CN Records Solid First-Quarter 2003 Performance Amidst Harsh Weather, Economic Challenges.Business Editors MONTREAL--(BUSINESS WIRE)--April 23, 2003 CN (NYSE NYSE See: New York Stock Exchange :CNI (1) (Certified NetWare Instructor) See Novell certification. (2) (Coalition for Networked Information, Washington, DC, www.cni.org) A partnership of the Association of Research Libraries, CAUSE and EDUCOM, founded in 1990. )(TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CNR See riser card. CNR - Communication and Network Riser ) today announced first-quarter 2003 net income of $252 million, or $1.28 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with net income of $230 million, or $1.15 per diluted share, for the same period of 2002. Net income for the first three months of 2003 included a cumulative after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. benefit of $48 million (24 cents per diluted share), resulting from a change in the accounting for removal costs for certain track structure assets. Excluding the effect of this change, first-quarter 2003 net income was $204 million, or $1.04 per diluted share, down 11 per cent and 10 per cent, respectively, from net income and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the first quarter of 2002. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the first three months of 2003 declined eight per cent to $374 million. Revenues declined one per cent to $1,496 million, while expenses rose two per cent to $1,122 million. CN's operating ratio Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: for the latest quarter was 75 per cent, compared with 73.1 per cent for the year-earlier period. E. Hunter Harrison E. Hunter Harrison (born 1944) is a Tennessee-born railroader who currently is the president and Chief Executive Officer of Canadian National Railway (CN). Life Born in Tennessee, he began as a carman-oiler at the Frisco Railroad in Memphis, Tennessee in 1964, , CN's president and chief executive officer, said: "The CN team did an outstanding job of managing the business in a quarter marked by major challenges: harsh weather -- the second coldest Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. winter in 20 years - which caused congestion The condition of a network when there is not enough bandwidth to support the current traffic load. congestion - When the offered load of a data communication path exceeds the capacity. and additional operating and maintenance expenses; higher fuel costs; and continued weakness in bulk commodities traffic, largely because of reduced Canadian grain volumes. "Given these challenges, our revenue and expense performances were accomplishments. Revenues declined by only one per cent; gains by our intermodal in·ter·mod·al adj. Relating to transportation by more than one means of conveyance, as by truck and rail: intermodal transport. , petroleum and chemicals, and metals and minerals businesses almost totally offset an 11 per cent reduction in bulk commodities revenues, and softer automotive and forest products revenues. At the same time, solid cost control limited the increase in overall operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. to two per cent, despite additional weather-related costs and a 13 per cent rise in fuel expense." Intermodal revenues rose by 13 per cent, while petroleum and chemicals revenues increased by six per cent, and metals and minerals revenues rose three per cent. Four business segments registered revenue decreases: grain and fertilizers (13 per cent); automotive (five per cent); coal (four per cent); and forest products (two per cent). Total carloadings increased four per cent to 1,038 thousand. The increase in CN's operating expenses was mainly attributable to higher fuel costs, increased casualty and other expenses, and higher expenses resulting from the severe winter conditions that prevailed during the quarter. Partly offsetting these increases were lower expenses for equipment rents. Harrison Harrison, town (1990 pop. 13,425), Hudson co., NE N.J., an industrial suburb on the Passaic River opposite Newark; inc. 1869. The town has several foundries. Its manufactures include plastics, paperboard, and metal products. said: "The company continues to be cautious about economic prospects for the remainder of 2003. Economic growth has slowed in the last six months, largely reflecting hesitant hes·i·tant adj. Inclined or tending to hesitate. hes  i·tant·ly adv. consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. in
the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . This situation could persist in Verb 1. persist in - do something repeatedly and showing no intention to stop; "We continued our research into the cause of the illness"; "The landlord persists in asking us to move"continue the near term." The financial results in this press release are reported in Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents and were determined on the basis of U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (U.S. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ). This news release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . CN cautions that, by their nature, forward-looking statements involve risk and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CN's most recent Form 40-F filed with the United States Securities and Exchange Commission, and the Annual Information Form filed with the Canadian securities regulators, for a summary of major risks. Canadian National Railway Company Canadian National Railway Company (NYSE: CNI, TSX: CNR) is a Canadian rail transportation company that operates the Canadian National Railway. It was created in December, 1918 as a Crown corporation of the Government of Canada to nationalize several bankrupt rail systems spans Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico Noun 1. Gulf of Mexico - an arm of the Atlantic to the south of the United States and to the east of Mexico Golfo de Mexico Atlantic, Atlantic Ocean - the 2nd largest ocean; separates North and South America on the west from Europe and Africa on the east , serving the ports of Vancouver Vancouver, city, Canada Vancouver, city (1991 pop. 471,844), SW British Columbia, Canada, on Burrard Inlet of the Strait of Georgia, opposite Vancouver Island and just N of the Wash. border. , Prince Rupert Prince Rupert, city (1991 pop. 16,620), W British Columbia, Canada, on Kaien Island, in Chatham Sound near the mouth of the Skeena River, S of the Alaska border. , B.C., Montreal Montreal (mŏn'trēôl`), Fr. Montréal (môNrāäl`), city (1991 pop. 1,017,666), S Que., Canada, on Montreal island, surrounded by St. Lawrence River and Rivière des Prairies. , Halifax Halifax, city, Canada Halifax, city (1991 pop. 114,455), provincial capital, S central N.S., Canada, on the Atlantic Ocean. It is the largest city in the Maritime Provinces and is one of Canada's principal ice-free Atlantic ports. , New Orleans New Orleans (ôr`lēənz –lənz, ôrlēnz`), city (2006 pop. 187,525), coextensive with Orleans parish, SE La., between the Mississippi River and Lake Pontchartrain, 107 mi (172 km) by water from the river mouth; founded , and Mobile, Ala ALA aminolevulinic acid. Ala alanine. ala (a´lah) pl. a´lae [L.] a winglike process. ., and the key cities of Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing , Buffalo, Chicago Chicago, city, United States Chicago (shĭkä`gō, shĭkô`gō), city (1990 pop. 2,783,726), seat of Cook co., NE Ill., on Lake Michigan; inc. 1837. , Detroit Detroit, city, United States Detroit (dĭtroit`), city (1990 pop. 1,027,974), seat of Wayne co., SE Mich., on the Detroit River and between lakes St. Clair and Erie; inc. as a city 1815. , Duluth Duluth (dəl  th`), city (1990 pop. 85,493), seat of St. Louis co., NE Minn., at the west end of Lake Superior, at the head of lake navigation and opposite Superior, Wis.; inc. 1870. , Minn./Superior, Wis adv. 1. Certainly; really; indeed.v. t. 1. To think; to suppose; to imagine; - used chiefly in the first person sing. present tense, I wis. See the Note under Ywis. ., Green Bay, Wis., Minneapolis/St. Paul Paul, 1901–64, king of the Hellenes (1947–64), brother and successor of George II. He married (1938) Princess Frederika of Brunswick. During Paul's reign Greece followed a pro-Western policy, and the Cyprus question was temporarily resolved. , Memphis, St. Louis Louis, titular duke of Burgundy Louis, 1682–1712, titular duke of Burgundy; grandson of King Louis XIV of France. He became heir to the throne on the death (1711) of his father, Louis the Great Dauphin. , and Jackson Jackson. 1 City (1990 pop. 37,446), seat of Jackson co., S Mich., on the Grand River; inc. 1857. It is an industrial and commercial center in a farm region. , Miss., with connections to all points in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. .
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP)
---------------------------------------------------------------------
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(In millions, except per share data)
Three months ended
March 31
--------------------
2003 2002
---------------------------------------------------------------------
(Unaudited)
Revenues $ 1,496 $ 1,509
---------------------------------------------------------------------
Operating expenses 1,122 1,103
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Operating income 374 406
Interest expense (85) (96)
Other income 4 38
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Income before income taxes and cumulative
effect of change in accounting policy 293 348
Income tax expense (89) (118)
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Income before cumulative effect of change
in accounting policy 204 230
Cumulative effect of change in accounting
policy (net of applicable taxes) (Note 2) 48 -
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Net income $ 252 $ 230
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Earnings per share (Note 6)
Basic earnings per share
Income before cumulative effect of change
in accounting policy $ 1.04 $ 1.19
Net income $ 1.29 $ 1.19
Diluted earnings per share
Income before cumulative effect of change
in accounting policy $ 1.04 $ 1.15
Net income $ 1.28 $ 1.15
Weighted-average number of shares
Basic 195.2 193.2
Diluted 197.4 203.0
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See accompanying notes to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF OPERATING INCOME (U.S. GAAP)
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(In millions)
Three months ended March 31
--------------------------------
Variance
2003 2002 Fav (Unfav)
---------------------------------------------------------------------
(Unaudited)
Revenues
Petroleum and chemicals $ 290 $ 273 6%
Metals and minerals 126 122 3%
Forest products 317 325 (2%)
Coal 74 77 (4%)
Grain and fertilizers 234 269 (13%)
Intermodal 265 235 13%
Automotive 143 151 (5%)
Other items 47 57 (18%)
-------------------------------------------------------
1,496 1,509 (1%)
Operating expenses
Labor and fringe benefits 454 457 1%
Purchased services and material 200 198 (1%)
Depreciation and amortization (Note 2) 143 141 (1%)
Fuel 127 112 (13%)
Equipment rents 77 87 11%
Casualty and other 121 108 (12%)
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1,122 1,103 (2%)
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Operating income $ 374 $ 406 (8%)
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Operating ratio 75.0% 73.1% (1.9)
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See accompanying notes to consolidated financial statements.
