FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of July 2005
Commission File Number: 001-02413
Canadian National Railway Company
(Translation of registrants name into English)
935 de la Gauchetiere Street West
Montreal, Quebec
Canada H3B 2M9
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F | Form 40-F X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes | No X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes | No X |
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes | No X |
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
Canadian National Railway Company
Table of
Contents
Item 1 | Press Release dated July 20, 2005, titled “CN raises full-year 2005 earnings outlook as second-quarter diluted earnings per share rise 30 per cent to $1.47. |
News | |
North Americas Railroad | FOR IMMEDIATE RELEASE |
Stock symbols: TSX: CNR / NYSE: CNI
www.cn.ca
CN raises full-year 2005 earnings outlook as second-quarter diluted earnings per share rise 30 per cent to $1.47
MONTREAL, July 20, 2005 CN today reported its financial and operating results for the second quarter and six-month period ended June 30, 2005.
Financial highlights, and increased full-year 2005 earnings forecast
| Diluted earnings per share of $1.47 for the second quarter of 2005, up 30 per cent from $1.13 reported for second-quarter 2004; |
| Second-quarter 2005 net income of $416 million, an increase of 28 per cent from second-quarter 2004 net income of $326 million; |
| Second-quarter 2005 operating income of $713 million, an increase of 24 per cent; |
| Record second-quarter operating ratio of 61.2 per cent, a 4.3-percentage point improvement over second-quarter 2004 performance; |
| Free cash flow of $787 million for the first half of 2005, compared with $587 million for the comparable period of 2004; (1) |
1
E. Hunter Harrison, president and chief executive officer of CN, said: CN had a terrific quarter and first half of the year, demonstrating once again the power of the companys business model precision railroading and the pursuit of profitable, sustainable growth along with the strength of our freight franchise. A key measure of our success was a record second-quarter operating ratio of 61.2 per cent.
On the revenue side, CNs core merchandise businesses including forest products, metals and minerals, and petroleum and chemicals continued to register solid gains during the quarter. CNs intermodal business also performed well, benefiting from strong container imports via the Port of Vancouver, as did our coal business, which saw shipments from new metallurgical-coal mines in Western Canada. Grain and fertilizers revenues were affected by decreased availability of high-quality grain in Canada, while our automotive business experienced lower production at some of the southern Ontario production facilities we serve.
Our free cash flow performance was outstanding and will permit us to reward shareholders with a new share buy-back program effective July 25, 2005. (See accompanying press release.) Under this program, CN plans to purchase for cancellation up to 16 million, or about six per cent, of the issued and outstanding shares of the company.
2
Second-quarter revenues increased by 10 per cent to $1,838 million, largely owing to freight rate increases, which included a higher fuel surcharge as a result of increases in crude oil prices, and the inclusion of revenues from the rail and related holdings of Great Lakes Transportation LLC (GLT) and BC Rail. Partly offsetting these gains was the unfavourable $80-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated revenues.
CN consolidated the operations of GLT and BC Rail on May 10, 2004, and July 14, 2004, respectively.
Operating expenses for the second quarter of 2005 increased by three per cent to $1,125 million, largely as a result of increased fuel costs and the inclusion of GLT and BC Rail expenses. These expense increases were partly offset by the favourable $50-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated expenses, and lower labour and fringe benefits expenses.
The continued appreciation of the Canadian dollar reduced the companys second-quarter 2005 net income by approximately $15 million.
First-half 2005 financial results
Net income for the first six months of 2005 was $715 million, or $2.51 per diluted share, compared with $536 million, or $1.85 per diluted share, for the comparable period of 2004.
Operating income for the first half of 2005 rose 28 per cent to $1,239 million.
CNs operating ratio for the first six months of 2005 was 65.0 per cent, an improvement of 3.7 percentage points.
3
Revenues for the first half of 2005 rose 14 per cent to $3,544 million, mainly due to freight rate increases, the inclusion of GLT and BC Rail revenues, and a return to normal intermodal volumes following the first quarter 2004 Canadian Auto Workers (CAW) strike. Partly offsetting these gains was the unfavourable $140-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated revenues.
Operating expenses increased eight per cent to $2,305 million, primarily due to increased fuel costs and the inclusion of GLT and BC Rail expenses, partly offset by the favourable $85-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated expenses.
The continued appreciation of the Canadian dollar reduced the companys first-half 2005 net income by approximately $30 million.
In the first quarter of 2004, the CAW strike reduced CNs operating income and net income by $35 million and $24 million, respectively.
Increased full-year 2005 earnings guidance
Harrison said: CNs strong first-half financial and operating performance, along with continued improvements in pricing, gives management confidence that the company will exceed previous earnings guidance for full-year 2005.
CN now expects 2005 diluted earnings per share will rise in the range of 20 to 25 per cent over 2004 earnings of $4.34 per diluted share. This new earnings outlook compares with the Companys previous earnings growth forecast of 10 to 15 per cent for 2005. Our employees are performing strongly and we expect to continue to deliver solid benefits to shareholders.
4
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 (U.S. GAAP).
(1) Please see discussion and reconciliation of this non-GAAP adjusted performance measure in the attached supplementary schedule, Non-GAAP Measures.
This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risks and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CNs most recent Form 40-F filed with the United States Securities and Exchange Commission, its Annual Information Form filed with the Canadian securities regulators, its 2004 Annual and 2005 Quarterly Consolidated Financial Statements and notes thereto, and Managements Discussion and Analysis, for a summary of major risks.
Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.
