Form 20-F
|
Form 40-F
|
X
|
Yes
|
No
|
X
|
Yes
|
No
|
X
|
Yes
|
No
|
X
|
Canadian National Railway Company
|
|||||
Date:
|
March 24, 2015
|
By:
|
/s/ Sean Finn
|
||
Name:
|
Sean Finn
|
||||
Title:
|
Executive Vice-President Corporate Services
and Chief Legal Officer
|
Items
|
Description
|
1
|
Notice of Annual Meeting of Shareholders
|
2
|
Management Proxy Circular
|
3
|
Form of Proxy
|
4
|
Annual Report
|
1.
|
receiving the consolidated financial statements for the year ended December 31, 2014, and the auditors' reports thereon;
|
2.
|
electing the directors;
|
3.
|
appointing the auditors;
|
4.
|
considering and approving, in an advisory, non-binding capacity, a resolution (the full text of which is set out on page 9 of the accompanying management information circular) accepting the Company's approach to executive compensation as disclosed in the Statement of Executive Compensation section of the accompanying management information circular; and
|
5.
|
transacting such other business as may properly be brought before the meeting or any adjournment or postponement thereof.
|
MANAGEMENT
INFORMATION
CIRCULAR
|
||
AND NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
|
||
APRIL 21, 2015 | ||
1.
|
receiving the consolidated financial statements for the year ended December 31, 2014, and the auditors’ reports thereon;
|
2.
|
electing the directors;
|
3.
|
appointing the auditors;
|
4.
|
considering and approving, in an advisory, non-binding capacity, a resolution (the full text of which is set out on page 9 of the accompanying management information circular) accepting the Company’s approach to executive compensation as disclosed in the Statement of Executive Compensation section of the accompanying management information circular; and
|
5.
|
transacting such other business as may properly be brought before the meeting or any adjournment or postponement thereof.
|
This management information circular (the “Information Circular”) describes the business to be conducted at the meeting and provides information on executive compensation and CN’s governance practices. In addition to these items, we will discuss at the meeting highlights of our 2014 performance and our plans for the future. You will have the opportunity to meet and interact with your directors and the senior officers of the Company.
|
Your participation in the affairs of the Company is important to us. If you are unable to attend in person, we encourage you to complete and return the enclosed proxy form or voting instruction form in the envelope provided for this purpose so that your views can be represented. Also, it is possible for you to vote over the internet by following the instructions on the enclosed forms. Even if you plan to attend the meeting, you may find it convenient to express your views in advance by completing and returning the proxy form or voting instruction form or by voting over the internet.
|
(Signed) Robert Pace | (Signed) Claude Mongeau |
Robert Pace
Chair of the Board
|
Claude Mongeau
President and Chief Executive Officer
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 1 |
The following summary highlights some of the important information you will find in this Information Circular. We recommend you to read the entire Information Circular before voting.
