CN Reports Solid Full-Year, Fourth-Quarter 2002 Financial Results Despite Tough Environment for Grain.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. , Quebec--(BUSINESS WIRE)--Jan. 21, 2003 Record 2002 free cash flow rises 16 per cent to $513 million 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. National (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 2002 net income of $800 million, or $3.97 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 $1,040 million, or $5.23 per diluted share, for 2001. 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 year ended Dec. 31, 2002, was $1,469 million, compared with $1,682 million for 2001. Revenues for 2002 were $6,110 million, compared with $5,652 million for 2001, 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. for 2002 were $4,641 million, compared with $3,970 million for 2001. CN's 2002 and 2001 results include certain items affecting the comparability of the Company's financial performance. Excluding these items, 2002 adjusted net income (1) was $1,052 million, an eight per cent increase over comparable net income of $978 million for 2001, while the related 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 rose six per cent to $5.22 from $4.92 for 2001. On an adjusted basis, 2002 operating income increased five per cent to $1,870 million. Operating expenses rose 10 per cent to $4,240 million, owing primarily to the inclusion of a full year of expenses attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the operations of WC and higher expenses associated with the movement of 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. As adjusted, CN's operating ratio Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: for 2002 was 69.4 per cent, compared with 68.5 per cent for 2001. CN's 2002 revenues increased by eight per cent, reflecting the acquisition of Wisconsin Wisconsin, state, United States Wisconsin (wĭskŏn`sən, –sĭn), upper midwestern state of the United States. It is bounded by Lake Superior and the Upper Peninsula of Michigan, from which it is divided by the Menominee Central (WC) and a strong performance by the majority of the company's business units - petroleum and chemicals, automotive, 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. Gains by these businesses were partially offset by continued weakness in Canadian grain and coal revenues. CN President and Chief Executive Officer 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, said: "Thanks in large part to the discipline of our operating plan, CN turned in a solid 2002 financial performance in an extremely challenging environment for bulk commodities. "Our business model focuses on service quality, which drove the strong revenue performance of our service-sensitive merchandise and intermodal units. This enabled us to offset the sharp downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. in grain revenues. Scheduled 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 also permitted us to control some of the cost increases associated with moving a higher proportion of merchandise traffic on our trains, and to boost asset utilization utilization, n 1. the extent to which a given group uses a particular service in a specified period. Although usually expressed as the number of services used per year per 100 or per 1000 persons eligible for the service, utilization rates may be . As a result, we generated record free cash flow of $513 million in 2002. All CN employees deserve credit for meeting the challenge. "For 2003, we remain cautious about CN's prospects given uneven North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. economic growth, uncertain 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 in Western Canada
Western Canada, commonly referred to as the West , and potentially volatile With regard to computer memory, it means "temporary" and not "highly changeable," which is the usual meaning of the word. See volatile memory. 1. (programming) volatile - volatile variable. 2. (storage) volatile - See non-volatile storage. international energy prices. Based on our superior service levels, we are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that our merchandise and intermodal revenues 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, overall economic growth." Five of CN's seven business units registered revenue gains in 2002: forest products (22 per cent); petroleum and chemicals (19 per cent); automotive (14 per cent); metals and minerals (14 per cent); and intermodal (nine per cent). Grain and fertilizers revenues declined 15 per cent and coal by four per cent. Carloadings for the year increased nine per cent to 4,164 thousand. Fourth-quarter 2002 results Net income for the fourth quarter of 2002 was $22 million, or 11 cents per diluted share, compared with net income of $296 million, or $1.48 per diluted share, for the same quarter of 2001. Operating income for the 2002 fourth-quarter was $89 million, compared with $521 million for the same quarter of 2001. Revenues for fourth-quarter 2002 increased one per cent to $1,547 million, while expenses increased to $1,458 million from $1,016 million for the same quarter of 2001. As adjusted, fourth-quarter 2002 net income was $274 million ($1.36 per diluted share), operating income was $490 million, and operating expenses were $1,057 million. On a comparable basis, CN's operating ratio for the final quarter of 2002 was 68.3 per cent, compared with 66.1 per cent for the year-earlier quarter. Four of CN's seven business units registered gains during the final quarter of 2002: intermodal (16 per cent); petroleum and chemicals (11 per cent); forest products (four per cent); and automotive (three per cent). Revenues declined for grain and fertilizers (21 per cent); metals and minerals (two per cent); and coal (two per cent.) Carloadings for the final quarter of 2002 increased six per cent to 1,063 thousand. The financial results in this press release are reported in Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents and, except where noted, 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) The Company's results of operations include items affecting the comparability of results. Management believes adjusted 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: net income and the resulting adjusted performance measures for items such as operating income, operating ratio, per share data and other statistical measures are useful measures of performance that facilitate period-to-period comparisons. These adjusted measures 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 generally accepted accounting principles (GAAP) and are not necessarily comparable to similar measures presented by other companies, and therefore should not be considered in isolation. Note 11 to 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. financial statements provides a reconciliation of adjusted net income to the Company's net income reported 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. GAAP. In addition, Supplementary 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 Information has been presented to facilitate a year-over-year comparison of the Company's results as if the Company had acquired Wisconsin Central Transportation Corporation on Jan. 1, 2001. For 2002 and fourth-quarter 2002, two items affected the comparability of CN's financial results: a $281-million ($173 million after tax) charge recorded in Casualty and Other expense, resulting from a change in the company's estimated liability for U.S. personal injury and other claims; and a $120-million ($79 million after tax) workforce adjustment charge recorded in 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). expense. For 2001, the comparability of financial results was affected by a $98-million ($62 million after tax) workforce adjustment charge recorded in Labor and Fringe Benefits expense; a $101-million ($73 million after tax) gain from the sale of CN's 50 per cent interest in the Detroit River Detroit River River, southeastern Michigan, U.S. Forming part of the boundary between Michigan and Ontario, Can., it connects Lake St. Clair with Lake Erie. It flows south for 32 mi (51 km) past Detroit and Windsor, Ont., where a bridge and tunnel connect the two cities. Tunnel tunnel, underground passage usually made without removing the overlying rock or soil. Although tunnels are approximately horizontal, they must be built with sufficient gradient for proper drainage. Company and a $99-million ($71 million after tax) charge to write down CN's net investment in 360networks Inc. recorded in Other Income; and a $122-million deferred income tax recovery resulting from the enactment of lower corporate tax rates in 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 . 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 and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico Noun 1. Gulf of Mexico - an arm of the Atlantic to the south of the United States and to the east of Mexico Golfo de Mexico Atlantic, Atlantic Ocean - the 2nd largest ocean; separates North and South America on the west from Europe and Africa on the east , serving the ports of Vancouver Vancouver, city, Canada Vancouver, city (1991 pop. 471,844), SW British Columbia, Canada, on Burrard Inlet of the Strait of Georgia, opposite Vancouver Island and just N of the Wash. border. , Prince Rupert Prince Rupert, city (1991 pop. 16,620), W British Columbia, Canada, on Kaien Island, in Chatham Sound near the mouth of the Skeena River, S of the Alaska border. , B.C., Montreal, Halifax Halifax, city, Canada Halifax, city (1991 pop. 114,455), provincial capital, S central N.S., Canada, on the Atlantic Ocean. It is the largest city in the Maritime Provinces and is one of Canada's principal ice-free Atlantic ports. , New Orleans New Orleans (ôr`lēənz –lənz, ôrlēnz`), city (2006 pop. 187,525), coextensive with Orleans parish, SE La., between the Mississippi River and Lake Pontchartrain, 107 mi (172 km) by water from the river mouth; founded , and Mobile, Ala ALA aminolevulinic acid. Ala alanine. ala (a´lah) pl. a´lae [L.] a winglike process. ., and the key cities of Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing , Buffalo, Chicago Chicago, city, United States Chicago (shĭkä`gō, shĭkô`gō), city (1990 pop. 2,783,726), seat of Cook co., NE Ill., on Lake Michigan; inc. 1837. , Detroit Detroit, city, United States Detroit (dĭtroit`), city (1990 pop. 1,027,974), seat of Wayne co., SE Mich., on the Detroit River and between lakes St. Clair and Erie; inc. as a city 1815. , Duluth Duluth (dəl  th`), city (1990 pop. 85,493), seat of St. Louis co., NE Minn., at the west end of Lake Superior, at the head of lake navigation and opposite Superior, Wis.; inc. 1870. , Minn./Superior, Wis adv. 1. Certainly; really; indeed.v. t. 1. To think; to suppose; to imagine; - used chiefly in the first person sing. present tense, I wis. See the Note under Ywis. ., Green Bay, Wis., Minneapolis/St. Paul Paul, 1901–64, king of the Hellenes (1947–64), brother and successor of George II. He married (1938) Princess Frederika of Brunswick. During Paul's reign Greece followed a pro-Western policy, and the Cyprus question was temporarily resolved. , Memphis, St. Louis Louis, titular duke of Burgundy Louis, 1682–1712, titular duke of Burgundy; grandson of King Louis XIV of France. He became heir to the throne on the death (1711) of his father, Louis the Great Dauphin. , and Jackson Jackson. 1 City (1990 pop. 37,446), seat of Jackson co., S Mich., on the Grand River; inc. 1857. It is an industrial and commercial center in a farm region. , Miss., with connections to all points in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. .
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions, except per share data)
Three months ended Year ended
December 31 December 31
------------------ ---------------------
2002 2001(a) 2002 2001(a)
---------------------------------------------------------------------
(Unaudited)
Revenues $ 1,547 $ 1,537 $ 6,110 $ 5,652
---------------------------------------------------------------------
Operating expenses 1,458 1,016 4,641 3,970
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Operating income 89 521 1,469 1,682
Interest expense (85) (96) (361) (327)
Other income (Note 5) 7 31 76 65
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Income before
income taxes 11 456 1,184 1,420
Income tax (expense)
recovery (Note 6) 11 (160) (384) (380)
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Net income (Note 11) $ 22 $ 296 $ 800 $ 1,040
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Earnings per share
(Note 11)
Basic $ 0.11 $ 1.54 $ 4.07 $ 5.41
Diluted $ 0.11 $ 1.48 $ 3.97 $ 5.23
Weighted-average
number of shares
Basic 199.5 192.6 196.7 192.1
Diluted 202.0 201.7 202.8 201.0
---------------------------------------------------------------------
---------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Certain of the 2001 comparative figures have been reclassified in
order to be consistent with the 2002 presentation.
(a) Includes Wisconsin Central Transportation Corporation from
October 9, 2001.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF OPERATING INCOME (U.S. GAAP)
----------------------------------------------------------------------
----------------------------------------------------------------------
(In millions)
Three months ended Year ended
December 31 December 31
-------------------- ---------------------
Variance Variance
2002 2001 Fav 2002 2001 Fav
(a) (Unfav) (a) (Unfav)
-----------------------------------------------------------------------
(Unaudited)
Revenues
Petroleum and
chemicals $ 283 $ 255 11% $1,102 $ 923 19%
Metals and
minerals 123 126 (2%) 521 458 14%
Forest products 327 314 4% 1,323 1,088 22%
Coal 83 85 (2%) 326 338 (4%)
Grain and
fertilizers 245 311 (21%) 986 1,161 (15%)
Intermodal 283 245 16% 1,052 969 9%
Automotive 151 146 3% 591 520 14%
Other items 52 55 (5%) 209 195 7%
------------------------------- --------------
1,547 1,537 1% 6,110 5,652 8%
Operating expenses
Labor and fringe
benefits (Note 4) 547 435 (26%) 1,837 1,624 (13%)
Purchased services
and material 184 149 (23%) 778 692 (12%)
Depreciation and
amortization 150 138 (9%) 584 532 (10%)
Fuel 124 109 (14%) 459 484 5%
Equipment rents 82 88 7% 346 309 (12%)
Casualty and other
(Note 2) 371 97 (282%) 637 329 (94%)
------------------------------- --------------
1,458 1,016 (44%) 4,641 3,970 (17%)
------------------------------- --------------
Operating income $ 89 $ 521 (83%) $1,469 $1,682 (13%)
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Operating ratio(b)
(Note 1) 68.3% 66.1% (2.2) 69.4% 68.5% (0.9)
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See accompanying notes to consolidated financial statements.
