CN Reports Second-Quarter Net Income of $244 Million, or $1.26 Per Diluted Share.Business Editors MONTREAL--(BUSINESS WIRE)--July 22, 2003 CN (NYSE NYSE See: New York Stock Exchange :CNI (1) (Certified NetWare Instructor) See Novell certification. (2) (Coalition for Networked Information, Washington, DC, www.cni.org) A partnership of the Association of Research Libraries, CAUSE and EDUCOM, founded in 1990. )(TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CNR See riser card. CNR - Communication and Network Riser ) today reported its financial results for the second quarter and first half ended June June: see month. 30, 2003. Quarterly highlights -- Net income of $244 million, or $1.26 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 $280 million, or $1.39 per diluted share, for the same quarter of 2002. -- Strong intermodal in·ter·mod·al adj. Relating to transportation by more than one means of conveyance, as by truck and rail: intermodal transport. and forest products results, coupled with tight cost focus, partially offset effects of the stronger Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents , reduced grain traffic and higher fuel expense. -- Free cash flow of $169 million, up from $164 million for the same period last year. (1) CN's operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the second quarter of 2003 declined 11 per cent to $437 million. Revenues declined six per cent to $1,463 million, while operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. declined three per cent to $1,026 million. The company's operating ratio Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: for the latest quarter was 70.1 per cent, compared with 68.4 per cent for the same quarter last year. Carloadings declined one per cent to 1,052 thousand. The 11 per cent year-over-year appreciation of the Canadian dollar relative to the U.S. dollar in the second quarter of this year affected the conversion of CN's U.S. dollar-denominated revenues and expenses into Canadian dollars. The stronger Canadian dollar reduced CN's second-quarter 2003 revenues, operating income, and net income by approximately $90 million, $25 million, and $11 million (six cents per diluted share), respectively. 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, said: "CN management kept its eye on the ball during the quarter, extracting maximum value from our franchise amid a host of major challenges, chief among them a significantly stronger Canadian dollar and the lingering lin·ger v. lin·gered, lin·ger·ing, lin·gers v.intr. 1. To be slow in leaving, especially out of reluctance; tarry. See Synonyms at stay1. 2. effects of last summer's drought-reduced grain crop. "The stronger Canadian dollar reduced second-quarter revenues by approximately $90 million. If you exclude this impact on our business, CN's revenues would have increased slightly, and four of the company's seven business units would have posted revenue gains. Our second major challenge was reduced 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 volumes - a result of drought conditions "Drought Conditions" is episode 126 of The West Wing. Plot Senator Rafferty, a new presidential candidate garnered much media attention with a ground-breaking speech about health care. last summer in Western Canada
Western Canada, commonly referred to as the West - that cut our revenues by $37 million this quarter, and by $80 million for the first half of 2003. "Our intermodal unit remained a stand-out, benefiting from new business and the discipline of our Intermodal Excellence initiative. At the same time our continuing focus on discretionary spending aided CN's improved expense performance. Free cash flow also remained strong, rising to $169 million for the quarter from $164 million during the same quarter last year. "We are guardedly guard·ed adj. 1. Protected; defended. 2. Watched over; supervised. 3. Cautious; restrained: We view these changes with guarded optimism. optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the company's prospects for the balance of the year and into 2004. Precipitation precipitation, in chemistry precipitation, in chemistry, a process in which a solid is separated from a suspension, sol, or solution. In a suspension such as sand in water the solid spontaneously precipitates (settles out) on standing. levels on the Prairies prairies, generally level, originally grass-covered and treeless plains of North America, stretching from W Ohio through Indiana, Illinois, and Iowa to the Great Plains region. in Western Canada lead us to believe the 2003/2004 Canadian grain crop could be a good one. Most of the crop is harvested in September September: see month. and October October: see month. , so we would anticipate improved grain volumes in the fourth quarter." The three per cent decline in CN's operating expenses was mainly due to lower expenses for purchased services and material, 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 equipment rents, largely as a result of the positive impact of the stronger Canadian dollar on U.S.-dollar denominated expenses. Partly offsetting the decrease were higher fuel costs and increased casualty and other expenses. Six-month 2003 results Net income for the first half of 2003 was $496 million, or $2.53 per diluted share, compared with net income of $510 million, or $2.54 per diluted share, for the same period of 2002. Net income for the first six months of this year included a cumulative after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. benefit of $48 million (24 cents per diluted share), resulting from a change in the accounting for removal costs for certain track structure assets. Excluding the effect of this change, first-half 2003 net income was $448 million, or $2.29 per diluted share. First-half 2003 operating income declined nine per cent to $811 million. Revenues declined three per cent to $2,959 million, while operating expenses declined one per cent to $2,148 million. CN's operating ratio for the