|
BOARD VOTE
|
FOR MORE INFORMATION
|
|
VOTING MATTERS
|
RECOMMENDATION
|
SEE PAGES
|
Election of 11 Directors
|
FOR each nominee
|
8, 10
|
Appointment of KPMG LLP as Auditors
|
FOR
|
8
|
Advisory Resolution on Executive Compensation
|
FOR
|
9, 34
|
NAME
|
AGE
|
DIRECTOR SINCE
|
POSITION
|
INDEPENDENT
|
COMMITTEE MEMBERSHIP
|
ATTENDANCE IN 2014
|
OTHER PUBLIC BOARDS
|
D.J. Carty
|
68
|
2011
|
Corporate Director
|
Yes
|
Audit (Chair) – Governance – Environment – Compensation – Strategic
|
100%
|
3
|
G.D. Giffin
|
65
|
2001
|
Senior Partner, McKenna Long & Aldridge
|
Yes
|
Audit – Donations – Compensation (Chair) – Investment – Strategic
|
100%
|
5
|
E.E. Holiday
|
63
|
2001
|
Corporate Director and Trustee
|
Yes
|
Governance – Finance – Compensation – Investment – Strategic
|
100%
|
4
|
V.M. Kempston Darkes
|
66
|
1995
|
Corporate Director
|
Yes
|
Governance – Environment (Chair) – Finance – Compensation – Strategic
|
100%
|
4
|
D. Losier
|
62
|
1994
|
Corporate Director
|
Yes
|
Audit – Governance (Chair) – Compensation – Investment – Strategic
|
100%
|
2
|
K.G. Lynch
|
64
|
2014
|
Vice-Chair, BMO Financial Group
|
Yes
|
Governance – Environment – Finance – Compensation – Strategic
|
100%
|
2
|
C. Mongeau
|
53
|
2009
|
President and CEO, CN
|
No
|
Donations (Chair) – Strategic
|
100%
|
1
|
J.E. O’Connor
|
65
|
2011
|
Corporate Director
|
Yes
|
Audit – Environment – Finance – Compensation – Strategic (Chair)
|
100%
|
1
|
R. Pace
|
60
|
1994
|
Chair of the Board, CN President and CEO, The Pace Group
|
Yes
|
Governance – Donations – Environment – Compensation – Strategic
|
100%
|
1
|
R.L. Phillips
|
64
|
2014
|
President, R.L. Phillips Investments Inc.
|
Yes
|
Audit – Governance – Environment – Compensation – Strategic
|
100%
|
4
|
L. Stein
|
53
|
2014
|
Executive Vice-President – General Counsel, The Clorox Company
|
Yes
|
Audit – Environment – Finance – Compensation – Strategic
|
100%
|
1
|
2 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
•
|
~ 80% of Named Executive Officers’ target total direct compensation is variable and linked to CN’s performance
|
•
|
Incentive payout capped and no guaranteed minimum payout
|
•
|
Inclusion of a relative total shareholder return condition in 2015
|
•
|
Stringent stock ownership requirements
|
•
|
CEO post-retirement shareholding requirement
|
•
|
Overlap of performance measures for short and long-term incentives to mitigate risk
|
•
|
Double trigger change of control policy
|
•
|
Anti-hedging policy on CN securities
|
•
|
Executive clawback policy
|
•
|
No employment contracts for NEOs
|
•
|
Independent executive compensation consultant retained by the Compensation Committee
|
•
|
Annual “Say on Pay” vote
|
CN is committed to adhering to the highest standards of corporate governance and our corporate governance practices were designed in a manner consistent with this objective. Some of our best practices are highlighted in the following table.
|
Size of Board
|
11
|
Number of Independent Director Nominees
|
10
|
Annual Election of Directors (no staggered term)
|
Yes
|
Directors Elected Individually (no slate voting)
|
Yes
|
Majority Voting for Directors
|
Yes
|
Separate CEO & Chair Positions
|
Yes
|
Common Directorships Guidelines (Board Interlocks)
|
Yes
|
Board Tenure and Term Limit Guidelines for Board Chair and Committee Chairs
|
Yes
|
Stock Ownership Guidelines for Directors and Executives
|
Yes
|
Ownership Requirement for Directors and CEO Beyond Board Tenure
|
Yes
|
Director Orientation and Continuing Education
|
Yes
|
Diversity Policy for Directors
|
Yes
|
Code of Business Conduct and Ethics Program
|
Yes
|
Annual Advisory Vote on Executive Compensation
|
Yes
|
