CN Reports Record Results, Strong Core Business Growth.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 third quarter and nine-month period ended Sept. 30, 2004. Third-quarter 2004 highlights --Net income of $346 million, an 18 per cent increase from 2003; --Diluted earnings per share of $1.19, a 17 per cent improvement over third-quarter 2003 results; --Operating income of $591 million, up 30 per cent year-over-year; --Operating ratio of 65.4 per cent, 2.5 percentage points better than the prior year's quarterly performance; --Nine-month 2004 free cash flow of $754 million, compared with $455 million for the same period of 2003.(1) 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: "These results demonstrate the power of CN's business model, franchise and people. Our success is built on solid 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 execution, a strong 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 traffic base, productivity and pricing discipline, and a proven ability to leverage new acquisitions for the benefit of customers and shareholders. "Third-quarter revenues grew 21 per cent, reflecting core business growth in a strong North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. economy and the acquisitions of BC Rail and the 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. 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. (GLT GLT Gestion Logistique et Transport (French) GLT Global Leadership Team GLT Golden Lion Tamarin GLT Großladungsträger (German) GLT Guided Light Transit GLT Grundlagentraining ). The integration of these carriers into our network continues in seamless See seamless integration. fashion, and we believe anticipated merger benefits will outpace out·pace tr.v. out·paced, out·pac·ing, out·pac·es To surpass or outdo (another), as in speed, growth, or performance. outpace Verb [-pacing, our original expectations. "I am particularly proud of our nine-month 2004 free cash flow of $754 million. This cash generation ability is one of CN's key strengths, giving it the financial flexibility to reward shareholders now and in the future." Revenues for the latest quarter increased to a record $1,709 million despite a 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 . Factors driving the improved performance were increased merchandise traffic revenues, the inclusion of $148 million of GLT and BC Rail revenues, a solid intermodal in·ter·mod·al adj. Relating to transportation by more than one means of conveyance, as by truck and rail: intermodal transport. performance, and an improved 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 crop. CN began to record the operations of GLT as of May 10, 2004, and BC Rail as of July July: see month. 14, 2004. All seven CN business units registered revenue gains: metals and minerals (56 per cent); forest products (25 per cent); coal (25 per cent); petroleum and chemicals (17 per cent); automotive (nine per cent); intermodal (eight per cent); and grain and fertilizers (five per cent). 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. for the most recent quarter increased by 17 per cent to $1,118 million. The rise reflected the inclusion of $93 million of GLT and BC Rail expenses, increased fuel costs, and higher expenses for personal injuries, 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 purchased services. The stronger Canadian dollar affected the conversion of CN's U.S. dollar denominated revenues and expenses, and accordingly, reduced the company's third-quarter revenues, 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. and net income by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $45 million, $15 million and $7 million, respectively. Nine-month 2004 financial results Net income for the first nine months of 2004 was $882 million, or $3.05 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 $790 million, or $2.71 per diluted share, for the same period of 2003. Nine-month 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 nine months of 2004 increased 19 per cent, with 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 rising 20 per cent. Operating income for the first nine months of this year increased 23 per cent to $1,561 million. Revenues rose by 10 per cent to $4,812 million, while operating expenses increased by five per cent to $3,251 million. CN's operating ratio Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: for the first nine months of 2004 was 67.6 per cent, a 3.5-percentage point improvement over the year-earlier performance. The translation impact of the stronger Canadian dollar reduced nine-month 2004 revenues, operating income and net income by approximately $195 million, $70 million and $37 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) 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)
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(In millions, except per share data)
Three months ended Nine months ended
September 30 September 30
-------------------- -------------------
2004(1) 2003 2004(1) 2003
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(Unaudited)
Revenues $ 1,709 $ 1,413 $ 4,812 $ 4,372
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Operating expenses 1,118 959 3,251 3,107
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Operating income 591 454 1,561 1,265
Interest expense (79) (76) (219) (244)
Other income (loss) (9) 13 (45) 13
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Income before income taxes and
cumulative effect of change
in accounting policy 503 391 1,297 1,034
Income tax expense (157) (97) (415) (292)
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Income before cumulative
effect of change in
accounting policy 346 294 882 742
Cumulative effect of change
in accounting policy
(net of applicable taxes) - - - 48
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Net income $ 346 $ 294 $ 882 $ 790
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Earnings per share (Notes 9, 10)
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.21 $ 1.04 $ 3.09 $ 2.59
Net income $ 1.21 $ 1.04 $ 3.09 $ 2.75
Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.19 $ 1.02 $ 3.05 $ 2.55
Net income $ 1.19 $ 1.02 $ 3.05 $ 2.71
Weighted-average number
of shares
Basic 285.9 283.9 285.1 287.7
Diluted 290.8 288.1 289.6 291.8
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See accompanying notes to consolidated financial statements.
(1) Includes BC Rail and GLT from dates of acquisition.
(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 Nine months ended
September 30 September 30
--------------------- ----------------------
Variance Variance
2004(1) 2003 Fav 2004(1) 2003 Fav
(Unfav) (Unfav)
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(Unaudited)
Revenues
Petroleum and
chemicals $ 299 $ 255 17% $ 840 $ 798 5%
Metals and
minerals 203 130 56% 521 387 35%
Forest products 402 322 25% 1,065 966 10%
Coal 71 57 25% 212 201 5%
Grain and
fertilizers 231 220 5% 756 655 15%
Intermodal 303 280 8% 817 834 (2%)
Automotive 112 103 9% 385 389 (1%)
Other items 88 46 91% 216 142 52%
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1,709 1,413 21% 4,812 4,372 10%
Operating expenses
Labor and fringe
benefits 465 414 (12%) 1,350 1,283 (5%)
Purchased services
and material 190 151 (26%) 561 529 (6%)
Depreciation and
amortization 153 136 (13%) 445 418 (6%)
Fuel 132 100 (32%) 377 352 (7%)
Equipment rents 64 69 7% 195 228 14%
Casualty and other 114 89 (28%) 323 297 (9%)
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1,118 959 (17%) 3,251 3,107 (5%)
--------------------------------- -------------
Operating income $ 591 $ 454 30% $ 1,561 $ 1,265 23%
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Operating ratio 65.4% 67.9% 2.5 67.6% 71.1% 3.5
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See accompanying notes to consolidated financial statements.