first six months of 2003 was 72.6 per cent, compared with 70.7 per cent for the year-earlier period. Carloadings rose two per cent to 2,090 thousand for the first half of the year. The eight per cent year-over-year appreciation of the Canadian dollar relative to the U.S. dollar in the first half of this year affected the conversion of CN's U.S. dollar-denominated revenues and expenses into Canadian dollars. The stronger Canadian dollar reduced first-half 2003 revenues, operating income, and net income by approximately $135 million, $40 million, and $20 million (10 cents per diluted share), 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) Refer to the supplementary schedule, Non-GAAP Measures, of the attached financial statements for CN's definition of free cash flow and reconciliation to comparable GAAP number. This news release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . CN cautions that, by their nature, forward-looking statements involve risk and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CN's most recent Form 40-F filed with the United States 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 Montreal (mŏn'trēôl`), Fr. Montréal (môNrāäl`), city (1991 pop. 1,017,666), S Que., Canada, on Montreal island, surrounded by St. Lawrence River and Rivière des Prairies. , Halifax Halifax, city, Canada Halifax, city (1991 pop. 114,455), provincial capital, S central N.S., Canada, on the Atlantic Ocean. It is the largest city in the Maritime Provinces and is one of Canada's principal ice-free Atlantic ports. , New Orleans New Orleans (ôr`lēənz –lənz, ôrlēnz`), city (2006 pop. 187,525), coextensive with Orleans parish, SE La., between the Mississippi River and Lake Pontchartrain, 107 mi (172 km) by water from the river mouth; founded , and Mobile, Ala ALA aminolevulinic acid. Ala alanine. ala (a´lah) pl. a´lae [L.] a winglike process. ., and the key cities of Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing , Buffalo, Chicago Chicago, city, United States Chicago (shĭkä`gō, shĭkô`gō), city (1990 pop. 2,783,726), seat of Cook co., NE Ill., on Lake Michigan; inc. 1837. , Detroit Detroit, city, United States Detroit (dĭtroit`), city (1990 pop. 1,027,974), seat of Wayne co., SE Mich., on the Detroit River and between lakes St. Clair and Erie; inc. as a city 1815. , Duluth Duluth (dəl  th`), city (1990 pop. 85,493), seat of St. Louis co., NE Minn., at the west end of Lake Superior, at the head of lake navigation and opposite Superior, Wis.; inc. 1870. , Minn./Superior, Wis adv. 1. Certainly; really; indeed.v. t. 1. To think; to suppose; to imagine; - used chiefly in the first person sing. present tense, I wis. See the Note under Ywis. ., Green Bay, Wis., Minneapolis/St. Paul Paul, 1901–64, king of the Hellenes (1947–64), brother and successor of George II. He married (1938) Princess Frederika of Brunswick. During Paul's reign Greece followed a pro-Western policy, and the Cyprus question was temporarily resolved. , Memphis, St. Louis, 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 Six months ended
June 30 June 30
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2003 2002 2003 2002
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(Unaudited)
Revenues $ 1,463 $ 1,551 $ 2,959 $ 3,060
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Operating expenses 1,026 1,061 2,148 2,164
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Operating income 437 490 811 896
Interest expense (83) (91) (168) (187)
Other income (loss) (4) 23 - 61
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Income before income taxes
and cumulative effect of
change in accounting policy 350 422 643 770
Income tax expense (106) (142) (195) (260)
---------------------------------------------------------------------
Income before cumulative
effect of change in
accounting policy 244 280 448 510
Cumulative effect of change
in accounting policy (net
of applicable taxes) (Note 2) - - 48 -
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Net income $ 244 $ 280 $ 496 $ 510
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Earnings per share (Note 6)
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.28 $ 1.44 $ 2.32 $ 2.64
Net income $ 1.28 $ 1.44 $ 2.57 $ 2.64
Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.26 $ 1.39 $ 2.29 $ 2.54
Net income $ 1.26 $ 1.39 $ 2.53 $ 2.54
Weighted-average
number of shares
Basic 191.1 193.9 193.1 193.5
Diluted 193.8 203.3 195.7 203.1
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See accompanying notes to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF OPERATING INCOME (U.S. GAAP)
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(In millions)
Three months ended Six months ended
June 30 June 30
------------------- -------------------
Variance Variance
Fav Fav
2003 2002 (Unfav) 2003 2002 (Unfav)
---------------------------------------------------------------------
(Unaudited)
Revenues
Petroleum and
chemicals $ 253 $ 271 (7%) $ 543 $ 544 -
Metals and
minerals 131 138 (5%) 257 260 (1%)
Forest products 327 334 (2%) 644 659 (2%)
Coal 70 81 (14%) 144 158 (9%)
Grain and
fertilizers 201 255 (21%) 435 524 (17%)
Intermodal 289 261 11% 554 496 12%
Automotive 143 159 (10%) 286 310 (8%)
Other items 49 52 (6%) 96 109 (12%)
-------------------------------- ---------------
1,463 1,551 (6%) 2,959 3,060 (3%)
Operating expenses
Labor and fringe
benefits 415 426 3% 869 883 2%
Purchased
services and
material 178 200 11% 378 398 5%
Depreciation and
amortization
(Note 2) 139 144 3% 282 285 1%
Fuel 125 114 (10%) 252 226 (12%)
Equipment rents 82 92 11% 159 179 11%
Casualty and
other 87 85 (2%) 208 193 (8%)
-------------------------------- ---------------
1,026 1,061 3% 2,148 2,164 1%
-------------------------------- ---------------
Operating
income $ 437 $ 490 (11%) $ 811 $ 896 (9%)
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Operating ratio 70.1% 68.4% (1.7) 72.6% 70.7% (1.9)
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See accompanying notes to consolidated financial statements.
