CN Reports 34 Per Cent Rise in Second-Quarter 2004 Net Income on Strong Revenue Growth, Solid Operating Efficiencies.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. -- 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 reported its financial results for the second quarter and first half ended June June: see month. 30, 2004. Second-quarter 2004 highlights - Record (1) quarterly net income of $326 million, a 34 per cent increase from 2003; - 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 of $1.13, up 35 per cent over results for second-quarter 2003; - 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. of $575 million, an increase of 32 per cent from year-earlier operating income; - Operating ratio Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: of 65.5 per cent, 4.6 percentage points better than the prior year's quarterly performance; - First-half 2004 free cash flow of $587 million, compared with $350 million for the same period of 2003.(2) 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, , president and chief executive officer of CN, said: "I'm I'm Contraction of I am. Our Living Language Speakers of some scattered varieties of American English sometimes use I'm instead of I've or I have in present perfect constructions, as in delighted with our financial results - record quarterly earnings, an almost five percentage point improvement in our operating ratio, and, importantly, $587 million in first-half 2004 free cash flow in a challenging environment. "Our strong quarterly results reflected a comeback Comeback Australian breed of wool sheep, bred by crossing Merino with Corriedale, Polwarth or Zenith sheep; wool is 21 to 25 microns. It is a registered breed, but the term is more commonly used in the sense of a type of sheep produced by crossbreeding a crossbred Merino back to Merino. in 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. grain traffic, market share gains as a result of good service, yield improvement initiatives, and improved profitability resulting from CN's Intermodal in·ter·mod·al adj. Relating to transportation by more than one means of conveyance, as by truck and rail: intermodal transport. Excellence (IMX IMX In My eXperience IMX Interactive Music Exchange (TV show) IMX Integrated Multimedia Exchange IMX Industrywide Mortgage Exchange IMX Intermodal Marketing Extension IMX Inverse Multiplexor ) strategy. "I'm especially proud that CN is making the most of a strong North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. economy. The fluidity of our network, coupled with solid operating efficiencies and productivity advances - key benefits of CN's precision railroading rail·road·ing n. The construction or operation of railroads. Noun 1. railroading - the activity of designing and constructing and operating railroads rail technology practices - positioned the company superbly to handle a 10 per cent increase in second-quarter freight The price or compensation paid for the transportation of goods by a carrier. Freight is also applied to the goods transported by such carriers. The liability of a carrier for freight damaged, lost, or destroyed during shipment is determined by contract, statute, or volume at low incremental cost Incremental Cost The encompassing change that a company experiences within its balance sheet due to one additional unit of production. Notes: Incremental cost is the overall change that a company experiences by producing one additional unit of good. . This allowed us to deliver our revenue gains directly to the bottom line. And that's what good railroading is all about." 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. added: "The quarter also marked another milestone “Milemarker” redirects here. For the American indie rock band, see Milemarker (band). A milestone or kilometre sign is one of a series of numbered markers placed along a road at regular intervals, typically at the side of the road or in a median. in CN's strategic agenda, with the completion of our acquisition of the railroads rail·road n. 1. A road composed of parallel steel rails supported by ties and providing a track for locomotive-drawn trains or other wheeled vehicles. 2. and related holdings of Great Lakes Transportation Great Lakes Transportation LLC is a group of transportation related companies primarily consisting of rail and water carriers catering to the needs of the steel making industry centered around the Great Lakes of North America. LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control (GLT GLT Gestion Logistique et Transport (French) GLT Global Leadership Team GLT Golden Lion Tamarin GLT Großladungsträger (German) GLT Guided Light Transit GLT Grundlagentraining ) on May 10. We advanced that agenda again on July July: see month. 14 by closing CN's acquisition of BC Rail and the right to operate over its roadbed road·bed n. 1. a. The foundation upon which the ties, rails, and ballast of a railroad are laid. b. A layer of ballast directly under the ties. 2. The foundation and surface of a road. under a long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. lease. The two acquisitions will broaden CN's market reach and increase shareholder value in the years ahead." Revenues for second-quarter 2004 increased 14 per cent to $1,665 million, owing largely to a significantly improved Canadian grain crop, stronger merchandise MERCHANDISE. By this term is understood all those things which merchants sell either wholesale or retail, as dry goods, hardware, groceries, drugs, &c. It is usually applied to personal chattels only, and to those which are not required for food or immediate support, but such as remain revenue and the inclusion of $58 million of GLT revenues. Business units that registered revenue gains were metals and minerals (40 per cent); grain and fertilizers (35 per cent); forest products (nine per cent); petroleum and chemicals (nine per cent); and coal (six per cent). Expenses for the most recent quarter increased by six per cent to $1,090 million. The increase reflected the inclusion of $43 million of GLT expenses, 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 higher casualty and other expenses, partially offset by lower expenses for purchased services and material and equipment rents, and the translation impact of the stronger Canadian dollar 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 on U.S. dollar denominated expenses. The translation impact of the stronger Canadian dollar reduced CN's second-quarter 2004 revenues, operating income and net income by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $30 million, $15 million, and $10 million, respectively. Six-month 2004 financial results Net income for the first six months of 2004 was $536 million, or $1.85 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 $496 million, or $1.69 per diluted share, for the same period of 2003. First-half 2003 net income included a cumulative benefit of $48 million after tax, resulting from a change in the accounting for removal costs for certain track structure assets. Excluding the effect of this change, net income for the first half of 2004 increased by 20 per cent, with diluted earnings per share rising 21 per cent. Operating income for the first half of this year increased 20 per cent to $970 million. Revenues improved by five per cent to $3,103 million, while 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. declined one per cent to $2,133 million. CN's operating ratio for the first six months of 2004 was 68.7 per cent, a 3.9-point improvement over the year-earlier performance. The translation impact of the stronger Canadian dollar reduced first-half 2004 revenues, operating income and net income by approximately $150 million, $55 million and $30 million, respectively. The financial results in this press release are reported in Canadian dollars 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). ). (1) Excluding the first quarter of 1997, which included $589 million for the cumulative effect of change in accounting policy. (2) Please see discussion and reconciliation of this non-GAAP adjusted performance measure in the attached supplementary schedule, Non-GAAP Measures. 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 Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. in such statements. Reference should be made to CN's most recent Form 40-F filed with 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. 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, 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)
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions, except per share data)
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2004(1) 2003 2004(1) 2003
---------------------------------------------------------------------
(Unaudited)
Revenues $ 1,665 $ 1,463 $ 3,103 $ 2,959
---------------------------------------------------------------------
Operating expenses 1,090 1,026 2,133 2,148
---------------------------------------------------------------------
Operating income 575 437 970 811
Interest expense (68) (83) (140) (168)
Other loss (23) (4) (36) -
---------------------------------------------------------------------
Income before income taxes and
cumulative effect of change
in accounting policy 484 350 794 643
Income tax expense (158) (106) (258) (195)
---------------------------------------------------------------------
Income before cumulative
effect of change in accounting
policy 326 244 536 448
Cumulative effect of change in
accounting policy
(net of applicable taxes) - - - 48
---------------------------------------------------------------------
Net income $ 326 $ 244 $ 536 $ 496
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Earnings per share (Notes 9, 10)
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.14 $ 0.85 $ 1.88 $ 1.55
Net income $ 1.14 $ 0.85 $ 1.88 $ 1.71
Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.13 $ 0.84 $ 1.85 $ 1.53
Net income $ 1.13 $ 0.84 $ 1.85 $ 1.69
Weighted-average number of shares
Basic 284.9 286.6 284.7 289.7
Diluted 289.2 290.8 289.0 293.6
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See accompanying notes to consolidated financial statements.