(1) Includes BC Rail and GLT from dates of acquisition.
(See Note 2 - Acquisitions)
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
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(In millions)
September 30 December 31 September 30
2004 2003 2003
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(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 132 $ 130 $ 122
Accounts receivable (Note 4) 743 529 567
Material and supplies 155 120 145
Deferred income taxes 106 125 123
Other 279 223 174
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1,415 1,127 1,131
Properties 20,022 18,305 18,478
Other assets and deferred charges
(Note 3) 947 905 844
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Total assets $ 22,384 $ 20,337 $ 20,453
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and
accrued charges $ 1,276 $ 1,366 $ 1,394
Current portion of long-term
debt (Note 4) 257 483 537
Other 69 73 62
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1,602 1,922 1,993
Deferred income taxes 4,673 4,550 4,489
Other liabilities and
deferred credits 1,671 1,258 1,252
Long-term debt (Note 4) 5,141 4,175 4,473
Shareholders' equity:
Common shares 4,742 4,664 4,642
Accumulated other
comprehensive loss (57) (129) (116)
Retained earnings 4,612 3,897 3,720
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9,297 8,432 8,246
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Total liabilities and
shareholders' equity $ 22,384 $ 20,337 $ 20,453
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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 Nine months ended
September 30 September 30
-------------------- -------------------
2004(1) 2003 2004(1) 2003
---------------------------------------------------------------------
(Unaudited)
Common shares (2)
Balance, beginning
of period $ 4,704 $ 4,631 $ 4,664 $ 4,785
Stock options exercised
and other 38 40 78 100
Share repurchase program - (29) - (243)
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Balance, end of period $ 4,742 $ 4,642 $ 4,742 $ 4,642
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Accumulated other comprehensive loss
Balance, beginning of period $ (35) $ (119) $ (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 238 (17) 109 589
Unrealized foreign exchange gain
(loss) on translation of the
net investment in foreign
operations (333) 27 (126) (898)
Unrealized holding gain (loss)
on fuel derivative instruments
(Note 6) 69 (5) 112 (6)
Realized gain (loss) on settlement
of interest rate swaps (Note 6) (6) - 12 -
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Other comprehensive income
(loss) before income taxes (32) 5 107 (315)
Income tax recovery (expense) 10 (2) (35) 102
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Other comprehensive income
(loss) (22) 3 72 (213)
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Balance, end of period $ (57) $ (116) $ (57) $ (116)
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Retained earnings
Balance, beginning of
period $ 4,322 $ 3,532 $ 3,897 $ 3,487
Net income 346 294 882 790
Share repurchase program - (58) - (413)
Dividends (56) (48) (167) (144)
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Balance, end of period $ 4,612 $ 3,720 $ 4,612 $ 3,720
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See accompanying notes to consolidated financial statements.
(1) Includes BC Rail and GLT from dates of acquisition.
(See Note 2 - Acquisitions)
(2) During the three and nine months ended September 30, 2004, the
Company issued 1.1 million and 2.2 million common shares,
respectively, as a result of stock options exercised. At
September 30, 2004, the Company had 286.4 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 Nine months ended
September 30 September 30
-------------------- -----------------
2004(1) 2003 2004(1) 2003
---------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 346 $ 294 $ 882 $ 790
Adjustments to reconcile net
income to net cash provided
from operating activities:
Depreciation and amortization 153 137 448 422
Deferred income taxes 158 65 300 222
Equity in earnings of English
Welsh and Scottish Railway (1) (2) 7 (20)
Cumulative effect of change in
accounting policy - - - (48)
Other changes in:
Accounts receivable (80) 39 (140) 119
Material and supplies 30 7 (8) (27)
Accounts payable and accrued
charges (81) (30) (110) (105)
Other net current assets
and liabilities 26 3 45 (2)
Other 5 13 27 37
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Cash provided from operating
activities 556 526 1,451 1,388
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Investing activities
Net additions to properties (323) (309) (707) (696)
Acquisition of BC Rail (Note 2) (984) - (984) -
Acquisition of GLT (Note 2) 6 - (547) -
Other, net (Note 3) (3) 2 169 (5)
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Cash used by investing
activities (1,304) (307) (2,069) (701)
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Dividends paid (56) (48) (167) (144)
Financing activities
Issuance of long-term debt
(Note 4) 2,903 705 6,924 2,729
Reduction of long-term debt
(Note 4) (2,132) (825) (6,198) (2,588)
Issuance of common shares 30 28 61 69
Repurchase of common shares - (87) - (656)
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Cash provided from (used by)
financing activities 801 (179) 787 (446)
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Net increase (decrease) in
cash and cash equivalents (3) (8) 2 97
Cash and cash equivalents,
beginning of period 135 130 130 25
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Cash and cash equivalents,
end of period $ 132 $ 122 $ 132 $ 122
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Supplemental cash flow information
Net cash receipts from
customers and other $ 1,738 $ 1,602 $ 4,761 $ 4,647
Net cash payments for:
Employee services, suppliers
and other expenses (980) (891) (2,754) (2,691)
Interest (71) (80) (199) (243)
Workforce reductions (25) (32) (81) (121)
Personal injury and
other claims (23) (36) (78) (91)
Pensions (55) (21) (119) (43)
Income taxes (28) (16) (79) (70)
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Cash provided from
operating activities $ 556 $ 526 $ 1,451 $ 1,388
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See accompanying notes to consolidated financial statements.