Certain of the 2002 comparative figures have been reclassified in
order to be consistent with the 2003 presentation.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
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(In millions)
June 30 December 31 June 30
2003 2002 2002
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(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 130 $ 25 $ 93
Accounts receivable (Note 3) 605 722 675
Material and supplies 152 127 163
Deferred income taxes 123 122 125
Other 186 196 185
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1,196 1,192 1,241
Properties (Note 2) 18,261 19,681 18,732
Other assets and deferred
charges 828 865 866
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Total assets $ 20,285 $ 21,738 $ 20,839
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and
accrued charges $ 1,391 $ 1,487 $ 1,355
Current portion of
long-term debt 559 574 832
Other 64 73 83
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2,014 2,134 2,270
Deferred income taxes 4,411 4,826 4,560
Other liabilities and
deferred credits 1,264 1,406 1,217
Long-term debt (Note 3) 4,552 5,003 4,500
Convertible preferred
securities - - 347
Shareholders' equity:
Common shares (Note 3) 4,631 4,785 4,499
Accumulated other
comprehensive income (loss) (119) 97 31
Retained earnings 3,532 3,487 3,415
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8,044 8,369 7,945
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Total liabilities and
shareholders' equity $ 20,285 $ 21,738 $ 20,839
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See accompanying notes to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(U.S. GAAP)
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(In millions)
Three months ended Six months ended
June 30 June 30
------------------ -----------------
2003 2002 2003 2002
---------------------------------------------------------------------
(Unaudited)
Common shares (1)
Balance, beginning of
period $ 4,668 $ 4,473 $ 4,785 $ 4,442
Stock options exercised
and other 36 26 60 57
Share repurchase program
(Note 3) (73) - (214) -
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Balance, end of period $ 4,631 $ 4,499 $ 4,631 $ 4,499
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Accumulated other comprehensive income (loss)
Balance, beginning of period $ (13) $ 92 $ 97 $ 58
Other comprehensive income (loss):
Unrealized foreign exchange gain
on translation of U.S. dollar
denominated long-term debt
designated as a hedge of the net
investment in U.S. subsidiaries 342 219 606 208
Unrealized foreign exchange
loss on translation of the
net investment in foreign
operations (501) (315) (925) (303)
Unrealized holding gain (loss)
on fuel derivative instruments
(Note 4) 2 4 (1) 55
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Other comprehensive loss
before income taxes (157) (92) (320) (40)
Income tax recovery 51 31 104 13
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Other comprehensive loss (106) (61) (216) (27)
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Balance, end of period $ (119) $ 31 $ (119) $ 31
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Retained earnings
Balance, beginning of
period $ 3,469 $ 3,176 $ 3,487 $ 2,988
Net income 244 280 496 510
Share repurchase program
(Note 3) (134) - (355) -
Dividends (47) (41) (96) (83)
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Balance, end of period $ 3,532 $ 3,415 $ 3,532 $ 3,415
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See accompanying notes to consolidated financial statements.
(1) The Company issued 0.7 million and 1.0 million common shares for
the three and six months ended June 30, 2003, respectively, as a
result of stock options exercised. At June 30, 2003, the Company
had 189.7 million common shares outstanding.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP)
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(In millions)
Three months ended Six months ended
June 30 June 30
------------------ -----------------
2003 2002 2003 2002
---------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 244 $ 280 $ 496 $ 510
Adjustments to reconcile net
income to net cash provided
from operating activities:
Cumulative effect of change
in accounting policy (Note 2) - - (48) -
Depreciation and amortization 140 146 285 288
Deferred income taxes 85 85 157 156
Equity in earnings of English
Welsh and Scottish Railway (4) (4) (18) (15)
Other changes in:
Accounts receivable 79 15 80 (41)
Material and supplies 3 (10) (34) (33)
Accounts payable and
accrued charges (45) (16) (75) (74)
Other net current assets
and liabilities 4 (12) (5) (12)
Other (5) (9) 24 (22)
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Cash provided from operating
activities 501 475 862 757
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Investing activities
Net additions to properties (266) (242) (387) (362)
Other, net 3 (28) (7) 44
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Cash used by investing
activities (263) (270) (394) (318)
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Dividends paid (47) (41) (96) (83)
Financing activities
Issuance of long-term debt
(Note 3) 708 1,035 2,024 1,890
Reduction of long-term debt
(Note 3) (676) (1,182) (1,763) (2,260)
Issuance of common shares 30 25 41 54
Repurchase of common shares
(Note 3) (207) - (569) -
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Cash used by financing
activities (145) (122) (267) (316)
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Net increase in cash and
cash equivalents 46 42 105 40
Cash and cash equivalents,
beginning of period 84 51 25 53
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Cash and cash equivalents,
end of period $ 130 $ 93 $ 130 $ 93
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Supplemental cash flow information
Payments (recoveries):
Interest $ 81 $ 95 $ 163 $ 210
Workforce reductions 41 47 89 94
Personal injury and
other claims 17 27 55 68
Pensions 19 22 22 27
Income taxes (4) 29 54 67
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See accompanying notes to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
