FORM
6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
of the Securities Exchange Act of 1934
For
the month of October, 2007
Commission
File Number: 001-02413
Canadian
National Railway Company
(Translation of registrant’s name into English)
(Translation of registrant’s name into English)
935
de la Gauchetiere Street West
Montreal, Quebec
Canada H3B 2M9
(Address of principal executive offices)
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
Table of Contents
Item
| 1. | Press Release dated October 22, 2007 entitled, "CN reports Q3-2007 net income of C$485 million, or C$0.96 per diluted share, including C$0.03 per share benefit from favorable tax adjustments". |
Item
1
 |
|
North
America’s Railroad
|
NEWS
RELEASE
CN
reports
Q3-2007 net income of C$485 million,
or
C$0.96
per diluted share, including C$0.03 per share
benefit
from favorable tax adjustments
Results
reflect weak forest products
revenues,
challenging C$/US$ exchange rate environment
MONTREAL,
Oct. 22, 2007 — CN
(TSX:CNR)(NYSE:CNI) today reported its financial and operating results
for the
three-month and nine-month periods ended Sept. 30, 2007.
Key
third-quarter 2007 statistics
|
·
|
Diluted
earnings per share of C$0.96, including a C$0.03 per share
benefit from favorable tax adjustments, increased two per cent
from the
year-earlier period.
|
|
·
|
Net
income of C$485 million, including a C$14-million benefit from
favorable tax adjustments, declined two per cent from net income
for the
same quarter of 2006.
|
|
·
|
Revenues
remained essentially flat at C$2,023 million, with several commodity
groups helping to offset significant weakness in forest
products.
|
|
·
|
Operating
income declined nine per cent to C$768 million, while CN’s operating
ratio increased by 3.5 points to 62.0 per
cent.
|
E.
Hunter
Harrison, president and chief executive officer, said: “CN’s third-quarter
results are a solid achievement given the challenges we faced during the
period.
Revenues in our forest products segment – CN’s largest commodity group by
revenue – declined 13 per cent as a result of weak market conditions and mill
closures, the impact of a stronger Canadian dollar and lower fuel surcharge
revenues.
“The
stronger Canadian dollar not only affected forest products but also our
other
businesses. Clearly, few of us expected that the Canadian dollar would
surge
beyond parity with the U.S. dollar during the quarter. Despite these challenges,
we are fortunate to have a diversified portfolio of businesses and we were
able
to register volume and revenue growth in Canadian coal, grain and fertilizers,
petroleum and chemicals, and automotive.
“In
the
near term, CN anticipates continued weak market conditions in a number
of
segments, particularly forest products and construction materials. In addition,
we will continue to confront the financial impact of the Canadian dollar/U.S.
dollar exchange rate and its effect on our customers. However, as a result
of
anticipated gains from the closing of our Central Station Complex and English
Welsh and Scottish Railway transactions during the fourth quarter, CN expects
to
achieve full-year 2007 diluted earnings per share growth of about five
per cent.
Excluding these transaction gains, 2007 adjusted diluted earnings per share
are
expected to be flat versus 2006.”
Third-quarter
results
Net
income
for the third quarter of 2007 was C$485 million, including a C$14-million
benefit from favorable tax adjustments related to the enactment of corporate
tax
rate changes in Canada and net capital losses arising from a reorganization
of
certain subsidiaries, compared with net income of C$497 million for the
comparable period of 2006.
Diluted
earnings per share for the latest quarter were C$0.96, including a C$0.03
per
share benefit from favorable tax adjustments, compared with C$0.94 per
diluted
share for the same quarter of 2006.
Third-quarter
revenues of C$2,023 million were relatively flat, largely on account of
the
unfavorable translation impact of a stronger Canadian dollar on U.S.
dollar-denominated revenues, lower fuel surcharge revenues resulting from
a
decrease in the applicable year-over-year oil prices, and weaknesses in
specific
markets, particularly forest products. These decreases were partly offset
by
freight rate increases, an overall improvement in traffic mix, driven primarily
by extended routings, and volume growth in Canadian coal, grain and fertilizers,
petroleum and chemicals, and automotive traffic.
Revenue
ton-miles, a measurement of the relative weight and distance of rail freight
transported by the Company, declined one per cent during third-quarter
2007
versus the comparable period of 2006. Total rail freight revenue per revenue
ton-mile, a measurement of yield defined as revenue earned on the movement
of a
ton of freight over one mile, declined one per cent over the same period
in
2006.
Operating
expenses for the third quarter increased six per cent to C$1,255 million,
mainly
due to increased labor and fringe benefits, fuel, equipment rents, and
casualty
and other expenses, which were partly offset by the translation impact
of the
stronger Canadian dollar.
The
operating ratio, defined as operating expenses as a percentage of revenues,
was
62.0 per cent during the quarter, compared with 58.5 per cent for the third
quarter of 2006, a 3.5-point increase.
2
Nine-month
2007 results
Net
income
for the first nine months of 2007 was C$1,325 million, or C$2.59 per diluted
share, including deferred income tax recoveries of C$44 million (C$0.09
per
diluted share) resulting from the enactment of lower corporate tax rates
in
Canada and net capital losses arising from a reorganization of certain
subsidiaries.
Year-earlier
net income was C$1,588 million, or C$2.95 per diluted share, including
a
deferred income tax recovery of C$250 million (C$0.46 per diluted
share).
Revenues
for the first nine months of 2007 were relatively flat at C$5,956 million,
as
freight rate increases and an overall improvement in traffic mix were largely
offset by the impact of the first-quarter United Transportation Union (UTU)
strike and adverse weather conditions, operational challenges, primarily
in
western Canada, the translation impact of a stronger Canadian dollar on
U.S.
dollar-denominated revenues, lower fuel surcharge revenues as a result
of a
decrease in the applicable year-over-year oil prices, and weakness in specific
markets, particularly forest products.
Revenue
ton-miles for the first nine months of 2007 declined two per cent from
the
comparable period of 2006, while total rail freight revenue per ton-mile
increased two per cent.
For
the
first nine months of 2007, operating expenses increased four per cent to
C$3,816
million, mainly due to increased fuel, equipment rents and purchased services
and material expenses, which were partly offset by the translation impact
of a
stronger Canadian dollar and lower casualty and other expenses. The nine-month
operating ratio was 64.1 per cent, a 2.5-point increase.
In
addition to the adverse weather conditions in the first quarter and operational
challenges in the second quarter, the Company’s results in the first nine months
of 2007 included the impact of a first-quarter 2007 strike by 2,800 members
of
the UTU in Canada for which the Company estimates that the impact on
first-quarter 2007 operating income and net income approximated C$50 million
and
C$35 million, respectively (C$0.07 per diluted share).
The
financial results in this press release were determined on the basis of
U.S.
generally accepted accounting principles (U.S. GAAP).
Please
see
discussion and reconciliation of non-GAAP adjusted performance measures
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 risk, uncertainties and assumptions,
and
while there may be a risk of recession in the U.S. economy, the Company’s
assumption is that positive economic conditions in North America and globally
will continue, which assumption may not materialize, and that its results
could
differ materially from those expressed or implied in such statements. Important
factors that could cause such differences include, but are not limited
to,
industry competition, legislative and/or regulatory developments, compliance
with environmental laws and regulations, various events which could disrupt
operations, including natural events such as severe weather, droughts,
floods
and earthquakes, the effects of adverse general economic and business
conditions, inflation, currency fluctuations, changes in fuel prices, labor
disruptions, environmental claims, investigations or proceedings, other
types of
claims and litigation, and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United States.
Reference should be made to CN’s most recent Form 40-F filed with the United
States Securities and Exchange Commission, its Annual Information Form
filed
with the Canadian securities regulators, and its 2006 Annual Consolidated
Financial Statements and Notes thereto and Management’s Discussion and Analysis
(MD&A), for a summary of major risks.
3
CN
–
Canadian National Railway Company and its operating railway subsidiaries
–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 metropolitan areas 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. For more information on CN, visit the company’s
website at www.cn.ca.
-
30
-
|
Contacts:
|
||
|
Media
|
Investment
Community
|
|
|
Mark
Hallman
|
Robert
Noorigian
|
|
|
Director
|
Vice-President
|
|
|
Communications,
Media & Eastern Region
|
Investor
Relations
|
|
|
(905)
669-3384
|
|
(514)
399-0052
|
4
CANADIAN
NATIONAL RAILWAY COMPANY
CONSOLIDATED
STATEMENT OF INCOME (U.S.