(1) Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions)
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF OPERATING INCOME (U.S. GAAP)
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---------------------------------------------------------------------
(In millions)
Three months ended Six months ended
June 30 June 30
------------------- -------------------
Variance Variance
2004(1) 2003 Fav 2004(1) 2003 Fav
(Unfav) (Unfav)
---------------------------------------------------------------------
(Unaudited)
Revenues
Petroleum and chemicals $ 276 $ 253 9% $ 541 $ 543 -
Metals and minerals 184 131 40% 318 257 24%
Forest products 356 327 9% 663 644 3%
Coal 74 70 6% 141 144 (2%)
Grain and fertilizers 271 201 35% 525 435 21%
Intermodal 286 289 (1%) 514 554 (7%)
Automotive 143 143 - 273 286 (5%)
Other items 75 49 53% 128 96 33%
--------------------------------------- ---------------
1,665 1,463 14% 3,103 2,959 5%
Operating expenses
Labor and fringe benefits 466 415 (12%) 885 869 (2%)
Purchased services and
material 181 178 (2%) 371 378 2%
Depreciation and
amortization 150 139 (8%) 292 282 (4%)
Fuel 123 125 2% 245 252 3%
Equipment rents 68 82 17% 131 159 18%
Casualty and other 102 87 (17%) 209 208 -
--------------------------------------- ---------------
1,090 1,026 (6%) 2,133 2,148 1%
--------------------------------------- ---------------
Operating income $ 575 $ 437 32% $ 970 $ 811 20%
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Operating ratio 65.5% 70.1% 4.6 68.7% 72.6% 3.9
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See accompanying notes to consolidated financial statements.
(1) Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions)
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
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(In millions)
June 30 December 31 June 30
2004 2003 2003
---------------------------------------------------------------------
(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 135 $ 130 $ 130
Accounts receivable (Note 4) 617 529 605
Material and supplies 169 120 152
Deferred income taxes 102 125 123
Other 260 223 186
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1,283 1,127 1,196
Properties 19,789 18,305 18,261
Other assets and deferred charges
(Note 3) 898 905 828
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Total assets $ 21,970 $ 20,337 $ 20,285
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued
charges $ 1,430 $ 1,366 $ 1,391
Current portion of long-term debt
(Note 4) 256 483 559
Other 70 73 64
---------------------------------------------------------------------
1,756 1,922 2,014
Deferred income taxes 5,129 4,550 4,411
Other liabilities and deferred
credits 1,526 1,258 1,264
Long-term debt (Note 4) 4,568 4,175 4,552
Shareholders' equity:
Common shares 4,704 4,664 4,631
Accumulated other comprehensive
loss (35) (129) (119)
Retained earnings 4,322 3,897 3,532
--------------------------------------------------------------------
8,991 8,432 8,044
--------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 21,970 $ 20,337 $ 20,285
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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 Six months ended
June 30 June 30
------------------ ----------------
2004(1) 2003 2004(1) 2003
---------------------------------------------------------------------
(Unaudited)
Common shares (2)
Balance, beginning of period $ 4,682 $ 4,668 $ 4,664 $ 4,785
Stock options exercised and
other 22 36 40 60
Share repurchase program - (73) - (214)
---------------------------------------------------------------------
Balance, end of period $ 4,704 $ 4,631 $ 4,704 $ 4,631
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Accumulated other comprehensive income (loss)
Balance, beginning of period $ (111) $ (13) $ (129) $ 97
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 (97) 342 (129) 606
Unrealized foreign exchange
gain (loss) on translation
of the net investment in
foreign operations 153 (501) 207 (925)
Unrealized holding gain
(loss) on fuel derivative
instruments (Note 6) 23 2 43 (1)
Unrealized holding gain on
interest rate derivatives
(Note 6) 33 - 18 -
---------------------------------------------------------------------
Other comprehensive income
(loss) before income taxes 112 (157) 139 (320)
Income tax recovery (expense) (36) 51 (45) 104
---------------------------------------------------------------------
Other comprehensive income
(loss) 76 (106) 94 (216)
---------------------------------------------------------------------
Balance, end of period $ (35) $ (119) $ (35) $ (119)
---------------------------------------------------------------------
---------------------------------------------------------------------
Retained earnings
Balance, beginning of
period $ 4,052 $ 3,469 $ 3,897 $ 3,487
Net income 326 244 536 496
Share repurchase program - (134) - (355)
Dividends (56) (47) (111) (96)
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Balance, end of period $ 4,322 $ 3,532 $ 4,322 $ 3,532
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See accompanying notes to consolidated financial statements.
(1) Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions)
(2) During the three and six months ended June 30, 2004, the Company
issued 0.7 million and 1.1 million common shares, respectively,as
a result of stock options exercised. At June 30, 2004, the
Company had 285.3 million common shares outstanding (Note 9).
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP)
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---------------------------------------------------------------------
(In millions)
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2004(1) 2003 2004(1) 2003
---------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 326 $ 244 $ 536 $ 496
Adjustments to reconcile net
income to net cash provided
from operating activities:
Depreciation and
amortization 152 140 295 285
Deferred income taxes 87 85 142 157
Equity in earnings of
English Welsh and Scottish
Railway 3 (4) 8 (18)
Cumulative effect of change
in accounting policy - - - (48)
Other changes in:
Accounts receivable (68) 79 (60) 80
Material and supplies (3) 3 (38) (34)
Accounts payable and accrued
charges 37 (45) (29) (75)
Other net current assets and
liabilities 48 4 19 (5)
Other 8 (5) 22 24
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Cash provided from operating
activities 590 501 895 862
---------------------------------------------------------------------
Investing activities
Net additions to properties (259) (266) (384) (387)
Acquisition of Great Lakes
Transportation LLC's
railroads and related
holdings (Note 2) (553) - (553) -
Other, net (Note 3) 31 3 172 (7)
---------------------------------------------------------------------
Cash used by investing
activities (781) (263) (765) (394)
---------------------------------------------------------------------
Dividends paid (56) (47) (111) (96)
Financing activities
Issuance of long-term debt
(Note 4) 3,530 708 4,021 2,024
Reduction of long-term debt
(Note 4) (3,340) (676) (4,066) (1,763)
Issuance of common shares 17 30 31 41
Repurchase of common shares - (207) - (569)
---------------------------------------------------------------------
Cash provided from (used by)
financing activities 207 (145) (14) (267)
---------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (40) 46 5 105
Cash and cash equivalents,
beginning of period 175 84 130 25
---------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 135 $ 130 $ 135 $ 130
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Supplemental cash flow information
Net cash receipts from
customers and other $ 1,619 $ 1,489 $ 3,023 $ 3,045
Net cash receipts (payments)
for:
Employee services, suppliers
and other expenses (841) (834) (1,774) (1,800)
Interest (54) (81) (128) (163)
Workforce reductions (24) (41) (56) (89)
Personal injury and other
claims (19) (17) (55) (55)
Pensions (60) (19) (64) (22)
Income taxes (31) 4 (51) (54)
---------------------------------------------------------------------
Cash provided from operating
activities $ 590 $ 501 $ 895 $ 862
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---------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
(1) Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions)
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, expressed in Canadian dollars,
and prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP), contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly Canadian National
Railway Company's (the Company) financial position as at June 30,
2004 and December 31 and June 30, 2003, its results of operations,
changes in shareholders' equity and cash flows for the three and six
months ended June 30, 2004 and 2003.