- 30 -
Contacts: | |
Media | Investment Community |
Mark Hallman | Robert Noorigian |
System Director, Media Relations | Vice-President, Investor Relations |
(905) 669-3384 | (514) 399-0052 |
5
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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2005 | 2004(1) | 2005 | 2004(1) | |||||||||
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(Unaudited) | ||||||||||||
Revenues | $ | 1,838 | $ | 1,665 | $ | 3,544 | $ | 3,103 | ||||
|
||||||||||||
Operating expenses | 1,125 | 1,090 | 2,305 | 2,133 | ||||||||
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||||||||||||
Operating income | 713 | 575 | 1,239 | 970 | ||||||||
Interest expense | (78 | ) | (68 | ) | (153 | ) | (140 | ) | ||||
Other loss | (5 | ) | (23 | ) | (9 | ) | (36 | ) | ||||
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||||||||||||
Income before income taxes | 630 | 484 | 1,077 | 794 | ||||||||
Income tax expense | (214 | ) | (158 | ) | (362 | ) | (258 | ) | ||||
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||||||||||||
Net income | $ | 416 | $ | 326 | $ | 715 | $ | 536 | ||||
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Earnings per share | ||||||||||||
Basic | $ | 1.50 | $ | 1.14 | $ | 2.55 | $ | 1.88 | ||||
Diluted | $ | 1.47 | $ | 1.13 | $ | 2.51 | $ | 1.85 | ||||
Weighted-average number of shares | ||||||||||||
Basic | 278.1 | 284.9 | 280.0 | 284.7 | ||||||||
Diluted | 283.0 | 289.2 | 285.2 | 289.0 | ||||||||
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See accompanying notes to consolidated financial statements. | ||||||||||||
(1) Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions) |
6
CANADIAN NATIONAL RAILWAY COMPANY |
CONSOLIDATED STATEMENT OF OPERATING INCOME (U.S. GAAP) |
|
(In millions) |
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
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Variance | Variance | |||||||||||||||
2005 | 2004 | (1) | Fav (Unfav) | 2005 | 2004 | (1) | Fav (Unfav) | |||||||||
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(Unaudited) | ||||||||||||||||
Revenues | ||||||||||||||||
Petroleum and chemicals | $ | 271 | $ | 259 | 5% | $ | 546 | $ | 509 | 7% | ||||||
Metals and minerals | 214 | 184 | 16% | 413 | 318 | 30% | ||||||||||
Forest products | 450 | 369 | 22% | 854 | 689 | 24% | ||||||||||
Coal | 97 | 74 | 31% | 176 | 141 | 25% | ||||||||||
Grain and fertilizers | 260 | 274 | (5% | ) | 536 | 530 | 1% | |||||||||
Intermodal | 313 | 287 | 9% | 600 | 515 | 17% | ||||||||||
Automotive | 139 | 143 | (3% | ) | 261 | 273 | (4% | ) | ||||||||
Other items | 94 | 75 | 25% | 158 | 128 | 23% | ||||||||||
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1,838 | 1,665 | 10% | 3,544 | 3,103 | 14% | |||||||||||
Operating expenses | ||||||||||||||||
Labor and fringe benefits | 436 | 466 | 6% | 935 | 885 | (6% | ) | |||||||||
Purchased services and material | 196 | 181 | (8% | ) | 402 | 371 | (8% | ) | ||||||||
Depreciation and amortization | 158 | 150 | (5% | ) | 314 | 292 | (8% | ) | ||||||||
Fuel | 179 | 123 | (46% | ) | 345 | 245 | (41% | ) | ||||||||
Equipment rents | 53 | 68 | 22% | 100 | 131 | 24% | ||||||||||
Casualty and other | 103 | 102 | (1% | ) | 209 | 209 | - | |||||||||
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1,125 | 1,090 | (3% | ) | 2,305 | 2,133 | (8% | ) | |||||||||
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Operating income | $ | 713 | $ | 575 | 24% | $ | 1,239 | $ | 970 | 28% | ||||||
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Operating ratio | 61.2 | % | 65.5 | % | 4.3 | 65.0 | % | 68.7 | % | 3.7 | ||||||
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See accompanying notes to consolidated financial statements. | ||||||||||||||||
(1) Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions) |
Certain of the 2004 comparative figures have been reclassified in order to be consistent with the 2005 presentation.
7
CANADIAN NATIONAL RAILWAY COMPANY |
CONSOLIDATED BALANCE SHEET (U.S. GAAP) |
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(In millions) |
June 30 | December 31 | June 30 | |||||||
2005 | 2004 | 2004 | |||||||
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(Unaudited) | (Unaudited) | ||||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 155 | $ | 147 | $ | 135 | |||
Accounts receivable (Note 4) | 662 | 793 | 617 | ||||||
Material and supplies | 187 | 127 | 169 | ||||||
Deferred income taxes | 181 | 364 | 102 | ||||||
Other | 279 | 279 | 260 | ||||||
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1,464 | 1,710 | 1,283 | |||||||
Properties | 20,057 | 19,715 | 19,789 | ||||||
Intangible and other assets | 918 | 940 | 898 | ||||||
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Total assets | $ | 22,439 | $ | 22,365 | $ | 21,970 | |||
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Liabilities and shareholders' equity | |||||||||
Current liabilities: | |||||||||
Accounts payable and accrued charges | $ | 1,577 | $ | 1,605 | $ | 1,485 | |||
Current portion of long-term debt (Note 4) | 83 | 578 | 256 | ||||||
Other | 82 | 76 | 70 | ||||||
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1,742 | 2,259 | 1,811 | |||||||
Deferred income taxes | 4,910 | 4,723 | 5,129 | ||||||
Other liabilities and deferred credits | 1,499 | 1,513 | 1,471 | ||||||
Long-term debt (Note 4) | 5,034 | 4,586 | 4,568 | ||||||
Shareholders' equity: | |||||||||
Common shares | 4,640 | 4,706 | 4,704 | ||||||
Accumulated other comprehensive loss | (106 | ) | (148 | ) | (35 | ) | |||
Retained earnings | 4,720 | 4,726 | 4,322 | ||||||
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9,254 | 9,284 | 8,991 | |||||||
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Total liabilities and shareholders' equity | $ | 22,439 | $ | 22,365 | $ | 21,970 | |||
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See accompanying notes to consolidated financial statements. |
Certain of the 2004 comparative figures have been reclassified in order to be consistent with the 2005 presentation.
8
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 | |||||||||||
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2005 | 2004 | (1) | 2005 | 2004 | (1) | |||||||
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(Unaudited) | ||||||||||||
Common shares (2) | ||||||||||||
Balance, beginning of period | $ | 4,715 | $ | 4,682 | $ | 4,706 | $ | 4,664 | ||||
Stock options exercised and other | 15 | 22 | 101 | 40 | ||||||||
Share repurchase program (Note 4) | (90 | ) | - | (167 | ) | - | ||||||
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Balance, end of period | $ | 4,640 | $ | 4,704 | $ | 4,640 | $ | 4,704 | ||||
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Accumulated other comprehensive loss | ||||||||||||
Balance, beginning of period | $ | (91 | ) | $ | (111 | ) | $ | (148 | ) | $ | (129 | ) |
Other comprehensive income (loss): | ||||||||||||
Unrealized foreign exchange loss on translation of | ||||||||||||
U.S. dollar denominated long-term debt designated as a | ||||||||||||
hedge of the net investment in U.S. subsidiaries | (40 | ) | (97 | ) | (77 | ) | (129 | ) | ||||
Unrealized foreign exchange gain on translation of | ||||||||||||
the net investment in foreign operations | 49 | 153 | 93 | 207 | ||||||||
Increase (decrease) in unrealized holding gains on fuel | ||||||||||||
derivative instruments (Note 6) | (31 | ) | 23 | 47 | 43 | |||||||
Unrealized holding gain on interest rate derivatives | - | 33 | - | 18 | ||||||||
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Other comprehensive income (loss) before income taxes | (22 | ) | 112 | 63 | 139 | |||||||
Income tax recovery (expense) | 7 | (36 | ) | (21 | ) | (45 | ) | |||||
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Other comprehensive income (loss) | (15 | ) | 76 | 42 | 94 | |||||||