Formal Board Performance Assessment
|
Yes
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 3 |
WHAT’S INSIDE
|
||||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
|
||||
1
|
LETTER TO SHAREHOLDERS
|
34 | STATEMENT OF EXECUTIVE COMPENSATION | |
34 | Letter to Shareholders | |||
2
|
PROXY SUMMARY
|
36 | Human Resources and Compensation Committee | |
5
|
QUESTIONS AND ANSWERS | 39 |
COMPENSATION DISCUSSION AND ANALYSIS
|
|
39 |
Executive Summary
|
|||
8
|
BUSINESS OF THE MEETING
|
56 |
2014 Highlights
|
|
8
|
Financial Statements
|
56 |
Summary Compensation Table
|
|
8
|
Election of Directors
|
60 |
Incentive Plan Awards
|
|
8
|
Appointment of Auditors
|
64 |
Employment Arrangements
|
|
9
|
Advisory Vote on Executive Compensation
|
65 |
Pension Plan Benefits
|
|
10
|
NOMINEES FOR ELECTION TO THE BOARD
|
67 |
Termination and Change of Control Benefits
|
|
10
|
Description of Nominees
|
68 |
Currency Exchange Information
|
|
15
|
Additional Disclosure Relating to Directors
|
|||
69 |
OTHER INFORMATION
|
|||
16
|
BOARD OF DIRECTORS COMPENSATION
|
|||
16
|
Comparator Groups
|
69 |
Securities Authorized For Issuance Under Equity Compensation Plans
|
|
16
|
Changes to Compensation
|
69 |
Indebtedness of Directors and Executive Officers
|
|
17
|
Compensation Levels
|
69 |
Interest of Informed Persons and Others in Material Transactions
|
|
17
|
Compensation Table
|
69 |
Shareholder Proposals
|
|
18
|
Share Ownership
|
69 |
Availability of Documents
|
|
19
|
Share Ownership Table
|
|||
19
|
Directors’ Deferred Share Unit Plan
|
70 |
SCHEDULE “A” – MANDATE OF THE BOARD
|
|
20
|
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
|
72 |
SCHEDULE “B” – REPORTS OF THE COMMITTEES
|
|
20
|
General
|
72 |
Report of the Audit Committee
|
|
20
|
Code of Business Conduct
|
73 |
Report of the Finance Committee
|
|
21
|
Independence of Directors
|
74 |
Report of the Corporate Governance and Nominating Committee
|
|
21
|
Independent Chair of the Board
|
75 |
Report of the Human Resources and Compensation Committee
|
|
21
|
Position Descriptions
|
76 |
Report of the Environment, Safety and Security Committee
|
|
21
|
Committees of the Board
|
76 |
Report of the Strategic Planning Committee
|
|
23
|
Risk Management Oversight
|
77 |
Report of the Investment Committee of CN’s Pension Trust Funds
|
|
23
|
Board and Committee Meetings
|
77 |
Report of the Donations and Sponsorships Committee
|
|
24
|
Board and Committee Attendance
|
|||
25
|
Director Selection
|
|||
29
|
Board Performance Assessment
|
|||
29
|
Director Orientation and Continuing Education
|
|||
31
|
Stakeholder Engagement
|
|||
32
|
Audit Committee Disclosure
|
4 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Shareholders who are registered as at the close of business on March 5, 2015 (the “Record Date”), will be entitled to vote at the Meeting or at any adjournment or postponement thereof, either in person or by proxy.
|
As of the close of business on February 27, 2015, the Company had 807,040,436 common shares without par value outstanding. Subject to the voting restrictions described below, each common share carries the right to one vote.
|
How will these matters be decided at the Meeting?
|
A simple majority of the votes cast, in person or by proxy, will constitute approval of these matters.
|
You can contact the transfer agent either by mail at Computershare Trust Company of Canada, 100 University Ave., 8th Floor, Toronto (Ontario) M5J 2Y1, by telephone at 1-800-564-6253, by fax at 1-888-453-0330 or by internet at www.investorcentre.com/service, or in French: www.centredesinvestisseurs.com/service.
|
1.
|
VOTING BY PROXY
|
•
|
How can I send my form of proxy?