GAAP)
(In
millions, except per share data)
|
Three
months ended September
30 |
Nine
months ended September
30 |
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Revenues
|
$ |
2,023
|
$ |
2,032
|
$ |
5,956
|
$ |
5,929
|
||||||||
|
Operating
expenses
|
||||||||||||||||
|
Labor
and
fringe benefits
|
446
|
420
|
1,361
|
1,349
|
||||||||||||
|
Purchased
services and material
|
247
|
250
|
786
|
756
|
||||||||||||
|
Depreciation
and amortization
|
165
|
157
|
504
|
483
|
||||||||||||
|
Fuel
|
251
|
235
|
719
|
665
|
||||||||||||
|
Equipment
rents
|
59
|
49
|
187
|
135
|
||||||||||||
|
Casualty
and
other
|
87
|
77
|
259
|
267
|
||||||||||||
|
Total
operating expenses
|
1,255
|
1,188
|
3,816
|
3,655
|
||||||||||||
|
Operating
income
|
768
|
844
|
2,140
|
2,274
|
||||||||||||
|
Interest
expense
|
(78 | ) | (82 | ) | (251 | ) | (232 | ) | ||||||||
|
Other
income
(loss)
|
2
|
(10 | ) |
7
|
(16 | ) | ||||||||||
|
Income
before
income taxes
|
692
|
752
|
1,896
|
2,026
|
||||||||||||
|
Income
tax
expense (Note 8)
|
(207 | ) | (255 | ) | (571 | ) | (438 | ) | ||||||||
|
Net
income
|
$ |
485
|
$ |
497
|
$ |
1,325
|
$ |
1,588
|
||||||||
|
Earnings
per share (Note 9)
|
||||||||||||||||
|
Basic
|
$ |
0.97
|
$ |
0.95
|
$ |
2.62
|
$ |
3.00
|
||||||||
|
Diluted
|
$ |
0.96
|
$ |
0.94
|
$ |
2.59
|
$ |
2.95
|
||||||||
|
Weighted-average
number of shares
|
||||||||||||||||
|
Basic
|
499.7
|
522.5
|
505.0
|
529.5
|
||||||||||||
|
Diluted
|
506.4
|
530.2
|
512.1
|
538.0
|
||||||||||||
See
accompanying notes to unaudited consolidated financial statements.
5
CANADIAN
NATIONAL RAILWAY COMPANY
CONSOLIDATED
BALANCE SHEET (U.S.
GAAP)
(In
millions)
|
September
30
|
December
31
|
September
30
|
||||||||||
|
2007
|
2006
|
2006
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||
|
Assets
|
||||||||||||
|
Current
assets:
|
||||||||||||
|
Cash
and cash
equivalents
|
$ |
214
|
$ |
179
|
$ |
56
|
||||||
|
Accounts
receivable
|
641
|
692
|
1,035
|
|||||||||
|
Material
and
supplies
|
206
|
189
|
205
|
|||||||||
|
Deferred
income taxes (Notes 2, 8)
|
69
|
84
|
80
|
|||||||||
|
Other
|
316
|
192
|
107
|
|||||||||
|
1,446
|
1,336
|
1,483
|
||||||||||
|
Properties
|
19,883
|
21,053
|
20,216
|
|||||||||
|
Intangible
and
other assets
|
1,576
|
1,615
|
976
|
|||||||||
|
Total
assets
|
$ |
22,905
|
$ |
24,004
|
$ |
22,675
|
||||||
|
Liabilities
and shareholders' equity
|
||||||||||||
|
Current
liabilities:
|
||||||||||||
|
Accounts
payable and accrued charges
|
$ |
1,205
|
$ |
1,823
|
$ |
1,671
|
||||||
|
Current
portion of long-term debt (Note 4)
|
293
|
218
|
151
|
|||||||||
|
Other
|
56
|
73
|
69
|
|||||||||
|
1,554
|
2,114
|
1,891
|
||||||||||
|
Deferred
income taxes (Notes 2, 8)
|
4,940
|
5,215
|
4,884
|
|||||||||
|
Other
liabilities and deferred credits
|
1,410
|
1,465
|
1,474
|
|||||||||
|
Long-term
debt
(Note 4)
|
5,342
|
5,386
|
5,164
|
|||||||||
|
|
||||||||||||
|
Shareholders'
equity:
|
||||||||||||
|
Common
shares
|
4,359
|
4,459
|
4,476
|
|||||||||
|
Accumulated
other comprehensive loss
|
(257 | ) | (44 | ) | (520 | ) | ||||||
|
Retained
earnings
|
5,557
|
5,409
|
5,306
|
|||||||||
|
9,659
|
9,824
|
9,262
|
||||||||||
|
Total
liabilities and shareholders' equity
|
$ |
22,905
|
$ |
24,004
|
$ |
22,675
|
||||||
See
accompanying notes to unaudited consolidated financial statements.
6
CANADIAN
NATIONAL
RAILWAY COMPANY
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (U.S.
GAAP)
(In
millions)
|
Three
months ended
September
30
|
Nine months
ended
September
30
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Common
shares (1)
|
||||||||||||||||
|
Balance,
beginning of period
|
$ |
4,417
|
$ |
4,543
|
$ |
4,459
|
$ |
4,580
|
||||||||
|
Stock
options
exercised and other
|
16
|
8
|
83
|
90
|
||||||||||||
|
Share
repurchase programs (Note 4)
|
(74 | ) | (75 | ) | (183 | ) | (194 | ) | ||||||||
|
Balance,
end
of period
|
$ |
4,359
|
$ |
4,476
|
$ |
4,359
|
$ |
4,476
|
||||||||
|
Accumulated
other comprehensive loss
|
||||||||||||||||
|
Balance,
beginning of period
|
$ | (180 | ) | $ | (521 | ) | $ | (44 | ) | $ | (222 | ) | ||||
|
Other
comprehensive income (loss):
|
||||||||||||||||
|
Unrealized
foreign exchange gain (loss) on:
|
||||||||||||||||
|
Translation
of
the net investment in foreign operations
|
(381 | ) |
50
|
(914 | ) | (214 | ) | |||||||||
|
Translation
of
U.S. dollar-denominated long-term debt
|
||||||||||||||||
|
designated
as
a hedge of the net investment in U.S. subsidiaries
|
328
|
(44 | ) |
766
|
163
|
|||||||||||
|
Pension
and
other postretirement benefit plans:
|
||||||||||||||||
|
Amortization
of:
|
||||||||||||||||
|
Prior
service
cost (Note 6)
|
5
|
-
|
16
|
-
|
||||||||||||
|
Net
actuarial
loss (Note 6)
|
13
|
-
|
38
|
-
|
||||||||||||
|
Derivative
instruments:
|
||||||||||||||||
|
Decrease
in
unrealized holding gains on fuel
|
||||||||||||||||
|
derivative
instruments
|
-
|
(10 | ) |
-
|
(57 | ) | ||||||||||
|
Other
comprehensive loss before income taxes
|
(35 | ) | (4 | ) | (94 | ) | (108 | ) | ||||||||
|
Income
tax
recovery (expense)
|
(42 | ) |
5
|
(119 | ) | (190 | ) | |||||||||
|
Other
comprehensive income (loss)
|
(77 | ) |
1
|
(213 | ) | (298 | ) | |||||||||
|
Balance,
end
of period
|
$ | (257 | ) | $ | (520 | ) | $ | (257 | ) | $ | (520 | ) | ||||
|
Retained
earnings
|
||||||||||||||||
|
Balance,
beginning of period
|
$ |
5,554
|
$ |
5,212
|
$ |
5,409
|
$ |
4,891
|
||||||||
|
Adoption
of
new accounting pronouncements (Note 2)
|
-
|
-
|
95
|
-
|
||||||||||||
|
Restated
balance, beginning of period
|
5,554
|
5,212
|
5,504
|
4,891
|
||||||||||||
|
Net
income
|
485
|
497
|
1,325
|
1,588
|
||||||||||||
|
Share
repurchase programs (Note 4)
|
(378 | ) | (318 | ) | (956 | ) | (916 | ) | ||||||||
|
Dividends
|
(104 | ) | (85 | ) | (316 | ) | (257 | ) | ||||||||
|
Balance,
end
of period
|
$ |
5,557
|
$ |
5,306
|
$ |
5,557
|
$ |
5,306
|
||||||||
See
accompanying notes to unaudited consolidated financial statements.
|
(1)
|
During
the
three and nine months ended September 30, 2007, the Company issued
0.5
million and 2.9 million common shares, respectively, as a result
of stock
options exercised. At September 30, 2007, the Company had 494.5
million
common shares outstanding.
|
7
CANADIAN
NATIONAL RAILWAY COMPANY
CONSOLIDATED
STATEMENT OF CASH FLOWS (U.S.