(1) Includes BC Rail and GLT from dates of acquisition.
(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 ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. 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 , expressed in Canadian dollars, and 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 September September: see month. 30, 2004 and December December: see month. 31 and September 30, 2003, 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 and nine months ended September 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 conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the Company's 2004 interim and 2003 annual Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial and Annual Consolidated Financial Statements and notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. . Note 2 - Acquisitions BC Rail In November November: see month. 2003, the Company entered into an agreement with British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography 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 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, 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 accounted for the acquisition using the purchase method of accounting as required by the Financial Accounting Standards Board's (FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). ) 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.141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. ." As such, the accompanying consolidated financial statements include the assets, liabilities and results of operations of BC Rail as of July 14, 2004, the date of acquisition. The Company's cost to acquire BC Rail of $1,004 million includes purchase price adjustments and transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). . The following table reflects the preliminary purchase price allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as , based on the fair value of BC Rail's assets, owned and leased, 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 July 14, 2004
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Current assets(1) $ 226
Properties 620
Deferred income taxes 400
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Total assets acquired 1,246
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Current liabilities 74
Other liabilities and deferred credits 155
Long-term debt(2) 13
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Total liabilities assumed 242
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Net assets acquired $ 1,004
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(1) Includes cash on hand of $20 million.
(2) Net of unamortized discount.
Great Lakes Transportation LLC's 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 In October October: see month. 2003, the Company, through an indirect wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , 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 reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approvals, including the U.S. Surface Transportation Board (STB See set-top box. STB - set-top box ) 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 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.$395 million (Cdn$547 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 1,018
Intangible and other assets 90
-------------
Total assets acquired 1,175
-------------
Current liabilities 64
Deferred income taxes 290
Other liabilities and deferred credits 274
-------------
Total liabilities assumed 628
-------------
Net assets acquired $ 547
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If the Company had acquired BC Rail and GLT on January January: see month. 1, 2003, based on their respective historical amounts, net of the amortization of the difference between the Company's cost to acquire BC Rail and GLT and their respective net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. (based on preliminary estimates of the fair values of BC Rail's and 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 nine months ended September 30, 2004 and 2003 would have been as follows:
---------------------------------------------------------------------
Three months Nine months
ended ended
September 30 September 30
In millions, except per ---------------- ----------------
share data 2004 2003 2004 2003
---------------------------------------------------------------------
Revenues $ 1,719 $ 1,561 $ 5,037 $ 4,781
Income before cumulative
effect of change in
accounting policy $ 347 $ 318 $ 895 $ 786
Net income $ 347 $ 318 $ 895 $ 837
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.21 $ 1.12 $ 3.14 $ 2.73
Net income $ 1.21 $ 1.12 $ 3.14 $ 2.91
Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.19 $ 1.10 $ 3.09 $ 2.69
Net income $ 1.19 $ 1.10 $ 3.09 $ 2.87
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The 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 figures for both BC Rail and GLT do not reflect synergies, and accordingly, do not account for any potential increases in operating income, any estimated cost savings or facilities consolidation. Note 3 - Investment in English 1. English - (Obsolete) The source code for a program, which may be in any language, as opposed to the linkable or executable binary produced from it by a compiler. The idea behind the term is that to a real hacker, a program written in his favourite programming language is Welsh Welsh most commonly refers to:
Places and Scottish Railway (EWS EWS Early Warning System EWS Ewing's Sarcoma EWS Eyes Wide Shut (Stanley Kubrick movie) EWS English, Welsh and Scottish (UK railway operator) EWS Employee Written Software (IBM) ) - Capital reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. 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 (character) Cancel - (CAN, Control-X) ASCII character 24. a portion of their EWS shares. For each share cancelled can·cel v. can·celed also can·celled, can·cel·ing also can·cel·ling, can·cels also can·cels v.tr. 1. To cross out with lines or other markings. See Synonyms at erase. 2. , EWS shareholders would receive cash and 8% notes due in 2009, redeemable Redeemable Eligible for redemption under the terms of an indenture. in whole or in part at any time by EWS, at their principal amount together with 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. but unpaid interest up to the date of repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan . The Company elected e·lect v. e·lect·ed, e·lect·ing, e·lects v.tr. 1. To select by vote for an office or for membership. 2. To pick out; select: elect an art course. 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 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 A document, notice, circular, advertisement, letter, or communication in written form or by radio or television that offers any security for sale, or confirms the sale of any security. 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 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.$790 million to finance a portion of the acquisition costs of BC Rail and GLT. In the first quarter of 2004, 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.$180 million (Cdn$233 million) outstanding at December 31, 2003. As at September 30, 2004, letters of credit under the revolving credit facility amounted to $344 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 September 30, 2004, the Company had outstanding borrowings of U.S.$266 million (Cdn$337 million) under the commercial paper program. 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, expiring ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. in June June: see month. 