective
approach. Comparative figures have been restated to conform to the
change in methodology. See Note 2 – Change in accounting policy to
the Company's unaudited Interim Consolidated Financial Statements
for additional information. |
| (4) |
Represents the operating lease
costs recorded in Purchased services and material and Equipment
rents within the Consolidated Statements of Income. |
| (5) |
Relates to employee termination
benefits and severance costs related to a workforce reduction
program, recorded in Labor and fringe benefits within the
Consolidated Statements of Income. |
| (6) |
Relates to advisory fees related
to shareholder matters recorded in Casualty and other within the
Consolidated Statements of Income. |
| (7) |
Relates to the recovery of $137
million of the $486 million loss on assets held for sale recorded
in the second quarter of 2020, resulting from the Company entering
into an agreement for the sale of non-core lines. See Note 5 –
Assets held for sale to the Company's unaudited Interim
Consolidated Financial Statements for additional information. |
| (8) |
Relates to transaction costs
incurred as a result of the terminated CN Merger Agreement of $84
million, consisting of $125 million of transaction-related costs,
partially offset by $41 million of income generated as a result of
the applicable foreign exchange rates prevailing at the time of
payment and related receipt of the US$700 million advance to KCS.
See Note 4 –Acquisition to the Company's unaudited Interim
Consolidated Financial Statements for additional information. |
| (9) |
Relates to the termination fee
resulting from KCS terminating the CN Merger Agreement and entering
into a merger agreement with CP. See Note 4 –Acquisition to the
Company's unaudited Interim Consolidated Financial Statements for
additional information. |
| |
|
ROIC and adjusted ROIC
ROIC and adjusted ROIC are useful measures for
management and investors to evaluate the efficiency of the
Company's use of capital funds and allow investors to assess the
operating and investment decisions made by management. The Company
calculates ROIC as return divided by average invested capital, both
of which are non-GAAP measures. Return is defined as Net income
plus interest expense after-tax, calculated using the Company's
effective tax rate. Average invested capital is defined as the sum
of Total shareholders' equity, Long-term debt and Current portion
of long-term debt less Cash and cash equivalents, and Restricted
cash and cash equivalents, averaged between the beginning and
ending balance over the last twelve-month period. The Company
calculates adjusted ROIC as adjusted return divided by average
invested capital, both of which are non-GAAP measures. Adjusted
return is defined as adjusted net income plus interest expense
after-tax, calculated using the Company's adjusted effective tax
rate. Return, average invested capital, ROIC, adjusted return and
adjusted ROIC 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
Net income and adjusted net income to return and adjusted return,
respectively, as well as the calculation of average invested
capital, which have been used to calculate ROIC and adjusted
ROIC:
|
In millions, except percentage |
As at and for the year ended December 31, |
|
2022 |
|
|
|
2021 |
|
| Net income
(1) |
$ |
5,118 |
|
|
$ |
4,899 |
|
| Interest
expense |
|
548 |
|
|
|
610 |
|
| Tax on
interest expense (2) |
|
(133 |
) |
|
|
(139 |
) |
| Return
(1) |
$ |
5,533 |
|
|
$ |
5,370 |
|
| Average total
shareholders' equity |
$ |
22,064 |
|
|
$ |
21,198 |
|
| Average long-term
debt |
|
13,175 |
|
|
|
11,987 |
|
| Average current
portion of long-term debt |
|
783 |
|
|
|
709 |
|
| Less:
Average cash, cash equivalents, restricted cash and restricted cash
equivalents |
|
(1,088 |
) |
|
|
(1,221 |
) |
| Average
invested capital |
$ |
34,934 |
|
|
$ |
32,673 |
|
| ROIC
(1) |
|
15.8 |
% |
|
|
16.4 |
% |
| Adjusted net
income (1)(3) |
$ |
5,134 |
|
|
$ |
4,225 |
|
| Interest
expense |
|
548 |
|
|
|
610 |
|
| Less: Amortization of bridge
financing and other fees (4) |
|
|
— |
|
|
|
(97 |
) |
| Tax on
interest expense less amortization of bridge financing and other
fees (5) |
|
(133 |
) |
|
|
(123 |
) |
| Adjusted return
(1) |
$ |
5,549 |
|
|
$ |
4,615 |
|
| Average
invested capital |
$ |
34,934 |
|
|
$ |
32,673 |
|
|
Adjusted ROIC (1) |
|
15.9 |
% |
|
|
14.1 |
% |
|
(1) |
See Note 2 – Change in accounting policy to the Company's unaudited
Interim Consolidated Financial Statements for additional
information. |
| (2) |
The effective tax rate, defined
as income tax expense as a percentage of income before income
taxes, used to calculate the tax on interest expense for 2022 was
24.3% (2021 - 22.8%). |
| (3) |
This Non-GAAP measure does not
have any standardized meaning prescribed by GAAP and therefore, may
not be comparable to similar measures presented by other companies.