Certain of the 2002 comparative figures have been reclassified in
order to be consistent with the 2003 presentation.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions)
March 31 December 31 March 31
2003 2002 2002
---------------------------------------------------------------------
(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 84 $ 25 $ 51
Accounts receivable (Note 3) 706 722 699
Material and supplies 160 127 156
Deferred income taxes 126 122 153
Other 206 196 179
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1,282 1,192 1,238
Properties (Note 2) 19,018 19,681 19,179
Other assets and deferred charges 837 865 856
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Total assets $ 21,137 $ 21,738 $ 21,273
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued
charges $ 1,456 $ 1,487 $ 1,367
Current portion of long-term debt 949 574 558
Other 79 73 94
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2,484 2,134 2,019
Deferred income taxes 4,651 4,826 4,699
Other liabilities and deferred
credits 1,334 1,406 1,279
Long-term debt (Note 3) 4,544 5,003 5,168
Convertible preferred securities - - 367
Shareholders' equity:
Common shares (Note 3) 4,668 4,785 4,473
Accumulated other comprehensive
income (loss) (13) 97 92
Retained earnings 3,469 3,487 3,176
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8,124 8,369 7,741
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Total liabilities and
shareholders' equity $ 21,137 $ 21,738 $ 21,273
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See accompanying notes to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. GAAP)
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(In millions)
Three months ended
March 31
--------------------
2003 2002
---------------------------------------------------------------------
(Unaudited)
Common shares(1)
Balance, beginning of period $ 4,785 $ 4,442
Stock options exercised and other 24 31
Share repurchase program (Note 3) (141) -
---------------------------------------------------------------------
Balance, end of period $ 4,668 $ 4,473
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Accumulated other comprehensive income (loss)
Balance, beginning of period $ 97 $ 58
Other comprehensive income (loss):
Unrealized foreign exchange gain (loss) on
translation of U.S. dollar denominated
long-term debt designated as a hedge of the
net investment in U.S. subsidiaries 264 (11)
Unrealized foreign exchange gain (loss) on
translation of the net investment in foreign
operations (424) 12
Unrealized holding gain (loss) on fuel
derivative instruments (Note 4) (3) 51
---------------------------------------------------------------------
Other comprehensive income (loss) before
income taxes (163) 52
Income tax recovery (expense) 53 (18)
---------------------------------------------------------------------
Other comprehensive income (loss) (110) 34
---------------------------------------------------------------------
Balance, end of period $ (13) $ 92
---------------------------------------------------------------------
---------------------------------------------------------------------
Retained earnings
Balance, beginning of period $ 3,487 $ 2,988
Net income 252 230
Share repurchase program (Note 3) (221) -
Dividends (49) (42)
---------------------------------------------------------------------
Balance, end of period $ 3,469 $ 3,176
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---------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
(1) During the first quarter of 2003, the Company issued 0.3 million
common shares as a result of stock options exercised. At
March 31, 2003, the Company had 192.0 million common shares
outstanding.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions)
Three months ended
March 31
--------------------
2003 2002
---------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 252 $ 230
Adjustments to reconcile net income to net cash
provided from operating activities:
Cumulative effect of change in accounting
policy (Note 2) (48) -
Depreciation and amortization 145 142
Deferred income taxes 72 71
Equity in earnings of English Welsh and
Scottish Railway (14) (11)
Other changes in:
Accounts receivable 1 (56)
Material and supplies (37) (23)
Accounts payable and accrued charges (30) (58)
Other net current assets and liabilities (9) -
Other 29 (13)
---------------------------------------------------------------------
Cash provided from operating activities 361 282
---------------------------------------------------------------------
Investing activities
Net additions to properties (121) (120)
Other, net (10) 72
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Cash used by investing activities (131) (48)
---------------------------------------------------------------------
Dividends paid (49) (42)
Financing activities
Issuance of long-term debt (Note 3) 1,316 855
Reduction of long-term debt (Note 3) (1,087) (1,078)
Issuance of common shares 11 29
Repurchase of common shares (Note 3) (362) -
---------------------------------------------------------------------
Cash used by financing activities (122) (194)
---------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 59 (2)
Cash and cash equivalents, beginning of period 25 53
---------------------------------------------------------------------
Cash and cash equivalents, end of period $ 84 $ 51
---------------------------------------------------------------------