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Note 1 - Basis of presentation In management's opinion, the accompanying unaudited interim consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge , prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with U.S. generally accepted accounting principles (U.S. GAAP), contain all adjustments (consisting of normal recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. ) necessary to present fairly Canadian National Railway Canadian National Railway, rail system in Canada and the United States, extending from coast to coast in Canada with many branch lines in each province and in the United States. Company's (the Company) financial position as at June 30, 2003 and December 31 and June 30, 2002, its results of operations, changes in shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. and cash flows for the three and six months ended June 30, 2003 and 2002. These interim consolidated financial statements and notes have been prepared using accounting policies consistent with those used in preparing the Company's 2002 Annual Consolidated Financial Statements except for Asset retirement obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. and Stock-based compensation as explained in Note 2. While management believes that the disclosures presented are adequate to make the information not misleading, these interim consolidated financial statements and notes should be read in conjunction with the Company's Management'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. Note 2 - Accounting changes Asset retirement obligations Effective January 1, 2003, the Company adopted the recommendations of Statement of Financial Accounting Standards (SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System ) No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that the fair value of an asset retirement obligation be recorded as a liability only when there is a legal obligation associated with a removal activity. The Company has concluded that no legal obligation exists for its various removal programs. In accordance with SFAS No. 143, the Company changed its accounting policy for certain track structure assets to exclude removal costs as a component of depreciation expense where the inclusion of such costs would result in accumulated depreciation accumulated depreciation The total amount of depreciation that has been recorded for an asset since its date of acquisition. For example, a computer with a 5-year estimated life that was purchased for $2,000 would have accumulated depreciation of $800 [( balances exceeding the historical cost basis of the assets. As a result, a cumulative benefit of $75 million, or $48 million after tax, was recorded for the amount of removal costs accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. in accumulated depreciation on certain track structure assets at January 1, 2003. This change in policy will result in lower depreciation expense and higher labor and fringe benefits and other expenses in the period in which removal costs are incurred. This change in policy had a negligible  This article or section is written like a personal reflection or and may require .Please [ improve this article] by rewriting this article or section in an . impact on net income for the second quarter and increased net income by $2 million for the six-month period ended June 30, 2003. Had the Company applied the policy on January 1, 2002, the impact on net income for the three and six months ended June 30, 2002 would have been a benefit of $1 million and $3 million, respectively. Stock-based compensation Effective January 1, 2003, the Company voluntarily adopted the fair value based approach of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." The Company has elected to prospectively apply this method of accounting to all awards of employee stock options granted, modified or settled on or after January 1, 2003, as permitted by SFAS No. 148. In the first quarter of 2003, the Company granted 2.0 million stock options, which will be expensed over their vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period based on their estimated fair value on the date of grant, determined using the Black-Scholes option pricing model option pricing model A mathematical formula for determining the price at which an option should trade. The model expresses the value of an option as a function of the value of the underlying asset, length of time until maturity, exercise price, yields on . A negligible amount of options were issued in the second quarter of 2003. Prior to 2003, the Company accounted for stock-based compensation in accordance with Accounting Principles Board The Accounting Principles Board (APB) is the former authoritative body of the American Institute of Certified Public Accountants (AICPA). It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, Opinion (APB APB See Accounting Principles Board (APB). ) 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost was recorded for the intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. of the Company's performance-based stock option awards and no compensation cost was recognized for the Company's conventional stock option awards. For the three and six months ended June 30, 2003, the Company recorded compensation cost of $2 million and $9 million, respectively, and $4 million and $8 million for the same 2002 periods. If compensation cost had been determined based upon fair values at the date of grant for awards under all plans, consistent with the methods of SFAS No. 123, the Company's pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma net income and earnings per share would have been as follows:
Three months ended Six months ended
June 30 June 30
------------------ -----------------
In millions, except
per share data 2003 2002 2003 2002
---------------------------------------------------------------------
Net income, as reported $ 244 $ 280 $ 496 $ 510
Add (deduct) compensation cost,
net of applicable taxes,
determined under:
Fair value method for all awards