See the supplementary schedule entitled Non-GAAP Measures –
Adjusted performance measures for an explanation of this non-GAAP
measure. |
| (4) |
Relates to amortization of bridge
financing and other fees resulting from the KCS transaction,
recorded in Interest expense within the Consolidated Statements of
Income. See Note 4 - Acquisition to the Company's unaudited Interim
Consolidated Financial Statements for additional information. |
| (5) |
The adjusted effective tax rate
is a Non-GAAP measure, defined as Income tax expense, net of tax
adjustments as presented in Adjusted performance measures as a
percentage of Income before taxes, net of pre-tax adjustments as
presented in Adjusted performance measures. This measure does not
have any standardized meaning prescribed by GAAP and therefore, may
not be comparable to a similar measure presented by other
companies. The adjusted effective tax rate used to calculate the
adjusted tax on interest expense less amortization of bridge
financing and other fees for 2022 was 24.3% (2021 - 24.0%). |
Consolidated Statements of
Income – unaudited
| |
Three months endedDecember 31 |
|
Year endedDecember 31 |
|
In millions, except per share data |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
Revenues |
$ |
4,542 |
|
|
$ |
3,753 |
|
|
$ |
17,107 |
|
|
$ |
14,477 |
|
|
Operating expenses |
|
|
|
|
|
|
|
| Labor and fringe benefits |
|
731 |
|
|
|
674 |
|
|
|
2,935 |
|
|
|
2,879 |
|
| Purchased services and
material |
|
576 |
|
|
|
504 |
|
|
|
2,191 |
|
|
|
2,082 |
|
| Fuel |
|
672 |
|
|
|
419 |
|
|
|
2,518 |
|
|
|
1,513 |
|
| Depreciation and
amortization |
|
451 |
|
|
|
383 |
|
|
|
1,729 |
|
|
|
1,598 |
|
| Equipment rents |
|
84 |
|
|
|
82 |
|
|
|
338 |
|
|
|
336 |
|
| Casualty and other |
|
116 |
|
|
|
125 |
|
|
|
556 |
|
|
|
506 |
|
| Recovery of loss on assets
held for sale (Note 5) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(137 |
) |
|
Transaction-related costs (Note 4) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
84 |
|
|
Total operating expenses |
|
2,630 |
|
|
|
2,187 |
|
|
|
10,267 |
|
|
|
8,861 |
|
|
Operating income |
|
1,912 |
|
|
|
1,566 |
|
|
|
6,840 |
|
|
|
5,616 |
|
| Interest expense |
|
(153 |
) |
|
|
(125 |
) |
|
|
(548 |
) |
|
|
(610 |
) |
| Other components of net
periodic benefit income (1) |
|
124 |
|
|
|
112 |
|
|
|
498 |
|
|
|
407 |
|
| Merger termination fee (Note
4) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
886 |
|
| Other
income (loss) |
|
(2 |
) |
|
|
21 |
|
|
|
(27 |
) |
|
|
43 |
|
|
Income before income taxes (1) |
|
1,881 |
|
|
|
1,574 |
|
|
|
6,763 |
|
|
|
6,342 |
|
| Income
tax expense (1) |
|
(461 |
) |
|
|
(373 |
) |
|
|
(1,645 |
) |
|
|
(1,443 |
) |
|
Net income (1) |
$ |
1,420 |
|
|
$ |
1,201 |
|
|
$ |
5,118 |
|
|
$ |
4,899 |
|
|
Earnings per share |
|
|
|
|
|
|
|
| Basic (1) |
$ |
2.10 |
|
|
$ |
1.70 |
|
|
$ |
7.46 |
|
|
$ |
6.91 |
|
| Diluted (1) |
$ |
2.10 |
|
|
$ |
1.70 |
|
|
$ |
7.44 |
|
|
$ |
6.90 |
|
| Weighted-average
number of shares |
|
|
|
|
|
|
|
| Basic |
|
674.9 |
|
|
|
705.3 |
|
|
|
686.4 |
|
|
|
708.5 |
|
| Diluted |
|
676.9 |
|
|
|
707.4 |
|
|
|
688.3 |
|
|
|
710.3 |
|
|
Dividends declared per share |
$ |
0.7325 |
|
|
$ |
0.6150 |
|
|
$ |
2.9300 |
|
|
$ |
2.4600 |
|
|
(1) |
In
the first quarter of 2022, the Company changed its method of
calculating market-related values of pension assets for its defined
benefit plans using a retrospective approach. Comparative figures
have been restated to conform to the change in methodology. See
Note 2 – Change in accounting policy for additional
information. |
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Statements of Comprehensive
Income – unaudited
| |
Three months endedDecember 31 |
|
Year endedDecember 31 |
|
In millions |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
Net income (1) |
$ |
1,420 |
|
|
$ |
1,201 |
|
|
$ |
5,118 |
|
|
$ |
4,899 |
|
| Other comprehensive
income (loss) |
|
|
|
|
|
|
|
| Net income (loss) on foreign
currency translation |
|
(101 |
) |
|
|
(18 |
) |
|
|
366 |
|
|
|
(52 |
) |
| Net change in pension and
other postretirement benefit plans (1) |
|
(399 |
) |
|
|
1,844 |
|
|
|
(250 |
) |
|
|
2,066 |
|
|
Derivative instruments |
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
| Other comprehensive income
(loss) before income taxes (1) |
|
(500 |
) |
|
|
1,826 |
|
|
|
114 |
|
|
|
2,014 |
|
| Income
tax recovery (expense) (1) |
|
77 |
|
|
|
(486 |
) |
|
|
158 |
|
|
|
(544 |
) |
|
Other comprehensive income (loss) (1) |
|
(423 |
) |
|
|
1,340 |
|
|
|
272 |
|
|
|
1,470 |
|
|
Comprehensive income (1) |
$ |
997 |
|
|
$ |
2,541 |
|
|
$ |
5,390 |
|
|
$ |
6,369 |
|
|
(1) |
In
the first quarter of 2022, the Company changed its method of
calculating market-related values of pension assets for its defined
benefit plans using a retrospective approach. Comparative figures
have been restated to conform to the change in methodology. See
Note 2 – Change in accounting policy for additional
information. |
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Balance
Sheets – unaudited
| |
December 31 |
|
|
December 31 |
|
|
In millions |
|
2022 |
|
|
|
2021 |
|
|
Assets |
|
|
|
| Current