GAAP)
(In
millions)
|
Three
months
ended September
30 |
Nine
months ended September
30 |
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Operating
activities
|
||||||||||||||||
|
Net
income
|
$ |
485
|
$ |
497
|
$ |
1,325
|
$ |
1,588
|
||||||||
|
Adjustments
to
reconcile net income to net cash provided from
|
||||||||||||||||
|
operating
activities:
|
||||||||||||||||
|
Depreciation
and amortization
|
165
|
159
|
506
|
486
|
||||||||||||
|
Deferred
income taxes
|
75
|
74
|
125
|
(20 | ) | |||||||||||
|
Other
changes
in:
|
||||||||||||||||
|
Accounts
receivable
|
(252 | ) | (71 | ) | (38 | ) | (420 | ) | ||||||||
|
Material
and
supplies
|
(6 | ) |
30
|
(26 | ) | (54 | ) | |||||||||
|
Accounts
payable and accrued charges
|
(65 | ) |
134
|
(471 | ) |
149
|
||||||||||
|
Other
net
current assets and liabilities
|
42
|
9
|
51
|
92
|
||||||||||||
|
Other
|
(14 | ) |
22
|
(40 | ) |
57
|
||||||||||
|
Cash
provided
from operating activities
|
430
|
854
|
1,432
|
1,878
|
||||||||||||
|
Investing
activities
|
||||||||||||||||
|
Property
additions
|
(350 | ) | (384 | ) | (897 | ) | (826 | ) | ||||||||
|
Other,
net
|
14
|
6
|
26
|
(39 | ) | |||||||||||
|
Cash
used by
investing activities
|
(336 | ) | (378 | ) | (871 | ) | (865 | ) | ||||||||
|
Financing
activities
|
||||||||||||||||
|
Issuance
of
long-term debt
|
1,841
|
-
|
3,325
|
3,125
|
||||||||||||
|
Reduction
of
long-term debt
|
(1,420 | ) | (153 | ) | (2,469 | ) | (2,855 | ) | ||||||||
|
Issuance
of
common shares due to exercise of stock options
|
||||||||||||||||
|
and
related excess tax benefits realized
|
14
|
4
|
73
|
78
|
||||||||||||
|
Repurchase
of
common shares
|
(452 | ) | (393 | ) | (1,139 | ) | (1,110 | ) | ||||||||
|
Dividends
paid
|
(104 | ) | (85 | ) | (316 | ) | (257 | ) | ||||||||
|
Cash
used by
financing activities
|
(121 | ) | (627 | ) | (526 | ) | (1,019 | ) | ||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(27 | ) | (151 | ) |
35
|
(6 | ) | |||||||||
|
Cash
and cash
equivalents, beginning of period
|
241
|
207
|
179
|
62
|
||||||||||||
|
Cash
and cash equivalents, end of period
|
$ |
214
|
$ |
56
|
$ |
214
|
$ |
56
|
||||||||
|
Supplemental
cash flow information
|
||||||||||||||||
|
Net
cash
receipts from customers and other
|
$ |
1,770
|
$ |
1,949
|
$ |
5,930
|
$ |
5,521
|
||||||||
|
Net
cash
payments for:
|
||||||||||||||||
|
Employee
services, suppliers and other expenses
|
(1,106 | ) | (924 | ) | (3,387 | ) | (3,097 | ) | ||||||||
|
Interest
|
(86 | ) | (86 | ) | (273 | ) | (227 | ) | ||||||||
|
Workforce
reductions
|
(8 | ) | (10 | ) | (24 | ) | (37 | ) | ||||||||
|
Personal
injury and other claims
|
(12 | ) | (18 | ) | (58 | ) | (60 | ) | ||||||||
|
Pensions
|
(27 | ) | (21 | ) | (50 | ) | (46 | ) | ||||||||
|
Income
taxes
|
(101 | ) | (36 | ) | (706 | ) | (176 | ) | ||||||||
|
Cash
provided
from operating activities
|
$ |
430
|
$ |
854
|
$ |
1,432
|
$ |
1,878
|
||||||||
See
accompanying notes to unaudited consolidated financial statements.
8
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
GAAP)
Note
1 –
Basis of presentation
In
management’s opinion,
the
accompanying unaudited Interim Consolidated Financial Statements and
Notes thereto, expressed in Canadian dollars, and prepared in accordance
with
U.S. generally accepted accounting principles (U.S. GAAP) for interim financial
statements, contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly Canadian National Railway Company’s (the Company)
financial position as at September 30, 2007, December 31, 2006, and September
30, 2006, and its results of operations, changes in shareholders’ equity and
cash flows for the three and nine months ended September 30, 2007 and
2006.
These
unaudited Interim Consolidated Financial Statements and Notes thereto have
been
prepared using accounting policies consistent with those used in preparing
the
Company’s 2006 Annual Consolidated Financial Statements, except for accounting
for income taxes and pensions and other postretirement benefits as explained
in
Note 2 – Adoption of new accounting pronouncements. While management believes
that the disclosures presented are adequate to make the information not
misleading, these unaudited Interim Consolidated Financial Statements and
Notes
thereto should be read in conjunction with the Company’s Interim Management’s
Discussion and Analysis (MD&A) and Annual Consolidated Financial Statements
and Notes thereto.
Certain
of the comparative figures have been reclassified in order to be consistent
with
the 2007 presentation as discussed herein. As a result of the Company's
expansion of its existing non-rail transportation services, in combination
with
its rail service, the Company has become primarily responsible for the
fulfillment of the transportation of goods involving non-rail
activities. In order to be consistent with other non-rail
transportation services, the Company reclassified certain operating expenses
incurred for non-rail transportation services, which were previously netted
with
their related revenues, to reflect the gross reporting of revenues where
appropriate. This change had no impact on the Company's operating
income and net income, as both revenues and operating expenses were increased
by
$92 million and $225 million in the three and nine months ended September
30,
2007, respectively, and $51 million and $155 million, respectively, for
the same
periods in 2006.
Note
2 –
Adoption of new accounting pronouncements
Income
taxes
On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB)
Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes,” which
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, disclosure, and
transition. The application of FIN No. 48 on January 1, 2007 had the effect
of
decreasing the net deferred income tax liability and increasing Retained
earnings by $98 million.
At
January 1, 2007, the total amount of unrecognized tax benefits was $80
million,
of which $36 million related to accrued interest and penalties. The total
amount
of the gross unrecognized tax benefits was $140 million, before considering
tax
treaties and other arrangements between taxation authorities. If recognized,
all
of the unrecognized tax benefits would affect the effective tax rate. The
amount
of unrecognized tax benefits did not significantly change as at September
30,
2007.
The
Company recognizes interest accrued and penalties related to unrecognized
tax
benefits in Income tax expense in the Company’s Consolidated Statement of
Income. The amount of interest and penalties expense for the three and
nine
months ended September 30, 2007 was not significant.
In
Canada, the federal income tax returns filed for the years 2002 to 2006
and the
provincial income tax returns filed for the years 1998 to 2006 remain subject
to
examination by the taxation authorities. In the U.S., the income tax returns
filed for the years 2004 to 2006 remain subject to examination by the taxation
authorities.
Pensions
and other postretirement benefits
On
January 1, 2007, pursuant to Statement of Financial Accounting Standards
(SFAS)
No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,
and
132(R),” the Company early adopted the requirement to measure the defined
benefit plan assets and the projected benefit obligation as of the date
of the
fiscal year-end statement of financial position for its U.S. plans. The
Company
elected to use the 15-month transition method, which allows for the
extrapolation of net periodic benefit cost based on the September 30, 2006
measurement date to the fiscal year-end date of
9
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
December
31, 2007. As a result, the Company recorded a reduction of $3 million to
Retained earnings at January 1, 2007, which represents the net periodic
benefit
cost attributable to the period between the early measurement date of September
30, 2006 and January 1, 2007 (the date of adoption).
Note
3 –
Agreement to acquire Elgin, Joliet and Eastern Railway Company
(EJ&E)
In
September 2007, the Company entered into an agreement with the U.S. Steel
Corporation (U.S. Steel) for the acquisition of the key operations of EJ&E
for a purchase price of approximately U.S.$300 million. Under the terms
of the
agreement, the Company will acquire substantially all of the railroad assets
and
equipment of EJ&E, except those that support the Gary Works site in
Northwest Indiana and the steelmaking operations of U.S. Steel. The acquisition
will be financed by debt and cash on hand.
In
accordance with the terms of the agreement, the Company’s obligation to
consummate the acquisition is subject to the Company having obtained from
the
U.S. Surface Transportation Board (STB) a final, unappealable decision
that
approves the acquisition or exempts it from regulation and does not impose
on
the parties conditions that would significantly and adversely affect the
anticipated economic benefits of the acquisition to the Company.
The
Company believes that if its application to acquire EJ&E is approved by the
STB as filed, the transaction should close by mid-2008. If the transaction
is
approved, the Company will account for the acquisition using the purchase
method
of accounting.