granted after Jan 1, 2003
(SFAS No. 123) 2 - 3 -
Intrinsic value method for
performance-based awards
(APB 25) - 4 6 8
Fair value method for all
awards (SFAS No. 123) (11) (11) (22) (21)
---------------------------------------
Pro forma net income $ 235 $ 273 $ 483 $ 497
---------------------------------------
---------------------------------------
Basic earnings per share,
as reported $ 1.28 $ 1.44 $ 2.57 $ 2.64
Basic earnings per share,
pro forma $ 1.23 $ 1.41 $ 2.50 $ 2.57
Diluted earnings per share,
as reported $ 1.26 $ 1.39 $ 2.53 $ 2.54
Diluted earnings per share,
pro forma $ 1.21 $ 1.36 $ 2.47 $ 2.48
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These pro forma amounts include compensation cost as calculated using
the Black-Scholes option pricing model with the following assumptions:
Three months ended Six months ended
June 30 June 30
------------------ -----------------
2003 2002 2003 2002
---------------------------------------------------------------------
Expected option life (years) 5.0 7.0 5.0 7.0
Risk-free interest rate 3.33% 5.79% 4.12% 5.79%
Expected stock price
volatility 30% 30% 30% 30%
Average dividend per share $ 1.00 $ 0.86 $ 1.00 $ 0.86
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Three months ended Six months ended
June 30 June 30
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2003 2002 2003 2002
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Weighted average fair value
of options granted $ 19.85 $ 30.61 $ 17.80 $ 30.98
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Note 3 - Financing activities In March 2003, the Company issued U.S.$400 million (Cdn$586 million) of 4.40% Notes due 2013, the maximum remaining amount under its shelf registration statement filed in 2001. The Company 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.$396 million to repay U.S.$150 million of 6.625% 10-year Notes issued by the Company, and U.S.$100 million of 6.75% 10-year Notes issued by the Company's wholly-owned subsidiary Illinois Central Railroad Illinois Central Railroad (IC) former U.S. railroad founded in 1851 that merged with the Canadian National Railway Co. (CN) in 1999. After receiving its charter in 1851, the Illinois Central Railroad built its first line from Galena to Cairo, Ill. Company, both of which matured on May 15, 2003. The excess was used to repay the Company's borrowings under the commercial paper program of U.S.$136 million (Cdn$214 million) outstanding at December 31, 2002. The Company's commercial paper program, which is backed by its 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, enables it to issue commercial paper up to a maximum aggregate principal amount of $600 million, or the U.S. dollar equivalent. In June 2003, the Company's Board of Directors approved an increase in the maximum amount that may be issued under the program to $800 million. At June 30, 2003, the Company had outstanding borrowings of U.S.$310 million (Cdn$418 million) under the program. Commercial paper debt is due within one year but has been classified as 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. , reflecting the Company's intent and contractual ability to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. the short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. borrowing through subsequent issuances of commercial paper or drawing down on the 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. revolving credit facility. In the first quarter of 2003, the Company repaid its borrowings under the revolving credit facility of U.S.$90 million (Cdn$142 million) outstanding at December 31, 2002 and since then, the credit facility has not been drawn upon. Letters of credit under the revolving credit facility amounted to $299 million at June 30, 2003. In June 2003, the Company renewed its 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 for a term of three years, to June 2006. Under the terms of the renewal, the Company may sell, on a revolving basis, a maximum of $450 million of eligible freight 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 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% 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 June 30, 2003, pursuant to the agreement, $195 million and U.S.$113 million (Cdn$152 million) ($173 million and U.S.$113 million (Cdn$177 million) at December 31, 2002) had been sold. The share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program which was approved in 2002, allows for the repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. of up to 13.0 million common shares between October 25, 2002 and October 24, 2003 pursuant to a normal course issuer bid, at prevailing market prices. In the first half of 2003, the Company repurchased 8.8 million common shares for $569 million, at an average price of $64.63. The Company has repurchased a total of 11.8 million common shares since the inception of the program for $772 million, at an average price of $65.40 per share. Note 4 - Derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. At June 30, 2003, a portion of the Company's fuel requirement has been hedged using derivative instruments that are carried at market value on the balance sheet. These fuel hedges are accounted for as cash flow hedges A cash flow hedge is a hedge of the exposure to the variability of cash flow that
A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. of $29 million, $19 million after tax, ($30 million unrealized gain, $20 million after tax at December 31, 2002) of which $26 million relates to derivative instruments that will mature within the next twelve months. Note 5 - Major commitments and contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. A. Commitments As at June 30, 2003, the Company had commitments to acquire railroad railroad or railway, form of transportation most commonly consisting of steel rails, called tracks, on which freight cars, passenger cars, and other rolling stock are drawn by one locomotive or more. ties, rail, freight cars, locomotives This is a list of locomotives (classes, or individual locomotives) that currently have articles in Wikipedia.