Certain of the 2001 comparative figures have been reclassified in
order to be consistent with the 2002 presentation.
(a) Includes Wisconsin Central Transportation Corporation from
October 9, 2001.
(b) Excludes a fourth quarter 2002 charge of $281 million to
increase the Company's U.S. personal injury and other claims
liability and workforce reduction charges of $120 million and
$98 million in 2002 and 2001, respectively.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
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(In millions)
December 31 December 31
2002 2001
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Assets
Current assets:
Cash and cash equivalents $ 25 $ 53
Accounts receivable (Note 7) 722 645
Material and supplies 127 133
Deferred income taxes (Note 6) 122 153
Other 196 180
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1,192 1,164
Properties 19,681 19,145
Other assets and deferred charges 865 914
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Total assets $ 21,738 $ 21,223
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and
accrued charges $ 1,487 $ 1,374
Current portion of
long-term debt 574 163
Other 73 132
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2,134 1,669
Deferred income taxes (Note 6) 4,826 4,591
Other liabilities and
deferred credits 1,406 1,345
Long-term debt (Note 7) 5,003 5,764
Convertible preferred
securities (Note 8) - 366
Shareholders' equity:
Common shares (Note 8) 4,785 4,442
Accumulated other
comprehensive income 97 58
Retained earnings 3,487 2,988
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8,369 7,488
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Total liabilities and
shareholders' equity $ 21,738 $ 21,223
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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 Year ended
December 31 December 31
------------------- ---------------
2002 2001(a) 2002 2001(a)
---------------------------------------------------------------------
(Unaudited)
Common shares (b)
Balance, beginning
of period $ 4,848 $ 4,415 $ 4,442 $ 4,349
Stock options exercised 9 27 75 93
Share repurchase
program (Note 7) (72) - (72) -
Conversion of convertible
preferred securities
(Note 8) - - 340 -
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Balance, end of period $ 4,785 $ 4,442 $ 4,785 $ 4,442
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Accumulated other
comprehensive income
Balance, beginning
of period $ 102 $ 68 $ 58 $ 151
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 1 (39) 51 (202)
Unrealized foreign exchange
gain (loss) on translation
of the net investment
in foreign operations 12 60 (40) 308
Unrealized holding loss on
investment in 360networks
Inc. - - - (129)
Unrealized holding gain
(loss) on fuel
derivative instruments
(Note 9) (1) (20) 68 (38)
Minimum pension
liability adjustment (20) (17) (20) (17)
---------------------------------------------------------------------
Other comprehensive
income (loss) before
income taxes (8) (16) 59 (78)
Income tax (expense)
recovery on other
comprehensive income
(loss) (Note 6) 3 6 (20) (15)
---------------------------------------------------------------------
Other comprehensive
income (loss) (5) (10) 39 (93)
---------------------------------------------------------------------
Balance, end of period $ 97 $ 58 $ 97 $ 58
---------------------------------------------------------------------
---------------------------------------------------------------------
Retained earnings
Balance, beginning
of period $ 3,640 $ 2,729 $ 2,988 $ 2,098
Net income 22 296 800 1,040
Share repurchase
program (Note 7) (131) - (131) -
Dividends (44) (37) (170) (150)
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Balance, end of period $ 3,487 $ 2,988 $ 3,487 $ 2,988
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---------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
(a) Includes Wisconsin Central Transportation Corporation from
October 9, 2001.
(b) The Company issued 0.2 million and 7.8 million shares for the
three months and year ended December 31, 2002, respectively,
as a result of stock options exercised and the conversion of
convertible preferred securities. At December 31, 2002, the
Company had 197.5 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 Year ended
December 31 December 31
------------------ ---------------
2002 2001(a) 2002 2001(a)
---------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 22 $ 296 $ 800 $ 1,040
Adjustments to reconcile
net income to net cash
provided from
operating activities:
Depreciation and
amortization 152 140 591 538
Deferred income taxes
(Note 6) 35 232 272 295
Charge to increase U.S.
personal injury and
other claims liability
(Note 2) 281 - 281 -
Workforce reduction
charges (Note 4) 120 - 120 98
Equity in earnings of
English Welsh and
Scottish Railway (14) (8) (33) (8)
Gain on sale of investment
(Note 5) - - - (101)
Write-down of investment
(Note 5) - - - 99
Other changes in:
Accounts receivable (37) 243 (80) 199
Material and supplies 17 24 - 11
Accounts payable and
accrued charges (56) (156) (154) (385)
Other net current
assets and liabilities (14) (12) (18) (27)
Other (82) (45) (167) (138)
---------------------------------------------------------------------
Cash provided from
operating activities 424 714 1,612 1,621
---------------------------------------------------------------------
Investing activities
Net additions to properties (305) (279) (938) (941)
Acquisition of Wisconsin
Central Transportation
Corporation (Note 3) - (1,278) - (1,278)
Other, net (1) (20) 14 46
---------------------------------------------------------------------
Cash used by
investing activities (306) (1,577) (924) (2,173)
---------------------------------------------------------------------
Dividends paid (44) (37) (170) (150)
Financing activities
Issuance of long-term debt 614 1,477 3,146 4,015
Reduction of long-term debt (491) (1,363) (3,558) (3,336)
Issuance of common shares 7 9 69 61
Repurchase of common
shares (Note 7) (203) - (203) -
---------------------------------------------------------------------
Cash provided from (used
by) financing activities (73) 123 (546) 740
---------------------------------------------------------------------
Net increase (decrease)
in cash and cash equivalents 1 (777) (28) 38
Cash and cash equivalents,
beginning of period 24 830 53 15
---------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 25 $ 53 $ 25 $ 53
---------------------------------------------------------------------
---------------------------------------------------------------------
Supplemental cash flow information Payments (recoveries) for:
Interest $ 105 $ 51 $ 398 $ 322
Workforce reductions 47 41 177 169
Personal injury and
other claims 51 30 156 149
Pensions 40 40 92 69
Income taxes (23) (7) 65 63
---------------------------------------------------------------------
---------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Certain of the 2001 comparative figures have been reclassified in
order to be consistent with the 2002 presentation.