Note
4 –
Financing activities
Shelf
prospectus and registration statement
In
September 2007, the Company issued U.S.$250 million (Cdn$250 million) of
5.85%
Notes due 2017 and U.S.$300 million (Cdn$300 million) of 6.375% Debentures
due
2037, the total remaining amount under its shelf registration statement
filed in
May 2006. The Company used the net proceeds of U.S.$544 million to repay
a
portion of its commercial paper outstanding and to reduce its accounts
receivable securitization program.
Revolving
credit facility
As
at September 30, 2007, the Company had letters of credit drawn on its U.S.$1
billion revolving credit facility of $58 million ($308 million as at December
31, 2006). The Company also had total borrowings under its commercial paper
program of $377 million, of which $136 million was denominated in Canadian
dollars and $241 million was denominated in U.S. dollars (U.S.$242 million).
The
weighted-average interest rate on these borrowings was 5.43%. The Company
had no
commercial paper outstanding as at December 31, 2006.
Accounts
receivable securitization
The
Company has a five-year agreement, expiring in May 2011, to sell an undivided
co-ownership interest of up to a maximum of $600 million in a revolving
pool of
freight receivables to an unrelated trust.
At
September 30, 2007, the Company had sold receivables that resulted in proceeds
of $406 million under this program ($393 million at December 31, 2006).
The
retained interest in the receivables was approximately 10% of this amount
and is
recorded in Other current assets. At September 30, 2007, the servicing
asset and
liability were not significant.
Share
repurchase programs
On
July 23, 2007, the Board of Directors of the Company approved a new share
repurchase program which allows for the repurchase of up to 33.0 million
common
shares between July 26, 2007 and July 25, 2008 pursuant to a normal course
issuer bid, at prevailing market prices or such other price as may be permitted
by the Toronto Stock Exchange.
In
the third quarter of 2007, under this current share repurchase program,
the
Company repurchased 8.3 million common shares for $452 million, at a
weighted-average price of $54.46 per share.
10
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
GAAP)
In
the second quarter of 2007, the Company completed its 28.0 million share
repurchase program, which began on July 25, 2006, repurchasing a total
of 28.0
million common shares for $1,453 million, at a weighted-average price of
$51.88
per share. Of this amount, 12.5 million common shares were
repurchased in 2007 for $687 million, at a weighted-average price of $54.93
per
share.
Note
5 –
Stock plans
The
Company has various stock-based incentive plans for eligible employees.
A
description of the plans is provided in Note 12 – Stock plans, to the Company’s
2006 Annual Consolidated Financial Statements. For the three and nine months
ended September 30, 2007, the Company recorded total compensation expense
for
awards under all plans of $39 million and $112 million, respectively, and
$7
million and $48 million, respectively, for the same periods in 2006. The
total
tax benefit recognized in income in relation to stock-based compensation
expense
for the three and nine months ended September 30, 2007, was $12 million
and $33
million, respectively, and $1 million and $12 million, respectively, for
the
same periods in 2006.
Cash
settled award
Following
approval by the Board of Directors in January 2007, the Company granted
0.7
million restricted share units (RSUs) to designated management employees
entitling them to receive payout in cash based on the Company’s share price. The
RSUs granted by the Company are generally scheduled for payout in cash
after
three years (“plan period”) and vest upon the attainment of targets relating to
return on invested capital over the plan period and the Company’s share price
during the last three months of the plan period. As at September 30, 2007,
0.1
million RSUs remained authorized for future issuance under this
plan.
The
following table provides the activity for all cash settled awards in
2007:
|
Vision
2008 Share Unit
|
Voluntary
Incentive
|
|||||||||||||||||||||||
|
RSUs
|
Plan
(Vision)
|
Deferral
Plan (VIDP)
|
||||||||||||||||||||||
|
In
millions
|
Nonvested
|
Vested
|
Nonvested
|
Vested
|
Nonvested
|
Vested
|
||||||||||||||||||
|
Outstanding
at
December 31, 2006
|
2.0
|
-
|
0.8
|
-
|
0.3
|
1.9
|
||||||||||||||||||
|
Granted
|
0.7
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Forfeited
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Vested
during
period
|
(0.2 | ) |
0.2
|
-
|
-
|
(0.1 | ) |
0.1
|
||||||||||||||||
|
Payout
|
-
|
(0.1 | ) |
-
|
-
|
-
|
(0.2 | ) | ||||||||||||||||
|
Conversion
into VIDP
|
-
|
(0.1 | ) |
-
|
-
|
-
|
0.1
|
|||||||||||||||||
|
Outstanding
at September 30, 2007
|
2.5
|
-
|
0.8
|
-
|
0.2
|
1.9
|
||||||||||||||||||
11
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
GAAP)
The
following table provides valuation and expense information for all cash
settled
awards:
| In millions, unless otherwise indicated |
RSUs
(1)
|
Vision
(1)
|
VIDP
(2)
|
Total
|
||||||||||||||||||||||||
| Year of grant |
2007
|
2006
|
2005
|
2004
|
2005
|
2003
onwards
|
||||||||||||||||||||||
|
Stock-based
compensation expense
|
||||||||||||||||||||||||||||
|
recognized
over requisite service
period
|
||||||||||||||||||||||||||||
|
Nine
months
ended September 30, 2007
|
$ |
17
|
$ |
19
|
$ |
19
|
$ |
5
|
$ |
13
|
$ |
30
|
$ |
103
|
||||||||||||||
|
Nine
months
ended September 30, 2006
|
N/A
|
$ |
8
|
$ |
12
|
$ |
5
|
$ |
6
|
$ |
5
|
$ |
36
|
|||||||||||||||
|
Liability
outstanding
|
||||||||||||||||||||||||||||
|
September
30,
2007
|
$ |
17
|
$ |
40
|
$ |
53
|
$ |
4
|
$ |
20
|
$ |
115
|
$ |
249
|
||||||||||||||
|
December
31,
2006
|
N/A
|
$ |
21
|
$ |
34
|
$ |
8
|
$ |
8
|
$ |
99
|
$ |
170
|
|||||||||||||||
|
Fair
value per unit
|
||||||||||||||||||||||||||||
|
September
30,
2007
|
$ |
48.31
|
$ |
53.97
|
$ |
56.56
|
$ |
56.76
|
$ |
37.20
|
$ |
56.76
|
N/A
|
|||||||||||||||
|
Fair
value of awards vested during period
|
||||||||||||||||||||||||||||
|
Nine
months
ended September 30, 2007
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
5
|
$ |
-
|
$ |
3
|
$ |
8
|
||||||||||||||
|
Nine
months
ended September 30, 2006
|
N/A
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
2
|
$ |
2
|
|||||||||||||||
|
Nonvested
awards at September 30,
2007
|
||||||||||||||||||||||||||||
|
Unrecognized
compensation cost
|
$ |
15
|
$ |
14
|
$ |
5
|
$ |
5
|
$ |
9
|
$ |
10
|
$ |
58
|
||||||||||||||
|
Remaining
recognition period (years)
|
2.25
|
1.25
|
0.25
|
1.25
|
1.25
|
3.25
|
N/A
|
|||||||||||||||||||||
|
Assumptions
(3)
|
||||||||||||||||||||||||||||
|
Stock
price
($)
|
$ |
56.76
|
$ |
56.76
|
$ |
56.76
|
$ |
56.76
|
$ |
56.76
|
$ |
56.76
|
N/A
|
|||||||||||||||
|
Expected
stock
price volatility (4)
|
20% | 20% | 21% |
N/A
|
20% |
N/A
|
N/A
|
|||||||||||||||||||||
|
Expected
term
(years) (5)
|
2.25
|
1.25
|
0.25
|
N/A
|
1.25
|
N/A
|
N/A
|
|||||||||||||||||||||
|
Risk-free
interest rate (6)
|
4.07% | 4.20% | 4.20% |
N/A
|
4.13% |
N/A
|
N/A
|
|||||||||||||||||||||
|
Dividend
rate
($) (7)
|
$ |
0.84
|
$ |
0.84
|
$ |
0.84
|
N/A
|
$ |
0.84
|
N/A
|
N/A
|
|||||||||||||||||
|
(1)
|
Compensation
cost is based on the fair value of the awards at period-end using
the
lattice-based valuation model that uses the assumptions as presented
herein, except for time-vested
RSUs.
|
|
(2)
|
Compensation
cost is based on intrinsic
value.
|
|
(3)
|
Assumptions
used to determine fair value are at
period-end.
|
|
(4)
|
Based
on
the historical volatility of the Company's stock over a period
commensurate with the expected term of the
award.
|
|
(5)
|
Represents
the remaining period of time that awards are expected to be
outstanding.
|
|
(6)
|
Based
on
the implied yield available on zero-coupon government issues
with an
equivalent term commensurate with the expected term of the
awards.
|
|
(7)
|
Based
on
the annualized dividend rate.
|
Stock
option award
Following
approval by the Board of Directors in January 2007, the Company granted
0.9
million conventional stock options to designated senior management employees.