These interim consolidated financial statements and notes have been
prepared using accounting policies consistent with those used in
preparing the Company's 2003 Annual Consolidated Financial
Statements. 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 2004 interim and 2003 annual
Management's Discussion and Analysis and Annual Consolidated
Financial Statements and notes thereto.
Note 2 - Acquisitions
Great Lakes Transportation LLC's Railroads and Related Holdings
In October 2003, the Company, through an indirect wholly owned
subsidiary, entered into an agreement for the acquisition of Great
Lakes Transportation LLC's railroads and related holdings (GLT) for
a purchase price of U.S.$380 million.
In April 2004, the Company received all necessary regulatory
approvals, including the U.S. Surface Transportation Board (STB)
ruling rendered on April 9, 2004. On May 10, 2004, the Company
completed its acquisition of GLT and began a phased integration of
the companies' operations. The acquisition was financed by debt and
cash on hand.
The Company accounted for the acquisition using the purchase method
of accounting as required by the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards (SFAS)
No.141 "Business Combinations" and SFAS No. 142 "Goodwill and Other
Intangible Assets." As such, the accompanying consolidated financial
statements include the assets, liabilities and results of operations
of GLT as of May 10, 2004, the date of acquisition. The Company's
cost to acquire GLT of U.S.$399 million (Cdn$553 million) includes
purchase price adjustments and transaction costs. The following
table reflects the preliminary purchase price allocation based on
the fair value of GLT's assets and liabilities acquired at
acquisition, which is subject to a final valuation, the impact of
which, and any changes in accounting practices, are not expected to
have a material effect on the results of operations.
In millions May 10, 2004
----------------------------------------------------
Current assets $ 67
Properties 1,039
Other assets and deferred charges 90
--------------
Total assets acquired 1,196
--------------
Current liabilities 61
Deferred income taxes 306
Other liabilities and deferred credits 276
--------------
Total liabilities assumed 643
--------------
Net assets acquired $ 553
----------------------------------------------------
----------------------------------------------------
If the Company had acquired GLT on January 1, 2003, based on the
historical amounts reported by GLT, net of the amortization of the
difference between the Company's cost to acquire GLT and the net
assets of GLT (based on preliminary estimates of the fair values of
GLT's assets and liabilities), revenues, income before cumulative
effect of change in accounting policy, net income, basic and diluted
earnings per share for the three and six months ended June 30, 2004
and 2003 would have been as follows:
---------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
In millions, except per ------------------ ----------------
share data 2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues $ 1,703 $ 1,552 $ 3,193 $ 3,099
Income before cumulative
effect of change in
accounting policy $ 327 $ 255 $ 532 $ 453
Net income $ 327 $ 255 $ 532 $ 501
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.15 $ 0.89 $ 1.87 $ 1.56
Net income $ 1.15 $ 0.89 $ 1.87 $ 1.73
Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.13 $ 0.88 $ 1.84 $ 1.54
Net income $ 1.13 $ 0.88 $ 1.84 $ 1.71
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The pro forma figures do not reflect synergies, and accordingly, do
not account for any potential increases in operating income, any
estimated cost savings or facilities consolidation.
BC Rail
In November 2003, the Company entered into an agreement with British
Columbia Railway Company, a corporation owned by the Government of
the Province of British Columbia (Province), to acquire all the
issued and outstanding shares of BC Rail Ltd. and all the partnership
units of BC Rail Partnership (collectively BC Rail), and the right
to operate over BC Rail's roadbed under a long-term lease, for a
purchase price of $1 billion.
On July 2, 2004, the Company reached a consent agreement with
Canada's Competition Bureau, allowing for the closing of the
transaction, whereby the Company reaffirmed its commitment to share
merger efficiencies with BC Rail shippers and assure them competitive
transportation options through its Open Gateway Rate and Service
Commitment. The consent agreement also maintains competitive rates
and service for grain shippers in the Peace River region. On July 14,
2004, the Company completed its acquisition of BC Rail and began a
phased integration of the companies' operations. The acquisition was
financed by debt and cash on hand.
The Company will account for the acquisition using the purchase
method of accounting.
Note 3 - Investment in English Welsh and Scottish Railway (EWS) -
Capital reorganization
On January 6, 2004, EWS shareholders approved a plan to reduce the
EWS share capital to enable cash to be returned to the shareholders
by offering them the ability to cancel a portion of their EWS
shares. For each share cancelled, EWS shareholders would receive
cash and 8% notes due in 2009, redeemable in whole or in part at any
time by EWS, at their principal amount together with accrued but
unpaid interest up to the date of repayment.
The Company elected to have the maximum allowable number of shares
cancelled under the plan, thereby reducing its ownership interest of
EWS to approximately 31% on a fully diluted basis (13.7 million
shares) compared to approximately 37% on a fully diluted basis (43.7
million shares) prior to the capital reorganization. In the first
quarter of 2004, the Company received Pounds Sterling 81.6 million
(Cdn$199 million) from EWS, of which Pounds Sterling 23.9 million
(Cdn$58 million) was in the form of EWS notes.
Note 4 - Financing activities
In the first quarter of 2004, the Company repaid its borrowings under
the revolving credit facility of U.S.$180 million (Cdn$233 million)
outstanding at December 31, 2003. As at June 30, 2004, letters of
credit under the revolving credit facility amounted to $213 million.
In March 2004, the Company repaid U.S.$266 million (Cdn$355 million)
of 7.00% 10-year Notes, with cash on hand and the proceeds received
from the issuance of commercial paper under its commercial paper
program. At June 30, 2004, the Company had outstanding borrowings
of U.S.$462 million (Cdn$621 million) under the commercial paper
program.
The Company has an accounts receivable securitization program,
expiring in June 2006, under which it may sell, on a revolving basis,
a maximum of $450 million of eligible freight trade and other
receivables outstanding at any point in time, to an unrelated trust.
The Company has a contingent residual interest of approximately 10%
of receivables sold, which is recorded in Other current assets. At
June 30, 2004, pursuant to the agreement, $442 million had been sold
compared to $448 million at December 31, 2003.
On July 9, 2004, the Company issued U.S.$300 million (Cdn$395
million) of 4.25% Notes due 2009 and U.S.$500 million (Cdn$658
million) of 6.25% Debentures due 2034. The debt offering was made
under the Company's shelf prospectus and registration statement filed
in October 2003. Accordingly, the amount available under the shelf
prospectus and registration statement has been reduced to U.S.$200
million. The Company used the net proceeds of U.S.$790 million to
finance a portion of the acquisition costs of GLT and BC Rail.