assets |
|
|
|
| Cash and cash equivalents |
$ |
328 |
|
|
$ |
838 |
|
| Restricted cash and cash
equivalents |
|
506 |
|
|
|
503 |
|
| Accounts receivable |
|
1,371 |
|
|
|
1,074 |
|
| Material and supplies |
|
692 |
|
|
|
589 |
|
| Other
current assets (Note 5) |
|
320 |
|
|
|
422 |
|
|
Total current assets |
|
3,217 |
|
|
|
3,426 |
|
| Properties |
|
43,537 |
|
|
|
41,178 |
|
| Operating lease right-of-use
assets |
|
470 |
|
|
|
445 |
|
| Pension asset |
|
3,033 |
|
|
|
3,050 |
|
| Intangible assets, goodwill
and other |
|
405 |
|
|
|
439 |
|
|
Total assets |
$ |
50,662 |
|
|
$ |
48,538 |
|
|
Liabilities and shareholders' equity |
|
|
|
| Current
liabilities |
|
|
|
| Accounts payable and
other |
$ |
2,785 |
|
|
$ |
2,612 |
|
| Current
portion of long-term debt |
|
1,057 |
|
|
|
508 |
|
|
Total current liabilities |
|
3,842 |
|
|
|
3,120 |
|
| Deferred income taxes |
|
9,796 |
|
|
|
9,303 |
|
| Other liabilities and deferred
credits |
|
441 |
|
|
|
427 |
|
| Pension and other
postretirement benefits |
|
486 |
|
|
|
645 |
|
| Long-term debt |
|
14,372 |
|
|
|
11,977 |
|
| Operating lease
liabilities |
|
341 |
|
|
|
322 |
|
| Shareholders'
equity |
|
|
|
| Common shares |
|
3,613 |
|
|
|
3,704 |
|
| Common shares in Share
Trusts |
|
(170 |
) |
|
|
(103 |
) |
| Additional paid-in
capital |
|
381 |
|
|
|
397 |
|
| Accumulated other
comprehensive loss (1) |
|
(1,969 |
) |
|
|
(2,241 |
) |
|
Retained earnings (1) |
|
19,529 |
|
|
|
20,987 |
|
|
Total shareholders' equity |
|
21,384 |
|
|
|
22,744 |
|
|
Total liabilities and shareholders' equity |
$ |
50,662 |
|
|
$ |
48,538 |
|
|
(1) |
In
the first quarter of 2022, the Company changed its method of
calculating market-related values of pension assets for its defined
benefit plans using a retrospective approach. Comparative figures
have been restated to conform to the change in methodology. See
Note 2 – Change in accounting policy for additional
information. |
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Statements of Changes in Shareholders'
Equity – unaudited
| |
Number ofcommon shares |
Commonshares |
|
|
Commonsharesin
ShareTrusts |
|
|
Additionalpaid-incapital |
|
Accumulatedothercomprehensiveloss |
|
Retainedearnings |
|
Totalshareholders'
equity |
|
| In
millions |
Outstanding |
|
ShareTrusts |
|
|
Balance at September 30, 2022 |
677.9 |
|
0.9 |
|
|
$ |
3,625 |
|
|
$ |
(88 |
) |
|
$ |
378 |
|
|
$ |
(1,546 |
) |
|
$ |
19,631 |
|
|
$ |
22,000 |
|
| Net income |
|
|
|
|
|
|
|
|
|
|
|
|
1,420 |
|
|
|
1,420 |
|
| Stock options exercised |
0.2 |
|
|
|
|
23 |
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
21 |
|
| Settlement of equity settled
awards |
0.1 |
|
(0.1 |
) |
|
|
|
|
5 |
|
|
|
(7 |
) |
|
|
|
|
1 |
|
|
|
(1 |
) |
| Stock-based compensation
expense and other |
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
— |
|
|
|
12 |
|
| Repurchase of common
shares |
(6.6 |
) |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
(1,030 |
) |
|
|
(1,065 |
) |
| Share purchases by Share
Trusts |
(0.6 |
) |
0.6 |
|
|
|
|
|
(87 |
) |
|
|
|
|
|
|
|
|
(87 |
) |
| Other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
(423 |
) |
|
|
|
|
(423 |
) |
|
Dividends ($0.7325 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
(493 |
) |
|
|
(493 |
) |
|
Balance at December 31, 2022 |
671.0 |
|
1.4 |
|
|
$ |
3,613 |
|
|
$ |
(170 |
) |
|
$ |
381 |
|
|
$ |
(1,969 |
) |
|
$ |
19,529 |
|
|
$ |
21,384 |
|
| |
Number ofcommon shares |
Commonshares |
|
Commonsharesin
ShareTrusts |
|
Additionalpaid-incapital |
|
Accumulatedothercomprehensiveloss |
|
Retainedearnings |
|
Totalshareholders'
equity |
|
| In
millions |
Outstanding |
|
ShareTrusts |
|
|
Balance at December 31, 2021 (1) |
700.9 |
|
1.1 |
|
|
$ |
3,704 |
|
|
$ |
(103 |
) |
|
$ |
397 |
|
|
$ |
(2,241 |
) |
|
$ |
20,987 |
|
|
$ |
22,744 |
|
| Net income |
|
|
|
|
|
|
|
|
|
|
|
|
5,118 |
|
|
|
5,118 |
|
| Stock options exercised |
0.6 |
|
|
|
|
70 |
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
61 |
|
| Settlement of equity settled
awards |
0.4 |
|
(0.4 |
) |
|
|
|
|
38 |
|
|
|
(84 |
) |
|
|
|
|
(22 |
) |
|
|
(68 |
) |
| Stock-based compensation
expense and other |
|
|
|
|
|
|
|
|
77 |
|
|
|
|
|
(2 |
) |
|
|
75 |
|
| Repurchase of common
shares |
(30.2 |
) |
|
|
|
(161 |
) |
|
|
|
|
|
|
|
|
(4,548 |
) |
|
|
(4,709 |
) |
| Share purchases by Share
Trusts |
(0.7 |
) |
0.7 |
|
|
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
(105 |
) |
| Other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
272 |
|
|
Dividends ($2.9300 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
(2,004 |
) |
|
|
(2,004 |
) |
|
Balance at December 31, 2022 |
671.0 |
|
1.4 |
|
|
$ |
3,613 |
|
|
$ |
(170 |
) |
|
$ |
381 |
|
|
$ |
(1,969 |
) |
|
$ |
19,529 |
|
|
$ |
21,384 |
|
|
(1) |
In
the first quarter of 2022, the Company changed its method of
calculating market-related values of pension assets for its defined
benefit plans using a retrospective approach. Comparative figures
have been restated to conform to the change in methodology. See
Note 2 – Change in accounting policy for additional
information. |
See accompanying notes to unaudited consolidated financial
statements.