(a) Includes Wisconsin Central Transportation Corporation from
October 9, 2001.
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 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 December December: see month. 31, 2002 and December 31, 2001, 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 twelve months ended December 31, 2002 and 2001. These consolidated financial statements and notes have been prepared using accounting policies consistent with those used in preparing the Company's Annual Consolidated Financial Statements. While management believes that the disclosures presented are adequate to make the information not misleading, these 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 Management Discussion and Analysis and Annual Consolidated Financial Statements. The Company's results of operations include items affecting the comparability of results. Management believes adjusted consolidated net income and the resulting adjusted performance measures for such items as operating income, operating ratio, per share data and other statistical measures are useful measures of performance that facilitate period-to-period comparisons. These adjusted measures do not have any standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies, and therefore, should not be considered in isolation. Note 11 provides a reconciliation of adjusted net income to the Company's net income reported in accordance with U.S. GAAP. In addition, Supplementary Pro Forma Information has been presented as to facilitate a year over year comparison of the Company's results as if the Company had acquired Wisconsin Central Transportation Corporation (WC) on January January: see month. 1, 2001. Note 2 - Accounting changes U.S. personal injury and other claims In the fourth quarter of 2002, the Company changed its methodology for estimating its liability for U.S. personal injury and other claims, including occupational disease claims and claims for property damage, from 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 approach to an actuarial-based approach. Consequently, the Company recorded a charge of $281 million ($173 million after tax) to increase its provision for these claims. Under the actuarial-based approach, the Company accrues the cost for the expected number of personal injury 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 the 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 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. to the extent they are probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. and can be reasonably estimated. Under the case-by-case approach, a liability was recorded only when the expected loss was both probable and reasonably estimable es·ti·ma·ble adj. 1. Possible to estimate: estimable assets; an estimable distance. 2. Deserving of esteem; admirable: an estimable young professor. based on currently available information. In addition, the Company did not record a liability for unasserted claims, as such amounts could not be reasonably estimated under the case-by-case approach. The Company's U.S. personal injury and other claims expenses, including the above-mentioned A`bove´-men`tioned a. 1. Mentioned or named before; aforesaid; mentioned or named earlier in the same text (in written documents). Adj. 1. charge, was $362 million in 2002. Had the Company continued to apply the case-by-case approach to its U.S. personal injury and other claims liability, recognizing the effects of the actual claims experience for existing and new claims in the fourth quarter, these expenses would have been approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $135 million in 2002. Note 3 - Acquisition of Wisconsin Central Transportation Corporation On January 29, 2001, 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. , and WC entered into a merger agreement (the Merger) providing for the acquisition of all of the shares of WC by the Company for an acquisition cost of $1,301 million (U.S.$833 million). The Merger was approved by the shareholders of WC at a special meeting held on April 4, 2001. On September September: see month. 7, 2001, the U.S. Surface Transportation Board rendered a decision, unanimously approving the Company's acquisition of WC. On October October: see month. 9, 2001, the Company completed its acquisition of WC and began a phased integration of the companies' operations. The acquisition was financed by debt and cash on hand. The Company accounted for the Merger using the purchase method of accounting as required by 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." As such, the Company's consolidated financial statements include the assets, liabilities and results of operations of WC as of October 9, 2001, the date of acquisition. The Company had estimated, on a preliminary basis, the fair values of the assets and liabilities acquired based on currently available information. In 2002, the Company finalized See finalization. the 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 of the purchase price and adjusted the preliminary fair values of the assets and liabilities acquired as follows: Current assets Current Assets Appearing on a company's balance sheet, it represents cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year. decreased by $10 million, Properties increased by $141 million, Other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. & deferred charges decreased by $98 million, Current liabilities Current Liabilities Usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. increased by $10 million, Deferred income taxes increased by $16 million and Other liabilities other liabilities Small and relatively insignificant liabilities. For financial reporting purposes, firms often combine small liabilities into this single category rather than listing each liability separately. & deferred credits increased by $3 million. The increase in Properties and decrease in Other assets and deferred charges was mainly due to the final valuation of the Company's foreign equity investment. The remaining adjustments resulted from additional information obtained for conditions and circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or that existed at the time of acquisition. The following table outlines the final fair values of WC's assets and liabilities acquired:
In millions
---------------------------------------------------------------
Current assets $ 165
Properties 2,576
Other assets and deferred charges 335
--------------------
Total assets acquired 3,076
--------------------
Current liabilities 363
Deferred income taxes 759
Other liabilities and deferred credits 181
Long-term debt 472
--------------------
Total liabilities assumed 1,775
--------------------
Net assets acquired $ 1,301
--------------------
--------------------