The stock option plan allows eligible employees to acquire common shares
of the
Company upon vesting at a price equal to the market value of the common
shares
at the date of grant. The options are exercisable during a period not exceeding
10 years. The right to exercise options generally accrues over a period
of four
years of continuous employment. Options are not generally exercisable during
the
first 12 months after the date of grant. At September 30, 2007, 14.4 million
common shares remained authorized for future issuances under this
plan. The total number of options outstanding at September 30, 2007,
including conventional, performance, and performance-accelerated options,
was
10.7 million, 0.6 million and 3.5 million, respectively.
12
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
GAAP)
The
following table provides the activity of stock option awards in
2007:
|
Options
outstanding
|
||||||||||||||||
|
Number
|
Weighted-average
|
Weighted-average
|
Aggregate
|
|||||||||||||
|
of
options
|
exercise
price
|
years
to
expiration
|
intrinsic
value
|
|||||||||||||
|
In
millions
|
In
millions
|
|||||||||||||||
|
Outstanding
at
December 31, 2006 (1)
|
16.9
|
$
|
23.29
|
|||||||||||||
|
Granted
|
0.9
|
$
|
52.79
|
|||||||||||||
|
Forfeited
|
(0.1 | ) |
$
|
36.92
|
||||||||||||
|
Exercised
|
(2.9 | ) |
$
|
20.25
|
||||||||||||
|
Outstanding
at September 30, 2007 (1)
|
14.8
|
$
|
24.52
|
4.8
|
$
|
477
|
||||||||||
|
Exercisable
at September 30, 2007 (1)
|
12.5
|
$
|
21.15
|
4.2
|
$
|
446
|
||||||||||
|
(1)
|
Stock
options with a U.S. dollar exercise price have been translated
to Canadian
dollars using the foreign exchange rate in effect at the balance
sheet
date.
|
The
following table provides valuation and expense information for all stock
option
awards:
|
In
millions, unless otherwise indicated
|
||||||||||||||||||||
|
Year
of grant
|
2007
|
2006
|
2005
|
Prior
to
2005
|
Total
|
|||||||||||||||
|
Stock-based
compensation expense
|
||||||||||||||||||||
|
recognized
over requisite service period (1)
|
||||||||||||||||||||
|
Nine
months
ended September 30, 2007
|
$ |
6
|
$ |
1
|
$ |
2
|
$ |
-
|
$ |
9
|
||||||||||
|
Nine
months
ended September 30, 2006
|
N/A
|
$ |
7
|
$ |
2
|
$ |
3
|
$ |
12
|
|||||||||||
|
Fair
value per unit
|
||||||||||||||||||||
|
At
grant date
($)
|
$ |
13.36
|
$ |
13.80
|
$ |
9.19
|
$ |
8.61
|
N/A
|
|||||||||||
|
Fair
value of awards vested during period
|
||||||||||||||||||||
|
Nine
months
ended September 30, 2007
|
$ |
-
|
$ |
4
|
$ |
3
|
$ |
-
|
$ |
7
|
||||||||||
|
Nine
months
ended September 30, 2006
|
N/A
|
$ |
-
|
$ |
3
|
$ |
34
|
$ |
37
|
|||||||||||
|
Nonvested
awards at September 30, 2007
|
||||||||||||||||||||
|
Unrecognized
compensation cost
|
$ |
5
|
$ |
5
|
$ |
4
|
$ |
-
|
$ |
14
|
||||||||||
|
Remaining
recognition period (years)
|
3.4
|
2.4
|
1.3
|
-
|
N/A
|
|||||||||||||||
|
Assumptions
(1)
|
||||||||||||||||||||
|
Grant
price
($)
|
$ |
52.79
|
$ |
51.51
|
$ |
36.33
|
$ |
23.59
|
N/A
|
|||||||||||
|
Expected
stock
price volatility (2)
|
24% | 25% | 25% | 30% |
N/A
|
|||||||||||||||
|
Expected
term
(years) (3)
|
5.2
|
5.2
|
5.2
|
6.2
|
N/A
|
|||||||||||||||
|
Risk-free
interest rate (4)
|
4.12% | 4.04% | 3.50% |
5.13%
|
N/A
|
|||||||||||||||
|
Dividend
rate
($) (5)
|
$ |
0.84
|
$ |
0.65
|
$ |
0.50
|
$ |
0.30
|
N/A
|
|||||||||||
|
(1)
|
Compensation
cost is based on the grant date fair value using the Black-Scholes
option-pricing model that uses the assumptions at the grant
date.
|
|
(2)
|
Based
on
the historical volatility of the Company's stock over a period
commensurate with the expected term of the
award.
|
|
(3)
|
Represents
the period of time that awards are expected to be outstanding.
The Company
uses historical data to estimate option exercise and employee
termination,
and groups of employees that have similar historical exercise
behavior are
considered separately.
|
|
(4)
|
Based
on
the implied yield available on zero-coupon government issues
with an
equivalent term commensurate with the expected term of the
awards.
|
|
(5)
|
Based
on
the annualized dividend rate.
|
13
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS (U.S. GAAP)
Note
6 –
Pensions and other postretirement benefits
For
the three and nine months ended September 30, 2007 and 2006, the components
of
net periodic benefit cost for pensions and other postretirement benefits
were as
follows:
(a)
Components of net periodic benefit cost for pensions
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
|
September
30
|
September
30
|
|||||||||||||||
|
In
millions
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
|
Service
cost
|
$ |
38
|
$ |
29
|
$ |
114
|
$ |
109
|
||||||||
|
Interest
cost
|
186
|
180
|
557
|
538
|
||||||||||||
|
Expected
return on plan assets
|
(234 | ) | (227 | ) | (703 | ) | (680 | ) | ||||||||
|
Amortization
of prior service cost
|
5
|
5
|
15
|
14
|
||||||||||||
|
Amortization
of net actuarial loss
|
13
|
22
|
40
|
68
|
||||||||||||
|
Net
periodic benefit cost
|
$ |
8
|
$ |
9
|
$ |
23
|
$ |
49
|
||||||||
|
(b)
Components of net periodic benefit cost for postretirement
benefits
|
||||||||||||||||
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
|
September
30
|
September
30
|
|||||||||||||||
|
In
millions
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
|
Service
cost
|
$ |
1
|
$ |
1
|
$ |
3
|
$ |
3
|
||||||||
|
Interest
cost
|
4
|
3
|
11
|
11
|
||||||||||||
|
Curtailment
|
-
|
-
|
(3 | ) |
-
|
|||||||||||
|
Amortization
of prior service cost
|
-
|
-
|
1
|
-
|
||||||||||||
|
Recognized
net
actuarial gain
|
-
|
-
|
(2 | ) | (4 | ) | ||||||||||
|
Net
periodic benefit cost
|
$ |
5
|
$ |
4
|
$ |
10
|
$ |
10
|
||||||||
For
the 2007 funding year, the Company expects to make total contributions
of
approximately $90 million for all its defined benefit plans, of which $50
million was disbursed as at September 30, 2007.
Note
7 –
Major commitments and contingencies
A.
Commitments
As
at September 30, 2007, the Company had commitments to acquire railroad
ties,
rail, freight cars, locomotives, and other equipment and services, as well
as
outstanding information technology service contracts and licenses, at an
aggregate cost of $815 million ($773 million at December 31, 2006). The
Company
also has agreements with fuel suppliers to purchase approximately 75% of
the
estimated remaining 2007 volume, 52% of its anticipated 2008 volume, 31%
of its
anticipated 2009 volume, 13% of its anticipated 2010 volume, and approximately
18% of its anticipated 2011 to 2015 volumes, 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.
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 third-party administration
costs. For all other legal actions, the Company maintains,
14
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
GAAP)
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.
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 liability 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
and
unasserted occupational disease claims, based on actuarial estimates of
their
ultimate cost. A comprehensive actuarial study is conducted on an
annual basis, in the fourth quarter, by an independent actuarial firm for
occupational disease claims, while an actuarial study is conducted on a
semi-annual basis for non-occupational disease claims. In the second quarter
of
2007, the Company recorded a net reduction to its provision for U.S. personal
injuries and other claims pursuant to the results of the latest actuarial
study. On an ongoing basis, management reviews and compares the
assumptions inherent in the latest actuarial study with the current claim
experience and, if required, adjustments to the liability are
recorded.
As
at September 30, 2007, the Company had aggregate reserves for personal
injury
and other claims of $500 million, of which $103 million was recorded as
a
current liability ($602 million, of which $115 million was recorded as
a current
liability at December 31, 2006). Although the Company considers such provisions
to be adequate for all its outstanding and pending claims, the final outcome
with respect to actions outstanding or pending at September 30, 2007, or
with
respect to future claims, cannot be predicted with certainty, and therefore
there can be no assurance that their resolution will not have a material
adverse
effect on the Company’s financial position or results of operations in a
particular quarter or fiscal year.