2006, under which it may sell, on a revolving basis, a maximum of $450 million of eligible 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 trade and other receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed outstanding at any point in time, to an unrelated trust. The Company has a contingent Fortuitous; dependent upon the possible occurrence of a future event, the existence of which is not assured. The word contingent denotes that there is no present interest or right but only a conditional one which will become effective upon the happening of the residual interest Residual Interest A type of interest payment received by investors in a real estate mortgage investment conduit (REMIC). Notes: Investors receive interest payments after all required regular interest has been paid to investors within higher priority tranches. of approximately 10% of receivables sold, which is recorded in Other current assets Other Current Assets A balance sheet item that includes the value of non-cash assets due within one year. Notes: Examples are things like prepaid expenses and accounts receivable. . At September 30, 2004, pursuant to the agreement, $436 million had been sold compared to $448 million at December 31, 2003. Note 5 - Stock plans For the three and nine months ended September 30, 2004, the Company recorded total compensation cost for awards under all plans of $12 million and $37 million, respectively, and $1 million and $10 million, respectively, for the same periods in 2003. (a) Mid-term incentive share unit plan On June 30, 2004, upon partially attaining targets relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc its mid-term incentive share unit plan, the Company recorded additional compensation cost of $13 million based on the number of share units vested vested adj. referring to having an absolute right or title, when previously the holder of the right or title only had an expectation. Examples: after 20 years of employment Larry Loyal's pension rights are now vested. (See: vest, vested remainder) multiplied mul·ti·ply 1 v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies v.tr. 1. To increase the amount, number, or degree of. 2. Mathematics To perform multiplication on. by the Company's share price on such date. (b) Restricted share units (RSUs) In 2004, the Company granted approximately 1.2 million RSUs to designated management employees entitling them to receive payout pay·out n. 1. The act or an instance of paying out. 2. A percentage of corporate earnings that is paid as dividends to shareholders. 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 nine months ended September 30, 2004, the Company recorded compensation cost of $8 million and $15 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 mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. 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:
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Three months ended Nine months ended
September 30 September 30
In millions, except per ------------------ ------------------
share data 2004 2003 2004 2003
---------------------------------------------------------------------
Net income, as reported $ 346 $ 294 $ 882 $ 790
Add (deduct) compensation cost,
net of applicable taxes,
determined under:
Fair value method for awards
granted after Jan 1, 2003
(SFAS No. 123) 9 1 19 4
Intrinsic value method for
performance-based awards
granted prior to 2003 (APB 25) - - 9 6
Fair value method for all awards
(SFAS No. 123) (17) (10) (51) (32)
----------------------------------------
Pro forma net income $ 338 $ 285 $ 859 $ 768
----------------------------------------
----------------------------------------
Basic earnings per share,
as reported $ 1.21 $ 1.04 $ 3.09 $ 2.75
Basic earnings per share,
pro forma $ 1.18 $ 1.00 $ 3.01 $ 2.67
Diluted earnings per share,
as reported $ 1.19 $ 1.02 $ 3.05 $ 2.71
Diluted earnings per share,
pro forma $ 1.16 $ 0.99 $ 2.97 $ 2.63
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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 Nine months ended
September 30 September 30
------------------- ------------------
2004(1) 2003(2) 2004(1) 2003(2)
---------------------------------------------------------------------
Expected option life (years) - 5.0 - 5.0
Risk-free interest rate - 4.01% - 4.12%
Expected stock price volatility - 30% - 30%
Average dividend per share - $ 0.67 - $ 0.67
---------------------------------------------------------------------
Weighted average fair value of
options granted $ - $ 14.32 $ - $ 11.87
---------------------------------------------------------------------
(1) The Company did not grant any stock option awards in 2004.
(2) 2003 data has been adjusted for the three-for-two stock split.
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Note 6 - Derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. Fuel At September 30, 2004, the Company had hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. approximately 56% of the estimated remaining 2004 fuel consumption, representing approximately 56 million U.S. gallons at an average price of U.S.$0.67 per U.S. gallon gallon: see English units of measurement. , 51% of the estimated 2005 fuel consumption, representing approximately 203 million U.S. gallons at an average price of U.S.$0.74 per U.S. gallon, and 17% of the estimated 2006 fuel consumption, representing 69 million U.S. gallons at an average price of U.S.$0.89 per U.S. gallon. These derivative instruments are carried at market value on the balance sheet and 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 $150 million, $102 million after tax, ($38 million unrealized gain, $26 million after tax at December 31, 2003) related to fuel hedge derivative instruments of which $123 million will mature within the next twelve months. Interest rate In the first quarter of 2004, in anticipation The performance of an act or obligation before it is legally due. In patent law, the publication of the existence of an invention that has already been patented or has a patent pending, of future debt issuances, the Company had entered into treasury lock transactions for a notional amount The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change hands and is thus referred to as notional. of U.S.$380 million to fix the treasury component on these future debt issuances. 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 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 of U.S.$9 million (Cdn$12 million) upon the pricing of the U.S.$500 million 6.25% Debentures due 2034, subsequently issued on July 9, 2004. These derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. 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. Beginning July 9, 2004, upon the issuance of debt, the realized gain Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. of $12 million accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. 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. At September 30, 2004, Accumulated other comprehensive income included an unamortized gain of $12 million, $8 million after tax. Note 7 - Pensions and other post-retirement benefits For the three and nine months ended September 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 Nine months ended
September 30 September 30
-------------------- -------------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
Service cost $ 30 $ 24 $ 82 $ 71
Interest cost 186 178 539 535
Amortization of net
transition obligation - 5 - 15
Amortization of prior
service cost 5 5 15 15
Expected return on plan assets (219) (205) (635) (615)
Recognized net actuarial loss 1 1 2 2
--------------------------------------
Net periodic benefit cost $ 3 $ 8 $ 3 $ 23
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Components of net periodic benefit cost for post-retirement
benefits
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
-------------------- -------------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
Service cost $ 2 $ 3 $ 12 $ 9
Interest cost 5 6 22 18
Amortization of prior
service cost 1 1 3 3
Recognized net actuarial
(gain) loss (4) 1 (3) 3
------------------------------------------
Net periodic benefit cost $ 4 $ 11 $ 34 $ 33