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 5 |
•
|
What is the deadline for receiving the form of proxy?
|
•
|
How will my common shares be voted if I give my proxy?
|
•
|
If I change my mind, how can I revoke my proxy?
|
2.
|
VOTING IN PERSON
|
1.
|
GIVING YOUR VOTING INSTRUCTIONS
|
2.
|
VOTING IN PERSON
|
6 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 7 |
Our articles of incorporation, as amended, provide that our Board of Directors shall consist of a minimum of seven and a maximum of 21 directors (hereinafter the “Board” or “Board of Directors”). Pursuant to a resolution of the Board of Directors, 11 persons are to be elected as directors for the current year, each to hold office until the next annual meeting of shareholders or until such person’s successor is elected or appointed.
|
The Board of Directors and the Audit Committee recommend that KPMG LLP be appointed to serve as our auditors until the next annual meeting of shareholders.
|
2014
|
2013
|
|||||||
FEES (IN THOUSANDS)
|
($C) | ($C) | ||||||
Audit
|
2,728 | 2,608 | ||||||
Audit-related
|
1,162 | 1,249 | ||||||
Tax
|
746 | 834 | ||||||
All other
|
92 | 131 | ||||||
TOTAL FEES
|
4,728 | 4,822 |
8 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Audit-related fees were incurred for professional services rendered by the auditors in relation to the audit of the financial statements for the Company’s pension plans, and for attestation services in connection with reports required by statute or regulation and due diligence and other services, including comfort letters, in connection with the issuance of securities.
|
Consist primarily of fees incurred for services related to a foreign subsidiary (2014) and Information Technology (2013).
|
ADVISORY VOTE ON EXECUTIVE COMPENSATION
|
The Company is again providing its shareholders with an opportunity to cast at the Meeting an advisory vote on the Company’s approach to executive compensation, as disclosed in the “Statement of Executive Compensation” section of this Information Circular. Such section describes the role of the Human Resources and Compensation Committee in overseeing compensation of executives and ensuring that it is linked to the Company’s three-year business plan. The section also describes the Company’s executive compensation principles, the structure of the compensation plans for executives, and the alignment of such plans with the interests of our shareholders.
|
The Board of Directors recommends that shareholders vote FOR the resolution set out below and, unless otherwise instructed, the persons designated in the form of proxy intend to vote FOR the following resolution:
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 9 |
The following tables set out information as of February 27, 2015, unless otherwise indicated, and include a profile of each nominated director with an explanation of his or her experience, qualifications, top three competencies, participation on the Board and its committees, ownership of securities of CN, as well as participation on the boards of other public companies during the past five years. A more detailed description of our directors’ competencies can be found under the heading “Competency Matrix” in the section entitled “Statement of Corporate Governance Practices”. All nominees are current directors of the Company.
|
Donald J. Carty,
|
Mr. Carty retired as Vice-Chairman and Chief Financial Officer of Dell, Inc. (computer manufacturer) a position he assumed from January 2007 until June 2008 and as Chairman and CEO of AMR Corporation and American Airlines in 2003, after 30 years in the airline business, where he previously served as President and Executive Vice-President of Finance & Planning of AMR Airline Group and American Airlines. He was President and CEO of CP Air from 1985 to 1987.
In the voluntary sector, Mr. Carty is on the Executive Board of the SMU Cox School of Business. He is a former Chairman of Big Brothers Big Sisters of America. In 1999, Board Alert named Mr. Carty one of the year’s Outstanding Directors. He was named an Officer of the Order of Canada in 2003.
In addition to serving on the public boards mentioned in the following table, Mr. Carty serves as Chairman of the boards of Porter Airlines, Inc. and Research Now Group, Inc.
Mr. Carty holds a B.A. and an Honorary Doctor of Laws from Queen’s University and a MBA from Harvard Business School.
|
||
O.C., LL.D.
|
|||
Corporate Director
|
|||
Age: 68 (1)
|
|||
Texas, U.S.A.
|
|||
Director Since:
|
|||
January 1, 2011
|
|||
Independent
|
|||
Principal Competencies
|
|||
• Strategy
|
|||
• Finance/Accounting
|
|||
• Human Resources
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
EMC Corporation
|
(2015-present)
|
||
Audit Committee (Chair)
|
100%
|
Talisman Energy Inc.
|
(2009-present)
|
||
Corporate Governance and Nominating Committee
|
100%
|
Virgin America Inc. (Chairman)
|
(2006-present)
|
||
Environment, Safety and Security Committee | 100% |
Gluskin, Sheff & Associates Inc.