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Balance, end of period | $ | (106 | ) | $ | (35 | ) | $ | (106 | ) | $ | (35 | ) |
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Retained earnings | ||||||||||||
Balance, beginning of period | $ | 4,684 | $ | 4,052 | $ | 4,726 | $ | 3,897 | ||||
Net income | 416 | 326 | 715 | 536 | ||||||||
Share repurchase program (Note 4) | (311 | ) | - | (581 | ) | - | ||||||
Dividends | (69 | ) | (56 | ) | (140 | ) | (111 | ) | ||||
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Balance, end of period | $ | 4,720 | $ | 4,322 | $ | 4,720 | $ | 4,322 | ||||
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See accompanying notes to consolidated financial statements. |
(1) | Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions) |
(2) | During the three and six months ended June 30, 2005, the Company issued 0.3 million and 2.3 million common shares, respectively, as a result of stock options exercised. At June 30, 2005, the Company had 275.4 million common shares outstanding. |
9
CANADIAN NATIONAL RAILWAY COMPANY |
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP) |
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(In millions) |
Three months ended | Six months ended | |||||||||||
June 30 | June 30 | |||||||||||
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2005 | 2004 | (1) | 2005 | 2004 | (1) | |||||||
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(Unaudited) | ||||||||||||
Operating activities | ||||||||||||
Net income | $ | 416 | $ | 326 | $ | 715 | $ | 536 | ||||
Adjustments to reconcile net income to net cash provided from | ||||||||||||
operating activities: | ||||||||||||
Depreciation and amortization | 159 | 152 | 316 | 295 | ||||||||
Deferred income taxes | 162 | 87 | 298 | 142 | ||||||||
Equity in earnings of English Welsh and Scottish Railway | (1 | ) | 3 | (6 | ) | 8 | ||||||
Other changes in: | ||||||||||||
Accounts receivable | 70 | (68 | ) | 134 | (60 | ) | ||||||
Material and supplies | (8 | ) | (3 | ) | (59 | ) | (38 | ) | ||||
Accounts payable and accrued charges | (60 | ) | 37 | (81 | ) | (29 | ) | |||||
Other net current assets and liabilities | 53 | 48 | 43 | 19 | ||||||||
Other | (6 | ) | 8 | 8 | 22 | |||||||
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Cash provided from operating activities | 785 | 590 | 1,368 | 895 | ||||||||
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Investing activities | ||||||||||||
Net additions to properties | (318 | ) | (259 | ) | (471 | ) | (384 | ) | ||||
Acquisition of Great Lakes Transportation LLC's | ||||||||||||
railroads and related holdings (Note 2) | - | (553 | ) | - | (553 | ) | ||||||
Other, net | 69 | 31 | 73 | 172 | ||||||||
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Cash used by investing activities | (249 | ) | (781 | ) | (398 | ) | (765 | ) | ||||
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Dividends paid | (69 | ) | (56 | ) | (140 | ) | (111 | ) | ||||
Financing activities | ||||||||||||
Issuance of long-term debt | 473 | 3,530 | 1,093 | 4,021 | ||||||||
Reduction of long-term debt | (596 | ) | (3,340 | ) | (1,247 | ) | (4,066 | ) | ||||
Issuance of common shares | 10 | 17 | 80 | 31 | ||||||||
Repurchase of common shares | (401 | ) | - | (748 | ) | - | ||||||
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Cash provided from (used by) financing activities | (514 | ) | 207 | (822 | ) | (14 | ) | |||||
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Net increase (decrease) in cash and cash equivalents | (47 | ) | (40 | ) | 8 | 5 | ||||||
Cash and cash equivalents, beginning of period | 202 | 175 | 147 | 130 | ||||||||
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Cash and cash equivalents, end of period | $ | 155 | $ | 135 | $ | 155 | $ | 135 | ||||
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Supplemental cash flow information | ||||||||||||
Net cash receipts from customers and other | $ | 1,834 | $ | 1,619 | $ | 3,720 | $ | 3,023 | ||||
Net cash payments for: | ||||||||||||
Employee services, suppliers and other expenses | (892 | ) | (841 | ) | (2,005 | ) | (1,772 | ) | ||||
Interest | (52 | ) | (54 | ) | (143 | ) | (128 | ) | ||||
Workforce reductions | (21 | ) | (24 | ) | (52 | ) | (56 | ) | ||||
Personal injury and other claims | (21 | ) | (19 | ) | (48 | ) | (55 | ) | ||||
Pensions | (52 | ) | (60 | ) | (54 | ) | (66 | ) | ||||
Income taxes | (11 | ) | (31 | ) | (50 | ) | (51 | ) | ||||
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Cash provided from operating activities | $ | 785 | $ | 590 | $ | 1,368 | $ | 895 | ||||
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See accompanying notes to consolidated financial statements. |
(1) Includes GLT as of May 10, 2004. (See Note 2 - Acquisitions)
10
CANADIAN NATIONAL RAILWAY COMPANY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP) |
|
Note 1 Basis of presentation
In managements opinion, the accompanying unaudited interim consolidated financial statements, expressed in Canadian dollars, and prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Canadian National Railway Companys (the Company) financial position as at June 30, 2005 and December 31 and June 30, 2004, its results of operations, changes in shareholders equity and cash flows for the three and six months ended June 30, 2005 and 2004.
These interim consolidated financial statements and notes have been prepared using accounting policies consistent with those used in preparing the Companys 2004 Annual Consolidated Financial Statements. While management believes that the disclosures presented are adequate to make the information not misleading, these interim consolidated financial statements and notes should be read in conjunction with the Companys Interim Managements Discussion and Analysis and Annual Consolidated Financial Statements and notes thereto.
Note 2 Acquisitions
Great Lakes Transportation LLCs railroads and related holdings (GLT) and BC Rail Partnership and the former BC Rail Ltd. (collectively BC Rail) were acquired and consolidated effective May 10, 2004 and July 14, 2004, respectively. Accordingly, the Companys results of operations for the quarter and six months ended June 30, 2004 included the results of operations of GLT as of May 10, 2004 and excluded those of BC Rail.
The Companys final cost to acquire GLT of U.S.$395 million (Cdn$547 million) and BC Rail of $991 million, included purchase price adjustments and transaction costs. By the second quarter of 2004, the Company had paid U.S.$399 million (Cdn$553 million) for the acquisition of GLT. The Company subsequently received Cdn$6 million for purchase price adjustments finalized in the third quarter.
The Company had estimated, on a preliminary basis, the fair value of GLTs and BC Rails assets acquired, owned and leased, and liabilities assumed at acquisition based on then current available information. The Company has since finalized the allocations of the GLT and BC Rail purchase price and has not made any significant adjustments to the preliminary purchase price allocations as presented in Note 3 Acquisitions, of the Companys 2004 Annual Consolidated Financial Statements.
For comparative purposes only, if the Company had acquired both GLT and BC Rail on January 1, 2004, based on their respective historical amounts, net of the amortization of the difference between the Companys cost to acquire GLT and BC Rail and their respective net assets (based on preliminary estimates of the fair value of GLTs and BC Rails assets and liabilities), revenues, net income, and basic and diluted earnings per share would have been $1,761 million, $338 million, $1.19 per basic share and $1.17 per diluted share, respectively, for the three months ended June 30, 2004 and $3,318 million, $550 million, $1.93 per basic share and $1.90 per diluted share, respectively, for the six months ended June 30, 2004.