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For 2004, the Company expects to make total contributions of $150 million for all its defined benefit plans Defined benefit plan A pension plan obliging the sponsor to make specified dollar payments to qualifying employees at retirement. The pension obligations are effectively the debt obligation of the plan sponsor. Related: Defined contribution plan of which $119 million have been made at September 30, 2004. The total expected contributions take into account the defined benefit plans assumed as part of the BC Rail and GLT acquisitions. The Medicare Prescription Drug, Improvement, and Modernization Act The Medicare Prescription Drug, Improvement, and Modernization Act (Pub.L. 108-173, 117 Stat. 2066, also called Medicare Modernization Act or MMA) is a law of the United States which was enacted in 2003. of 2003 (the "Act"), signed into law in the United States in December 2003, provides for prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, benefits under Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. , as well as a federal subsidy subsidy, financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. 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. Pursuant to FASB Staff Position 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization modernization Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, Act of 2003," adopted on July 1, 2004, the Company evaluated and determined the prescription drug benefits provided by its health care plans to be actuarially equivalent to the Medicare benefit under the Act. The Company measured the effects of the Act on the accumulated post-retirement benefit obligation (APBO APBO Accumulated Postretirement Benefit Obligation APBO Access Point Bridge Outdoor ) as of January 1, 2004 and, as such, the APBO was reduced by $49 million (APBO at December 31, 2003 was $454 million). Net periodic benefit cost for the nine months ended September 30, 2004 was reduced by $5 million due to the effects of the Act. The Company has not restated prior periods, as the effect of the Act on net periodic benefit cost for prior quarters was not significant. Note 8 - 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 September 30, 2004, the Company had commitments to acquire railroad 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 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 the present value of 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 Adj. 1. case-by-case - separate and distinct from others of the same kind; "mark the individual pages"; "on a case-by-case basis" item-by-item, individual basis, provisions for such items when the expected loss is both probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. and can be reasonably estimated based on currently available information. In the United States, employee work-related injuries, including occupational disease claims, are compensated compensated /com·pen·sat·ed/ (kom´pen-sa?tid) counterbalanced; offset. 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 September 30, 2004, the Company had aggregate reserves for personal injury and other claims of $649 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 September 30, 2004, or with respect to future claims, cannot be predicted with certainty CERTAINTY, UNCERTAINTY, contracts. In matters of obligation, a thing is certain, when its essence, quality, and quantity, are described, distinctly set forth, Dig. 12, 1, 6. It is uncertain, when the description is not that of one individual object, but designates only the kind. Louis. , 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 Provincial has several meanings and may refer to:
emissions npl → Emissionen pl 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:
or subsurface water Water that occurs below the surface of the Earth, where it occupies spaces in soils or geologic strata. Most groundwater comes from precipitation, which gradually percolates into the Earth. contamination contamination /con·tam·i·na·tion/ (kon-tam?i-na-shun) 1. the soiling or making inferior by contact or mixture. 2. the deposition of radioactive material in any place where it is not desired. . 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 clean-up n → nettoyage m clean-up clean n to give sth a clean-up → etw gründlich sauber machen clean-up n 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 magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the 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 September 30, 2004, the Company had aggregate accruals for environmental costs of $117 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 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. guarantees on 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. , 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. , 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 expiry date expire n → date f d'expiration; (on label) → à utiliser avant ... expiry date expire n → Ablauftermin m between 2005 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 INCEPTION. The commencement; the beginning. In making a will, for example, the writing is its inception. 3 Co. 31 b; Plowd. 343. Vide Consummation; Progression. 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. . At September 30, 2004, the maximum exposure in respect of these guarantees was $98 million, of which $6 million has been recorded. At September 30, 2004, the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. for guarantees for which the Company was required to recognize a liability for the fair value of the obligation was $2 million. There are no recourse The right of an individual who is holding a Commercial Paper, such as a check or promissory note, to receive payment on it from anyone who has signed it if the individual who originally made it is unable, or refuses, to tender payment. provisions to recover any amounts from third parties. 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 letters of credit and surety bonds, 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 September 30, 2004, the maximum potential liability under these guarantees was $444 million of which $361 million was for workers' compensation and other employee benefits and $83 million was for equipment under leases and other. During 2004, the Company granted guarantees for which no liability has been recorded, as they relate to the Company's future performance. As at September 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 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 The point where a line, channel or circuit ends. See SCSI termination and hybrid. of such agreements or trust deeds. As at September 30, 2004, the Company had not recorded a liability associated with these indemnifications, 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 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; (h) trust agreements relating to pension plans and other plans, including those establishing trust funds to secure 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. ; (i) master agreements with financial institutions governing 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. derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. transactions; and (j) settlement agreements with insurance companies or other third parties whereby such insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. 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 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 September 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 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 On October 26, 2004, the Board of Directors of the Company approved a share repurchase program which 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 14 million common shares between November 1, 2004 and October 31, 2005 pursuant to a normal course issuer bid, at prevailing market prices. 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 February: see month. 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 split. All share and per share data has been adjusted to reflect the stock split.