|
(2006-2013)
|
||
Finance Committee
|
100%
|
Barrick Gold Corporation
|
(2006-2013)
|
||
Human Resources and Compensation Committee
|
100%
|
Dell, Inc.
|
(1992-2013)
|
||
Investment Committee of CN’s Pension Trust Funds (5) | 100% |
Hawaiian Holdings, Inc.
|
(2004-2011)
|
||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
99.49%
|
VALUE AT RISK
|
C$4,898,621(3)
|
COMMON SHARES OWNED OR CONTROLLED (2)
|
|
February 2015
|
56,667
|
February 2014
|
38,785
|
Ambassador
|
Mr. Giffin is Senior Partner and the Chair of the Public Policy and International department at McKenna Long & Aldridge LLP, where he maintains offices in Washington, D.C. and Atlanta. He has been engaged in the practice of law or government service for more than thirty-five years. Mr. Giffin was United States Ambassador to Canada from 1997 to 2001.
Mr. Giffin is a member of the Board of Trustees of the Jimmy Carter Presidential Center and is a member of the Council on Foreign Relations and the Tri-Lateral Commission.
In addition to serving on the public boards mentioned in the following table, Mr. Giffin serves on the Board of Counsellors of McLarty Global.
Mr. Giffin holds a B.A. from Duke University and a J.D. from Emory University School of Law.
|
||
Gordon D. Giffin
|
|||
Senior Partner,
|
|||
McKenna Long
|
|||
& Aldridge
|
|||
Age: 65 (1)
|
|||
Georgia, U.S.A.
|
|||
Director Since:
|
|||
May 1, 2001
|
|||
Independent
|
|||
Principal Competencies
|
|||
• Public Policy
|
|||
• Legal
|
|||
• Human Resources
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
Element Financial Corporation
|
(2013-present)
|
||
Human Resources and Compensation Committee (Chair)
|
100%
|
Just Energy Group Inc.
|
(2006-present)
|
||
Audit Committee
|
100%
|
Canadian Natural Resources Limited
|
(2002-present)
|
||
Donations and Sponsorships Committee (5)
|
100% |
TransAlta Corporation (Chair)
|
(2002-present)
|
||
Environment, Safety and Security Committee
|
100%
|
Canadian Imperial Bank of Commerce
|
(2001-present)
|
||
Finance Committee
|
100%
|
|
|
||
Investment Committee of CN’s Pension Trust Funds (5)
|
100% | ||||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
97.16%
|
VALUE AT RISK
|
C$7,543,688 (3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
87,265
|
February 2014
|
83,682
|
10 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Edith E. Holiday
|
Ms. Holiday is a Corporate Director and Trustee and a former General Counsel, United States Treasury Department and former Secretary of the Cabinet, The White House.
Ms. Holiday serves on the public boards mentioned in the following table.
She was also the recipient of the Direct Women’s 2009 Sandra Day O’Connor Board Excellence Award, which honours women who have served with distinction on the board of a public company and advanced the value of diversity in the workplace. She is also the recipient of the Secretary of the Treasury’s highest award, the Alexander Hamilton Award.
Ms. Holiday holds a B.S. and a J.D. from the University of Florida, and she was admitted to the bars of the states of Florida, Georgia and the District of Columbia.
|
||
Corporate Director
|
|||
& Trustee
|
|||
Age: 63 (1)
|
|||
Florida, U.S.A.
|
|||
Director Since:
|
|||
June 1, 2001
|
|||
Independent
|
|||
Principal Competencies
|
|||
• Legal
|
|||
• Public Policy
|
|||
• Strategy
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
White Mountains Insurance Group, Ltd.
|
(2004-present)
|
||
Corporate Governance and Nominating Committee
|
100%
|
RTI International Metals, Inc.