The pro forma figures for both GLT and BC Rail do not reflect synergies, and accordingly, do not account for any potential increases in operating income, any estimated cost savings or facilities consolidation.
Note 3 Note receivable from English Welsh and Scottish Railway (EWS)
On April 28, 2005, EWS fully redeemed the Companys 8% note receivable due 2009. The Company received £26 million (Cdn$61 million), which included principal and accrued but unpaid interest at the date of redemption.
Note 4 Financing activities
In January 2005, the Company repaid its borrowings of U.S.$90 million (Cdn$108 million) outstanding at December 31, 2004 under its U.S.$1,000 million revolving credit facility. On March 29, 2005, the Company refinanced, by way of amendment, its revolving credit facility, which was scheduled to mature in December 2005, for a five-year period to March 2010. The credit facility is available for general corporate purposes, including back-stopping the Companys commercial paper program. The credit facility provides for borrowings at various interest rates, including the Canadian prime rate, bankers acceptance rates, the U.S. federal funds effective rate and the London Interbank Offer Rate, plus applicable margins. The amended credit facility agreement retains customary limitations on debt as a percentage of total capitalization, but eliminates the requirement for maintaining tangible net worth above pre-defined levels. The Company has been in compliance with these covenants throughout the period. As at June 30, 2005, the Company had letters of credit of $301 million under its revolving credit facility and outstanding borrowings of U.S.$323 million (Cdn$397 million) under its commercial paper program.
In May 2005, the Company repaid U.S.$100 million (Cdn$125 million) of 7.75% 10-year Notes with cash on hand.
11
CANADIAN NATIONAL RAILWAY COMPANY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP) |
|
The Company has an accounts receivable securitization program, expiring in June 2006, under which it may sell, on a revolving basis, a maximum of $500 million ($450 million prior to February 2005) of eligible freight trade and other receivables outstanding at any point in time, to an unrelated trust. The Company has a contingent residual interest of approximately 10% of receivables sold, which is recorded in Other current assets. At June 30, 2005, pursuant to the agreement, $492 million had been sold, compared to $445 million at December 31, 2004.
On July 20, 2005, the Board of Directors of the Company approved a new share repurchase program which allows for the repurchase of up to 16.0 million common shares between July 25, 2005 and July 24, 2006 pursuant to a normal course issuer bid, at prevailing market prices.
In the second quarter of 2005, the Company completed its 14.0 million share repurchase program, which began November 1, 2004, repurchasing the remaining 5.4 million common shares for $401 million, at an average price of $74.30 per share. The total cost of the program was $1,021 million (average price per share of $72.94), with 10.0 million shares repurchased in 2005 for $748 million (average price per share of $74.78).
Note 5 Stock-based compensation
For the three and six months ended June 30, 2005 and 2004, the Company recorded total compensation cost for awards under all plans of $13 million and $41 million, respectively, and $21 million and $25 million, respectively, for the same periods in 2004.
(a) Restricted share units
In
the first half of 2005, the Company granted approximately 0.4 million restricted share units (RSUs) to
designated management employees entitling them to receive payout in cash based on the Companys
share price. The RSUs granted are scheduled for payout after three years and vest upon the attainment
of targets relating to return on invested capital over the three-year period and to the Companys
share price during the three-month period ending December 31, 2007. At June 30, 2005, the Company had
approximately 1.6 million RSUs outstanding under the Plan. For the three and six months ended June 30,
2005, the Company recorded compensation cost of $12 million and $31 million, respectively, compared
to $4 million and $7 million, for the same 2004 periods.
(b) Stock options
In the
first half of 2005, the Company granted approximately 0.7 million conventional stock options to designated
senior management employees, that vest over a period of four years
of continuous employment. The total number of options outstanding at June 30, 2005, including conventional,
performance, and performance-accelerated options was 11.5 million. For the three and six months ended
June 30, 2005, the Company recorded compensation cost of $4 million and $11 million, respectively, compared
to $3 million and $5 million, respectively, for the same 2004 periods. At June 30, 2005, 8.1 million
options remained authorized for future issuances.
(c) Vision 2008 Share Unit Plan
In
the first quarter of 2005, the Board of Directors of the Company approved a special share unit plan with
a four-year term to December 2008, entitling designated senior management employees to receive payout
in cash in January 2009. The Company granted 0.4 million share units which vest conditionally upon the
attainment of targets relating to the Companys share price during the six-month period ending December
31, 2008. Payout is also conditional upon the attainment of targets relating to return on invested capital
over the four-year period and to the Companys share price during the 20-day period ending on December
31, 2008. Award payout will be equal to the number of share units vested on December 31, 2008 multiplied
by the Companys 20-day average share price ending on such date. Due to the nature of the vesting
conditions, no compensation cost was recorded for the three and six months ended June 30, 2005.
12
CANADIAN NATIONAL RAILWAY COMPANY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP) |
|
The Company follows the fair value based approach for stock option awards and had prospectively applied this method of accounting to all awards granted, modified or settled on or after January 1, 2003. The Company follows the intrinsic value method for cash settled awards. If compensation cost had been determined based upon fair values at the date of grant for awards under all plans, the Companys 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 | 2005 | 2004 | 2005 | 2004 | ||||||||
|
||||||||||||
Net income, as reported | $ | 416 | $ | 326 | $ | 715 | $ | 536 | ||||
Add (deduct) compensation cost, net of | ||||||||||||
applicable taxes, determined under: | ||||||||||||
Fair value method for all awards granted after | ||||||||||||
Jan 1, 2003 (SFAS No. 123) | 10 | 6 | 31 | 10 | ||||||||
Intrinsic value method for performance-based | ||||||||||||
awards granted prior to 2003 (APB 25) | - | 9 | - | 9 | ||||||||
Fair value method for all awards (SFAS No. 123) | (16 | ) | (22 | ) | (43 | ) | (34 | ) | ||||
|
||||||||||||
Pro forma net income | $ | 410 | $ | 319 | $ | 703 | $ | 521 | ||||
|
||||||||||||
Basic earnings per share, as reported | $ | 1.50 | $ | 1.14 | $ | 2.55 | $ | 1.88 | ||||
Basic earnings per share, pro forma | $ | 1.47 | $ | 1.12 | $ | 2.51 | $ | 1.83 | ||||
Diluted earnings per share, as reported | $ | 1.47 | $ | 1.13 | $ | 2.51 | $ | 1.85 | ||||
Diluted earnings per share, pro forma | $ | 1.45 | $ | 1.10 | $ | 2.46 | $ | 1.80 | ||||
|
Compensation cost related to stock option awards granted in the current period under the fair value based approach was calculated using the Black-Scholes option-pricing model with the following assumptions:
|
||||||||||||
Three months ended | Six months ended | |||||||||||
June 30 | June 30 | |||||||||||
|
|
|||||||||||
2005 | 2004 | (1) | 2005 | 2004 | (1) | |||||||
|
||||||||||||
Expected option life (years) | 5.2 | - | 5.2 | - | ||||||||
Risk-free interest rate | 3.19 | % | - | 3.55 | % | - | ||||||
Expected stock price volatility | 25 | % | - | 25 | % | - | ||||||
Average dividend per share | $ | 1.00 | - | $ | 1.00 | - | ||||||
|
||||||||||||
|
||||||||||||
Weighted average fair value of options granted | $ | 18.71 | $ | - | $ | 18.48 | $ | - | ||||
|
||||||||||||
(1) In the first half of 2004, the Company did not grant any stock option awards. |
13
CANADIAN NATIONAL RAILWAY COMPANY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP) |
|
Note 6 Derivative instruments
Fuel
At June 30, 2005, the
Company had hedged approximately 48% of the estimated remaining 2005 fuel consumption, representing approximately
98 million U.S. gallons at an average price of U.S.$0.79 per U.S. gallon, and approximately 17% of the
estimated 2006 fuel consumption, representing approximately 69 million U.S. gallons at an average price
of U.S.$0.89 per U.S. gallon. These derivative instruments are carried at market value on the balance
sheet and are accounted for as cash flow hedges whereby the effective portion of the cumulative change
in the market value of the derivative instruments has been recorded in Other comprehensive income (loss).