| |
Number ofcommon shares |
Commonshares |
|
Commonsharesin
ShareTrusts |
|
Additionalpaid-incapital |
|
Accumulatedothercomprehensiveloss |
|
Retainedearnings |
|
Totalshareholders'
equity |
|
| In
millions |
Outstanding |
|
ShareTrusts |
|
|
Balance at September 30, 2021 (1) |
707.3 |
|
1.1 |
|
|
$ |
3,727 |
|
|
$ |
(104 |
) |
|
$ |
381 |
|
|
$ |
(3,581 |
) |
|
$ |
21,246 |
|
|
$ |
21,669 |
|
| Net income (1) |
|
|
|
|
|
|
|
|
|
|
|
|
1,201 |
|
|
|
1,201 |
|
| Stock options exercised |
0.2 |
|
|
|
|
12 |
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
11 |
|
| Settlement of equity settled
awards |
0.1 |
|
(0.1 |
) |
|
|
|
|
6 |
|
|
|
(9 |
) |
|
|
|
|
(3 |
) |
|
|
(6 |
) |
| Stock-based compensation
expense and other |
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
— |
|
|
|
26 |
|
| Repurchase of common
shares |
(6.6 |
) |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
(1,024 |
) |
|
|
(1,059 |
) |
| Share purchases by Share
Trusts |
(0.1 |
) |
0.1 |
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
(5 |
) |
| Other comprehensive loss
(1) |
|
|
|
|
|
|
|
|
|
|
1,340 |
|
|
|
|
|
1,340 |
|
|
Dividends ($0.6150 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
(433 |
) |
|
|
(433 |
) |
|
Balance at December 31, 2021 (1) |
700.9 |
|
1.1 |
|
|
$ |
3,704 |
|
|
$ |
(103 |
) |
|
$ |
397 |
|
|
$ |
(2,241 |
) |
|
$ |
20,987 |
|
|
$ |
22,744 |
|
| |
Number ofcommon shares |
Commonshares |
|
Commonsharesin
ShareTrusts |
|
Additionalpaid-incapital |
|
Accumulatedothercomprehensiveloss |
|
Retainedearnings |
|
Totalshareholders'
equity |
|
| In
millions |
Outstanding |
|
ShareTrusts |
|
|
Balance at December 31, 2020 (1) |
710.3 |
|
1.3 |
|
|
$ |
3,698 |
|
|
$ |
(115 |
) |
|
$ |
379 |
|
|
$ |
(3,711 |
) |
|
$ |
19,400 |
|
|
$ |
19,651 |
|
| Net income (1) |
|
|
|
|
|
|
|
|
|
|
|
|
4,899 |
|
|
|
4,899 |
|
| Stock options exercised |
0.7 |
|
|
|
|
60 |
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
52 |
|
| Settlement of equity settled
awards |
0.4 |
|
(0.4 |
) |
|
|
|
|
38 |
|
|
|
(60 |
) |
|
|
|
|
(42 |
) |
|
|
(64 |
) |
| Stock-based compensation
expense and other |
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
(2 |
) |
|
|
84 |
|
| Repurchase of common
shares |
(10.3 |
) |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
(1,528 |
) |
|
|
(1,582 |
) |
| Share purchases by Share
Trusts |
(0.2 |
) |
0.2 |
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
(26 |
) |
| Other comprehensive income
(1) |
|
|
|
|
|
|
|
|
|
|
1,470 |
|
|
|
|
|
1,470 |
|
|
Dividends ($2.4600 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
(1,740 |
) |
|
|
(1,740 |
) |
|
Balance at December 31, 2021 (1) |
700.9 |
|
1.1 |
|
|
$ |
3,704 |
|
|
$ |
(103 |
) |
|
$ |
397 |
|
|
$ |
(2,241 |
) |
|
$ |
20,987 |
|
|
$ |
22,744 |
|
|
(1) |
In
the first quarter of 2022, the Company changed its method of
calculating market-related values of pension assets for its defined
benefit plans using a retrospective approach. Comparative figures
have been restated to conform to the change in methodology. See
Note 2 – Change in accounting policy for additional
information. |
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Statements of Cash
Flows – unaudited
| |
Three months endedDecember 31 |
|
Year endedDecember 31 |
|
In millions |
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
| Operating
activities |
|
|
|
|
|
|
|
| Net income (1) |
$ |
1,420 |
|
|
$ |
1,201 |
|
|
$ |
5,118 |
|
|
$ |
4,899 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
451 |
|
|
|
383 |
|
|
|
1,729 |
|
|
|
1,598 |
|
|
Pension income and funding (1) |
|
(92 |
) |
|
|
(99 |
) |
|
|
(387 |
) |
|
|
(314 |
) |
|
Amortization of bridge financing and other fees (Note 4) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
97 |
|
|
Deferred income taxes (1) |
|
188 |
|
|
|
154 |
|
|
|
404 |
|
|
|
513 |
|
|
Recovery of loss on assets held for sale (Note 5) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(137 |
) |
| Changes in operating assets