Note 5 - Stock plans
For the three and six months ended June 30, 2004, the Company
recorded total compensation cost for awards under all plans of $21
million and $25 million, respectively, and $2 million and $9 million,
respectively, for the same periods in 2003.
(a) Mid-term incentive share unit plan
On June 30, 2004, the Company partially attained targets relating to
its mid-term incentive share unit plan. As a result, the Company
recorded additional compensation cost of $13 million based on the
number of share units vested multiplied by the Company's share price
on such date.
(b) Restricted share units (RSUs)
In the first half of 2004, the Company granted approximately 1.2
million RSUs to designated management employees entitling them to
receive payout in cash based on the Company's share price. The RSUs
granted are generally scheduled for payout after three years and vest
upon the attainment of targets relating to return on invested capital
and to the Company's share price during the three-month period ending
December 31, 2006. For the three and six months ended June 30, 2004,
the Company recorded compensation cost of $4 million and $7 million,
respectively.
The Company accounts for stock-based compensation using the fair
value based approach. The Company prospectively applied this method
of accounting to all awards granted, modified or settled on or after
January 1, 2003. If compensation cost had been determined based upon
fair values at the date of grant for awards under all plans, the
Company's pro forma net income and earnings per share would have been
as follows:
Three months ended Six months ended
June 30 June 30
In millions, except per ------------------ -----------------
share data 2004 2003 2004 2003
---------------------------------------------------------------------
Net income, as reported $ 326 $ 244 $ 536 $ 496
Add (deduct) compensation cost,
net of applicable taxes,
determined under:
Fair value method for awards
granted after Jan 1, 2003
(SFAS No. 123) 6 2 10 3
Intrinsic value method for
performance-based awards
granted prior to 2003 (APB 25) 9 - 9 6
Fair value method for all
awards (SFAS No. 123) (22) (11) (34) (22)
--------------------------------------
Pro forma net income $ 319 $ 235 $ 521 $ 483
--------------------------------------
--------------------------------------
Basic earnings per share,
as reported $ 1.14 $ 0.85 $ 1.88 $ 1.71
Basic earnings per share,
pro forma $ 1.12 $ 0.82 $ 1.83 $ 1.67
Diluted earnings per share,
as reported $ 1.13 $ 0.84 $ 1.85 $ 1.69
Diluted earnings per share,
pro forma $ 1.10 $ 0.81 $ 1.80 $ 1.65
---------------------------------------------------------------------
---------------------------------------------------------------------
Compensation cost related to stock option awards granted in the prior
period under the fair value based approach was calculated using the
Black-Scholes option-pricing model with the following assumptions:
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2004(1) 2003(2) 2004(1) 2003(2)
---------------------------------------------------------------------
Expected option life (years) - 5.0 - 5.0
Risk-free interest rate - 3.33% - 4.12%
Expected stock price volatility - 30% - 30%
Average dividend per share - $ 0.67 - $ 0.67
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average fair value
of options granted $ - $ 13.23 $ - $ 11.87
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) In the first half of 2004, the Company did not grant any stock
option awards.
(2) 2003 data has been adjusted for the three-for-two stock split.
Note 6 - Derivative instruments
Fuel
At June 30, 2004, the Company had hedged approximately 56% of the
estimated remaining 2004 fuel consumption, representing approximately
106 million U.S. gallons at an average price of U.S.$0.65 per U.S.
gallon, 48% of the estimated 2005 fuel consumption, representing
approximately 185 million U.S. gallons at an average price of U.S.
$0.72 per U.S. gallon, and 8% of the estimated 2006 fuel consumption,
representing 31 million U.S. gallons at an average price of U.S.$0.82
per U.S. gallon. These derivative instruments are carried at market
value on the balance sheet and are accounted for as cash flow hedges
whereby the effective portion of the cumulative change in the market
value of the derivative instruments has been recorded in Other
comprehensive income. At June 30, 2004, Accumulated other
comprehensive income included an unrealized gain of $81 million,
$55 million after tax, ($38 million unrealized gain, $26 million
after tax at December 31, 2003) related to fuel hedge derivative
instruments of which $69 million will mature within the next twelve
months.
Interest rate
In the first quarter of 2004, in anticipation of future debt
issuances, the Company had entered into treasury lock transactions
for a notional amount of U.S.$380 million to fix the treasury
component on these future debt issuances. Upon expiration in June
2004, these treasury rate locks were rolled into new contracts
expiring in September 2004, at an average locked-in rate of 5.106%.
The Company settled these treasury locks at a gain upon the pricing
of the U.S.$500 million 6.25% Debentures due 2034. At June 30, 2004,
these derivatives were accounted for as cash flow hedges whereby the
cumulative change in the market value of the derivative instruments
was recorded in Other comprehensive income. Upon the issuance of debt
on July 9, 2004, the gain accumulated in other comprehensive income
will be recorded into income, as a reduction of interest expense,
over the term of the debt based on the interest payment schedule.
Accumulated other comprehensive income at June 30, 2004 included
an unrealized gain of $18 million, $12 million after tax, related
to these derivative instruments.
Note 7 - Pensions and other post-retirement benefits
For the three and six months ended June 30, 2004 and 2003, the
components of net periodic benefit cost for pensions and other
post-retirement benefits were as follows:
(a) Components of net periodic benefit cost for pensions
Three months ended Six months ended
June 30 June 30
------------------ -----------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
Service cost $ 26 $ 23 $ 52 $ 47
Interest cost 177 178 353 357
Amortization of net transition
obligation - 5 - 10
Amortization of prior service
cost 5 5 10 10
Expected return on plan assets (208) (205) (416) (410)
Recognized net actuarial loss 1 1 1 1
------------------------------------
Net periodic benefit cost $ 1 $ 7 $ - $ 15
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Components of net periodic benefit cost for post-retirement
benefits
Three months ended Six months ended
June 30 June 30
------------------ -----------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
Service cost $ 5 $ 3 $ 10 $ 6
Interest cost 9 6 17 12
Amortization of prior service cost 1 1 2 2
Recognized net actuarial loss 1 1 1 2
------------------------------------
Net periodic benefit cost $ 16 $ 11 $ 30 $ 22
---------------------------------------------------------------------
---------------------------------------------------------------------
For 2004, the Company expects to make total contributions of $130
million for all its defined benefit plans of which $64 million have
been made at June 30, 2004. The total expected contributions take
into account the defined benefit plans assumed as part of the GLT
acquisition. Contributions are normally made in the 30-day period
following the end of a quarter.
The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (the "Act"), signed into law in the United States in December
2003, provides for prescription drug benefits under Medicare, as well
as a federal subsidy to sponsors of retiree health care benefit plans
that provide prescription drug benefits that have been concluded to
be actuarially equivalent to the Medicare benefit. The Company's
benefit obligation of $454 million at December 31, 2003, and the net
periodic benefit cost presented herein, do not reflect the effects of
the Act. In May 2004, the FASB issued Staff Position Financial
Accounting Standard 106-2 which provides guidance on the accounting
for the federal subsidy and is effective for the Company's first
interim period beginning after June 15, 2004. The Company is
currently evaluating whether the prescription drug benefits provided
by its health care plans are actuarially equivalent to the Medicare
benefit under the Act.