B. Contingencies In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc personal injuries, occupational disease and damage to property. In Canada, employee injuries are governed gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. by the workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. legislation in each province whereby employees may be awarded either a lump sum Lump sum A large one-time payment of money. or future stream of payments depending on the nature and severity of the injury. Accordingly, the Company accounts for costs related to employee work-related injuries based on actuarially developed estimates of the ultimate cost associated with such injuries, including compensation, health care and administration costs. For all other legal actions, the Company maintains, and regularly updates on a case-by-case basis, provisions for such items when the expected loss is both probable and can be reasonably estimated based on currently available information. In the United States, employee work-related injuries, including occupational disease claims, are compensated according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the provisions of the Federal Employers' Liability employers' liability: see workers' compensation. Act (FELA FELA Federal Employer's Liability Act of 1908 ), which requires either the finding of fault through the U.S. jury system or individual settlements. The Company accrues the expected cost for personal injury and property damage claims and existing occupational disease claims, based on actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin estimates of their ultimate cost. The Company is unable to estimate the total cost for unasserted occupational disease claims. However, a liability for unasserted occupational disease claims is accrued to the extent they are probable and can be reasonably estimated. An actuarial study is conducted on an annual basis by an independent actuarial firm. On an ongoing basis, management reviews and compares the assumptions inherent in the latest actuarial study with the current claim experience and, if required, adjustments to the liability are recorded. As at June 30, 2003, the Company had aggregate reserves for personal injury and other claims of $610 million ($664 million at December 31, 2002). Although the Company considers such provisions to be adequate for all its outstanding and pending claims, the final outcome with respect to actions outstanding or pending at June 30, 2003, or with respect to future claims, cannot be predicted with certainty, and therefore there can be no assurance that their resolution will not have a material adverse effect on the Company's financial position or results of operations in a particular quarter or fiscal year. C. Environmental matters The Company's operations are subject to numerous federal, provincial, state, municipal and local environmental laws and regulations in Canada and the United States The United States and Canada share a unique legal relationship. U.S. law looks northward with a mixture of optimism and cooperation, viewing Canada as an integral part of U.S. economic and environmental policy. concerning, among other things, emissions into the air; discharges into waters; the generation, handling, storage, transportation, treatment and disposal of waste, hazardous substances, and other materials; decommissioning Decommissioning is a general term for a formal process to remove something from operational status. Some specific instances include:
While the Company believes that it has identified the costs likely to be incurred in the next several years, based on known information, for environmental matters, the Company's ongoing efforts to identify potential environmental concerns that may be associated with its properties may lead to future environmental investigations, which may result in the identification of additional environmental costs and liabilities. The magnitude of such additional liabilities and the costs of complying with environmental laws and containing or remediating contamination cannot be reasonably estimated due to: (i) the lack of specific technical information available with respect to many sites; (ii) the absence of any government authority, third-party orders, or claims with respect to particular sites; (iii) the potential for new or changed laws and regulations and for development of new remediation technologies and uncertainty regarding the timing of the work with respect to particular sites; (iv) the ability to recover costs from any third parties with respect to particular sites; and therefore, the likelihood of any such costs being incurred or whether such costs would be material to the Company cannot be determined at this time. There can thus be no assurance that material liabilities or costs related to environmental matters will not be incurred in the future, or will not have a material adverse effect on the Company's financial position or results of operations in a particular quarter or fiscal year, or that the Company's liquidity will not be adversely impacted by such environmental liabilities or costs. Although the effect on operating results and liquidity cannot be reasonably estimated, management believes, based on current information, that environmental matters will not have a material adverse effect on the Company's financial condition or competitive position. Costs related to any future remediation will be accrued in the period in which they become known. As at June 30, 2003, the Company had aggregate accruals for environmental costs of $89 million ($106 million as at December 31, 2002). D. Guarantees Effective January 1, 2003, the Company is required to recognize a liability for the fair value of the obligation undertaken in issuing certain guarantees on the date the guarantee is issued or modified. Where the Company expects to make a payment in respect of a guarantee, a liability will be recognized to the extent that one has not yet been recognized. Guarantee of residual values Residual value Usually refers to the value of a lessor's property at the time the lease expires. residual value The price at which a fixed asset is expected to be sold at the end of its useful life. of operating leases Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. The Company has guaranteed a portion of the residual values of certain of its assets under operating leases with expiry dates expiry date expire n → date f d'expiration; (on label) → à utiliser avant ... expiry date expire n → Ablauftermin m between 2004 and 2012, for the benefit of the lessor One who rents real property or Personal Property to another. A lessor of land is a landlord. Cross-references Landlord and Tenant. lessor n. the owner of real property who rents it to a lessee pursuant to a written lease. . If the fair value of the assets, at the end of their respective lease term, is less than the fair value, as estimated at the inception of the lease, then the Company must, under certain conditions, compensate the lessor for the shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. . At June 30, 2003, the maximum exposure in respect of these guarantees was $78 million. During the second quarter of 2003, the Company issued a guarantee for which 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. at June 30, 2003 was $1 million. As at June 30, 2003, the Company had not recorded any additional liability associated with these guarantees, as the Company does not expect to make any payments pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to the guarantees of these leases. 