and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
126 |
|
|
|
135 |
|
|
|
(290 |
) |
|
|
(22 |
) |
|
Material and supplies |
|
11 |
|
|
|
30 |
|
|
|
(82 |
) |
|
|
(7 |
) |
|
Accounts payable and other |
|
272 |
|
|
|
281 |
|
|
|
(9 |
) |
|
|
141 |
|
|
Other current assets |
|
(70 |
) |
|
|
(24 |
) |
|
|
(30 |
) |
|
|
35 |
|
| Other
operating activities, net |
|
(34 |
) |
|
|
25 |
|
|
|
214 |
|
|
|
168 |
|
| Net
cash provided by operating activities |
|
2,272 |
|
|
|
2,086 |
|
|
|
6,667 |
|
|
|
6,971 |
|
| Investing
activities |
|
|
|
|
|
|
|
| Property additions |
|
(920 |
) |
|
|
(914 |
) |
|
|
(2,750 |
) |
|
|
(2,891 |
) |
| Advance for acquisition and
other transaction-related costs (Note 4) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(908 |
) |
| Refund of advance for
acquisition (Note 4) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
886 |
|
| Proceeds from asset held for
sale (Note 5) |
|
— |
|
|
|
— |
|
|
|
273 |
|
|
|
— |
|
| Other
investing activities, net |
|
(17 |
) |
|
|
54 |
|
|
|
(33 |
) |
|
|
40 |
|
| Net
cash used in investing activities |
|
(937 |
) |
|
|
(860 |
) |
|
|
(2,510 |
) |
|
|
(2,873 |
) |
| Financing
activities |
|
|
|
|
|
|
|
| Issuance of debt |
|
— |
|
|
|
— |
|
|
|
1,899 |
|
|
|
403 |
|
| Repayment of debt |
|
(344 |
) |
|
|
(19 |
) |
|
|
(383 |
) |
|
|
(861 |
) |
| Change in commercial paper,
net |
|
602 |
|
|
|
(1,014 |
) |
|
|
563 |
|
|
|
66 |
|
| Bridge financing and other
fees (Note 4) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(97 |
) |
| Settlement of foreign exchange
forward contracts on debt |
|
18 |
|
|
|
(9 |
) |
|
|
79 |
|
|
|
(8 |
) |
| Issuance of common shares for
stock options exercised |
|
21 |
|
|
|
11 |
|
|
|
61 |
|
|
|
52 |
|
| Withholding taxes remitted on
the net settlement of equity settled awards |
|
— |
|
|
|
(5 |
) |
|
|
(44 |
) |
|
|
(37 |
) |
| Repurchase of common
shares |
|
(1,122 |
) |
|
|
(1,096 |
) |
|
|
(4,709 |
) |
|
|
(1,582 |
) |
| Purchase of common shares for
settlement of equity settled awards |
|
(1 |
) |
|
|
(2 |
) |
|
|
(24 |
) |
|
|
(27 |
) |
| Purchase of common shares by
Share Trusts |
|
(87 |
) |
|
|
(5 |
) |
|
|
(105 |
) |
|
|
(26 |
) |
| Dividends paid |
|
(493 |
) |
|
|
(433 |
) |
|
|
(2,004 |
) |
|
|
(1,740 |
) |
|
Net cash used in financing activities |
|
(1,406 |
) |
|
|
(2,572 |
) |
|
|
(4,667 |
) |
|
|
(3,857 |
) |
| Effect
of foreign exchange fluctuations on cash, cash equivalents,
restricted cash and restricted cash equivalents |
|
(1 |
) |
|
|
— |
|
|
|
3 |
|
|
|
— |
|
| Net increase (decrease) in
cash, cash equivalents, restricted cash, and restricted cash
equivalents |
|
(72 |
) |
|
|
(1,346 |
) |
|
|
(507 |
) |
|
|
241 |
|
| Cash, cash equivalents,
restricted cash, and restricted cash equivalents, beginning of
period |
|
906 |
|
|
|
2,687 |
|
|
|
1,341 |
|
|
|
1,100 |
|
|
Cash, cash equivalents, restricted cash, and restricted
cash equivalents, end of period |
$ |
834 |
|
|
$ |
1,341 |
|
|
$ |
834 |
|
|
$ |
1,341 |
|
| Cash and cash equivalents, end
of period |
$ |
328 |
|
|
$ |
838 |
|
|
$ |
328 |
|
|
$ |
838 |
|
|
Restricted cash and cash equivalents, end of period |
|
506 |
|
|
|
503 |
|
|
|
506 |
|
|
|
503 |
|
|
Cash, cash equivalents, restricted cash, and restricted
cash equivalents, end of period |
$ |
834 |
|
|
$ |
1,341 |
|
|
$ |
834 |
|
|
$ |
1,341 |
|
| Supplemental cash flow
information |
|
|
|
|
|
|
|
| Interest paid |
$ |
(103 |
) |
|
$ |
(79 |
) |
|
$ |
(542 |
) |
|
$ |
(512 |
) |
| Income
taxes paid |
$ |
(334 |
) |
|
$ |
(177 |
) |
|
$ |
(1,288 |
) |
|
$ |
(759 |
) |
|
(1) |
In
the first quarter of 2022, the Company changed its method of
calculating market-related values of pension assets for its defined
benefit plans using a retrospective approach. Comparative figures
have been restated to conform to the change in methodology. See
Note 2 – Change in accounting policy for additional
information. |
See accompanying notes to unaudited consolidated financial
statements.