Note 8 - Major commitments and contingencies
A. Commitments
As at June 30, 2004, the Company had commitments to acquire railroad
ties, rail, freight cars, locomotives and other equipment at an
aggregate cost of $291 million ($211 million at December 31, 2003).
The Company also had outstanding information technology service
contracts of $27 million and agreements with fuel suppliers to
purchase approximately 25% of its anticipated 2004 volume, 35% of
its anticipated 2005 volume, and 9% of its anticipated 2006 volume
at market prices prevailing on the date of purchase.
B. Contingencies
In the normal course of its operations, the Company becomes involved
in various legal actions, including claims relating to personal
injuries, occupational disease and damage to property.
In Canada, employee injuries are governed by the workers'
compensation legislation in each province whereby employees may be
awarded either a lump sum 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 the
provisions of the Federal Employers' Liability Act (FELA), 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 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 June 30, 2004, the Company had aggregate reserves for personal
injury and other claims of $637 million ($590 million at December 31,
2003). Although the Company considers such provisions to be adequate
for all its outstanding and pending claims, the final outcome with
respect to actions outstanding or pending at June 30, 2004, 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 or
that the Company's liquidity will not be adversely impacted.
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 of underground and
aboveground storage tanks; and soil and groundwater contamination.
A risk of environmental liability is inherent in railroad and
related transportation operations; real estate ownership, operation
or control; and other commercial activities of the Company with
respect to both current and past operations. As a result, the Company
incurs significant compliance and capital costs, on an ongoing basis,
associated with environmental regulatory compliance and clean-up
requirements in its railroad operations and relating to its past and
present ownership, operation or control of real property.
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 June 30, 2004, the Company had aggregate accruals for
environmental costs of $118 million ($83 million as at December
31, 2003).
D. Guarantees and indemnifications
In the normal course of business, the Company, including certain
of its subsidiaries, enters into agreements that may involve
providing certain guarantees or indemnifications to third parties and
others, which extend over the term of the agreement. These include,
but are not limited to, residual value guarantees on operating
leases, standby letters of credit and surety bonds, and
indemnifications that are customary for the type of transaction or
for the railway business.
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 of operating leases
The Company has guaranteed a portion of the residual values of
certain of its assets under operating leases with expiry dates
between 2005 and 2012, for the benefit of the lessor. If the fair
value of the assets, at the end of their respective lease term, is
less than the fair value, as estimated at the inception of the lease,
then the Company must, under certain conditions, compensate the
lessor for the shortfall. At June 30, 2004, the maximum exposure in
respect of these guarantees was $98 million. The Company has issued
guarantees for which the carrying value at June 30, 2004 was $2
million. As at June 30, 2004, the Company had not recorded any
additional liability associated with these guarantees, as the Company
does not expect to make any payments pertaining to the guarantees of
these leases. There are no recourse provisions to recover any amounts
from third parties.
Other guarantees
The Company, including certain of its subsidiaries, has granted
irrevocable standby letters of credit and surety bonds, issued by
highly rated financial institutions, to third parties to indemnify
them in the event the Company does not perform its contractual
obligations. As at June 30, 2004, the maximum potential liability
under these guarantees was $426 million of which $341 million was for
workers' compensation and other employee benefits and $85 million was
for equipment under leases and other. During the first half of 2004,
the Company granted guarantees for which no liability has been
recorded, as they relate to the Company's future performance.
As at June 30, 2004, the Company had not recorded any additional
liability with respect to these guarantees, as the Company does not
expect to make any additional payments associated with these
guarantees. The guarantee instruments mature at various dates between
2004 and 2007.
CN Pension Plan and CN 1935 Pension Plan
The Company has indemnified and held harmless the current trustee
and the former trustee of the Canadian National Railways Pension
Trust Funds, and the respective officers, directors, employees and
agents of such trustees, from any and all taxes, claims, liabilities,
damages, costs and expenses arising out of the performance of their
obligations under the relevant trust agreements and trust deeds,
including in respect of their reliance on authorized 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 June 30, 2004, 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 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, trackage 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; (f) trust
indentures, fiscal agency agreements, underwriting agreements or
similar agreements relating to debt or equity securities of the
Company and engagement agreements with financial advisors; (g)
transfer agent and registrar agreements in respect of the Company's
securities; (h) trust agreements establishing trust funds to secure
the payment to certain officers and senior employees of special
retirement compensation arrangements or plans, including other
pension plans; (i) master agreements with financial institutions
governing derivative transactions; and (j) settlement agreements with
insurance companies or other third parties whereby such insurer or
third party has been indemnified for any present or future claims
relating to insurance policies, incidents or events covered by the
settlement agreements. 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.
In the first half of 2004, the Company entered into various
indemnification contracts with third parties for which the maximum
exposure for future payments cannot be determined with certainty. As
a result, the Company was unable to determine the fair value of these
guarantees and accordingly, no liability was recorded. As at June 30,
2004, the carrying value for guarantees for which the Company was
able to determine the fair value, was $1 million. There are no
recourse provisions to recover any amounts from third parties.
Note 9 - Common stock split
On January 27, 2004, the Board of Directors of the Company approved
a three-for-two common stock split which was effected in the form of
a stock dividend of one-half additional common share of CN payable
for each share held. The stock dividend was paid on February 27,
2004, to shareholders of record on February 23, 2004. All
equity-based benefit plans were adjusted to reflect the issuance
of additional shares or options due to the declaration of the
stock. All share and per share data has been adjusted to reflect
the stock split.
Note 10 - Earnings per share
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited)
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.14 $ 0.85 $ 1.88 $ 1.55
Cumulative effect of change
in accounting policy - - - 0.16
---------------------------------------------------------------------
Net income $ 1.14 $ 0.85 $ 1.88 $ 1.71
---------------------------------------------------------------------
Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.13 $ 0.84 $ 1.85 $ 1.53
Cumulative effect of change
in accounting policy - - - 0.16
---------------------------------------------------------------------
Net income $ 1.13 $ 0.84 $ 1.85 $ 1.69
---------------------------------------------------------------------
---------------------------------------------------------------------
The following table provides a reconciliation between basic and
diluted weighted average shares outstanding:
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2004 2003 2004 2003
---------------------------------------------------------------------
(In millions) (Unaudited)
Weighted-average shares
outstanding 284.9 286.6 284.7 289.7
Dilutive effect of stock
options 4.3 4.2 4.3 3.9
---------------------------------------------------------------------
Weighted-average diluted
shares outstanding 289.2 290.8 289.0 293.6
---------------------------------------------------------------------
---------------------------------------------------------------------
Note 11 - Reconciliation of United States and Canadian GAAP
The Company also prepares financial statements in accordance with
Canadian GAAP, which are different in some respects from U.S. GAAP.
The financial statements prepared in accordance with Canadian GAAP
are provided below along with a tabular reconciliation and discussion
of the major differences between U.S. and Canadian GAAP.