If the Company had acquired WC on January 1, 2001, based on the historical amounts reported by WC, net of the difference between the Company's cost to acquire WC and its 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. , revenues, net income, basic and diluted earnings per share would have been $6,090 million, $1,090 million, $5.67 per basic share and $5.48 per diluted share, respectively for the year ended December 31, 2001. These pro forma figures do not reflect synergies, and accordingly, do not account for any potential increases in operating income, any estimated cost savings or facilities consolidation. In 2002, the Company sold its interests in Tranz Rail Tranz Rail, formally Tranz Rail Holdings Limited, was the the main rail operator in New Zealand from 1995 until it was purchased by Toll Holdings in 2003. Formation Holdings Limited and Australian Transport Network Limited The former Tasmanian Government Railways lines, which had been incorporated into Australian National as TasRail, were sold to the Australian Transport Network Limited, a partnership of Tranz Rail and Wisconsin Central Railway, when the Australian National Railways Commission was for aggregate 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 $69 million, which approximated 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. of the investments. The Company had acquired these investments through its acquisition of WC in 2001 and had accounted for them as "available for sale" in accordance with the Financial Accounting Standards Board's Emerging Issues Task Force (EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation ) 87-11, "Allocation of Purchase Price to Assets to be Sold". Note 4 - Workforce reduction charges In 2002, the Company announced 1,146 job reductions, in a renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. drive to improve productivity in all its corporate and operating functions, and recorded a charge of $120 million, $79 million after tax. In 2001, a charge of $98 million, $62 million after tax, was recorded for the reduction of 690 positions. Reductions relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc these charges were 388 in 2001, 433 in 2002, with the remainder to be completed by the end of 2003. The charges included payments for severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when , early retirement incentives and bridging to early retirement, to be made to affected employees. Note 5 - Other income In June June: see month. 2001, the Company recorded a charge of $99 million, $71 million after tax, to write down its net investment in 360networks Inc. In the first quarter of 2001, the Company recorded a gain of $101 million, $73 million after tax, from the sale of its 50 percent interest in the Detroit River Tunnel Company (DRT DRT Dead right there Medtalk A macabre adjective referring to a Pt who has been clinical kaputt long enough to minimize the likelihood of resuscitation ). The DRT is a 1.6-mile rail-only tunnel crossing the Canada-U.S. border between Detroit and Windsor, Ontario Windsor is the southernmost city in Canada and lies at the western end of the heavily populated Quebec City-Windsor Corridor. Windsor is located directly south of Detroit and is separated from that city by the Detroit River. The city has views of the Detroit skyline. . Note 6 - Income taxes In 2001, the Company recorded a reduction of $90 million to its net deferred income tax liability resulting from the enactment of lower corporate tax rates in Canada. As a result, for the year ended December 31, 2001, a deferred income tax recovery of $122 million was recorded in the Consolidated statement of income and a deferred income tax expense of $32 million was recorded in Other comprehensive income. Note 7 - Financing activities 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 22, 2002, 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 13 million common shares between October 25, 2002 and October 24, 2003 pursuant to a normal course issuer bid, at prevailing market prices. As at December 31, 2002, $203 million was used to repurchase 3.0 million common shares at an average price of $67.68 per share. 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. facilities In December 2002, the Company entered into a U.S.$1,000 million three-year revolving credit facility and concurrently con·cur·rent adj. 1. Happening at the same time as something else. See Synonyms at contemporary. 2. Operating or acting in conjunction with another. 3. Meeting or tending to meet at the same point; convergent. terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: its previous revolving credit facilities before their scheduled maturity in March 2003. The credit facility provides for borrowings at various interest rates, plus applicable margins, and contains customary financial covenants. Throughout the year, the Company was in compliance with all financial covenants contained in its outstanding revolving credit agreements Revolving credit agreement A legal commitment in which a bank promises to lend a customer up to a specified maximum amount during a specified period. revolving credit agreement See line of credit. . The Company's borrowings of U.S.$172 million (Cdn$273 million) outstanding at December 31, 2001 were entirely repaid in the first quarter of 2002. At December 31, 2002, the Company had borrowings under its revolving credit facility of U.S.$90 million (Cdn$142 million) at an average interest rate of 1.77%. Outstanding letters of credit under the previous facilities were transferred into the current facility. As at December 31, 2002, letters of credit under the revolving credit facility amounted to $295 million. Commercial paper The Company has a commercial paper program, which is backed by a portion of its revolving credit facility, enabling it to issue commercial paper up to a maximum aggregate principal amount of $600 million, or the U.S. dollar equivalent. 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. As at December 31, 2002, the Company had U.S.$136 million (Cdn$214 million) of commercial paper outstanding under this program. 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. The sale of a portion of the Company's accounts receivable is conducted under a securitization program, which has a $350 million maximum limit and will expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. in June 2003. The program is subject to customary credit rating and reporting requirements. In the event the program is terminated before its scheduled maturity, the Company expects to have sufficient liquidity remaining in its revolving credit facility to meet its payment obligations. The Company intends to renew or replace the program upon expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created . At December 31, 2002, pursuant to the agreement, $173 million and U.S.$113 million (Cdn$177 million) had been sold on a limited recourse Limited recourse A term describing a type of loan in which the lender has limited or no claim against the parent company if the collateral is insufficient to repay the debt. See:Nonrecourse. basis, an increase of $5 million from the level of accounts receivable sold at December 31, 2001. Note 8 - Termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of conversion rights of 5.25% Convertible preferred securities ("Securities") On May 6, 2002, the Company met the conditions required to terminate Terminate (terminat.exe) was a shareware modem terminal and host program for MS-DOS and compatible operating systems developed from the early to the late 1990s by the Dane Bo Bendtsen. The last release (5. the Securities holders' right to convert their Securities into common shares of the Company, and set the conversion termination date termination date, n See expiration date. as July July: see month. 3, 2002. The conditions were met when the Company's common share price exceeded 120% of the conversion price of U.S.$38.48 per share for a specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. period, and all accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. on the Securities had been paid. On July 3, 2002, Securities that had not been previously surrendered for conversion were deemed converted, resulting in the issuance of 6.0 million common shares of the Company. Note 9 - Derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. At December 31, 2002, a portion of the Company's fuel requirement has been 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. 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
Note 10 - Commitments As at December 31, 2002, 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 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 cars and locomotives This is a list of locomotives (classes, or individual locomotives) that currently have articles in Wikipedia.