Notes to Unaudited Consolidated Financial
Statements
1 – Basis of presentation
In these notes, the "Company" or "CN" refers to,
Canadian National Railway Company, together with its wholly-owned
subsidiaries.
The accompanying unaudited Interim Consolidated
Financial Statements, expressed in Canadian dollars, have been
prepared in accordance with United States generally accepted
accounting principles (GAAP) for interim financial statements.
Accordingly, they do not include all of the disclosures required by
GAAP for complete financial statements. In management's opinion,
all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included.
Interim operating results are not necessarily indicative of the
results that may be expected for the full year.
These unaudited Interim Consolidated Financial
Statements have been prepared using accounting policies consistent
with those used in preparing CN's 2021 Annual Consolidated
Financial Statements, except as disclosed in Note 2 – Change in
accounting policy, and should be read in conjunction with such
statements and Notes thereto.
2 – Change in accounting policy
Change in accounting policy for
determining net periodic pension cost (income)Effective
January 1, 2022, CN elected to change its accounting methodology
for determining the market-related value of assets for the
Company’s defined benefit pension plans. The new accounting method
changes the calculation of market-related value of pension plan
assets used to determine net periodic benefit cost but has no
impact on the annual funded status of the plans. The Company's
previous methodology calculated market-related value for pensions
whereby realized and unrealized gains/losses and
appreciation/depreciation in the value of the investments were
recognized over a period of five years. The Company's new
methodology will apply a corridor approach so that the
market-related value does not result in a value that deviates
excessively from its fair value. Specifically, the market-related
value will not exceed 110% or be less than 90% of the fair value.
This change establishes a corridor approach whereby the amount
causing the market-related value to be outside of the 10% corridor
will be recognized immediately in the market-related value of
assets and will not be subject to the five year period of
recognition. There is no change in the recognition approach for
investment income.
CN considers the use of a calculated value with
a corridor approach preferable to the previous calculated value
approach as it results in a more current reflection of impacts of
changes in value of these plan assets in the determination of net
periodic benefit cost. The new accounting method to calculate the
market-related value for pensions also aligns with the prevailing
guidance issued by the Office of the Superintendent of Financial
Institutions (OSFI) for the preparation of actuarial valuations for
funding purposes for all registered Canadian defined benefit
pension plans, whereby the Company has adopted and applied the
updated OSFI guidance starting with the December 31, 2021 funding
valuations that were filed during the second quarter of 2022.
The change in accounting method was applied
retrospectively to all periods presented within CN’s financial
statements. The change did not impact Operating income or Net cash
provided by operating activities but did impact the previously
reported portion of Other components of net periodic benefit cost
(income) for defined benefit pension plans along with related
consolidated income items such as Net income and Earnings per
share. Other impacts included related changes to previously
reported consolidated Other comprehensive income (loss), Retained
earnings, Accumulated other comprehensive income (loss), and
associated line items within the determination of Net cash provided
(used) by operating activities.