---------------------------------------------------------------------
Supplemental cash flow information
Payments for:
Interest $ 82 $ 115
Workforce reductions 48 47
Personal injury and other claims 38 41
Pensions 3 5
Income taxes 58 38
---------------------------------------------------------------------
---------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
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Note 1 - Basis of presentation In management's opinion, the accompanying unaudited interim consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge , prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with U.S. generally accepted accounting principles (U.S. GAAP), contain all adjustments (consisting of normal recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. ) necessary to present fairly Canadian National Railway Canadian National Railway, rail system in Canada and the United States, extending from coast to coast in Canada with many branch lines in each province and in the United States. Company's (the Company) financial position as at March 31, 2003 and December 31 and March 31, 2002, its results of operations, changes in shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. and cash flows for the three months ended March 31, 2003 and 2002. These interim consolidated financial statements and notes have been prepared using accounting policies consistent with those used in preparing the Company's 2002 Annual Consolidated Financial Statements except for Asset retirement obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. and Stock-based compensation as explained in Note 2. While management believes that the disclosures presented are adequate to make the information not misleading, these interim consolidated financial statements and notes should be read in conjunction with the Company's Management Discussion and Analysis and Annual Consolidated Financial Statements. Note 2 - Accounting changes Asset retirement obligations Effective January 1, 2003, the Company adopted the recommendations of Statement of Financial Accounting Standards (SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System ) No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that the fair value of an asset retirement obligation be recorded as a liability only when there is a legal obligation associated with a removal activity. The Company has concluded that no legal obligation exists for its various removal programs. In accordance with SFAS No. 143, the Company changed its accounting policy for certain track structure assets to exclude removal costs as a component of depreciation expense where the inclusion of such costs would result in accumulated depreciation accumulated depreciation The total amount of depreciation that has been recorded for an asset since its date of acquisition. For example, a computer with a 5-year estimated life that was purchased for $2,000 would have accumulated depreciation of $800 [( balances exceeding the historical cost basis of the assets. As a result, a cumulative benefit of $75 million, or $48 million after tax, was recorded for the amount of removal costs accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. in accumulated depreciation on certain track structure assets at January 1, 2003. This change in policy will result in lower depreciation expense and higher labor and fringe benefits fringe benefits, n.pl the benefits, other than wages or salary, provided by an employer for employees (e.g., health insurance, vacation time, disability income). and other expenses in the period in which removal costs are incurred. For the quarter ended March 31, 2003, this change in policy had the effect of increasing net income by $2 million mainly through reduced depreciation expense. Had the Company applied the policy on January 1, 2002, the impact on net income for the first quarter of 2002 would have been a benefit of $2 million. Stock-based compensation Effective January 1, 2003, the Company voluntarily adopted the fair value based approach of SFAS No. 123, "Accounting for Stock-Based Compensation" as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." The Company has elected to prospectively apply this method of accounting to all awards of employee stock options granted, modified or settled on or after January 1, 2003, as permitted under SFAS No. 148. In the first quarter of 2003, the Company granted 2.0 million stock options, which will be expensed over their vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period based on their estimated fair value on the date of grant, determined using the Black-Scholes option pricing model option pricing model A mathematical formula for determining the price at which an option should trade. The model expresses the value of an option as a function of the value of the underlying asset, length of time until maturity, exercise price, yields on . Prior to 2003, the Company accounted for stock-based compensation in accordance with Accounting Principles Board The Accounting Principles Board (APB) is the former authoritative body of the American Institute of Certified Public Accountants (AICPA). It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, Opinion (APB APB See Accounting Principles Board (APB). ) 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost was recorded for the intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. of the Company's performance-based stock option awards and no compensation cost was recognized for the Company's conventional stock option awards. For the three months ended March 31, 2003 and 2002, the Company recorded compensation cost of $7 million and $4 million, respectively. If compensation cost had been determined based upon fair values at the date of grant for awards under all plans, consistent with the methods of SFAS No. 123, the Company's pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma net income and earnings per share would have been as follows:
Three months ended March 31, 2003 2002
---------------------------------------------------------------------
Net income, as reported (in millions) $ 252 $ 230
Add (deduct) compensation cost, net of
applicable taxes, determined under:
Fair value method for all awards granted
after Jan 1, 2003 (SFAS No. 123) 1 -
Intrinsic value method for
performance-based awards (APB 25) 6 4
Fair value method for all awards
(SFAS No. 123) (11) (10)
-----------------------
Pro forma net income (in millions) $ 248 $ 224
-----------------------
-----------------------
Basic earnings per share, as reported $ 1.29 $ 1.19
Basic earnings per share, pro forma $ 1.27 $ 1.16
Diluted earnings per share, as reported $ 1.28 $ 1.15
Diluted earnings per share, pro forma $ 1.26 $ 1.12
---------------------------------------------------------------------
These pro forma amounts include compensation cost as calculated using the Black-Scholes option pricing model with the following assumptions:
Three months ended March 31, 2003 2002
---------------------------------------------------------------------
Expected option life (years) 5.0 7.0
Risk-free interest rate 4.13% 5.79%
Expected stock price volatility 30% 30%
Average dividend per share $ 1.00 $ 0.86
---------------------------------------------------------------------
Three months ended March 31, 2003 2002
---------------------------------------------------------------------
Weighted average fair value of options
granted $ 17.77 $ 30.98
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Note 3 - Financing activities In March 2003, the Company issued U.S.$400 million (Cdn$586 million) of 4.40% Notes due 2013, the maximum remaining amount under its shelf registration statement filed in 2001. The Company plans to use the net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of U.S.$396 million to repay U.S.$150 million of 6.625% 10-year Notes issued by the Company, and U.S.$100 million of 6.75% 10-year Notes issued by the Company's wholly-owned subsidiary Illinois Central Railroad Illinois Central Railroad (IC) former U.S. railroad founded in 1851 that merged with the Canadian National Railway Co. (CN) in 1999. After receiving its charter in 1851, the Illinois Central Railroad built its first line from Galena to Cairo, Ill. Company, both of which mature on May 15, 2003. The excess was used to repay the Company's borrowings under the commercial paper program of U.S.$136 million (Cdn$214 million) outstanding at December 31, 2002. In the first quarter of 2003, the Company repaid its borrowings under the revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility of U.S.$90 million (Cdn$142 million) outstanding at December 31, 2002. As at March 31, 2003, letters of credit under the revolving credit facility amounted to $318 million. The Company has an accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. program, which has a $350 million maximum limit and will expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. in June 2003. The Company intends to renew or replace the program upon expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created . At March 31, 2003, there was no change in the level of accounts receivable sold since December 31, 2002. The share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program which was approved in 2002, allows for the repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. of up to 13.0 million common shares between October 25, 2002 and October 24, 2003 pursuant to a normal course issuer bid, at prevailing market prices. In the first quarter of 2003, the Company repurchased 5.8 million common shares for $362 million, at an average price of $62.35. The Company has repurchased a total of 8.8 million common shares since the inception of the program for $565 million, at an average price of $64.17 per share. Note 4 - Derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. At March 31, 2003, a portion of the Company's fuel requirement has been hedged using derivative instruments that are carried at market value on the balance sheet. These fuel hedges are accounted for as cash flow hedges A cash flow hedge is a hedge of the exposure to the variability of cash flow that
A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. of $27 million, $18 million after tax, ($30 million unrealized gain, $20 million after tax at December 31, 2002) of which $25 million relates to derivative instruments that will mature within the next twelve months. Note 5 - Major commitments and contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. A. Commitments As at March 31, 2003, the Company had commitments to acquire railroad railroad or railway, form of transportation most commonly consisting of steel rails, called tracks, on which freight cars, passenger cars, and other rolling stock are drawn by one locomotive or more. ties, rail, freight cars, locomotives This is a list of locomotives (classes, or individual locomotives) that currently have articles in Wikipedia.