C.
Environmental matters
The
Company’s operations are subject to numerous federal, provincial, state,
municipal and local environmental laws and regulations in Canada and the
United
States 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.
The
Company is subject to environmental clean-up and enforcement
actions. In particular, the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), also known as
the
Superfund law, as well as similar state laws generally impose joint and
several
liability for clean-up and enforcement costs on current and former owners
and
operators of a site without regard to fault or the legality of the original
conduct. The Company has been notified that it is a potentially responsible
party for study and clean-up costs at approximately 21 sites governed by
the
Superfund law (and other similar federal and state laws) for which investigation
and remediation payments are or will be made or are yet to be determined
and, in
many instances, is one of several potentially responsible parties.
While
the Company believes that it has identified the costs likely to be incurred
in
the next several years, based on known information, for environmental matters,
the Company’s ongoing efforts to identify potential environmental concerns that
may be associated with its properties may lead to future environmental
investigations, which may result in the identification of additional
environmental costs and liabilities. The magnitude of such additional
liabilities and the costs of complying with environmental laws and containing
or
remediating contamination cannot be reasonably estimated due to:
|
(i)
|
the
lack of specific technical information available with respect
to many
sites;
|
|
(ii)
|
the
absence of any government authority, third-party orders, or claims
with
respect to particular sites;
|
|
(iii)
|
the
potential for new or changed laws and regulations and for development
of
new remediation technologies and uncertainty regarding the timing
of the
work with respect to particular
sites;
|
|
(iv)
|
the
ability to recover costs from any third parties with respect
to particular
sites; and
|
15
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
GAAP)
therefore,
the likelihood of any such costs being incurred or whether such costs would
be
material to the Company cannot be determined at this time. There can thus
be no
assurance that material liabilities or costs related to environmental matters
will not be incurred in the future, or will not have a material adverse
effect
on the Company’s financial position or results of operations in a particular
quarter or fiscal year, or that the Company’s liquidity will not be adversely
impacted by such environmental liabilities or costs. Although the effect
on
operating results and liquidity cannot be reasonably estimated, management
believes, based on current information, that environmental matters will
not have
a material adverse effect on the Company’s financial condition or competitive
position. Costs related to any future remediation will be accrued in the
year in
which they become known.
As
at September 30, 2007, the Company had aggregate accruals for environmental
costs of $109 million, of which $18 million was recorded as a current liability
($131 million, of which $25 million was recorded as a current liability
as at
December 31, 2006).
D.
Guarantees and indemnifications
In
the normal course of business, the Company enters into agreements that
may
involve providing certain guarantees or indemnifications to third parties
and
others, which may extend beyond the term of the agreement. These include,
but
are not limited to, residual value guarantees on operating leases, standby
letters of credit and surety and other bonds, and indemnifications that
are
customary for the type of transaction or for the railway business.
The
Company is required to recognize a liability for the fair value of the
obligation undertaken in issuing certain guarantees on the date the guarantee
is
issued or modified. 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.
(i)
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 2007 and 2017, 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 September 30, 2007, the maximum exposure in respect
of
these guarantees was $141 million. There are no recourse provisions to
recover
any amounts from third parties.
(ii)
Other guarantees
The
Company has granted irrevocable standby letters of credit and surety and
other
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 September 30, 2007, the maximum potential
liability under these guarantees was $459 million, of which $384 million
was for
workers’ compensation and other employee benefits and $75 million was for
equipment under leases and other. During 2007, the Company has granted
guarantees for which no liability has been recorded, as the majority relates
to
the Company’s future performance.
As
at September 30, 2007 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 majority of
the guarantee instruments mature at various dates between 2007 and
2010.
(iii)
General indemnifications
In
the normal course of business, the Company has provided indemnifications,
customary for the type of transaction or for the railway business, in various
agreements with third parties, including indemnification provisions where
the
Company would be required to indemnify third parties and others.
Indemnifications are found in various types of contracts with third parties
which include, but are not limited to, (a) contracts granting the Company
the
right to use or enter upon property owned by third parties such as leases,
easements, trackage rights and sidetrack agreements; (b) contracts granting
rights to others to use the Company’s property, such as leases, licenses and
easements; (c) contracts for the sale of assets and securitization of accounts
receivable; (d) contracts for the acquisition of services; (e) financing
agreements; (f) trust indentures, fiscal agency agreements, underwriting
agreements or similar agreements relating to debt or equity securities
of the
Company and engagement agreements with financial advisors; (g) transfer
agent
and registrar agreements in respect of the Company’s securities; (h) trust and
other agreements relating to pension plans and other plans, including those
establishing trust funds to secure payment to certain officers and senior
employees of special retirement compensation arrangements; (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
16
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S.
GAAP)
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
these guarantees and accordingly, no liability was recorded. There are
no
recourse provisions to recover any amounts from third parties.
Note
8 –
Income taxes
In
the third quarter of 2007, the enactment of a new Michigan income-based
business
tax to replace the single business tax was shortly followed by the enactment
of
an additional bill, which allows for future deductions equal to the net
taxable
temporary differences existing at the beginning of 2008. Therefore, there
was no
impact on the deferred income tax liability.
For
the three and nine months ended September 30, 2007, the Company recorded
deferred income tax recoveries of $14 million and $44 million, respectively,
in
the Consolidated Statement of Income, for the enactment of corporate income
tax
rate changes in Canada and net capital losses arising from a reorganization
of
certain subsidiaries.
For
the nine months ended September 30, 2006, the Company recorded a deferred
income
tax recovery of $250 million in the Consolidated Statement of Income, resulting
primarily from the enactment of lower corporate income tax rates in
Canada.
Note
9 –
Earnings per share
The
following table provides a reconciliation between basic and diluted earnings
per
share:
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
|
September
30
|
September
30
|
|||||||||||||||
|
In
millions, except per share data
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
|
Net
income
|
$ |
485
|
$ |
497
|
$ |
1,325
|
$ |
1,588
|
||||||||
|
Weighted-average
shares outstanding
|
499.7
|
522.5
|
505.0
|
529.5
|
||||||||||||
|
Effect
of stock options
|
6.7
|
7.7
|
7.1
|
8.5
|
||||||||||||
|
Weighted-average
diluted shares outstanding
|
506.4
|
530.2
|
512.1
|
538.0
|
||||||||||||
|
Basic
earnings per share
|
$ |
0.97
|
$ |
0.95
|
$ |
2.62
|
$ |
3.00
|
||||||||
|
Diluted
earnings per share
|
$ |
0.96
|
$ |
0.94
|
$ |
2.59
|
$ |
2.95
|
||||||||
The
weighted-average number of stock options that were not included in the
calculation of diluted earnings per share, as their inclusion would have
had an
anti-dilutive impact, was nil and 0.1 million for the three and nine months
ended September 30, 2007, respectively, and 0.2 million, respectively,
for the
corresponding periods in 2006.
17
CANADIAN
NATIONAL RAILWAY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
Note
10 -
Investment in English Welsh and Scottish Railway (EWS)
In
July 2007, Germany's state-owned railway, Deutsche Bahn AG, entered into
an
agreement to acquire all of the shares of EWS, a company that provides
most of
the rail freight services in Great Britain and operates freight trains
through
the English Channel Tunnel, and in which the Company has a 32% ownership
interest. The acquisition is subject to approval by the European Commission,
which is expected in the fourth quarter of 2007. The final purchase price
is
subject to the resolution of certain items, for which funds will be placed
in
escrow for a period of up to two years. The Company's share of the net
after-tax
cash proceeds is estimated to be $85 million, before the ultimate resolution
of
the items mentioned above. The proceeds of disposition are expected to
exceed
the Company’s carrying value of the investment. The Company’s investment in EWS
has been reclassified to Other current assets.
Note
11 -
Sale of Central Station Complex
In
September 2007, CN reached an agreement with Homburg Invest Inc., to sell
its
Central Station Complex in Montreal. Under the agreement, CN will enter
into
long-term arrangements to lease back its corporate headquarters building
and the
Central Station railway passenger facilities. The transaction,
subject to customary closing requirements and regulatory approvals, will
generate proceeds of $355 million before any transaction costs for the
Company
and is expected to be finalized by the end of the current year. The book
value
of the assets being sold, excluding assets that will be accounted for as
capital
leases, has been reclassified to Other current assets. The proceeds of
disposition are expected to exceed the Company’s net book value of the
underlying assets. Any gain resulting from the sale and leaseback of the
corporate headquarters building and the Central Station railway passenger
facilities will be deferred and amortized over the shorter of the lease
period
and the life of the assets.