|
(1999-present)
|
||
Finance Committee
|
100%
|
Franklin Templeton Group of Funds (various companies)
|
(1996-present)
|
||
Human Resources and Compensation Committee
|
100%
|
Hess Corporation
|
(1993-present)
|
||
Investment Committee of CN’s Pension Trust Funds (5)
|
100%
|
H.J. Heinz Company
|
(1994-2013)
|
||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
99.35%
|
VALUE AT RISK
|
C$8,794,730 (3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
101,737
|
February 2014
|
98,390
|
V. Maureen
|
Ms. Kempston Darkes is the retired Group Vice-President and President Latin America, Africa and Middle East, General Motors Corporation. In 2009 she ended a 35-year career at GM during which she attained the highest operating post ever held by a woman at GM. From 1994 to 2001, she was President and General Manager of General Motors of Canada Limited and Vice-President of General Motors Corporation.
She is an Officer of the Order of Canada, a member of the Order of Ontario and was ranked by Fortune magazine in 2009 as the 12th Most Powerful Woman in International Business and amongst the top 100 most powerful women in Canada in 2012. In 2006, she was the recipient of the Governor General of Canada’s Awards in Commemoration of the Persons Case and was inducted as a fellow of the Institute of Corporate Directors in 2011. She has also been appointed by the Government of Canada to the Science, Technology and Innovation Council and the Advisory Council for Promoting Women on Boards.
In addition to serving on the public boards mentioned in the following table, Ms. Kempston Darkes is also a director of Irving Oil Company Ltd.
Ms. Kempston Darkes has received Honorary Doctor of Law Degrees from the University of Toronto and the University of Victoria, including an Honorary Doctor of Commerce from Saint Mary’s University. She holds a B.A. in history and political science from Victoria University and the University of Toronto and an LL.B. from the University of Toronto Faculty of Law.
|
||
Kempston Darkes,
|
|||
O.C., D. COMM., LL.D.
|
|||
Corporate Director
|
|||
Age: 66 (1)
|
|||
Ontario, Canada
|
|||
Florida, U.S.A.
|
|||
Director Since:
|
|||
March 29, 1995
|
|||
Independent | |||
Principal Competencies
|
|||
• Transport Industry/Safety
|
|||
• Sales/Marketing
|
|||
• Human Resources
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board |
100%
|
Schlumberger Limited
|
(2014-present)
|
||
Environment, Safety and Security Committee (Chair) |
100%
|
Balfour Beatty Plc.
|
(2012-present)
|
||
Audit Committee |
100%
|
Enbridge Inc.
|
(2010-present)
|
||
Corporate Governance and Nominating Committee |
100%
|
Brookfield Asset Management Inc.
|
(2008-present)
|
||
Finance Committee
|
100%
|
||||
Human Resources and Compensation Committee
|
100%
|
||||
Investment Committee of CN’s Pension Trust Funds (5)
|
100% | ||||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
97.30%
|
VALUE AT RISK
|
C$15,496,717 (3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
179,464
|
February 2014
|
175,969
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 11 |
The Hon.
|
Mr. Losier is the retired President and Chief Executive Officer of Assumption Life (life insurance company). Between 1989 and 1994, Mr. Losier held various cabinet level positions with the government of the Province of New Brunswick, including Minister of Fisheries and Aquaculture and Minister of Economic Development and Tourism.
Mr. Losier was co-chair of the University of Moncton’s Excellence Campaign. In 2008, he was named a member of the Security Intelligence Review Committee of Canada, and, as such, became a member of the Privy Council. In addition to serving on the public boards mentioned in the following table, Mr. Losier is a director of Enbridge Gas New Brunswick and chairs the board of directors of Invest N.B. and is a past member and director of the New Brunswick Business Council and Canadian Blood Services, respectively. Mr. Losier was appointed a Member of the Order of Canada in 2011.