A. Canadian GAAP financial statements
CONSOLIDATED STATEMENT OF INCOME
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions, except per share data)
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited)
Revenues $ 1,665 $ 1,463 $ 3,103 $ 2,959
---------------------------------------------------------------------
Operating expenses
Labor and fringe benefits 470 477 894 956
Purchased services and material 181 213 371 429
Depreciation and amortization 129 120 252 246
Fuel 123 126 245 253
Equipment rents 68 83 131 161
Casualty and other 102 109 209 238
---------------------------------------------------------------------
Total expenses 1,073 1,128 2,102 2,283
---------------------------------------------------------------------
Operating income 592 335 1,001 676
Interest expense (68) (83) (140) (168)
Other loss (23) (4) (36) -
---------------------------------------------------------------------
Income before income taxes 501 248 825 508
Income tax expense (163) (71) (268) (151)
---------------------------------------------------------------------
Net income $ 338 $ 177 $ 557 $ 357
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per share
Basic $ 1.19 $ 0.62 $ 1.96 $ 1.23
Diluted $ 1.17 $ 0.61 $ 1.93 $ 1.22
Weighted-average number of shares
Basic 284.9 286.6 284.7 289.7
Diluted 289.0 290.8 288.8 293.6
---------------------------------------------------------------------
---------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions)
June 30 December 31 June 30
2004 2003 2003
---------------------------------------------------------------------
(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 135 $ 130 $ 130
Accounts receivable 617 529 605
Material and supplies 169 120 152
Deferred income taxes 102 125 123
Other 170 188 160
---------------------------------------------------------------------
1,193 1,092 1,170
Properties 16,660 15,158 15,348
Other assets and deferred charges 885 900 824
---------------------------------------------------------------------
Total assets $ 18,738 $ 17,150 $ 17,342
---------------------------------------------------------------------
---------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued
charges $ 1,430 $ 1,366 $ 1,391
Current portion of long-term debt 256 483 559
Other 70 73 64
---------------------------------------------------------------------
1,756 1,922 2,014
Deferred income taxes 3,927 3,365 3,364
Other liabilities and deferred
credits 1,475 1,208 1,199
Long-term debt 4,568 4,175 4,552
Shareholders' equity:
Common shares 3,578 3,530 3,472
Contributed surplus 166 166 167
Currency translation - (38) (30)
Retained earnings 3,268 2,822 2,604
---------------------------------------------------------------------
7,012 6,480 6,213
---------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 18,738 $ 17,150 $ 17,342
---------------------------------------------------------------------
---------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions)
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 338 $ 177 $ 557 $ 357
Adjustments to reconcile
net income to net cash
provided from operating
activities:
Depreciation and
amortization 131 122 255 250
Deferred income taxes 92 51 152 113
Equity in earnings of
English Welsh and
Scottish Railway 3 (4) 8 (18)
Other changes in:
Accounts receivable (68) 79 (60) 80
Material and supplies (3) 3 (38) (34)
Accounts payable and
accrued charges 37 (45) (29) (75)
Other net current assets
and liabilities 48 6 19 (5)
Other 12 (11) 31 18
---------------------------------------------------------------------
Cash provided from operating
activities 590 378 895 686
---------------------------------------------------------------------
Investing activities
Net additions to properties (259) (154) (384) (227)
Acquisition of Great Lakes
Transportation LLC's
railroads and related holdings (553) - (553) -
Other, net 31 14 172 9
---------------------------------------------------------------------
Cash used by investing
activities (781) (140) (765) (218)
---------------------------------------------------------------------
Dividends paid (56) (47) (111) (96)
Financing activities
Issuance of long-term debt 3,530 708 4,021 2,024
Reduction of long-term debt (3,340) (676) (4,066) (1,763)
Issuance of common shares 17 30 31 41
Repurchase of common shares - (207) - (569)
---------------------------------------------------------------------
Cash provided from (used by)
financing activities 207 (145) (14) (267)
---------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (40) 46 5 105
Cash and cash equivalents,
beginning of period 175 84 130 25
---------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 135 $ 130 $ 135 $ 130
---------------------------------------------------------------------
---------------------------------------------------------------------
B. Reconciliation and discussion of significant differences between
U.S. and Canadian GAAP
(i) Reconciliation of net income
---------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------ ----------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
Net income - U.S. GAAP $ 326 $ 244 $ 536 $ 496
Adjustments in respect of:
Property capitalization, net
of depreciation 21 (97) 40 (131)
Stock-based compensation cost (4) (5) (9) (4)
Income tax recovery (expense)
on current period adjustments (5) 35 (10) 44
-------------------------------------
Income before cumulative effect
of change in accounting policy 338 177 557 405
Cumulative effect of change in
accounting policy (net of
applicable taxes) - - - (48)
---------------------------------------------------------------------
Net income - Canadian GAAP $ 338 $ 177 $ 557 $ 357
---------------------------------------------------------------------
---------------------------------------------------------------------
Property capitalization
Effective January 1, 2004, the Company changed its capitalization
policies under Canadian GAAP, on a prospective basis, to conform with
the Canadian Institute of Chartered Accountants (CICA) Handbook
Section 3061 "Properties, Plant and Equipment." The change was made
in response to the CICA Handbook Section 1100, "Generally Accepted
Accounting Principles," issued in July 2003. This section provides
new accounting guidance as to what constitutes generally accepted
accounting principles (GAAP) in Canada and its sources, thereby
codifying a GAAP hierarchy. The section also establishes that when
financial statements are prepared in accordance with regulatory or
legislative requirements that are in conflict with the new GAAP
hierarchy, they cannot be described as being in accordance with
Canadian GAAP.
The Company's accounting for Properties under Canadian GAAP had been
based on the rules and regulations of the Canadian Transportation
Agency's (CTA) Uniform Classification of Accounts, which for railways
in Canada, were considered Canadian GAAP prior to the issuance of
Section 1100. Under the CTA rules, the Company capitalized only the
material component of track replacement costs, to the extent it met
the Company's minimum threshold for capitalization. In accordance
with the CICA Handbook Section 3061 "Properties, Plant and Equipment,
" the Company now capitalizes the cost of labor, material and related
overheads associated with track replacement activities provided they
meet the Company's minimum threshold for capitalization. Also, all
major expenditures for work that extends the useful life and/or
improves the functionality of bridges, other structures and freight
cars, are capitalized.
This change effectively harmonizes the Company's Canadian and U.S.
GAAP capitalization policies. However, since the change was applied
prospectively, there continues to be a difference in depreciation
and amortization expense between Canadian and U.S. GAAP relating to
the difference in the amounts previously capitalized under Canadian
and U.S. GAAP as at January 1, 2004.
Stock-based compensation
Effective January 1, 2003, the Company adopted the fair value based
approach of the CICA Handbook Section 3870, "Stock-Based Compensation
and Other Stock-Based Payments." The Company retroactively applied
the fair value method of accounting to all awards of employee stock
options granted, modified or settled on or after January 1, 2002.
Under U.S. GAAP, effective January 1, 2003, the Company voluntarily
adopted the recommendations of SFAS No. 123, "Accounting for
Stock-Based Compensation," and applied the fair value based
approach prospectively to all awards of employee stock options
granted, modified or settled on or after January 1, 2003.
Compensation cost attributable to employee stock options granted
prior to January 1, 2003 continues to be a reconciling difference.