B. Contingencies In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc personal injuries, occupational disease and damage to property. In Canada, employee injuries are governed gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. by the workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. legislation in each province whereby employees may be awarded either a lump sum Lump sum A large one-time payment of money. or future stream of payments depending on the nature and severity of the injury. Accordingly, the Company accounts for costs related to employee work-related injuries based on actuarially developed estimates of the ultimate cost associated with such injuries, including compensation, health care and administration costs. For all other legal actions, the Company maintains, and regularly updates on a case-by-case basis, provisions for such items when the expected loss is both probable and can be reasonably estimated based on currently available information. In the United States, employee work-related injuries, including occupational disease claims, are compensated according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the provisions of the Federal Employers' Liability employers' liability: see workers' compensation. Act (FELA FELA Federal Employer's Liability Act of 1908 ), which requires either the finding of fault through the U.S. jury system or individual settlements. The Company accrues the expected cost for personal injury and property damage claims and existing occupational disease claims, based on actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin estimates of their ultimate cost. The Company is unable to estimate the total cost for unasserted occupational disease claims. However, a liability for unasserted occupational disease claims is accrued to the extent they are probable and can be reasonably estimated. An actuarial study is conducted on an annual basis by an independent actuarial firm. On an ongoing basis, management reviews and compares the assumptions inherent in the latest actuarial study with the current claim experience and, if required, adjustments to the liability are recorded. As at March 31, 2003, the Company had aggregate reserves for personal injury and other claims of $637 million ($664 million at December 31, 2002). Although the Company considers such provisions to be adequate for all its outstanding and pending claims, the final outcome with respect to actions outstanding or pending at March 31, 2003, or with respect to future claims, cannot be predicted with certainty, and therefore there can be no assurance that their resolution will not have a material adverse effect on the Company's financial position or results of operations in a particular quarter or fiscal year. C. Environmental matters The Company's operations are subject to federal, provincial, state, municipal and local regulations under environmental laws and regulations concerning, among other things, emissions into the air; discharges into waters; the generation, handling, storage, transportation, treatment and disposal of waste, hazardous substances, and other materials; decommissioning Decommissioning is a general term for a formal process to remove something from operational status. Some specific instances include:
While the Company believes that it has identified the costs likely to be incurred in the next several years, based on known information, for environmental matters, the Company's ongoing efforts to identify potential environmental concerns that may be associated with its properties may lead to future environmental investigations, which may result in the identification of additional environmental costs and liabilities. The magnitude of such additional liabilities and the costs of complying with environmental laws and containing or remediating contamination cannot be reasonably estimated due to: (i) the lack of specific technical information available with respect to many sites; (ii) the absence of any government authority, third-party orders, or claims with respect to particular sites; (iii) the potential for new or changed laws and regulations and for development of new remediation technologies and uncertainty regarding the timing of the work with respect to particular sites; (iv) the ability to recover costs from any third parties with respect to particular sites; and therefore, the likelihood of any such costs being incurred or whether such costs would be material to the Company cannot be determined at this time. There can thus be no assurance that material liabilities or costs related to environmental matters will not be incurred in the future, or will not have a material adverse effect on the Company's financial position or results of operations in a particular quarter or fiscal year, or that the Company's liquidity will not be adversely impacted by such environmental liabilities or costs. Although the effect on operating results and liquidity cannot be reasonably estimated, management believes, based on current information, that environmental matters will not have a material adverse effect on the Company's financial condition or competitive position. Costs related to any future remediation will be accrued in the year in which they become known. As at March 31, 2003, the Company had aggregate accruals for environmental costs of $97 million ($106 million as at December 31, 2002). D. Guarantees Effective January 1, 2003, the Company is required to recognize a liability for the fair value of the obligation undertaken in issuing certain guarantees on the date the guarantee is issued or modified. Where the Company expects to make a payment in respect of a guarantee, a liability will be recognized to the extent that one has not yet been recognized. Guarantee of residual values Residual value Usually refers to the value of a lessor's property at the time the lease expires. residual value The price at which a fixed asset is expected to be sold at the end of its useful life. of operating leases Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. The Company has guaranteed a portion of the residual values of certain of its assets under operating leases with expiry dates expiry