The election of this change impacted previously
reported amounts included herein as indicated in the tables
below:
Consolidated Statements of Income
|
|
Three months ended December 31, 2021 |
|
Year ended December 31, 2021 |
| In
millions, except per share data |
Under prior method |
|
|
As restated |
|
|
Under prior method |
|
|
As restated |
|
|
Other components of net periodic benefit income |
$ |
110 |
|
|
$ |
112 |
|
|
$ |
398 |
|
|
$ |
407 |
|
| Income before income
taxes |
$ |
1,572 |
|
|
$ |
1,574 |
|
|
$ |
6,333 |
|
|
$ |
6,342 |
|
| Income tax expense |
$ |
(373 |
) |
|
$ |
(373 |
) |
|
$ |
(1,441 |
) |
|
$ |
(1,443 |
) |
| Net
income |
$ |
1,199 |
|
|
$ |
1,201 |
|
|
$ |
4,892 |
|
|
$ |
4,899 |
|
|
|
|
|
|
|
|
|
|
| Earnings per share: |
|
|
|
|
|
|
|
| Basic |
$ |
1.70 |
|
|
$ |
1.70 |
|
|
$ |
6.90 |
|
|
$ |
6.91 |
|
|
Diluted |
$ |
1.69 |
|
|
$ |
1.70 |
|
|
$ |
6.89 |
|
|
$ |
6.90 |
|
Consolidated Statements of Other Comprehensive
Income
|
|
Three months ended December 31, 2021 |
|
Year ended December 31, 2021 |
| In
millions |
Under prior method |
|
|
As restated |
|
|
Under prior method |
|
|
As restated |
|
|
Net income |
$ |
1,199 |
|
|
$ |
1,201 |
|
|
$ |
4,892 |
|
|
$ |
4,899 |
|
| Net change in pension and
other postretirement benefit plans |
$ |
1,858 |
|
|
$ |
1,844 |
|
|
$ |
2,075 |
|
|
$ |
2,066 |
|
| Other comprehensive income
before income taxes |
$ |
1,840 |
|
|
$ |
1,826 |
|
|
$ |
2,023 |
|
|
$ |
2,014 |
|
| Income tax expense |
$ |
(489 |
) |
|
$ |
(486 |
) |
|
$ |
(546 |
) |
|
$ |
(544 |
) |
| Other comprehensive loss |
$ |
1,351 |
|
|
$ |
1,340 |
|
|
$ |
1,477 |
|
|
$ |
1,470 |
|
|
Comprehensive income |
$ |
2,550 |
|
|
$ |
2,541 |
|
|
$ |
6,369 |
|
|
$ |
6,369 |
|
Consolidated Balance Sheets
|
|
As at December 31, 2021 |
| In
millions |
Under prior method |
|
|
As restated |
|
|
Accumulated other comprehensive loss |
$ |
(1,995 |
) |
|
$ |
(2,241 |
) |
|
Retained earnings |
$ |
20,741 |
|
|
$ |
20,987 |
|
Consolidated Statements of Changes in Shareholders'
Equity
| |
Under prior method |
|
As restated |
| In
millions |
Accumulatedothercomprehensiveloss |
|
Retainedearnings |
|
Totalshareholders'equity |
|
Accumulatedothercomprehensiveloss |
|
Retainedearnings |
|
Totalshareholders'equity |
|
Balance at December 31, 2020 (1) |
$ |
(3,472 |
) |
|
$ |
19,161 |
|
$ |
19,651 |
|
$ |
(3,711 |
) |
|
$ |
19,400 |
|
$ |
19,651 |
| Net income |
|
|
$ |
4,892 |
|
$ |
4,892 |
|
|
|
$ |
4,899 |
|
$ |
4,899 |
| Other comprehensive
income |
$ |
1,477 |
|
|
|
|
$ |
1,477 |
|
$ |
1,470 |
|
|
|
|
$ |
1,470 |
| Balance
at December 31, 2021 |
$ |
(1,995 |
) |
|
$ |
20,741 |
|
$ |
22,744 |
|
$ |
(2,241 |
) |
|
$ |
20,987 |
|
$ |
22,744 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at September 30,
2021 |
$ |
(3,346 |
) |
|
$ |
21,002 |
|
$ |
21,660 |
|
$ |
(3,581 |
) |
|
$ |
21,246 |
|
$ |
21,669 |
| Net income |
|
|
|
|
$ |
1,199 |
|
$ |
1,199 |
|
|
|
|
|
$ |
1,201 |
|
$ |
1,201 |
| Other comprehensive
income |
$ |
1,351 |
|
|
|
|
|
$ |
1,351 |
|
$ |
1,340 |
|
|
|
|
|
$ |
1,340 |
| Balance at December 31,
2021 |
$ |
(1,995 |
) |
|
$ |
20,741 |
|
$ |
22,744 |
|
$ |
(2,241 |
) |
|
$ |
20,987 |
|
$ |
22,744 |
|
(1) |
The cumulative restatement as of December 31, 2020, the beginning
of the earliest period presented in the consolidated financial
statements included herein, was a $239 million increase to each of
Retained earnings and Accumulated other comprehensive loss. |
Consolidated Statements of Cash Flows
|
|
Three months ended December 31, 2021 |
|
Year ended December 31, 2021 |
| In
millions |
Under prior method |
|
|
As restated |
|
|
Under prior method |
|
|
As restated |
|
|
Net income |
$ |
1,199 |
|
|
$ |
1,201 |
|
|
$ |
4,892 |
|
|
$ |
4,899 |
|
| Pension income and
funding |
$ |
(97 |
) |
|
$ |
(99 |
) |
|
$ |
(305 |
) |
|
$ |
(314 |
) |
|
Deferred income taxes |
$ |
154 |
|
|
$ |
154 |
|
|
$ |
511 |
|
|
$ |
513 |
|
3 – Recent accounting pronouncements
The following recent Accounting Standards Update
(ASU) issued by the Financial Accounting Standards Board (FASB)
came into effect during the current year and has been adopted by
the Company:
ASU 2021-10 Disclosures by business
entities about government assistance (Topic 832)The ASU
will increase the transparency of government assistance including
the disclosure of types of assistance, an entity’s accounting for
the assistance, and the effect of the assistance on an entity’s
financial statements.
The Company adopted this standard in the fourth
quarter of 2022 with an effective date of January 1, 2022. The
adoption of this standard has been applied to existing government
assistance transactions.
The following recent ASUs issued by the FASB
were issued in 2020, were amended in 2021 as well as in 2022 and
have not been adopted by the Company:
ASU 2020-04 and ASU 2022-06 Reference
rate reform (Topic 848): Facilitation of the effects of reference
rate reform on financial reporting and related
amendmentsUSD London Interbank Offered Rate (LIBOR) and
Canadian Dollar Offered Rate (CDOR) are benchmark interest rates
referenced in a variety of agreements. The publication of certain
LIBOR and CDOR rates were discontinued in January 2022 and May
2021, respectively, and the remaining rates are expected to be
discontinued on June 30, 2023 and June 30, 2024, respectively. The
recommended alternative reference rates for LIBOR and CDOR are the
Secured Overnight Financing Rate (SOFR) and Canadian Overnight Repo
Rate Average (CORRA), respectively.