Mr. Losier holds a Bachelor of Economics from the University of Moncton and a Masters of Economics from the University of Western Ontario. Mr. Losier was awarded an Honorary Doctorate Degree in Business Administration from the University of Moncton.
|
||
Denis Losier,
|
|||
P.C., LL.D., C.M.
|
|||
Corporate Director
|
|||
Age: 62 (1)
|
|||
New Brunswick,
|
|||
Canada
|
|||
Director Since:
|
|||
October 25, 1994
|
|||
Independent
|
|||
Principal Competencies
|
|||
• Finance/Accounting
|
|||
• Human Resources
|
|||
• Sales/Marketing
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
Capital DGMC Inc. (Chairman)
|
(2013-present)
|
||
Corporate Governance and Nominating Committee (Chair)
|
100%
|
Plazacorp Retail Properties Ltd.
|
(2007-present)
|
||
Audit Committee
|
100%
|
XL-ID Solutions Inc. (formerly, Excellium Inc.)
|
(2013)
|
||
Donations and Sponsorships Committee (5)
|
100% |
NAV CANADA
|
(2004-2013)
|
||
Environment, Safety and Security Committee
|
100%
|
||||
Human Resources and Compensation Committee
|
100%
|
||||
Investment Committee of CN’s Pension Trust Funds (5)
|
100% | ||||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
97.25%
|
VALUE AT RISK
|
C$24,914,738 (3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
288,532
|
February 2014
|
284,137
|
The Hon.
|
The Honorable Kevin G. Lynch is Vice-Chair, BMO Financial Group. In this role, Dr. Lynch is a key strategic advisor to senior management. He represents BMO in domestic and international markets.
Prior to joining BMO, Dr. Lynch built a distinguished career in the Government of Canada. Before his retirement in 2009, he served as Clerk of the Privy Council, Secretary to the Cabinet, and Head of the Public Service of Canada. Dr. Lynch began his public service career at the Bank of Canada in 1976 and has held a number of senior positions in the Government of Canada. These included the post of Deputy Minister of Industry, from 1995 to 2000, and Deputy Minister of Finance, from 2000 to 2004. From 2004 to 2006, he served as Executive Director (for the Canadian, Irish and Caribbean constituency) at the International Monetary Fund in Washington, D.C.
In addition to serving on the public boards mentioned in the following table, Dr. Lynch is the Chair of the Board of Governors of the University of Waterloo, the Chancellor of King’s University and serves on several other boards, including those of the Asia Pacific Foundation and the Gairdner Foundation. Dr. Lynch is also a member of the World Economic Forum’s Global Policy Councils.
Dr. Lynch has received honorary degrees from seven Canadian universities and was made a Member of the Queen’s Privy Council for Canada in 2009, and an Officer of the Order of Canada in 2011. He has been awarded the Distinguished Alumni Award from McMaster University and the Queen’s Golden Jubilee Medal.
The Honorable Kevin G. Lynch earned his master’s in Economics from the University of Manchester and a doctorate in Economics from McMaster University.
|
||
Kevin G. Lynch,
|
|||
P.C., O.C., PH.D., LL.D.
|
|||
Vice-Chair, BMO
|
|||
Financial Group
|
|||
Age: 64 (1)
|
|||
Ontario, Canada
|
|||
Director Since:
|
|||
April 23, 2014
|
|||
Independent
|
|||
Principal Competencies
|
|||
• Public Policy
|
|||
• Finance/Accounting
|
|||
• Strategy
|
|||
MEMBER OF (6) |
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
CNOOC Limited
|
(2014-present)
|
||
Corporate Governance and Nominating Committee
|
100% |
Empire Company Limited (Sobey’s)
|
(2013-present)
|
||
Environment, Safety and Security Committee
|
100%
|
||||
Finance Committee
|
100%
|
||||
Human Resources and Compensation Committee
|
100% | ||||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
99.78%
|
VALUE AT RISK
|
C$583,035 (3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
6,752
|
February 2014
|
NIL
|
12 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Claude Mongeau
|
Mr. Mongeau became President and Chief Executive Officer of the Company on January 1, 2010. In 2000, he was appointed Executive Vice-President and Chief Financial Officer of the Company and held such position until June 1, 2009. Prior to this, he held the positions of Vice-President, Strategic and Financial Planning and Assistant Vice-President, Corporate Development upon joining the Company in 1994. In 2005, he was selected Canada’s CFO of the Year by an independent committee of prominent Canadian business leaders.