date expire n → date f d'expiration; (on label) → à utiliser avant ... expiry date expire n → Ablauftermin m between 2004 and 2012, for the benefit of the lessor One who rents real property or Personal Property to another. A lessor of land is a landlord. Cross-references Landlord and Tenant. lessor n. the owner of real property who rents it to a lessee pursuant to a written lease. . If the fair value of the assets, at the end of their respective lease term, is less than the fair value, as estimated at the inception of the lease, then the Company must, under certain conditions, compensate the lessor for the shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. . The maximum exposure in respect of these guarantees is $63 million. During the first quarter of 2003, no new guarantees of this nature were issued. As at March 31, 2003, the Company has not recorded a liability associated with these guarantees, as the Company does not expect to make any payments pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to the guarantees of these leases. Other guarantees The Company, including certain of its subsidiaries, has granted irrevocable Unable to cancel or recall; that which is unalterable or irreversible. IRREVOCABLE. That which cannot be revoked. 2. A will may at all times be revoked by the same person who made it, he having a disposing mind; but the moment the testator is standby standby Medtalk adjective Referring to the immediate availability of a certain specialist–anesthesiologist, surgeon, who can be deployed in a medical emergency. Cf Concurrent. letters of credit and surety bonds surety bond An insurance fee required before a duplicate security is issued to replace one that has been lost. The fee is approximately 4% of the market value of the security to be replaced. , issued by highly rated financial institutions, to third parties to indemnify To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person. Insurance companies indemnify their policyholders against damage caused by such things as fire, theft, and flooding, which them in the event the Company does not perform its contractual obligations. As at March 31, 2003, the maximum potential liability under these guarantees was $406 million of which $330 million was for workers' compensation and other employee benefits and $76 million was for equipment under leases and other. During the first quarter of 2003, the Company granted additional guarantees for which no liability has been recorded, as they relate to the Company's future performance. As at March 31, 2003, the Company has not recorded a liability with respect to these guarantees, as the Company does not expect to make any payments in excess of what is recorded on the Company's financial statements for the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. items. The guarantee instruments mature at various dates between 2003 and 2007. E. Indemnifications CN Pension Plan and CN 1935 Pension Plan The Company has indemnified and held harmless The term harmless may be taken in several ways:
tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: instructions of the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements or trust deeds. As at March 31, 2003, the Company had not recorded a liability associated with these indemnifications, as the Company does not expect to make any payments pertaining to these indemnifications. General indemnifications In the normal course of business, the Company has provided indemnifications, customary for the type of transaction or for the railway business, in various agreements with third parties, including indemnification Indemnification Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgements resulting from provisions where the Company would be required to indemnify third parties and others. Indemnifications are found in various types of contracts with third parties which include, but are not limited to, (a) contracts granting the Company the right to use or enter upon property owned by third parties such as leases, easements EASEMENTS, estates. An easement is defined to be a liberty privilege or advantage, which one man may have in the lands of another, without profit; it may arise by deed or prescription. Vide 1 Serg. & Rawle 298; 5 Barn. & Cr. 221; 3 Barn. & Cr. 339; 3 Bing. R. 118; 3 McCord, R. , trackage track·age n. 1. Railway tracks. 2. a. The right of one railroad company to use the track system of another. b. The charge for this right. rights and sidetrack agreements; (b) contracts granting rights to others to use the Company's property, such as leases, licenses and easements; (c) contracts for the sale of assets and securitization of accounts receivable; (d) contracts for the acquisition of services; (e) financing agreements Financing Agreements In the context of project financing, the documents which provide the project financing and sponsor support for the project as defined in the project contracts. ; (f) trust indentures, fiscal agency agreements, underwriting agreements Underwriting agreement The contract between a corporation issuing new publicly offered securities and the managing underwriter as agent for the underwriting group. Compare to agreement among underwriters. or similar agreements relating to debt or equity securities of the Company and engagement agreements with financial advisors; (g) transfer agent and registrar See domain name registrar. agreements in respect of the Company's securities; and (h) trust agreements establishing trust funds to secure the payment to certain officers and senior employees of special retirement compensation arrangements Retirement Compensation Arrangements (RCAs) are defined under subsection 248(1) of the Canadian Income Tax Act, which allows 100 per cent tax-deductible corporate dollars to be deposited into an RCA, on behalf of the private business owner and/or key employee. or plans. To the extent of any actual claims under these agreements, the Company maintains provisions for such items, which it considers to be adequate. Due to the nature of the indemnification clauses, the maximum exposure for future payments may be material. However, such exposure cannot be determined with certainty.