18
CANADIAN
NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
SELECTED RAILROAD STATISTICS (U.S. GAAP)
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
|
September
30
|
September
30
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Statistical
operating data
|
||||||||||||||||
|
Rail
freight
revenues ($ millions)
|
1,821
|
1,857
|
5,423
|
5,430
|
||||||||||||
|
Gross
ton
miles (GTM) (millions)
|
88,498
|
88,880
|
258,583
|
264,565
|
||||||||||||
|
Revenue
ton
miles (RTM) (millions)
|
46,481
|
47,066
|
136,997
|
139,644
|
||||||||||||
|
Carloads
(thousands)
|
1,204
|
1,241
|
3,539
|
3,678
|
||||||||||||
|
Route
miles
(includes Canada and the U.S.)
|
20,219
|
19,919
|
20,219
|
19,919
|
||||||||||||
|
Employees
(end
of period)
|
22,325
|
21,681
|
22,325
|
21,681
|
||||||||||||
|
Employees
(average for the period)
|
22,262
|
21,670
|
21,764
|
21,663
|
||||||||||||
|
Productivity
|
||||||||||||||||
|
Operating
ratio (%)
|
62.0
|
58.5
|
64.1
|
61.6
|
||||||||||||
|
Rail
freight
revenue per RTM (cents)
|
3.92
|
3.95
|
3.96
|
3.89
|
||||||||||||
|
Rail
freight
revenue per carload ($)
|
1,512
|
1,496
|
1,532
|
1,476
|
||||||||||||
|
Operating
expenses per GTM (cents)
|
1.42
|
1.34
|
1.48
|
1.38
|
||||||||||||
|
Labor
and
fringe benefits expense per GTM (cents)
|
0.50
|
0.47
|
0.53
|
0.51
|
||||||||||||
|
GTMs
per
average number of employees (thousands)
|
3,975
|
4,102
|
11,881
|
12,213
|
||||||||||||
|
Diesel
fuel
consumed (U.S. gallons in millions)
|
96
|
96
|
290
|
300
|
||||||||||||
|
Average
fuel
price ($/U.S. gallon) (1)
|
2.39
|
2.33
|
2.29
|
2.12
|
||||||||||||
|
GTMs
per U.S.
gallon of fuel consumed
|
922
|
926
|
892
|
882
|
||||||||||||
|
Safety
indicators
|
||||||||||||||||
|
Injury
frequency rate per 200,000 person hours (2)
|
2.2
|
2.3
|
1.8
|
2.1
|
||||||||||||
|
Accident
rate
per million train miles (2)
|
3.0
|
2.8
|
2.4
|
2.3
|
||||||||||||
|
Financial
ratio
|
||||||||||||||||
|
Debt
to total
capitalization ratio (% at end of period)
|
36.8
|
36.5
|
36.8
|
36.5
|
||||||||||||
|
(1)
|
2006
includes the impact of the Company's fuel hedging
program.
|
|
(2)
|
Based
on
Federal Railroad Administration (FRA) reporting
criteria.
|
Certain of the 2006 comparative figures have been reclassified in order to be consistent with the 2007 presentation (see Note 1 of the Company’s unaudited Interim Consolidated Financial Statements). Certain statistical data and related productivity measures are based on estimated data available at such time and are subject to change as more complete information becomes available.
19
CANADIAN
NATIONAL RAILWAY COMPANY
SUPPLEMENTARY INFORMATION (U.S. GAAP)
SUPPLEMENTARY INFORMATION (U.S. GAAP)
|
Three
months ended September 30
|
Nine
months ended September 30
|
|||||||||||||||||||||||
|
Variance
|
Variance
|
|||||||||||||||||||||||
|
2007
|
2006
|
Fav
(Unfav)
|
2007
|
2006
|
Fav
(Unfav)
|
|||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||||||
|
Revenues
(in millions of dollars)
|
||||||||||||||||||||||||
|
Petroleum
and chemicals
|
317
|
298
|
6 | % |
920
|
871
|
6 | % | ||||||||||||||||
|
Metals
and minerals
|
208
|
226
|
(8 | %) |
631
|
643
|
(2 | %) | ||||||||||||||||
|
Forest
products
|
392
|
450
|
(13 | %) |
1,216
|
1,333
|
(9 | %) | ||||||||||||||||
|
Coal
|
99
|
93
|
6 | % |
287
|
277
|
4 | % | ||||||||||||||||
|
Grain
and fertilizers
|
330
|
309
|
7 | % |
961
|
907
|
6 | % | ||||||||||||||||
|
Intermodal
|
361
|
369
|
(2 | %) |
1,020
|
1,041
|
(2 | %) | ||||||||||||||||
|
Automotive
|
114
|
112
|
2 | % |
388
|
358
|
8 | % | ||||||||||||||||
|
Other
revenue
|
202
|
175
|
15 | % |
533
|
499
|
7 | % | ||||||||||||||||
|
2,023
|
2,032
|
-
|
5,956
|
5,929
|
-
|
|||||||||||||||||||
|
Revenue
ton miles (millions)
|
||||||||||||||||||||||||
|
Petroleum
and chemicals
|
8,369
|
8,049
|
4 | % |
24,288
|
23,938
|
1 | % | ||||||||||||||||
|
Metals
and minerals
|
4,301
|
4,611
|
(7 | %) |
12,414
|
13,441
|
(8 | %) | ||||||||||||||||
|
Forest
products
|
10,021
|
10,874
|
(8 | %) |
30,652
|
32,439
|
(6 | %) | ||||||||||||||||
|
Coal
|
3,500
|
3,500
|
-
|
10,344
|
10,518
|
(2 | %) | |||||||||||||||||
|
Grain
and fertilizers
|
11,241
|
10,839
|
4 | % |
32,809
|
32,305
|
2 | % | ||||||||||||||||
|
Intermodal
|
8,339
|
8,487
|
(2 | %) |
24,114
|
24,685
|
(2 | %) | ||||||||||||||||
|
Automotive
|
710
|
706
|
1 | % |
2,376
|
2,318
|
3 | % | ||||||||||||||||
|
46,481
|
47,066
|
(1 | %) |
136,997
|
139,644
|
(2 | %) | |||||||||||||||||
|
Rail
freight revenue / RTM (cents)
|
||||||||||||||||||||||||
|
Total
rail freight revenue per RTM
|
3.92
|
3.95
|
(1 | %) |
3.96
|
3.89
|
2 | % | ||||||||||||||||
|
Commodity
groups:
|
||||||||||||||||||||||||
|
Petroleum
and chemicals
|
3.79
|
3.70
|
2 | % |
3.79
|
3.64
|
4 | % | ||||||||||||||||
|
Metals
and minerals
|
4.84
|
4.90
|
(1 | %) |
5.08
|
4.78
|
6 | % | ||||||||||||||||
|
Forest
products
|
3.91
|
4.14
|
(6 | %) |
3.97
|
4.11
|
(3 | %) | ||||||||||||||||
|
Coal
|
2.83
|
2.66
|
6 | % |
2.77
|
2.63
|
5 | % | ||||||||||||||||
|
Grain
and fertilizers
|
2.94
|
2.85
|
3 | % |
2.93
|
2.81
|
4 | % | ||||||||||||||||
|
Intermodal
|
4.33
|
4.35
|
-
|
4.23
|
4.22
|
-
|
||||||||||||||||||
|
Automotive
|
16.06
|
15.86
|
1 | % |
16.33
|
15.44
|
6 | % | ||||||||||||||||
|
Carloads
(thousands)
|
||||||||||||||||||||||||
|
Petroleum
and chemicals
|
153
|
152
|
1 | % |
448
|
445
|
1 | % | ||||||||||||||||
|
Metals
and minerals
|
257
|
270
|
(5 | %) |
749
|
778
|
(4 | %) | ||||||||||||||||
|
Forest
products
|
147
|
165
|
(11 | %) |
450
|
513
|
(12 | %) | ||||||||||||||||
|
Coal
|
90
|
99
|
(9 | %) |
275
|
317
|
(13 | %) | ||||||||||||||||
|
Grain
and fertilizers
|
152
|
150
|
1 | % |
439
|
437
|
-
|
|||||||||||||||||
|
Intermodal
|
343
|
348
|
(1 | %) |
978
|
994
|
(2 | %) | ||||||||||||||||
|
Automotive
|
62
|
57
|
9 | % |
200
|
194
|
3 | % | ||||||||||||||||
|
1,204
|
1,241
|
(3 | %) |
3,539
|
3,678
|
(4 | %) | |||||||||||||||||
|
Rail
freight revenue / carload (dollars)
|
||||||||||||||||||||||||
|
Total
rail freight revenue per carload
|
1,512
|
1,496
|
1 | % |
1,532
|
1,476
|
4 | % | ||||||||||||||||
|
Commodity
groups:
|
||||||||||||||||||||||||
|
Petroleum
and chemicals
|
2,072
|
1,961
|
6 | % |
2,054
|
1,957
|
5 | % | ||||||||||||||||
|
Metals
and minerals
|
809
|
837
|
(3 | %) |
842
|
826
|
2 | % | ||||||||||||||||
|
Forest
products
|
2,667
|
2,727
|
(2 | %) |
2,702
|
2,598
|
4 | % | ||||||||||||||||
|
Coal
|
1,100
|
939
|
17 | % |
1,044
|
874
|
19 | % | ||||||||||||||||
|
Grain
and fertilizers
|
2,171
|
2,060
|
5 | % |
2,189
|
2,076
|
5 | % | ||||||||||||||||
|
Intermodal
|
1,052
|
1,060
|
(1 | %) |
1,043
|
1,047
|
-
|
|||||||||||||||||
|
Automotive
|
1,839
|
1,965
|
(6 | %) |
1,940
|
1,845
|
5 | % | ||||||||||||||||
Certain
of the 2006 comparative figures have been reclassified in order to be consistent
with the 2007 presentation (see Note 1 of the Company’s unaudited Interim
Consolidated Financial Statements). Such statistical data and related
productivity measures are based on estimated data available at such time
and are
subject to change as more complete information becomes available.