Cumulative effect of change in accounting policy
In 2003, under U.S. GAAP, in accordance with SFAS No. 143,
"Accounting for Asset Retirement Obligations," 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
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 in
accumulated depreciation on certain track structure assets at January
1, 2003. Under Canadian GAAP, the recommendations of the CICA
Handbook Section 3110, "Asset Retirement Obligations," which are
similar to those under SFAS No. 143 (U.S. GAAP), were effective for
the Company's fiscal year beginning January 1, 2004 and did not have
an initial material impact on the Canadian GAAP financial statements
since removal costs, as a component of depreciation expense, have not
resulted in accumulated depreciation balances exceeding the
historical cost basis of the assets.
(ii) Reconciliation of significant balance sheet items
---------------------------------------------------------------------
June 30 December 31 June 30
In millions 2004 2003 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Current assets - U.S. GAAP $ 1,283 $ 1,127 $ 1,196
Derivative instruments (87) (33) (26)
Other (3) (2) -
---------------------------------------------------------------------
Current assets - Canadian GAAP $ 1,193 $ 1,092 $ 1,170
---------------------------------------------------------------------
Properties - U.S. GAAP $ 19,789 $ 18,305 $ 18,261
Property capitalization, net of
depreciation (3,054) (3,072) (2,838)
Cumulative effect of change in
accounting policy (75) (75) (75)
---------------------------------------------------------------------
Properties - Canadian GAAP $ 16,660 $ 15,158 $ 15,348
---------------------------------------------------------------------
Other assets and deferred charges -
U.S. GAAP $ 898 $ 905 $ 828
Derivative instruments (13) (5) (3)
Intangible asset - - (1)
---------------------------------------------------------------------
Other assets and deferred charges -
Canadian GAAP $ 885 $ 900 $ 824
---------------------------------------------------------------------
Deferred income tax liability -
U.S. GAAP $ 5,129 $ 4,550 $ 4,411
Cumulative effect of prior years'
adjustments to income (1,204) (1,071) (1,071)
Income taxes on current period
Canadian GAAP adjustments to income 10 (133) (44)
Cumulative effect of change in
accounting policy (27) (27) (27)
Income taxes on translation of U.S.
to Canadian GAAP adjustments 8 15 9
Income taxes on minimum pension
liability adjustment 10 10 13
Income taxes on derivative
instruments (32) (12) (10)
Income tax rate enactments 38 38 86
Other (5) (5) (3)
---------------------------------------------------------------------
Deferred income tax liability -
Canadian GAAP $ 3,927 $ 3,365 $ 3,364
---------------------------------------------------------------------
Other liabilities and deferred
credits - U.S. GAAP $ 1,526 $ 1,258 $ 1,264
Stock-based compensation (18) (20) (25)
Minimum pension liability (30) (30) (38)
Other (3) - (2)
---------------------------------------------------------------------
Other liabilities and deferred
credits - Canadian GAAP $ 1,475 $ 1,208 $ 1,199
---------------------------------------------------------------------
---------------------------------------------------------------------
June 30 December 31 June 30
In millions 2004 2003 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Capital stock - U.S. GAAP $ 4,704 $ 4,664 $ 4,631
Capital reorganization (1,300) (1,300) (1,300)
Stock-based compensation (9) (17) (35)
Foreign exchange loss on
convertible preferred securities (12) (12) (12)
Costs related to the sale of shares 33 33 33
Share repurchase program 162 162 155
---------------------------------------------------------------------
Capital stock - Canadian GAAP $ 3,578 $ 3,530 $ 3,472
---------------------------------------------------------------------
Contributed surplus - U.S. GAAP $ - $ - $ -
Dividend in kind with respect to
land transfers (248) (248) (248)
Costs related to the sale of shares (33) (33) (33)
Other transactions and related
income tax effect (18) (18) (18)
Share repurchase program (24) (24) (23)
Capital reorganization 489 489 489
---------------------------------------------------------------------
Contributed surplus - Canadian GAAP $ 166 $ 166 $ 167
---------------------------------------------------------------------
Accumulated other comprehensive
loss - U.S. GAAP $ (35) $ (129) $ (119)
Unrealized foreign exchange loss on
translation of U.S. to Canadian
GAAP adjustments, net of applicable
taxes 48 63 52
Derivative instruments, net of
applicable taxes (67) (26) (19)
Income tax rate enactments 34 34 32
Minimum pension liability, net of
applicable taxes 20 20 24
---------------------------------------------------------------------
Currency translation - Canadian
GAAP $ - $ (38) $ (30)
---------------------------------------------------------------------
Retained earnings - U.S. GAAP $ 4,322 $ 3,897 $ 3,532
Cumulative effect of prior years'
adjustments to income (1,928) (1,696) (1,696)
Cumulative effect of change in
accounting policy (48) (48) (48)
Current period adjustments to net
income 21 (232) (91)
Share repurchase program (138) (138) (132)
Cumulative dividend on convertible
preferred securities (38) (38) (38)
Capital reorganization 811 811 811
Dividend in kind with respect to
land transfers 248 248 248
Other transactions and related
income tax effect 18 18 18
---------------------------------------------------------------------
Retained earnings - Canadian GAAP $ 3,268 $ 2,822 $ 2,604
---------------------------------------------------------------------
Income taxes
In the fourth quarter of 2003, under U.S. GAAP, the Company recorded
an increase to its net deferred income tax liability resulting from
the enactment of higher corporate tax rates in the province of
Ontario. As a result, the Company recorded deferred income tax
expense of $79 million and $2 million in the Consolidated Statement
of Income and Other comprehensive income, respectively. For Canadian
GAAP, the corresponding increase to the net deferred income tax
liability was $33 million. The difference in the expense recorded
reflects a larger net deferred tax liability position under U.S. GAAP.
Derivative instruments
Under U.S. GAAP, pursuant to SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," the Company records in its balance sheet the fair value
of derivative instruments used in its hedging activities. Changes in
the market value of these derivative instruments have been recorded
in Accumulated other comprehensive income, a separate component of
Shareholders' equity. There are no similar requirements under
Canadian GAAP.
Minimum pension liability
Under U.S. GAAP, one of the Company's pension plan had an accumulated
benefit obligation in excess of the fair value of the plan assets.
Under U.S. GAAP, this gave rise to an additional minimum pension
liability and as a result, an intangible asset was recognized up to
the amount of the unrecognized prior service cost and the difference
has been recorded in Accumulated other comprehensive income, a
separate component of Shareholders' equity. There are no requirements
under Canadian GAAP to record a minimum pension liability adjustment.
Convertible preferred securities
In July 2002, the Convertible preferred securities (Securities) of
the Company were converted into common shares. Prior to such date,
the Securities were treated as equity under Canadian GAAP, whereas
under U.S. GAAP they were treated as debt. Consequently, the initial
costs related to the issuance of the Securities, net of amortization,
which were previously deferred and amortized for U.S. GAAP, have
since been reclassified to equity.
Shareholders' equity
As permitted under Canadian GAAP, the Company eliminated its
accumulated deficit of $811 million as of June 30, 1995 through a
reduction of the capital stock in the amount of $1,300 million, and
created a contributed surplus of $489 million. Such a reorganization
within Shareholders' equity is not permitted under U.S. GAAP.
Under Canadian GAAP, the dividend in kind declared in 1995 (with
respect to land transfers) and other capital transactions were
deducted from Contributed surplus. For U.S. GAAP purposes, these
amounts would have been deducted from Retained earnings.