Note 6 - Earnings per share
Three months ended
March 31
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2003 2002
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(Unaudited)
Basic earnings per share
Income before cumulative effect of change
in accounting policy $ 1.04 $ 1.19
Cumulative effect of change in accounting
policy (Note 2) 0.25 -
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Net income $ 1.29 $ 1.19
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Diluted earnings per share
Income before cumulative effect of change
in accounting policy $ 1.04 $ 1.15
Cumulative effect of change in accounting
policy (Note 2) 0.24 -
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Net income $ 1.28 $ 1.15
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The following table provides a reconciliation between basic and
diluted earnings per share:
Three months ended
March 31
--------------------
2003 2002
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(In millions, except per share data) (Unaudited)
Income before cumulative effect of change
in accounting policy $ 204 $ 230
Income impact on assumed conversion of
preferred securities - 3
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$ 204 $ 233
Weighted-average shares outstanding 195.2 193.2
Effect of dilutive securities and
stock options 2.2 9.8
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Weighted-average diluted shares outstanding 197.4 203.0
Basic earnings per share before cumulative
effect of change in accounting policy $ 1.04 $ 1.19
Diluted earnings per share before cumulative
effect of change in accounting policy $ 1.04 $ 1.15
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CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
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Three months ended
March 31
--------------------
2003 2002
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(Unaudited)
Statistical operating data
Freight revenues ($ millions) 1,449 1,452
Gross ton miles (GTM) (millions) 76,109 75,423
Revenue ton miles (RTM) (millions) 39,912 39,289
Carloads (thousands) 1,038 999
Route miles (includes Canada and the U.S.) 17,618 17,896
Employees (end of period) 21,578 22,587
Employees (average during period) 21,528 22,501
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Productivity
Operating ratio (%) 75.0 73.1
Freight revenue per RTM (cents) 3.63 3.70
Freight revenue per carload ($) 1,396 1,453
Operating expenses per GTM (cents) 1.47 1.46
Labor and fringe benefits expense
per GTM (cents) 0.60 0.61
GTMs per average number of employees
(thousands) 3,535 3,352
Diesel fuel consumed
(U.S. gallons in millions) 93 95
Average fuel price ($/U.S. gallon) 1.30 1.13
GTMs per U.S. gallon of fuel consumed 818 794
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Safety indicators
Injury frequency rate per 200,000 person
hours 2.9 3.4
Accident rate per million train miles 1.7 2.1
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Financial ratios
Debt to total capitalization ratio
(% at end of period) 40.3 44.0
Return on assets (% at end of period) (1) 1.2 1.4
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(1) Return on assets is calculated as follows:
In millions Three months ended March 31, 2003 2002
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Income before cumulative effect of
change in accounting policy $ 204 $ 230
Interest expense (net of applicable
taxes) 55 60
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Income before cost of borrowing $ 259 $ 290
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Total assets $ 21,137 $ 21,273
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Return on assets (% at end of period) 1.2 1.4
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Certain of the comparative statistical data and related productivity
measures have been restated to reflect changes to estimated
statistical data previously reported.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY INFORMATION (U.S. GAAP)
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Three months ended March 31
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Variance
2003 2002 Fav (Unfav)
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(Unaudited)
Revenue ton miles (millions)
Petroleum and chemicals 8,138 7,327 11%
Metals and minerals 3,315 3,280 1%
Forest products 8,113 8,122 -
Coal 3,566 3,305 8%
Grain and fertilizers 8,624 9,831 (12%)
Intermodal 7,309 6,629 10%
Automotive 847 795 7%
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39,912 39,289 2%
Freight revenue / RTM (cents)
Total freight revenue per RTM 3.63 3.70 (2%)
Business units:
Petroleum and chemicals 3.56 3.73 (5%)
Metals and minerals 3.80 3.72 2%
Forest products 3.91 4.00 (2%)
Coal 2.08 2.33 (11%)
Grain and fertilizers 2.71 2.74 (1%)
Intermodal 3.63 3.55 2%
Automotive 16.88 18.99 (11%)
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Carloads (thousands)
Petroleum and chemicals 156 145 8%
Metals and minerals 91 86 6%
Forest products 146 150 (3%)
Coal 126 120 5%
Grain and fertilizers 134 142 (6%)
Intermodal 308 273 13%
Automotive 77 83 (7%)
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1,038 999 4%
Freight revenue / carload (dollars)
Total freight revenue per carload 1,396 1,453 (4%)
Business units:
Petroleum and chemicals 1,859 1,883 (1%)
Metals and minerals 1,385 1,419 (2%)
Forest products 2,171 2,167 -
Coal 587 642 (9%)
Grain and fertilizers 1,746 1,894 (8%)
Intermodal 860 861 -
Automotive 1,857 1,819 2%
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