20
CANADIAN
NATIONAL RAILWAY COMPANY
NON-GAAP
MEASURES - unaudited
Adjusted
performance measures
During
the three months ended September 30, 2007, the Company reported adjusted
net
income of $471 million, or $0.93 per diluted share, excluding the impact
of a
net deferred income tax recovery of $14 million ($0.03 per diluted share)
that
resulted from the enactment of corporate income tax rate changes in Canada
and
net capital losses arising from a reorganization of certain subsidiaries.
During
the nine months ended September 30, 2007, the Company reported adjusted
net
income of $1,281 million, or $2.50 per diluted share, excluding the impact
of a
net deferred income tax recovery of $44 million ($0.09 per diluted share)
that
resulted from the enactment of lower corporate income tax rates in Canada
and
net capital losses arising from a reorganization of certain
subsidiaries.
During
the nine months ended September 30, 2006, the Company reported adjusted
net
income of $1,338 million, or $2.49 per diluted share, excluding the impact
of a
second-quarter deferred income tax recovery of $250 million ($0.46 per
diluted
share) that resulted primarily from the enactment of lower corporate income
tax
rates in Canada.
Management
believes that adjusted net income and adjusted earnings per share are useful
measures of performance that can facilitate period-to-period comparisons,
as
they exclude items such as deferred income tax adjustments, that do not
necessarily arise as part of the normal day-to-day operations of the Company
and
could distort the analysis of trends in business performance. The exclusion
of
such items in adjusted net income and adjusted earnings per share does
not,
however, imply that such items are necessarily non-recurring. These adjusted
measures do not have any standardized meaning prescribed by GAAP and may,
therefore, not be comparable to similar measures presented by other companies.
The reader is advised to read all information provided in the Company’s Interim
Consolidated Financial Statements and Notes thereto. The following tables
provide a reconciliation of net income and earnings per share, as reported
for
the three and nine months ended September 30, 2007 and 2006, to the adjusted
performance measures presented herein.
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
|
September
30, 2007
|
September
30, 2007
|
|||||||||||||||||||||||
|
Tax
|
Tax
|
|||||||||||||||||||||||
|
In
millions, except per share data
|
Reported
|
adjustments
|
Adjusted
|
Reported
|
adjustments
|
Adjusted
|
||||||||||||||||||
|
Revenues
|
$ |
2,023
|
$ |
-
|
$ |
2,023
|
$ |
5,956
|
$ |
-
|
$ |
5,956
|
||||||||||||
|
Operating
expenses
|
1,255
|
-
|
1,255
|
3,816
|
-
|
3,816
|
||||||||||||||||||
|
Operating
income
|
768
|
-
|
768
|
2,140
|
-
|
2,140
|
||||||||||||||||||
|
Interest
expense
|
(78 | ) |
-
|
(78 | ) | (251 | ) |
-
|
(251 | ) | ||||||||||||||
|
Other
income
|
2
|
-
|
2
|
7
|
-
|
7
|
||||||||||||||||||
|
Income
before income taxes
|
692
|
-
|
692
|
1,896
|
-
|
1,896
|
||||||||||||||||||
|
Income
tax expense
|
(207 | ) | (14 | ) | (221 | ) | (571 | ) | (44 | ) | (615 | ) | ||||||||||||
|
Net
income
|
$ |
485
|
$ | (14 | ) | $ |
471
|
$ |
1,325
|
$ | (44 | ) | $ |
1,281
|
||||||||||
|
Basic
earnings per share
|
$ |
0.97
|
$ | (0.03 | ) | $ |
0.94
|
$ |
2.62
|
$ | (0.09 | ) | $ |
2.53
|
||||||||||
|
Diluted
earnings per share
|
$ |
0.96
|
$ | (0.03 | ) | $ |
0.93
|
$ |
2.59
|
$ | (0.09 | ) | $ |
2.50
|
||||||||||
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
|
September
30, 2006
|
September
30, 2006
|
|||||||||||||||||||||||
|
Tax
|
Tax
|
|||||||||||||||||||||||
|
In
millions, except per share data
|
|
Reported | adjustments |
Adjusted
|
|
Reported | adjustments |
Adjusted
|
||||||||||||||||
|
Revenues
|
$ |
2,032
|
$ |
-
|
$ |
2,032
|
$ |
5,929
|
$ |
-
|
$ |
5,929
|
||||||||||||
|
Operating
expenses
|
1,188
|
-
|
1,188
|
3,655
|
-
|
3,655
|
||||||||||||||||||
|
Operating
income
|
844
|
-
|
844
|
2,274
|
-
|
2,274
|
||||||||||||||||||
|
Interest
expense
|
(82 | ) |
-
|
(82 | ) | (232 | ) |
-
|
(232 | ) | ||||||||||||||
|
Other
loss
|
(10 | ) |
-
|
(10 | ) | (16 | ) |
-
|
(16 | ) | ||||||||||||||
|
Income
before income taxes
|
752
|
-
|
752
|
2,026
|
-
|
2,026
|
||||||||||||||||||
|
Income
tax expense
|
(255 | ) |
-
|
(255 | ) | (438 | ) | (250 | ) | (688 | ) | |||||||||||||
|
Net
income
|
$ |
497
|
$ |
-
|
$ |
497
|
$ |
1,588
|
$ | (250 | ) | $ |
1,338
|
|||||||||||
|
Basic
earnings per share
|
$ |
0.95
|
$ |
-
|
$ |
0.95
|
$ |
3.00
|
$ | (0.48 | ) | $ |
2.52
|
|||||||||||
|
Diluted
earnings per share
|
$ |
0.94
|
$ |
-
|
$ |
0.94
|
$ |
2.95
|
$ | (0.46 | ) | $ |
2.49
|
|||||||||||
21
CANADIAN
NATIONAL RAILWAY COMPANY
NON-GAAP
MEASURES - unaudited
Free
cash flow
The
Company generated $142 million and $193 million of free cash flow for the
three
and nine months ended September 30, 2007, compared to $391 million and
$1,131
million for the same periods in 2006. Free cash flow does not have any
standardized meaning prescribed by GAAP and therefore, may not be comparable
to
similar measures presented by other companies. The Company believes that
free
cash flow is a useful measure of performance as it demonstrates the Company’s
ability to generate cash after the payment of capital expenditures and
dividends. The Company defines free cash flow as cash provided from
operating activities, excluding changes in the accounts receivable
securitization program, less cash used by investing activities, and after
the
payment of dividends, calculated as follows:
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
|
September
30
|
September
30
|
|||||||||||||||
|
In
millions
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
|
Cash
provided
from operating activities
|
$ |
430
|
$ |
854
|
$ |
1,432
|
$ |
1,878
|
||||||||
|
Cash
used by
investing activities
|
(336 | ) | (378 | ) | (871 | ) | (865 | ) | ||||||||
|
Cash
provided
before financing activities
|
94
|
476
|
561
|
1,013
|
||||||||||||
|
Adjustments:
|
||||||||||||||||
|
Change
in
accounts receivable securitization
|
152
|
-
|
(52 | ) |
375
|
|||||||||||
|
Dividends
paid
|
(104 | ) | (85 | ) | (316 | ) | (257 | ) | ||||||||
|
Free
cash
flow
|
$ |
142
|
$ |
391
|
$ |
193
|
$ |
1,131
|
||||||||
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: October 23, 2007 | By: | /s/ Cristina Circelli | |||
| Name: | Cristina Circelli | ||||
| Title: | Deputy
Corporate Secretary and General Counsel |
||||