At June 30, 2005, Accumulated other comprehensive loss included unrealized gains of $139 million, $94
million after tax ($92 million, $62 million after tax at December
31, 2004), of which $133 million relates to derivative instruments that will mature within the next twelve
months and are presented in Other current assets.
Note 7 Pensions and other post-retirement benefits
For the three and six months ended June 30, 2005 and 2004, the components of net periodic benefit cost for pensions and other post-retirement benefits were as follows:
(a) Components of net periodic benefit cost for pensions
|
||||||||||||
Three months ended | Six months ended | |||||||||||
June 30 | June 30 | |||||||||||
|
|
|||||||||||
In millions | 2005 | 2004 | 2005 | 2004 | ||||||||
|
||||||||||||
Service cost | $ | 35 | $ | 29 | $ | 71 | $ | 58 | ||||
Interest cost | 186 | 181 | 371 | 361 | ||||||||
Amortization of prior service cost | 5 | 5 | 10 | 10 | ||||||||
Expected return on plan assets | (221 | ) | (208 | ) | (442 | ) | (416 | ) | ||||
Recognized net actuarial loss | 1 | 1 | 1 | 1 | ||||||||
|
||||||||||||
Net periodic benefit cost | $ | 6 | $ | 8 | $ | 11 | $ | 14 | ||||
|
(b) Components of net periodic benefit cost for post-retirement benefits
|
||||||||||||
Three months ended | Six months ended | |||||||||||
June 30 | June 30 | |||||||||||
|
|
|||||||||||
In millions | 2005 | 2004 | 2005 | 2004 | ||||||||
|
||||||||||||
Service cost | $ | 2 | $ | 2 | $ | 4 | $ | 4 | ||||
Interest cost | 5 | 5 | 10 | 9 | ||||||||
Amortization of prior service cost | 1 | 1 | 1 | 2 | ||||||||
Recognized net actuarial loss (gain) | (1 | ) | 1 | (2 | ) | 1 | ||||||
|
||||||||||||
Net periodic benefit cost | $ | 7 | $ | 9 | $ | 13 | $ | 16 | ||||
|
For the 2005 funding year, the Company expects to make total contributions of $120 million for all its defined benefit plans of which $54 million had been made at June 30, 2005.
14
CANADIAN NATIONAL RAILWAY COMPANY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP) |
|
Note 8 Major commitments and contingencies
A. Commitments
As
at June 30, 2005, the Company had commitments to acquire railroad ties, rail, freight cars, locomotives
and other equipment at an aggregate cost of $554 million ($194 million at December 31, 2004). The Company
also had outstanding information technology service contracts of $14 million and agreements with fuel
suppliers to purchase approximately 78% of the estimated remaining 2005 volume, 50% of its anticipated
2006 volume, and 12% of its anticipated 2007 volume at market prices prevailing on the date of the purchase.
B. Contingencies
In
the normal course of its operations, the Company becomes involved in various legal actions, including
claims relating to personal injuries, occupational disease and damage to property.
In Canada, employee injuries are governed by the workers compensation legislation in each province whereby employees may be awarded either a lump sum or future stream of payments depending on the nature and severity of the injury. Accordingly, the Company accounts for costs related to employee work-related injuries based on actuarially developed estimates of the ultimate cost associated with such injuries, including compensation, health care and administration costs. For all other legal actions, the Company maintains, and regularly updates on a case-by-case basis, provisions for such items when the expected loss is both probable and can be reasonably estimated based on currently available information.
In the United States, employee work-related injuries, including occupational disease claims, are compensated according to the provisions of the Federal Employers Liability Act (FELA), which requires either the finding of fault through the U.S. jury system or individual settlements, and represent a major expense for the railroad industry. The Company follows an actuarial-based approach and accrues the expected cost for personal injury and property damage claims and asserted occupational disease claims, based on actuarial estimates of their ultimate cost. A liability for the minimum amount of unasserted occupational disease claims is also accrued to the extent they can be reasonably estimated. The amount recorded reflects a 25-year horizon, as the Company expects that a large majority of these cases will be received over such period. 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, 2005, the Company had aggregate reserves for personal injury and other claims of $679 million ($642 million at December 31, 2004). 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, 2005, 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 Companys financial position or results of operations in a particular quarter or fiscal year.
C. Environmental matters
The
Companys operations are subject to federal, provincial, state, municipal and local regulations
under environmental laws and regulations in Canada and the United States concerning, among other things,
emissions into the air; discharges into waters; the generation, handling, storage, transportation, treatment
and disposal of waste, hazardous substances, and other materials; decommissioning of underground and
aboveground storage tanks; and soil and groundwater contamination. A risk of environmental liability
is inherent in railroad and related transportation operations; real estate ownership, operation or control;
and other commercial activities of the Company with respect to both current and past operations. As
a result, the Company incurs significant compliance and capital costs, on an ongoing basis, associated
with environmental regulatory compliance and clean-up requirements in its railroad operations and relating
to its past and present ownership, operation or control of real property.
While the Company believes that it has identified the costs likely to be incurred for environmental matters in the next several years, based on known information, the Companys 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; |
15
CANADIAN NATIONAL RAILWAY COMPANY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP) |
|
(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 Companys financial position or results of operations in a particular quarter or fiscal year, or that the Companys 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 Companys financial condition or competitive position. Costs related to any future remediation will be accrued in the year in which they become known.
As at June 30, 2005, the Company had aggregate accruals for environmental costs of $117 million ($113 million as at December 31, 2004).
D. Guarantees and indemnifications
In
the normal course of business, the Company, including certain of its subsidiaries, enters into agreements
that may involve providing certain guarantees or indemnifications to third parties and others, which
extend over the term of the agreement. These include, but are not limited to, residual value guarantees
on operating leases, standby letters of credit and surety bonds, and indemnifications that are customary
for the type of transaction or for the railway business.
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. In addition, where the Company expects to make a payment in respect of a guarantee, a liability will be recognized to the extent that one has not yet been recognized.