Note 10 - Earnings per share
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------- ------------------
2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited)
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.21 $ 1.04 $ 3.09 $ 2.59
Cumulative effect of change
in accounting policy - - - 0.16
---------------------------------------------------------------------
Net income $ 1.21 $ 1.04 $ 3.09 $ 2.75
---------------------------------------------------------------------
Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.19 $ 1.02 $ 3.05 $ 2.55
Cumulative effect of change
in accounting policy - - - 0.16
---------------------------------------------------------------------
Net income $ 1.19 $ 1.02 $ 3.05 $ 2.71
---------------------------------------------------------------------
---------------------------------------------------------------------
The following table provides a reconciliation between basic and
diluted weighted average shares outstanding:
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited)
Weighted-average shares
outstanding 285.9 283.9 285.1 287.7
Dilutive effect of stock
options 4.9 4.2 4.5 4.1
---------------------------------------------------------------------
Weighted-average diluted
shares outstanding 290.8 288.1 289.6 291.8
---------------------------------------------------------------------
---------------------------------------------------------------------
Note 11 - Reconciliation of United States and Canadian GAAP The financial statements of the Company prepared in accordance with Canadian GAAP are provided below along with a tabular tab·u·lar adj. 1. Having a plane surface; flat. 2. Organized as a table or list. 3. Calculated by means of a table. tabular resembling a table. 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 Nine months ended
September 30 September 30
------------------ ------------------
2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited)
Revenues $ 1,709 $ 1,413 $ 4,812 $ 4,372
---------------------------------------------------------------------
Operating expenses
Labor and fringe benefits 471 484 1,365 1,440
Purchased services and material 190 202 561 631
Depreciation and amortization 129 114 381 360
Fuel 132 100 377 353
Equipment rents 64 71 195 232
Casualty and other 114 113 323 351
---------------------------------------------------------------------
Total expenses 1,100 1,084 3,202 3,367
---------------------------------------------------------------------
Operating income 609 329 1,610 1,005
Interest expense (67) (78) (207) (246)
Other income (loss) (9) 13 (45) 13
---------------------------------------------------------------------
Income before income taxes 533 264 1,358 772
Income tax expense (166) (56) (434) (207)
---------------------------------------------------------------------
Net income $ 367 $ 208 $ 924 $ 565
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per share
Basic $ 1.28 $ 0.73 $ 3.24 $ 1.96
Diluted $ 1.26 $ 0.72 $ 3.19 $ 1.94
Weighted-average number of shares
Basic 285.9 283.9 285.1 287.7
Diluted 290.3 288.1 289.3 291.8
---------------------------------------------------------------------
---------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions)
September 30 December 31 September 30
2004 2003 2003
---------------------------------------------------------------------
(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 132 $ 130 $ 122
Accounts receivable 743 529 567
Material and supplies 155 120 145
Deferred income taxes 106 125 123
Other 154 188 153
---------------------------------------------------------------------
1,290 1,092 1,110
Properties 16,943 15,158 15,442
Other assets and deferred charges 919 900 840
---------------------------------------------------------------------
Total assets $ 19,152 $ 17,150 $ 17,392
---------------------------------------------------------------------
---------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued
charges $ 1,276 $ 1,366 $ 1,394
Current portion of long-term debt 257 483 537
Other 69 73 62
---------------------------------------------------------------------
1,602 1,922 1,993
Deferred income taxes 3,466 3,365 3,401
Other liabilities and deferred
credits 1,621 1,208 1,194
Long-term debt 5,141 4,175 4,473
Shareholders' equity:
Common shares 3,620 3,530 3,490
Contributed surplus 166 166 166
Currency translation (43) (38) (25)
Retained earnings 3,579 2,822 2,700
---------------------------------------------------------------------
7,322 6,480 6,331
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 19,152 $ 17,150 $ 17,392
---------------------------------------------------------------------
---------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions)
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 367 $ 208 $ 924 $ 565
Adjustments to reconcile
net income to net cash
provided from operating
activities:
Depreciation and
amortization 129 114 384 364
Deferred income taxes 167 24 319 137
Equity in earnings of
English Welsh and
Scottish Railway (1) (2) 7 (20)
Other changes in:
Accounts receivable (80) 39 (140) 119
Material and supplies 30 7 (8) (27)
Accounts payable and
accrued charges (81) (30) (110) (105)
Other net current assets
and liabilities 26 3 45 (2)
Other (1) 24 30 42
---------------------------------------------------------------------
Cash provided from operating
activities 556 387 1,451 1,073
---------------------------------------------------------------------
Investing activities
Net additions to properties (323) (165) (707) (392)
Acquisition of BC Rail (984) - (984) -
Acquisition of GLT 6 - (547) -
Other, net (3) (3) 169 6
---------------------------------------------------------------------
Cash used by investing
activities (1,304) (168) (2,069) (386)
---------------------------------------------------------------------
Dividends paid (56) (48) (167) (144)
Financing activities
Issuance of long-term debt 2,903 705 6,924 2,729
Reduction of long-term debt (2,132) (825) (6,198) (2,588)
Issuance of common shares 30 28 61 69
Repurchase of common shares - (87) - (656)
---------------------------------------------------------------------
Cash provided from (used by)
financing activities 801 (179) 787 (446)
---------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (3) (8) 2 97
Cash and cash equivalents,
beginning of period 135 130 130 25
---------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 132 $ 122 $ 132 $ 122
---------------------------------------------------------------------
---------------------------------------------------------------------
B. Reconciliation and discussion of significant differences between
U.S. and Canadian GAAP
(i) Reconciliation of net income
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
In millions 2004 2003 2004 2003
---------------------------------------------------------------------
Net income - U.S. GAAP $ 346 $ 294 $ 882 $ 790
Adjustments in respect of:
Property capitalization, net
of depreciation 24 (121) 64 (253)
Stock-based compensation cost (6) (6) (15) (9)
Interest expense 12 - 12 -
Income tax recovery (expense)
on current period adjustments (9) 41 (19) 85
-------------------------------------
Income before cumulative effect
of change in accounting policy 367 208 924 613
Cumulative effect of change in
accounting policy (net of
applicable taxes) - - - (48)
---------------------------------------------------------------------
Net income - Canadian GAAP $ 367 $ 208 $ 924 $ 565
---------------------------------------------------------------------
---------------------------------------------------------------------
Property capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. 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 The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. (CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ) Handbook
This article is about reference works. For the subnotebook computer, see .