Note 11 - Net income and earnings per share In addition to the inclusion of a full year of WC results of operations in 2002 as explained in Note 3, the comparability of the results of operations for the three months and year ended December 31, 2002 and 2001 is also impacted by the following items:
Three months ended Year ended
December 31 December 31
--------------------- ---------------------
2002 2001 2001 2002 2001 2001
(a) pro (a) pro
forma forma
(b) (b)
-----------------------------------------------------------------------
(In millions) (Unaudited)
Income before income
taxes, excluding
undernoted items $ 412 $ 456 $ 459 $ 1,585 $ 1,516 $ 1,595
Income tax expense (138) (160) (162) (533) (538) (567)
-----------------------------------------------------------------------
Adjusted net income 274 296 297 1,052 978 1,028
Undernoted items,
net of tax:
Charge to increase
U.S. personal injury
and other claims
liability (173) - - (173) - -
Workforce
reduction charges (79) - - (79) (62) (62)
Write-down of net
investment in
360networks Inc. - - - - (71) (71)
Deferred income tax
recovery - - - - 122 122
Gain on sale of Detroit
River Tunnel Company - - - - 73 73
-----------------------------------------------------------------------
(252) - - (252) 62 62
Net income $ 22 $ 296 $ 297 $ 800 $ 1,040 $ 1,090
-----------------------------------------------------------------------
-----------------------------------------------------------------------
The following table provides a reconciliation between basic and
diluted earnings per share:
Three months ended Year ended
December 31 December 31
--------------------- ---------------------
2002 2001 2001 2002 2001 2001
(a) pro (a) pro
forma forma
(b) (b)
-----------------------------------------------------------------------
(In millions, except per share data) (Unaudited)
Net income $ 22 $ 296 $ 297 $ 800 $ 1,040 $ 1,090
Income impact on
assumed conversion of
preferred securities
(Note 8) - 3 3 6 12 12
-----------------------------------------------------------------------
$ 22 $ 299 $ 300 $ 806 $ 1,052 $ 1,102
Weighted-average
shares outstanding 199.5 192.6 192.6 196.7 192.1 192.1
Effect of dilutive
securities and
stock options 2.5 9.1 9.1 6.1 8.9 8.9
-----------------------------------------------------------------------
Weighted-average diluted
shares outstanding 202.0 201.7 201.7 202.8 201.0 201.0
Basic earnings
per share $ 0.11 $ 1.54 $ 1.54 $ 4.07 $ 5.41 $ 5.67
Diluted earnings
per share $ 0.11 $ 1.48 $ 1.49 $ 3.97 $ 5.23 $ 5.48
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(a) Includes Wisconsin Central Transportation Corporation from October 9, 2001. (b) The pro forma figures reflect the Company's results of operations as if the Company had acquired WC on January 1, 2001. See Note 1 and Note 3 to consolidated financial statements. Note 12 - Stock-based compensation cost The Company accounts 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 is recorded for the Company's performance-based stock option awards and no compensation cost is recorded for the Company's conventional stock-option awards. 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, "Accounting for Stock-Based Compensation," the Company's pro forma net income and earnings per share would have been as follows:
Three months ended Year ended
December 31 December 31
------------------ -----------
2002 2001 2002 2001
---------------------------------------------------------------------
(Unaudited)
Net income, as reported (in millions) $ 22 $ 296 $ 800 $ 1,040
Add (deduct) compensation cost, net of applicable taxes, determined
under:
Intrinsic value method for
performance-based awards (APB 25) 4 13 9 19
Fair value method for all
awards (SFAS 123) (13) (7) (45) (28)
-------------------------------
Pro forma net income (in millions) $ 13 $ 302 $ 764 $ 1,031
------------------------------
------------------------------
Basic earnings per share,
as reported $ 0.11 $ 1.54 $ 4.07 $ 5.41
Basic earnings per share,
pro forma $ 0.07 $ 1.57 $ 3.88 $ 5.37
Diluted earnings per share,
as reported $ 0.11 $ 1.48 $ 3.97 $ 5.23
Diluted earnings per share,
pro forma $ 0.06 $ 1.52 $ 3.80 $ 5.19
---------------------------------------------------------------------
These pro forma amounts include compensation cost as calculated
using the Black-Scholes option-pricing model with the following
assumptions:
Three months ended Year ended
December 31 December 31
------------------ -----------
2002(a) 2001 2002 2001
---------------------------------------------------------------------
Expected option life (years) 7.0 7.0 7.0 7.0
Risk-free interest rate 5.79% 5.36% 5.79% 5.36%
Expected stock price volatility 30% 30% 30% 30%
Average dividend per share $ 0.86 $ 0.78 $ 0.86 $ 0.78
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
------------------ -----------
2002(a) 2001 2002 2001
---------------------------------------------------------------------
Weighted average fair value
of options granted $ - $ 13.88 $ 30.98 $ 13.79
---------------------------------------------------------------------
---------------------------------------------------------------------
(a) In the fourth quarter of 2002, the Company did not grant any
stock-option awards.
CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
------------------ -----------
2002 2001(a) 2002 2001(a)
---------------------------------------------------------------------
(Unaudited)
Rail operations
Freight revenues ($ millions) 1,495 1,482 5,901 5,457
Gross ton miles (millions) 79,618 76,994 309,295 293,857
Revenue ton miles (RTM) (millions) 40,795 39,828 159,876 153,095
Route miles
(includes Canada and the U.S.) 17,821 17,986 17,821 17,986
Operating expenses per RTM
(cents) (b) 2.59 2.55 2.65 2.53
Freight revenue per RTM (cents) 3.66 3.72 3.69 3.56
Carloads (thousands) 1,063 1,007 4,164 3,821
Freight revenue per carload ($) 1,406 1,472 1,417 1,428
Diesel fuel consumed
(Liters in millions) 373 341 1,420 1,328
Average fuel price ($/Liter) 0.34 0.35 0.32 0.36
Revenue ton miles per
liter of fuel consumed 109 117 113 115
Gross ton miles per
liter of fuel consumed 213 226 218 221
Diesel fuel consumed
(U.S. gallons in millions) 98 90 375 351
Average fuel price ($/U.S. gallon) 1.28 1.31 1.20 1.35
Revenue ton miles per U.S.
gallon of fuel consumed 416 443 426 436
Gross ton miles per U.S.
gallon of fuel consumed 812 855 825 837
Locomotive bad order ratio (%) (c) 7.2 6.8 7.0 7.1
Freight car bad order ratio (%) 6.0 5.5 6.0 5.7
---------------------------------------------------------------------
Productivity
Operating ratio (%) (b) 68.3 66.1 69.4 68.5
Freight revenue per route mile
($ thousands) 84 82 331 303
Revenue ton miles per route mile
(thousands) 2,289 2,214 8,971 8,512
Freight revenue per average
number of employees ($ thousands) 66 62 254 241
Revenue ton miles per average
number of employees (thousands) 1,796 1,671 6,894 6,754
---------------------------------------------------------------------
Employees
Number at end of period 22,114 22,868 22,114 22,868
Average number during period 22,712 23,839 23,190 22,668
Labor and fringe benefits
expense per RTM (cents) (d) 1.05 1.09 1.07 1.00
Injury frequency rate per
200,000 person hours 2.5 4.2 3.0 4.4
Accident rate per million
train miles 1.6 2.5 2.0 2.0
---------------------------------------------------------------------
Financial
Debt to total capitalization
ratio (% at end of period) 40.0 45.7 40.0 45.7
Return on assets
(% at end of period) (e) (f) 1.5 1.7 5.9 6.0
---------------------------------------------------------------------
---------------------------------------------------------------------
(a) Includes Wisconsin Central Transportation Corporation from
October 9, 2001.
(b) Excludes a fourth quarter 2002 charge of $281 million to
increase the Company's U.S. personal injury and other claims
liability and workforce reduction charges of $120 million and
$98 million in 2002 and 2001, respectively.
(c) In 2002, the Company expanded its measure of bad order
locomotives to include all those not available for service,
including on-line failures. The 2001 figures have been
restated accordingly.
(d) Excludes workforce reduction charges recorded in 2002 and
2001.
(e) Based on 2002 and 2001 adjusted net income, as presented in
Note 11 to the consolidated financial statements.
(f) 2001 calculated on a pro forma basis.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY INFORMATION (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
------------------ --------------------
Variance Variance
2002 2001 Fav 2002 2001 Fav
(a)(Unfav) (a)(Unfav)
---------------------------------------------------------------------
(Unaudited)
Revenue ton miles (millions)
Petroleum and chemicals 7,784 6,944 12% 30,006 25,243 19%
Metals and minerals 3,493 3,065 14% 13,505 10,777 25%
Forest products 8,351 7,940 5% 33,551 29,639 13%
Coal 3,717 3,777 (2%) 14,503 15,566 (7%)
Grain and fertilizers 8,860 10,795 (18%) 35,773 42,728 (16%)
Intermodal 7,757 6,571 18% 29,257 26,257 11%
Automotive 833 736 13% 3,281 2,885 14%
--------------------------------------- ---------------
40,795 39,828 2% 159,876 153,095 4%
Freight revenue / RTM (cents)
Total freight
revenue per RTM 3.66 3.72 (2%) 3.69 3.56 4%
Business units:
Petroleum and chemicals 3.64 3.67 (1%) 3.67 3.66 -
Metals and minerals 3.52 4.11 (14%) 3.86 4.25 (9%)
Forest products 3.92 3.95 (1%) 3.94 3.67 7%
Coal 2.23 2.25 (1%) 2.25 2.17 4%
Grain and fertilizers 2.77 2.88 (4%) 2.76 2.72 1%
Intermodal 3.65 3.73 (2%) 3.60 3.69 (2%)
Automotive 18.13 19.84 (9%) 18.01 18.02 -
--------------------------------------- -------------
Carloads (thousands)
Petroleum and chemicals 149 136 10% 587 519 13%
Metals and minerals 94 92 2% 388 287 35%
Forest products 148 142 4% 600 501 20%
Coal 125 126 (1%) 499 517 (3%)
Grain and fertilizers 135 156 (13%) 535 590 (9%)
Intermodal 333 275 21% 1,237 1,103 12%
Automotive 79 80 (1%) 318 304 5%
--------------------------------------- -------------
1,063 1,007 6% 4,164 3,821 9%
Freight revenue / carload (dollars)
Total freight revenue
per carload 1,406 1,472 (4%) 1,417 1,428 (1%)
Business units:
Petroleum and chemicals 1,899 1,875 1% 1,877 1,778 6%
Metals and minerals 1,309 1,370 (4%) 1,343 1,596 (16%)
Forest products 2,209 2,211 - 2,205 2,172 2%
Coal 664 675 (2%) 653 654 -
Grain and fertilizers 1,815 1,994 (9%) 1,843 1,968 (6%)
Intermodal 850 891 (5%) 850 879 (3%)
Automotive 1,911 1,825 5% 1,858 1,711 9%
---------------------------------------------------------------------
---------------------------------------------------------------------
(a) Includes Wisconsin Central Transportation Corporation from