Guarantee of residual values of operating leases
The
Company has guaranteed a portion of the residual values of certain of its assets under operating leases
with expiry dates between 2006 and 2012, for the benefit of the lessor. If the fair value of the assets,
at the end of their respective lease term, is less than the fair
value, as estimated at the inception of the lease, then the Company must, under certain conditions, compensate
the lessor for the shortfall. At June 30, 2005, the maximum exposure in respect of these guarantees
was $96 million of which $8 million has been recorded. Of that amount, $6 million represents the expected
cash outlay for such guarantees, while the remaining $2 million represents the Companys obligation
to stand ready and honor the guarantees that were entered into subsequent to January 1, 2003. There
are no recourse provisions to recover any amounts from third parties.
Other guarantees
The Company,
including certain of its subsidiaries, has granted irrevocable standby letters of credit and surety bonds,
issued by highly rated financial institutions, to third parties to indemnify them in the event the Company
does not perform its contractual obligations. As at June 30, 2005, the maximum potential liability under
these guarantees was $449 million of which $358 million was for workers compensation and other
employee benefits and $91 million was for equipment under leases and other. The Company has granted
guarantees for which no liability has been recorded, as they relate to the Companys future performance.
As at June 30, 2005, the Company had not recorded any additional liability with respect to these guarantees, as the Company does not expect to make any additional payments associated with these guarantees. The guarantee instruments mature at various dates between 2005 and 2010.
CN Pension Plan, CN 1935 Pension Plan and BC Rail Ltd Pension Plan
The
Company has indemnified and held harmless the current trustee and the former trustee of the Canadian
National Railways Pension Trust Funds, the trustee of the BC Rail Ltd Pension Trust Fund, and the respective
officers, directors, employees and agents of such trustees, from any and all taxes, claims, liabilities,
damages, costs and expenses arising out of the performance of their obligations under the relevant trust
agreements and trust deeds, including in respect of their reliance on authorized instructions of the
Company or for failing to act in the absence of authorized instructions. These indemnifications survive
the termination of such agreements or trust deeds. As at June 30, 2005, 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.
16
CANADIAN NATIONAL RAILWAY COMPANY |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP) |
|
General indemnifications
In the normal
course of business, the Company has provided indemnifications, customary for the type of transaction
or for the railway business, in various agreements with third parties, including indemnification provisions
where the Company would be required to indemnify third parties and others. Indemnifications are found
in various types of contracts with third parties which include, but are not limited to, (a) contracts
granting the Company the right to use or enter upon property owned by third parties such as leases,
easements, trackage rights and sidetrack agreements; (b) contracts granting rights to others to use the
Companys property, such as leases, licenses and easements; (c) contracts
for the sale of assets and securitization of accounts receivable; (d) contracts for the acquisition of
services; (e) financing agreements; (f) trust indentures, fiscal agency agreements, underwriting agreements
or similar agreements relating to debt or equity securities of the Company and engagement agreements
with financial advisors; (g) transfer agent and registrar agreements in respect of the Companys
securities; (h) trust agreements relating to pension plans and other plans, including those establishing
trust funds to secure the payment to certain officers and senior employees of special retirement compensation
arrangements; (i) pension transfer agreements, (j) master agreements with financial institutions governing
derivative transactions; and (k) settlement agreements with insurance companies or other third parties
whereby such insurer or third party has been indemnified for any present or future claims relating to
insurance policies, incidents or events covered by the settlement agreements. To the extent of any actual
claims under these agreements, the Company maintains provisions for such items, which it considers to
be adequate. Due to the nature of the indemnification clauses, the maximum exposure for future payments
may be material. However, such exposure cannot be determined with certainty.
The Company has 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. As at June 30, 2005, the carrying value for guarantees for which the Company was able to determine the fair value, was $1 million. There are no recourse provisions to recover any amounts from third parties.
17
CANADIAN NATIONAL RAILWAY COMPANY |
SELECTED RAILROAD STATISTICS (U.S. GAAP) |
|
Three months ended | Six months ended | |||||||||||
June 30 | June 30 | |||||||||||
|
|
|||||||||||
2005 | 2004 | (1) | 2005 | 2004 | (1) | |||||||
|
||||||||||||
(Unaudited) | ||||||||||||
Statistical operating data | ||||||||||||
Freight revenues ($ millions) | 1,744 | 1,590 | 3,386 | 2,975 | ||||||||
Gross ton miles (GTM) (millions) | 86,206 | 83,179 | 170,682 | 161,132 | ||||||||
Revenue ton miles (RTM) (millions) | 44,750 | 43,187 | 89,657 | 84,481 | ||||||||
Carloads (thousands) | 1,204 | 1,145 | 2,391 | 2,122 | ||||||||
Route miles (includes Canada and the U.S.) | 19,221 | 17,898 | 19,221 | 17,898 | ||||||||
Employees (end of period) | 22,462 | 22,514 | 22,462 | 22,514 | ||||||||
Employees (average during period) | 22,519 | 22,192 | 22,444 | 21,759 | ||||||||
|
||||||||||||
Productivity | ||||||||||||
Operating ratio (%) | 61.2 | 65.5 | 65.0 | 68.7 | ||||||||
Freight revenue per RTM (cents) | 3.90 | 3.68 | 3.78 | 3.52 | ||||||||
Freight revenue per carload ($) | 1,449 | 1,389 | 1,416 | 1,402 | ||||||||
Operating expenses per GTM (cents) | 1.31 | 1.31 | 1.35 | 1.32 | ||||||||
Labor and fringe benefits expense per GTM (cents) | 0.51 | 0.56 | 0.55 | 0.55 | ||||||||
GTMs per average number of employees (thousands) | 3,828 | 3,748 | 7,605 | 7,405 | ||||||||
Diesel fuel consumed (U.S. gallons in millions) | 102 | 98 | 206 | 193 | ||||||||
Average fuel price ($/U.S. gallon) | 1.66 | 1.27 | 1.60 | 1.24 | ||||||||
GTMs per U.S. gallon of fuel consumed | 845 | 849 | 829 | 835 | ||||||||
|
||||||||||||
Safety indicators | ||||||||||||
Injury frequency rate per 200,000 person hours | 2.1 | 2.5 | 2.3 | 2.5 | ||||||||
Accident rate per million train miles | 1.4 | 1.2 | 1.3 | 1.3 | ||||||||
|
||||||||||||
Financial ratios | ||||||||||||
Debt to total capitalization ratio (% at end of period) | 35.6 | 34.9 | 35.6 | 34.9 | ||||||||
|
(1) Includes GLT as of May 10, 2004.
Certain of the comparative statistical data and related productivity measures have been restated to reflect changes to estimated statistical data previously reported.