Under Canadian GAAP, costs related to the sale of shares have been
deducted from Contributed surplus. For U.S. GAAP purposes, these
amounts would have been deducted from Capital stock.
Under Canadian GAAP, the excess in cost over the stated value
resulting from the repurchase of shares was allocated first to
Capital stock, then to Contributed surplus and finally to Retained
earnings. Under U.S. GAAP, the excess has been allocated to Capital
stock followed by Retained earnings.
For Canadian and U.S. GAAP purposes, the Company designates the U.S.
dollar denominated long-term debt of the parent company as a foreign
exchange hedge of its net investment in U.S. subsidiaries. Under
Canadian GAAP, the resulting net unrealized foreign exchange loss
from the date of designation, has been included in Currency
translation. For U.S. GAAP purposes, the resulting net unrealized
foreign exchange loss has been included as part of Accumulated other
comprehensive income, a separate component of Shareholders' equity,
as required under SFAS No. 130, "Reporting Comprehensive Income."
(iii) Consolidated statement of cash flows
For the three and six months ended June 30, 2004, cash provided from
(used by) operating, investing and financing activities presented
under U.S. and Canadian GAAP were the same.
For the three and six months ended June 30, 2003, cash provided from
operating activities and cash used by investing activities under
Canadian GAAP, would increase by the same amount, $123 million and
$176 million, respectively, due to the difference in the Company's
Property capitalization policies that existed prior to January 1, 2004
as discussed herein.
CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
---------------------------------------------------------------------
2004(1) 2003 2004(1) 2003
---------------------------------------------------------------------
(Unaudited)
Statistical operating data
Freight revenues ($ millions) 1,590 1,414 2,975 2,863
Gross ton miles (GTM)
(millions) 83,179 77,715 161,132 153,824
Revenue ton miles (RTM)
(millions) 43,728 39,830 85,502 79,742
Carloads (thousands) 1,169 1,048 2,168 2,082
Route miles (includes Canada
and the U.S.) 17,898 17,539 17,898 17,539
Employees (end of period) 22,514 22,431 22,514 22,431
Employees (average during
period) 22,192 22,229 21,759 21,878
---------------------------------------------------------------------
Productivity
Operating ratio (%) 65.5 70.1 68.7 72.6
Freight revenue per RTM (cents) 3.64 3.55 3.48 3.59
Freight revenue per carload ($) 1,360 1,349 1,372 1,375
Operating expenses per GTM
(cents) 1.31 1.32 1.32 1.40
Labor and fringe benefits
expense per GTM (cents) 0.56 0.53 0.55 0.56
GTMs per average number of
employees (thousands) 3,748 3,496 7,405 7,031
Diesel fuel consumed (U.S.
gallons in millions) 98 94 193 187
Average fuel price ($/U.S.
gallon) 1.27 1.26 1.24 1.28
GTMs per U.S. gallon of fuel
consumed 849 827 835 823
---------------------------------------------------------------------
Safety indicators
Injury frequency rate per
200,000 person hours 2.5 2.6 2.5 2.8
Accident rate per million
train miles 1.2 2.3 1.3 2.0
---------------------------------------------------------------------
Financial ratios
Debt to total capitalization
ratio (% at end of period) 34.9 38.9 34.9 38.9
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Includes GLT as of May 10, 2004.
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)
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------- -------------------
Variance Variance
2004(1) 2003 Fav 2004(1) 2003 Fav
(Unfav) (Unfav)
---------------------------------------------------------------------
(Unaudited)
Revenue ton miles (millions)
Petroleum and chemicals 7,921 7,280 9% 15,901 15,418 3%
Metals and minerals 4,179 3,348 25% 7,987 6,663 20%
Forest products 9,420 8,782 7% 17,985 16,895 6%
Coal 3,620 3,961 (9%) 7,257 7,527 (4%)
Grain and fertilizers 9,946 7,321 36% 19,906 15,945 25%
Intermodal 7,737 8,225 (6%) 14,727 15,534 (5%)
Automotive 905 913 (1%) 1,739 1,760 (1%)
--------------------------------------- ---------------
43,728 39,830 10% 85,502 79,742 7%
Freight revenue / RTM (cents)
Total freight revenue per
RTM 3.64 3.55 3% 3.48 3.59 (3%)
Business units:
Petroleum and chemicals 3.48 3.48 - 3.40 3.52 (3%)
Metals and minerals 4.40 3.91 13% 3.98 3.86 3%
Forest products 3.78 3.72 2% 3.69 3.81 (3%)
Coal 2.04 1.77 15% 1.94 1.91 2%
Grain and fertilizers 2.72 2.75 (1%) 2.64 2.73 (3%)
Intermodal 3.70 3.51 5% 3.49 3.57 (2%)
Automotive 15.80 15.66 1% 15.70 16.25 (3%)
--------------------------------------- ---------------
Carloads (thousands)
Petroleum and chemicals 157 144 9% 314 300 5%
Metals and minerals 200 101 98% 296 192 54%
Forest products 155 152 2% 301 298 1%
Coal 121 122 (1%) 243 248 (2%)
Grain and fertilizers 143 121 18% 284 255 11%
Intermodal 313 332 (6%) 574 640 (10%)
Automotive 80 76 5% 156 149 5%
--------------------------------------- ---------------
1,169 1,048 12% 2,168 2,082 4%
Freight revenue / carload (dollars)
Total freight revenue per
carload 1,360 1,349 1% 1,372 1,375 -
Business units:
Petroleum and chemicals 1,758 1,757 - 1,723 1,810 (5%)
Metals and minerals 920 1,297 (29%) 1,074 1,339 (20%)
Forest products 2,297 2,151 7% 2,203 2,161 2%
Coal 612 574 7% 580 581 -
Grain and fertilizers 1,895 1,661 14% 1,849 1,706 8%
Intermodal 914 870 5% 895 866 3%
Automotive 1,788 1,882 (5%) 1,750 1,919 (9%)
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Includes GLT as of May 10, 2004.
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
NON-GAAP MEASURES(U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
Free cash flow
The Company believes that free cash flow is a useful measure of
performance as it demonstrates the Company's ability to generate cash
after the payment of capital expenditures and dividends. Free cash
flow does not have any standardized meaning prescribed by GAAP and
may, therefore, not be comparable to similar measures presented by
other companies. The Company defines free cash flow as cash provided
from operating activities, excluding changes in the level of accounts
receivable sold under the securitization program, less investing
activities and dividends paid, and adjusted for significant
acquisitions as they are not indicative of normal day-to-day
investments in the Company's asset base, calculated as follows:
Three months ended Six months ended
June 30 June 30
------------------ ----------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
Cash provided from operating
activities $ 590 $ 501 $ 895 $ 862
Less:
Investing activities (781) (263) (765) (394)
Dividends paid (56) (47) (111) (96)
--------------------------------------
Cash provided (used) before
financing activities (247) 191 19 372
--------------------------------------
--------------------------------------
Adjustments:
Change in accounts
receivable sold 9 (22) 15 (22)
Acquisition of GLT 553 - 553 -
--------------------------------------
Free cash flow $ 315 $ 169 $ 587 $ 350
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