The ASU provides optional expedients and
exceptions for applying generally accepted accounting principles to
transactions affected by reference rate reform if certain criteria
are met. These transactions include contract modifications, hedging
relationships, and sale or transfer of debt securities classified
as held-to-maturity.
The ASU was effective starting on March 12,
2020, and is available to be adopted on a prospective basis no
later than December 31, 2024, following the amendments of ASU
2022-06. The Company has a non-revolving credit facility that
references LIBOR and CDOR for which the alternative reference rate
is expected to be SOFR and CORRA, respectively. As at December 31,
2022, the Company has equipment loans made under the non-revolving
credit facility referencing LIBOR with outstanding borrowings of
US$542 million. The equipment loans will be impacted by the
discontinuance of the remaining LIBOR rates and the Company has
fallback language that allows for the succession of LIBOR to
SOFR.
The Company is evaluating the effects that the
adoption of the ASU will have on its Consolidated Financial
Statements and related disclosures, and whether it will elect to
apply any of the optional expedients and exceptions provided in the
ASU.
Other recently issued ASUs required to be
applied on or after December 31, 2022 have been evaluated by the
Company and are not expected to have a significant impact on the
Company's Consolidated Financial Statements.
4 – Acquisition
Terminated CN Kansas City Southern
("KCS") merger agreementOn September 15, 2021, KCS
notified CN that it terminated the previously announced May 21,
2021 definitive merger agreement (the “CN Merger Agreement") under
which CN would have acquired KCS.
On August 31, 2021, the Surface Transportation
Board ("STB") rejected the joint motion by CN and KCS to approve a
proposed voting trust agreement. On September 15, 2021, KCS and its
Board of Directors announced that the revised acquisition proposal
of September 12, 2021 from Canadian Pacific Railway Limited (“CP”)
constituted a "Company Superior Proposal" as defined in the CN
Merger Agreement. Consequently, KCS entered into a waiver letter
agreement with CN under which KCS agreed to terminate the CN Merger
Agreement in order to enter into a merger agreement with CP. As a
result, CN received from KCS a merger termination fee of US$700
million ($886 million), recorded in Merger termination fee within
the Company’s Consolidated Statements of Income and reflected in
Operating activities within the Consolidated Statements of Cash
Flows. In addition, KCS also refunded Brooklyn US Holdings, Inc.
("Holdco"), a wholly owned subsidiary of the Company, US$700
million ($886 million) that CN had previously paid as an advance to
KCS of US$700 million ($845 million) in connection with KCS’s
payment of the termination fee to CP under KCS’s original merger
agreement with CP that was terminated on May 21, 2021. The refund
received in the third quarter of 2021 was recorded in
Transaction-related costs within the Consolidated Statements of
Income and reflected in Investing activities within the
Consolidated Statements of Cash flows. The US$700 million ($845
million) advance was recorded in Advance to KCS and other
transaction costs within the Consolidated Balance Sheets in the
second quarter of 2021 and was expensed to Transaction-related
costs within the Consolidated Statements of Income in the third
quarter of 2021. This advance, along with $63 million of
transaction-related costs paid in the second quarter of 2021, was
reflected in Investing activities within the Consolidated
Statements of Cash flows.
The Company incurred $84 million of
transaction-related costs for the year ended December 31, 2021
recorded in Transaction-related costs within the Consolidated
Statements of Income. This included $125 million of
transaction-related costs, consisting of a $76 million expense for
costs previously capitalized to Advance to KCS and other
transaction costs within the Consolidated Balance Sheets in the
second quarter of 2021 in accordance with the expected application
of equity method accounting and $49 million of additional
transaction-related costs incurred in the third quarter of 2021;
partially offset by $41 million of income generated as a result of
the applicable foreign exchange rates prevailing at the time of
payment of the US dollar denominated advance to KCS and receipt of
the related refund.
The Company also paid $97 million of bridge
financing and other fees which were recorded in Interest expense
within the Consolidated Statements of Income for the year ended
December 31, 2021.
For the year ended December 31, 2021, after
accounting for all direct and incremental expenses as well as
income generated from the merger termination fee, CN recorded
additional income of $705 million ($616 million after-tax), as a
result of its strategic decision to bid for KCS.
5 – Assets held for sale
In the first quarter of 2021, CN entered into an
agreement with a short line operator, for the sale of non-core
lines in Wisconsin, Michigan and Ontario representing 850 miles
that were classified as assets held for sale plus an additional 50
miles of track and roadway assets, resulting in a $137 million
recovery ($102 million after-tax) of the $486 million loss ($363
million after-tax) recorded in the second quarter of 2020 to adjust
the carrying amount of the track and roadway assets to their then
estimated net selling price.
As at December 31, 2021, the carrying amount of
assets held for sale of $260 million was included in Other current
assets in the Consolidated Balance Sheets.
In the fourth quarter of 2021, the STB approved
the Company's agreement with the short line operator without
condition and the transaction closed on January 28, 2022 and
January 31, 2022 for the U.S. and Canadian assets, respectively.
The resulting difference between the net selling price and what was
estimated was insignificant.
6 – Subsequent event
Normal course issuer bid
(NCIB)On January 24, 2023, the Board of Directors of
the Company approved a new NCIB, which allows for the repurchase of
up to 32.0 million common shares between February 1, 2023 and
January 31, 2024.
Canadian National Railway (TSX:CNR)
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