18
CANADIAN NATIONAL RAILWAY COMPANY |
SUPPLEMENTARY INFORMATION (U.S. GAAP) |
|
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
|
|
|||||||||||||||
Variance | Variance | |||||||||||||||
2005 | 2004 | (1) | Fav (Unfav) | 2005 | 2004 | (1) | Fav (Unfav) | |||||||||
|
||||||||||||||||
(Unaudited) | ||||||||||||||||
Revenue ton miles (millions) | ||||||||||||||||
Petroleum and chemicals | 7,617 | 7,620 | - | 15,675 | 15,314 | 2% | ||||||||||
Metals and minerals | 4,101 | 4,179 | (2% | ) | 8,394 | 7,987 | 5% | |||||||||
Forest products | 10,833 | 9,651 | 12% | 21,073 | 18,450 | 14% | ||||||||||
Coal | 3,799 | 3,110 | 22% | 7,184 | 6,297 | 14% | ||||||||||
Grain and fertilizers | 9,360 | 9,985 | (6% | ) | 19,728 | 19,967 | (1% | ) | ||||||||
Intermodal | 8,199 | 7,737 | 6% | 15,962 | 14,727 | 8% | ||||||||||
Automotive | 841 | 905 | (7% | ) | 1,641 | 1,739 | (6% | ) | ||||||||
|
|
|||||||||||||||
44,750 | 43,187 | 4% | 89,657 | 84,481 | 6% | |||||||||||
Freight revenue / RTM (cents) | ||||||||||||||||
Total freight revenue per RTM | 3.90 | 3.68 | 6% | 3.78 | 3.52 | 7% | ||||||||||
Commodity groups: | ||||||||||||||||
Petroleum and chemicals | 3.56 | 3.40 | 5% | 3.48 | 3.32 | 5% | ||||||||||
Metals and minerals | 5.22 | 4.40 | 19% | 4.92 | 3.98 | 24% | ||||||||||
Forest products | 4.15 | 3.82 | 9% | 4.05 | 3.73 | 9% | ||||||||||
Coal | 2.55 | 2.38 | 7% | 2.45 | 2.24 | 9% | ||||||||||
Grain and fertilizers | 2.78 | 2.74 | 1% | 2.72 | 2.65 | 3% | ||||||||||
Intermodal | 3.82 | 3.71 | 3% | 3.76 | 3.50 | 7% | ||||||||||
Automotive | 16.53 | 15.80 | 5% | 15.90 | 15.70 | 1% | ||||||||||
|
|
|||||||||||||||
Carloads (thousands) | ||||||||||||||||
Petroleum and chemicals | 148 | 147 | 1% | 302 | 294 | 3% | ||||||||||
Metals and minerals | 237 | 200 | 19% | 475 | 296 | 60% | ||||||||||
Forest products | 182 | 161 | 13% | 363 | 313 | 16% | ||||||||||
Coal | 117 | 100 | 17% | 221 | 203 | 9% | ||||||||||
Grain and fertilizers | 134 | 144 | (7% | ) | 278 | 286 | (3% | ) | ||||||||
Intermodal | 312 | 313 | - | 606 | 574 | 6% | ||||||||||
Automotive | 74 | 80 | (8% | ) | 146 | 156 | (6% | ) | ||||||||
|
|
|||||||||||||||
1,204 | 1,145 | 5% | 2,391 | 2,122 | 13% | |||||||||||
Freight revenue / carload (dollars) | ||||||||||||||||
Total freight revenue per carload | 1,449 | 1,389 | 4% | 1,416 | 1,402 | 1% | ||||||||||
Commodity groups: | ||||||||||||||||
Petroleum and chemicals | 1,831 | 1,762 | 4% | 1,808 | 1,731 | 4% | ||||||||||
Metals and minerals | 903 | 920 | (2% | ) | 869 | 1,074 | (19% | ) | ||||||||
Forest products | 2,473 | 2,292 | 8% | 2,353 | 2,201 | 7% | ||||||||||
Coal | 829 | 740 | 12% | 796 | 695 | 15% | ||||||||||
Grain and fertilizers | 1,940 | 1,903 | 2% | 1,928 | 1,853 | 4% | ||||||||||
Intermodal | 1,003 | 917 | 9% | 990 | 897 | 10% | ||||||||||
Automotive | 1,878 | 1,788 | 5% | 1,788 | 1,750 | 2% | ||||||||||
|
||||||||||||||||
(1) Includes GLT as of May 10, 2004. | ||||||||||||||||
Certain of the comparative statistical data and related productivity measures have been restated to reflect changes to estimated statistical data previously reported and reclassified in order to be consistent with the 2005 presentation.
19
CANADIAN NATIONAL RAILWAY COMPANY |
NON-GAAP MEASURES (U.S. GAAP) |
|
Free cash flow
The Company
believes that free cash flow is a useful measure of performance as it demonstrates the Companys
ability to generate cash after the payment of capital expenditures and dividends. Free cash flow does
not have any standardized meaning prescribed by GAAP and may, therefore, not be comparable to similar
measures presented by other companies. The Company defines free cash flow as cash provided from operating
activities, excluding changes in the level of accounts receivable sold under the securitization program,
less investing activities and dividends paid, and adjusted for significant acquisitions as they are not
indicative of normal day-to-day investments in the Companys asset base,
calculated as follows:
|
||||||||||||
Three months ended | Six months ended | |||||||||||
June 30 | June 30 | |||||||||||
|
|
|||||||||||
In millions | 2005 | 2004 | 2005 | 2004 | ||||||||
|
||||||||||||
Cash provided from operating activities | $ | 785 | $ | 590 | $ | 1,368 | $ | 895 | ||||
Less: | ||||||||||||
Investing activities | (249 | ) | (781 | ) | (398 | ) | (765 | ) | ||||
Dividends paid | (69 | ) | (56 | ) | (140 | ) | (111 | ) | ||||
|
||||||||||||
Cash provided (used) before financing activities | 467 | (247 | ) | 830 | 19 | |||||||
|
||||||||||||
Adjustments: | ||||||||||||
Change in accounts receivable sold | 10 | 9 | (43 | ) | 15 | |||||||
Acquisition of GLT | - | 553 | - | 553 | ||||||||
|
||||||||||||
Free cash flow | $ | 477 | $ | 315 | $ | 787 | $ | 587 | ||||
|
20
CANADIAN NATIONAL RAILWAY COMPANY |
SUPPLEMENTARY INFORMATION |
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP) |
|
(In millions, except per share data) |
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
|
|
|||||||||||||||
2005 | 2004 | Variance | 2005 | 2004 | Variance | |||||||||||
pro forma | (1) | Fav (Unfav) | pro forma | (1) | Fav (Unfav) | |||||||||||
|
||||||||||||||||
(Unaudited) | ||||||||||||||||
Revenues | ||||||||||||||||
Petroleum and chemicals | $ | 271 | $ | 270 | - | $ | 546 | $ | 534 | 2% | ||||||
Metals and minerals | 214 | 205 | 4% | 413 | 377 | 10% | ||||||||||
Forest products | 450 | 414 | 9% | 854 | 783 | 9% | ||||||||||
Coal | 97 | 77 | 26% | 176 | 148 | 19% | ||||||||||
Grain and fertilizers | 260 | 275 | (5% | ) | 536 | 534 | - | |||||||||
Intermodal | 313 | 288 | 9% | 600 | 516 | 16% | ||||||||||
Automotive | 139 | 143 | (3% | ) | 261 | 273 | (4% | ) | ||||||||