October 9, 2001.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY PRO FORMA INFORMATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP)
----------------------------------------------------------------------
----------------------------------------------------------------------
(In millions, except per share data)
Three months ended December 31 Year ended December 31
------------------------------ ----------------------
2002 2001 Variance 2002 2001 Variance
pro Fav pro Fav
forma (Unfav) forma (Unfav)
(a) (a)
----------------------------------------------------------------------
(Unaudited)
Revenues
Petroleum and
chemicals $ 283 $ 258 10% $ 1,102 $ 994 11%
Metals and minerals 123 129 (5%) 521 542 (4%)
Forest products 327 319 3% 1,323 1,273 4%
Coal 83 86 (3%) 326 361 (10%)
Grain and fertilizers 245 312 (21%) 986 1,205 (18%)
Intermodal 283 246 15% 1,052 993 6%
Automotive 151 146 3% 591 520 14%
Other items 52 55 (5%) 209 202 3%
----------------------------------- ----------------
1,547 1,551 - 6,110 6,090 -
Operating expenses
Labor and fringe
benefits 547 441 (24%) 1,837 1,765 (4%)
Purchased services
and material 184 151 (22%) 778 745 (4%)
Depreciation and
amortization 150 139 (8%) 584 565 (3%)
Fuel 124 110 (13%) 459 519 12%
Equipment rents 82 89 8% 346 332 (4%)
Casualty and other 371 97 (282%) 637 347 (84%)
----------------------------------- ---------------
1,458 1,027 (42%) 4,641 4,273 (9%)
Operating income 89 524 (83%) 1,469 1,817 (19%)
Interest expense (85) (97) (361) (407)
Other income 7 32 76 89
----------------------------------- ---------------
Income before income
taxes 11 459 1,184 1,499
Income tax (expense)
recovery 11 (162) (384) (409)
----------------------------------- ---------------
Net income $ 22 $ 297 $ 800 $ 1,090
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Operating ratio (b) 68.3% 66.2% (2.1) 69.4% 68.6% (0.8)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Diluted earnings
per share $ 0.11 $ 1.49 $ 3.97 $ 5.48
Adjusted diluted
earnings
per share (c) $ 1.36 $ 1.49 $ 5.22 $ 5.17
Diluted weighted
-average number
of shares 202.0 201.7 202.8 201.0
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(a) The pro forma figures reflect the Company's results of
operations as if the Company had acquired WC on January 1,
2001.
(b) Excludes a fourth quarter 2002 charge of $281 million to
increase the Company's U.S. personal injury and other claims
liability and workforce reduction charges of $120 million and
$98 million in 2002 and 2001, respectively.
(c) 2002 excludes a fourth quarter charge to increase the
Company's U.S. personal injury and other claims liability and
the workforce reduction charge. 2001 excludes the gain on sale
of DRT, the workforce reduction charge, the charge to write
down the net investment in 360networks Inc., and the deferred
income tax recovery resulting from the enactment of lower
corporate tax rates in Canada.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY PRO FORMA INFORMATION (U.S. GAAP)
----------------------------------------------------------------------
----------------------------------------------------------------------
Three months ended December 31 Year ended December 31
------------------------------ ----------------------
2002 2001 Variance 2002 2001 Variance
pro Fav pro Fav
forma (Unfav) forma (Unfav)
(a) (a)
----------------------------------------------------------------------
(Unaudited)
Revenue ton miles (millions)
Petroleum and
chemicals 7,784 6,984 11% 30,006 26,206 15%
Metals and
minerals 3,493 3,141 11% 13,505 13,330 1%
Forest products 8,351 8,038 4% 33,551 32,369 4%
Coal 3,717 3,819 (3%) 14,503 16,616 (13%)
Grain and
fertilizers 8,860 10,821 (18%) 35,773 43,448 (18%)
Intermodal 7,757 6,579 18% 29,257 26,419 11%
Automotive 833 737 13% 3,281 2,890 14%
----------------------------------- ----------------
40,795 40,119 2% 159,876 161,278 (1%)
Freight revenue / RTM (cents)
Total freight
revenue per RTM 3.66 3.73 (2%) 3.69 3.65 1%
Business units:
Petroleum and
chemicals 3.64 3.69 (1%) 3.67 3.79 (3%)
Metals and
minerals 3.52 4.11 (14%) 3.86 4.07 (5%)
Forest products 3.92 3.97 (1%) 3.94 3.93 -
Coal 2.23 2.25 (1%) 2.25 2.17 4%
Grain and
fertilizers 2.77 2.88 (4%) 2.76 2.77 -
Intermodal 3.65 3.74 (2%) 3.60 3.76 (4%)
Automotive 18.13 19.81 (8%) 18.01 17.99 -
----------------------------------- ----------------
Carloads (thousands)
Petroleum and
chemicals 149 138 8% 587 548 7%
Metals and
minerals 94 96 (2%) 388 424 (8%)
Forest products 148 146 1% 600 602 -
Coal 125 127 (2%) 499 547 (9%)
Grain and
fertilizers 135 156 (13%) 535 611 (12%)
Intermodal 333 276 21% 1,237 1,147 8%
Automotive 79 81 (2%) 318 305 4%
----------------------------------- ---------------
1,063 1,020 4% 4,164 4,184 -
Freight revenue /
carload (dollars)
Total freight
revenue per
carload 1,406 1,467 (4%) 1,417 1,407 1%
Business units:
Petroleum and
chemicals 1,899 1,870 2% 1,877 1,814 3%
Metals and
minerals 1,309 1,344 (3%) 1,343 1,278 5%
Forest products 2,209 2,185 1% 2,205 2,115 4%
Coal 664 677 (2%) 653 660 (1%)
Grain and
fertilizers 1,815 2,000 (9%) 1,843 1,972 (7%)
Intermodal 850 891 (5%) 850 866 (2%)
Automotive 1,911 1,802 6% 1,858 1,705 9%
----------------------------------------------------------------------
----------------------------------------------------------------------
(a) The pro forma data has been prepared assuming the Company had
acquired WC on January 1, 2001.
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