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 standby Medtalk adjective Referring to the immediate availability of a certain specialist–anesthesiologist, surgeon, who can be deployed in a medical emergency. Cf Concurrent. letters of credit and surety bonds surety bond An insurance fee required before a duplicate security is issued to replace one that has been lost. The fee is approximately 4% of the market value of the security to be replaced. , issued by highly rated financial institutions, to third parties to indemnify To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person. Insurance companies indemnify their policyholders against damage caused by such things as fire, theft, and flooding, which them in the event the Company does not perform its contractual obligations. As at June 30, 2003, the maximum potential liability under these guarantees was $384 million of which $327 million was for workers' compensation and other employee benefits and $57 million was for equipment under leases and other. During the first half of 2003, the Company granted guarantees for which no liability has been recorded, as they relate to the Company's future performance. As at June 30, 2003, the Company had not recorded any additional liability with respect to these guarantees, as the Company does not expect to make any payments in excess of what is recorded on the Company's financial statements. The guarantee instruments mature at various dates between 2003 and 2007. E. Indemnifications CN Pension Plan and CN 1935 Pension Plan The Company has indemnified and held harmless The term harmless may be taken in several ways:
tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: instructions of the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements or trust deeds. As at June 30, 2003, the Company had not recorded a liability associated with these indemnifications, as the Company does not expect to make any payments pertaining to these indemnifications. General indemnifications In the normal course of business, the Company has provided indemnifications, customary for the type of transaction or for the railway business, in various agreements with third parties, including indemnification Indemnification Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgements resulting from provisions where the Company would be required to indemnify third parties and others. Indemnifications are found in various types of contracts with third parties which include, but are not limited to, (a) contracts granting the Company the right to use or enter upon property owned by third parties such as leases, easements EASEMENTS, estates. An easement is defined to be a liberty privilege or advantage, which one man may have in the lands of another, without profit; it may arise by deed or prescription. Vide 1 Serg. & Rawle 298; 5 Barn. & Cr. 221; 3 Barn. & Cr. 339; 3 Bing. R. 118; 3 McCord, R. , trackage track·age n. 1. Railway tracks. 2. a. The right of one railroad company to use the track system of another. b. The charge for this right. rights and sidetrack agreements; (b) contracts granting rights to others to use the Company's property, such as leases, licenses and easements; (c) contracts for the sale of assets and securitization of accounts receivable; (d) contracts for the acquisition of services; (e) financing agreements Financing Agreements In the context of project financing, the documents which provide the project financing and sponsor support for the project as defined in the project contracts. ; (f) trust indentures, fiscal agency agreements, underwriting agreements Underwriting agreement The contract between a corporation issuing new publicly offered securities and the managing underwriter as agent for the underwriting group. Compare to agreement among underwriters. or similar agreements relating to debt or equity securities of the Company and engagement agreements with financial advisors; (g) transfer agent and registrar See domain name registrar. agreements in respect of the Company's securities; (h) trust agreements establishing trust funds to secure the payment to certain officers and senior employees of special retirement compensation arrangements Retirement Compensation Arrangements (RCAs) are defined under subsection 248(1) of the Canadian Income Tax Act, which allows 100 per cent tax-deductible corporate dollars to be deposited into an RCA, on behalf of the private business owner and/or key employee. or plans; (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 the second quarter of 2003, 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 the guarantees and accordingly, no liability was recorded. There are no recourse provisions to recover any amounts from third parties.
Note 6 - Earnings per share
Three months ended Six months ended
June 30 June 30
------------------ -----------------
2003 2002 2003 2002
---------------------------------------------------------------------
(Unaudited)
Basic earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.28 $ 1.44 $ 2.32 $ 2.64
Cumulative effect of change
in accounting policy (Note 2) - - 0.25 -
---------------------------------------------------------------------
Net income $ 1.28 $ 1.44 $ 2.57 $ 2.64
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Diluted earnings per share
Income before cumulative
effect of change in
accounting policy $ 1.26 $ 1.39 $ 2.29 $ 2.54
Cumulative effect of change
in accounting policy (Note 2) - - 0.24 -
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Net income $ 1.26 $ 1.39 $ 2.53 $ 2.54
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The following table provides a reconciliation between basic and
diluted earnings per share:
Three months ended Six months ended
June 30 June 30
------------------ -----------------
2003 2002 2003 2002
---------------------------------------------------------------------
(In millions, except (Unaudited)
per share data)
Income before cumulative
effect of change in
accounting policy $ 244 $ 280 $ 448 $ 510
Income impact on assumed
conversion of preferred
securities - 3 - 6
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$ 244 $ 283 $ 448 $ 516
Weighted-average shares
outstanding 191.1 193.9 193.1 193.5
Effect of dilutive securities
and stock options 2.7 9.4 2.6 9.6
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Weighted-average diluted
shares outstanding 193.8 203.3 195.7 203.1
Basic earnings per share
before cumulative effect of
change in accounting policy $ 1.28 $ 1.44 $ 2.32 $ 2.64
Diluted earnings per share
before cumulative effect of
change in accounting policy $ 1.26 $ 1.39 $ 2.29 $ 2.54
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CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
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Three months ended Six months ended
June 30 June 30
------------------ -----------------
2003 2002 2003 2002
---------------------------------------------------------------------
(Unaudited)
Statistical operating data
Freight revenues ($ millions) 1,414 1,499 2,863 2,951
Gross ton miles (GTM)
(millions) 77,715 78,999 153,824 154,422
Revenue ton miles (RTM)
(millions) 39,830 40,332 79,742 79,621
Carloads (thousands) 1,052 1,059 2,090 2,058
Route miles (includes Canada
and the U.S.) 17,539 17,837 17,539 17,837
Employees (end of period) 22,431 23,708 22,431 23,708
Employees (average during
period) 22,229 23,454 21,878 22,895
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Productivity
Operating ratio (%) 70.1 68.4 72.6 70.7
Freight revenue per RTM
(cents) 3.55 3.72 3.59 3.71
Freight revenue per carload ($) 1,344 1,415 1,370 1,434
Operating expenses per GTM
(cents) 1.32 1.34 1.40 1.40
Labor and fringe benefits
expense per GTM (cents) 0.53 0.54 0.56 0.57
GTMs per average number of
employees (thousands) 3,496 3,368 7,031 6,745
Diesel fuel consumed (U.S.
gallons in millions) 94 94 187 189
Average fuel price ($/U.S.