Other items | 94 | 89 | 6% | 158 | 153 | 3% | ||||||||||
|
|
|||||||||||||||
1,838 | 1,761 | 4% | 3,544 | 3,318 | 7% | |||||||||||
Operating expenses | ||||||||||||||||
Labor and fringe benefits | 436 | 494 | 12% | 935 | 957 | 2% | ||||||||||
Purchased services and materials | 196 | 196 | - | 402 | 412 | 2% | ||||||||||
Depreciation and amortization | 158 | 158 | - | 314 | 312 | (1% | ) | |||||||||
Fuel | 179 | 132 | (36% | ) | 345 | 266 | (30% | ) | ||||||||
Equipment rents | 53 | 62 | 15% | 100 | 122 | 18% | ||||||||||
Casualty and other | 103 | 108 | 5% | 209 | 224 | 7% | ||||||||||
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1,125 | 1,150 | 2% | 2,305 | 2,293 | (1% | ) | ||||||||||
Operating income | 713 | 611 | 17% | 1,239 | 1,025 | 21% | ||||||||||
Interest expense | (78 | ) | (87 | ) | (153 | ) | (180 | ) | ||||||||
Other loss | (5 | ) | (23 | ) | (9 | ) | (35 | ) | ||||||||
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Income before income taxes | 630 | 501 | 1,077 | 810 | ||||||||||||
Income tax expense | (214 | ) | (163 | ) | (362 | ) | (261 | ) | ||||||||
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Net income | $ | 416 | $ | 338 | $ | 715 | $ | 549 | ||||||||
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Operating ratio | 61.2 | % | 65.3 | % | 4.1 | 65.0 | % | 69.1 | % | 4.1 | ||||||
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Basic earnings per share | $ | 1.50 | $ | 1.19 | $ | 2.55 | $ | 1.93 | ||||||||
Diluted earnings per share | $ | 1.47 | $ | 1.17 | $ | 2.51 | $ | 1.90 | ||||||||
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(1) | The pro forma figures reflect the Company's results of operations as if the Company had acquired GLT and BC Rail on January 1, 2004. |
Certain of the 2004 comparative figures have been reclassified in order to be consistent with the 2005 presentation.
21
CANADIAN NATIONAL RAILWAY COMPANY |
SUPPLEMENTARY PRO FORMA INFORMATION (U.S. GAAP) |
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Three months ended June 30 | Six months ended June 30 | |||||||||||||||
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2005 | 2004 | Variance | 2005 | 2004 | Variance | |||||||||||
pro forma | (1) | Fav (Unfav) | pro forma | (1) | Fav (Unfav) | |||||||||||
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(Unaudited) | ||||||||||||||||
Revenue ton miles (millions) | ||||||||||||||||
Petroleum and chemicals | 7,617 | 7,792 | (2% | ) | 15,675 | 15,726 | - | |||||||||
Metals and minerals | 4,101 | 4,492 | (9% | ) | 8,394 | 8,895 | (6% | ) | ||||||||
Forest products | 10,833 | 10,429 | 4% | 21,073 | 20,085 | 5% | ||||||||||
Coal | 3,799 | 3,139 | 21% | 7,184 | 6,359 | 13% | ||||||||||
Grain and fertilizers | 9,360 | 10,040 | (7% | ) | 19,728 | 20,115 | (2% | ) | ||||||||
Intermodal | 8,199 | 7,737 | 6% | 15,962 | 14,727 | 8% | ||||||||||
Automotive | 841 | 905 | (7% | ) | 1,641 | 1,739 | (6% | ) | ||||||||
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44,750 | 44,534 | - | 89,657 | 87,646 | 2% | |||||||||||
Freight revenue / RTM (cents) | ||||||||||||||||
Total freight revenue per RTM | 3.90 | 3.75 | 4% | 3.78 | 3.61 | 5% | ||||||||||
Commodity groups: | ||||||||||||||||
Petroleum and chemicals | 3.56 | 3.47 | 3% | 3.48 | 3.40 | 2% | ||||||||||
Metals and minerals | 5.22 | 4.56 | 14% | 4.92 | 4.24 | 16% | ||||||||||
Forest products | 4.15 | 3.97 | 5% | 4.05 | 3.90 | 4% | ||||||||||
Coal | 2.55 | 2.45 | 4% | 2.45 | 2.33 | 5% | ||||||||||
Grain and fertilizers | 2.78 | 2.74 | 1% | 2.72 | 2.65 | 3% | ||||||||||
Intermodal | 3.82 | 3.72 | 3% | 3.76 | 3.50 | 7% | ||||||||||
Automotive | 16.53 | 15.80 | 5% | 15.90 | 15.70 | 1% | ||||||||||
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Carloads (thousands) | ||||||||||||||||
Petroleum and chemicals | 148 | 149 | (1% | ) | 302 | 300 | 1% | |||||||||
Metals and minerals | 237 | 263 | (10% | ) | 475 | 488 | (3% | ) | ||||||||
Forest products | 182 | 183 | (1% | ) | 363 | 361 | 1% | |||||||||
Coal | 117 | 104 | 13% | 221 | 213 | 4% | ||||||||||
Grain and fertilizers | 134 | 144 | (7% | ) | 278 | 288 | (3% | ) | ||||||||
Intermodal | 312 | 313 | - | 606 | 573 | 6% | ||||||||||
Automotive | 74 | 80 | (8% | ) | 146 | 156 | (6% | ) | ||||||||
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1,204 | 1,236 | (3% | ) | 2,391 | 2,379 | 1% | ||||||||||
Freight revenue / carload (dollars) | ||||||||||||||||
Total freight revenue per carload | 1,449 | 1,353 | 7% | 1,416 | 1,330 | 6% | ||||||||||
Commodity groups: | ||||||||||||||||
Petroleum and chemicals | 1,831 | 1,812 | 1% | 1,808 | 1,780 | 2% | ||||||||||
Metals and minerals | 903 | 779 | 16% | 869 | 773 | 12% | ||||||||||
Forest products | 2,473 | 2,262 | 9% | 2,353 | 2,169 | 8% | ||||||||||
Coal | 829 | 740 | 12% | 796 | 695 | 15% | ||||||||||
Grain and fertilizers | 1,940 | 1,910 | 2% | 1,928 | 1,854 | 4% | ||||||||||
Intermodal | 1,003 | 920 | 9% | 990 | 901 | 10% | ||||||||||
Automotive | 1,878 | 1,788 | 5% | 1,788 | 1,750 | 2% | ||||||||||
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(1) | The pro forma figures reflect the Company's results of operations as if the Company had acquired GLT and BC Rail on January 1, 2004. |
Certain of the comparative statistical data and related productivity measures have been restated to reflect changes to estimated statistical data previously reported and reclassified in order to be consistent with the 2005 presentation.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Canadian National Railway Company | ||||
Date: July 21, 2005 | By: | /s/ Cristina Circelli | ||
Name: | Cristina Circelli | |||
Title: | General Counsel |