A structure that has a predetermined ordering from high to low. For example, all files and folders on the hard disk are organized in a hierarchy (see Win Folder organization). . 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 An abbreviation for cum testamento annexo, Latin for "with the will annexed." ) 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 Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. only the material component of track replacement costs, to the extent it met the Company's minimum threshold The point at which a signal (voltage, current, etc.) is perceived as valid. 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 and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. 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 ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin 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 attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to employee stock options granted prior to January 1, 2003 continues to be a reconciling difference. Interest expense 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. Under U.S. GAAP, 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. On July 9, 2004, upon the pricing and subsequent issuance of U.S.$500 million 6.25% Debentures due 2034, the Company settled these treasury-rate locks and realized a gain of $12 million. Under U.S. GAAP, this gain was recorded in Other comprehensive income and will be amortized and recorded into income, as a reduction of interest expense, over the term of the debt based on the interest payment schedule. Under Canadian GAAP, this gain was recorded immediately into income, as a reduction of interest expense. Cumulative effect of change in accounting policy In 2003, under U.S. GAAP, in accordance with SFAS No. 143, "Accounting 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. ," 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 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
---------------------------------------------------------------------
September 30 December 31 September 30
In millions 2004 2003 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Current assets - U.S. GAAP $ 1,415 $ 1,127 $ 1,131
Derivative instruments (123) (33) (21)
Other (2) (2) -
---------------------------------------------------------------------
Current assets - Canadian GAAP $ 1,290 $ 1,092 $ 1,110
---------------------------------------------------------------------
Properties - U.S. GAAP $ 20,022 $ 18,305 $ 18,478
Property capitalization, net of
depreciation (3,004) (3,072) (2,961)
Cumulative effect of change in
accounting policy (75) (75) (75)
---------------------------------------------------------------------
Properties - Canadian GAAP $ 16,943 $ 15,158 $ 15,442
---------------------------------------------------------------------
Other assets and deferred charges
- U.S. GAAP $ 947 $ 905 $ 844
Derivative instruments (27) (5) (3)
Other (1) - (1)
---------------------------------------------------------------------
Other assets and deferred charges
- Canadian GAAP $ 919 $ 900 $ 840
---------------------------------------------------------------------
Deferred income tax liability
- U.S. GAAP $ 4,673 $ 4,550 $ 4,489
Cumulative effect of prior years'
adjustments to income (1,204) (1,071) (1,071)
Income taxes on current period
Canadian GAAP adjustments to income 19 (133) (85)
Cumulative effect of change in
accounting policy (27) (27) (27)
Income taxes on translation of
U.S. to Canadian GAAP
adjustments 17 15 8
Income taxes on minimum pension
liability adjustment 10 10 13
Income taxes on derivative
instruments (48) (12) (8)
Income taxes on settlement of
interest rate swap recorded in
other comprehensive income (4) - -
Income tax rate enactments 38 38 86
Other (8) (5) (4)
---------------------------------------------------------------------
Deferred income tax liability
- Canadian GAAP $ 3,466 $ 3,365 $ 3,401
---------------------------------------------------------------------
(ii) Reconciliation of significant balance sheet items (continued)
---------------------------------------------------------------------
September 30 December 31 September 30
In millions 2004 2003 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Other liabilities and deferred
credits - U.S. GAAP $ 1,671 $ 1,258 $ 1,252
Stock-based compensation (17) (20) (20)
Minimum pension liability (30) (30) (38)
Other (3) - -
---------------------------------------------------------------------
Other liabilities and deferred
credits - Canadian GAAP $ 1,621 $ 1,208 $ 1,194
---------------------------------------------------------------------
Capital stock - U.S. GAAP $ 4,742 $ 4,664 $ 4,642
Capital reorganization (1,300) (1,300) (1,300)
Stock-based compensation (5) (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 162 162 162
---------------------------------------------------------------------
Capital stock - Canadian GAAP $ 3,620 $ 3,530 $ 3,490
---------------------------------------------------------------------
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) (24)
Capital reorganization 489 489 489
---------------------------------------------------------------------
Contributed surplus - Canadian GAAP $ 166 $ 166 $ 166
---------------------------------------------------------------------
Accumulated other comprehensive
loss - U.S. GAAP $ (57) $ (129) $ (116)
Unrealized foreign exchange loss on
translation of U.S. to Canadian
GAAP adjustments, net of applicable
taxes 66 63 51
Derivative instruments, net of
applicable taxes (102) (26) (16)
Unamortized gain on settlement of
interest rate swap, net of
applicable taxes (8) - -
Income tax rate enactments 34 34 32
Minimum pension liability, net of
applicable taxes 20 20 24
Other 4 - -
---------------------------------------------------------------------
Currency translation - Canadian
GAAP $ (43) $ (38) $ (25)
---------------------------------------------------------------------
Retained earnings - U.S. GAAP $ 4,612 $ 3,897 $ 3,720
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 42 (232) (177)
Share repurchase program (138) (138) (138)
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 $ 3,579 $ 2,822 $ 2,700
---------------------------------------------------------------------
---------------------------------------------------------------------
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 Ontario, city, United States Ontario, city (1990 pop. 133,179), San Bernardino co., S Calif., near Los Angeles, in a region of vineyards; inc. 1891. . As a result, the Company recorded deferred income tax expense of $79 million and $2 million in the Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: 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 hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. Activities," 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. 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 Accumulated Benefit Obligation (ABO) An approximate measure of the liability of a pension plan in the event of a termination at the date the calculation is performed. Related: Projected 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 de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. in 1995 (with respect to land transfers) and other capital transactions were deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. from Contributed surplus. For U.S. GAAP purposes, these amounts would have been deducted from Retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. . 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 Stated Value A value that, instead of being par value, is assigned to a corporation's stock for accounting purposes. Stated value has no relation to market price. Notes: 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 Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered 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 DESIGNATION, wills. The expression used by a testator, instead of the name of the person or the thing he is desirous to name; for example, a legacy to. the eldest son of such a person, would be a designation of the legatee. Vide 1 Rop. Leg. ch. 2. 2. , 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 nine months ended September 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 nine months ended September 30, 2003, cash provided from operating activities and cash used by investing activities under Canadian GAAP, would increase by the same amount, $139 million and $315 million, respectively, due to the difference in the Company's property capitalization policies that existed prior to January 1, 2004 as discussed herein.
CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------------------------------------ ------------------
2004(1) 2003 2004(1) 2003
---------------------------------------------------------------------
(Unaudited)
Statistical operating data
Freight revenues ($ millions) 1,621 1,367 4,596 4,230
Gross ton miles (GTM)
(millions) 83,039 76,169 244,171 229,993
Revenue ton miles (RTM)
(millions) 44,266 39,936 129,768 119,678
Carloads (thousands) 1,226 1,031 3,394 3,113
Route miles (includes Canada
and the U.S.) 19,303 17,539 19,303 17,539
Employees (end of period) 23,466 22,293 23,466 22,293
Employees (average during
period) 23,332 22,357 22,283 22,040
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Productivity
Operating ratio (%) 65.4 67.9 67.6 71.1
Freight revenue per RTM (cents) 3.66 3.42 3.54 3.53
Freight revenue per carload ($) 1,322 1,326 1,354 1,359
Operating expenses per GTM
(cents) 1.35 1.26 1.33 1.35
Labor and fringe benefits
expense per GTM (cents) 0.56 0.54 0.55 0.56
GTMs per average number of
employees (thousands) 3,559 3,407 10,958 10,435
Diesel fuel consumed (U.S.
gallons in millions) 95 88 288 275
Average fuel price ($/U.S.
gallon) 1.31 1.13 1.26 1.23
GTMs per U.S. gallon of fuel
consumed 874 866 848 836
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Safety indicators
Injury frequency rate per
200,000 person hours 2.8 3.5 2.7 3.0
Accident rate per million
train miles 2.0 1.9 1.5 2.0
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Financial ratios
Debt to total capitalization
ratio (% at end of period) 36.7 37.8 36.7 37.8
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(1) Includes BC Rail and GLT from dates of acquisition.
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 Nine months ended
September 30 September 30
-------------------- ----------------------
Variance Variance
2004(1) 2003 Fav 2004(1) 2003 Fav
(Unfav) (Unfav)
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(Unaudited)
Revenue ton miles (millions)
Petroleum and
chemicals 8,373 7,515 11% 24,274 22,933 6%
Metals and minerals 4,345 3,421 27% 12,332 10,084 22%
Forest products 10,480 8,811 19% 28,465 25,706 11%
Coal 3,451 3,495 (1%) 10,708 11,022 (3%)
Grain and
fertilizers 8,787 8,272 6% 28,693 24,217 18%
Intermodal 8,090 7,802 4% 22,817 23,336 (2%)
Automotive 740 620 19% 2,479 2,380 4%
---------------------------------- ---------------
44,266 39,936 11% 129,768 119,678 8%
Freight revenue / RTM (cents)
Total freight
revenue per RTM 3.66 3.42 7% 3.54 3.53 -
Business units:
Petroleum and
chemicals 3.57 3.39 5% 3.46 3.48 (1%)
Metals and minerals 4.67 3.80 23% 4.22 3.84 10%
Forest products 3.84 3.65 5% 3.74 3.76 (1%)
Coal 2.06 1.63 26% 1.98 1.82 9%
Grain and
fertilizers 2.63 2.66 (1%) 2.63 2.70 (3%)
Intermodal 3.75 3.59 4% 3.58 3.57 -
Automotive 15.14 16.61 (9%) 15.53 16.34 (5%)
---------------------------------- ---------------
Carloads (thousands)
Petroleum and
chemicals 162 149 9% 476 449 6%
Metals and minerals 256 105 144% 552 297 86%
Forest products 177 148 20% 478 446 7%
Coal 121 112 8% 364 360 1%
Grain and
fertilizers 132 134 (1%) 416 389 7%
Intermodal 314 323 (3%) 888 963 (8%)
Automotive 64 60 7% 220 209 5%
---------------------------------- ---------------
1,226 1,031 19% 3,394 3,113 9%
Freight revenue / carload (dollars)
Total freight
revenue per
carload 1,322 1,326 - 1,354 1,359 -
Business units:
Petroleum and
chemicals 1,846 1,711 8% 1,765 1,777 (1%)
Metals and minerals 793 1,238 (36%) 944 1,303 (28%)
Forest products 2,271 2,176 4% 2,228 2,166 3%
Coal 587 509 15% 582 558 4%
Grain and
fertilizers 1,750 1,642 7% 1,817 1,684 8%
Intermodal 965 867 11% 920 866 6%
Automotive 1,750 1,717 2% 1,750 1,861 (6%)
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(1) Includes BC Rail and GLT from dates of acquisition.
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)
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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 standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. meaning prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). 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 indicative: see mood. of normal day-to-day day-to-day adj. 1. Occurring on a routine or daily basis: the day-to-day movements of the stock market. 2. investments in the Company's asset base, calculated as follows:
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Three months ended Nine months ended
September 30 September 30
------------------ ------------------
In millions 2004 2003 2004 2003
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Cash provided from operating
activities $ 556 $ 526 $ 1,451 $ 1,388
Less:
Investing activities (1,304) (307) (2,069) (701)
Dividends paid (56) (48) (167) (144)
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Cash provided (used) before
financing activities (804) 171 (785) 543
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Adjustments:
Change in accounts receivable
sold (7) (66) 8 (88)
Acquisition of BC Rail 984 - 984 -
Acquisition of GLT (6) - 547 -
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Free cash flow $ 167 $ 105 $ 754 $ 455
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