gallon) 1.26 1.18 1.28 1.15
GTMs per U.S. gallon of fuel
consumed 827 840 823 817
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Safety indicators
Injury frequency rate per
200,000 person hours 2.6 2.6 2.8 3.0
Accident rate per million
train miles 2.3 2.1 2.0 2.1
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Financial ratios
Debt to total capitalization
ratio (% at end of period) 38.9 41.7 38.9 41.7
Return on assets (% at end
of period)(1) 1.5 1.6 2.7 3.0
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(1) See Non-GAAP Measures
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 Six months ended
June 30 June 30
------------------- -------------------
Variance Variance
Fav Fav
2003 2002 (Unfav) 2003 2002 (Unfav)
---------------------------------------------------------------------
(Unaudited)
Revenue ton miles (millions)
Petroleum and
chemicals 7,280 7,357 (1%) 15,418 14,684 5%
Metals and
minerals 3,348 3,158 6% 6,663 6,438 3%
Forest products 8,782 8,570 2% 16,895 16,692 1%
Coal 3,961 3,609 10% 7,527 6,914 9%
Grain and
fertilizers 7,321 9,282 (21%) 15,945 19,113 (17%)
Intermodal 8,225 7,442 11% 15,534 14,071 10%
Automotive 913 914 - 1,760 1,709 3%
-------------------------------- ---------------
39,830 40,332 (1%) 79,742 79,621 -
Freight revenue / RTM (cents)
Total freight
revenue per RTM 3.55 3.72 (5%) 3.59 3.71 (3%)
Business units:
Petroleum and
chemicals 3.48 3.68 (5%) 3.52 3.70 (5%)
Metals and
minerals 3.91 4.37 (11%) 3.86 4.04 (4%)
Forest products 3.72 3.90 (5%) 3.81 3.95 (4%)
Coal 1.77 2.24 (21%) 1.91 2.29 (17%)
Grain and
fertilizers 2.75 2.75 - 2.73 2.74 -
Intermodal 3.51 3.51 - 3.57 3.52 1%
Automotive 15.66 17.40 (10%) 16.25 18.14 (10%)
-------------------------------- ---------------
Carloads (thousands)
Petroleum and
chemicals 144 146 (1%) 300 291 3%
Metals and
minerals 101 104 (3%) 192 190 1%
Forest products 152 151 1% 298 301 (1%)
Coal 122 127 (4%) 248 247 -
Grain and
fertilizers 121 135 (10%) 255 277 (8%)
Intermodal 332 312 6% 640 585 9%
Automotive 80 84 (5%) 157 167 (6%)
-------------------------------- ---------------
1,052 1,059 (1%) 2,090 2,058 2%
Freight revenue / carload (dollars)
Total freight
revenue per
carload 1,344 1,415 (5%) 1,370 1,434 (4%)
Business units:
Petroleum and
chemicals 1,757 1,856 (5%) 1,810 1,869 (3%)
Metals and
minerals 1,297 1,327 (2%) 1,339 1,368 (2%)
Forest products 2,151 2,212 (3%) 2,161 2,189 (1%)
Coal 574 638 (10%) 581 640 (9%)
Grain and
fertilizers 1,661 1,889 (12%) 1,706 1,892 (10%)
Intermodal 870 837 4% 866 848 2%
Automotive 1,788 1,893 (6%) 1,822 1,856 (2%)
----------------------------------------------------------------------
----------------------------------------------------------------------
CANADIAN NATIONAL RAILWAY COMPANY
NON-GAAP MEASURES
----------------------------------------------------------------------
----------------------------------------------------------------------
The Company makes reference to Non-GAAP measures that do 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 are therefore not necessarily comparable to similar measures presented by other companies and as such, should not be considered in isolation. The Company believes that measures such as free cash flow and return on assets Return on assets (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets). included in this quarterly report, are useful measures of performance. In particular, free cash flow is an important measure as it demonstrates the Company's ability to generate cash after the payment of capital expenditures and dividends. The calculation of these measures and a reconciliation to their comparable GAAP number, where applicable, is provided below:
Free cash flow:
Three months ended Six months ended
June 30 June 30
------------------ -----------------
In millions 2003 2002 2003 2002
---------------------------------------------------------------------
Cash provided from
operating activities $ 501 $ 475 $ 862 $ 757
Less:
Net capital expenditures (266) (242) (387) (362)
Other investing activities 3 (28) (7) 44
Dividends paid (47) (41) (96) (83)
----------------------------------------
Cash provided before
financing activities 191 164 372 356
----------------------------------------
Adjustments:
Increase in accounts
receivable sold (22) - (22) -
----------------------------------------
Free cash flow $ 169 $ 164 $ 350 $ 356
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Return on assets:
Three months ended Six months ended
June 30 June 30
------------------ -----------------
In millions 2003 2002 2003 2002
---------------------------------------------------------------------
Income before cumulative
effect of change in
accounting policy $ 244 $ 280 $ 448 $ 510
Interest expense (net of
applicable taxes) 54 57 108 117
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Income before cost of
borrowing $ 298 $ 337 $ 556 $ 627
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Total assets $ 20,285 $ 20,839 $ 20,285 $ 20,839
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Return on assets
(% at end of period) 1.5 1.6 2.7 3.0
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