Prior to joining CN, Mr. Mongeau was a partner with Secor Group, a Montréal-based management consulting firm. He also worked in the business development unit of Imasco Inc. and as a consultant at Bain & Company.
Mr. Mongeau is a nominee for election as director of the board of The Toronto-Dominion Bank, at its March 26, 2015 annual shareholder meeting. Mr. Mongeau also serves as Chairman of the Board of the Railway Association of Canada.
Mr. Mongeau holds an MBA from McGill University.
|
||
President & CEO, CN
|
|||
Age: 53 (1)
|
|||
Quebec, Canada
|
|||
Director Since:
|
|||
October 20, 2009
|
|||
NOT Independent
|
|||
Principal Competencies
|
|||
• Strategy
|
|||
• Transport Industry/Safety
|
|||
• Finance/Accounting
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
TD Bank
|
(2015 nominee)
|
||
Donations and Sponsorships Committee (Chair) (5)
|
100%
|
SNC-Lavalin Group Inc.
|
(2003-present)
|
||
Investment Committee of CN’s Pension Trust Funds (5)
|
100% | ||||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
99.84%
|
VALUE AT RISK
|
C$41,245,337 (3)
|
Common Shares Owned or Controlled (2)
|
Stock Options Held (4)
|
||
February 2015
|
477,653
|
February 2015
|
1,738,000
|
February 2014
|
469,982
|
February 2014
|
1,738,000
|
James E. O’Connor
|
Mr. O’Connor is the retired chair of the board of directors of Republic Services, Inc., a leading provider of non-hazardous solid waste collection, recycling and disposal services in the United States. From 1998 to 2011, Mr. O’Connor was chair and Chief Executive Officer of Republic Services, Inc. Prior to 1998, he had held various management positions at Waste Management, Inc.
In 2001, Mr. O’Connor was the recipient of the Ellis Island Medal of Honor from the National Ethnic Coalition of Organizations (NECO) which rewards Americans who exemplify outstanding qualities in both their personal and professional lives, while continuing to preserve the richness of their particular heritage. He was named to the list of America’s Best CEOs each year, between 2005 and 2010. In 2011, Mr. O’Connor was named to the Institutional Investors’ All American Executive Team. He is also active in many community causes, especially those that benefit children. Mr. O’Connor has served on the board of directors of the SOS Children’s Village. In addition to serving on the Board of Clean Energy Fuels Corp., Mr. O’Connor also serves on the board of directors of the South Florida P.G.A. of America Foundation.
Mr. O’Connor holds a Bachelor of Science in Commerce (concentration in accounting) from DePaul University.
|
||
Corporate Director
|
|||
Age: 65 (1)
|
|||
Florida, U.S.A.
|
|||
Director Since:
|
|||
April 27, 2011
|
|||
Independent
|
|||
Principal Competencies | |||
• Strategy
|
|||
• Engineering/Environment
|
|||
• Human Resources
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
Clean Energy Fuels Corp.
|
(2011-present)
|
||
Audit Committee
|
100%
|
Republic Services, Inc.
|
(1998-2011)
|
||
Environment, Safety & Security Committee
|
100% | ||||
Finance Committee
|
100%
|
||||
Human Resources and Compensation Committee
|
100%
|
||||
Investment Committee of CN’s Pension Trust Funds (5)
|
100% | ||||
Strategic Planning Committee (Chair)
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
97.14%
|
VALUE AT RISK
|
C$1,873,971(3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
21,678
|
February 2014
|
18,668
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 13 |
Robert Pace, D. COMM.
|
Mr. Pace is President and Chief Executive Officer, The Pace Group (radio broadcasting, real estate development and environmental services). He began his professional career as a lawyer in Halifax with the firm Chandler Moore. In 1981, he accepted an appointment to act as the Atlantic Advisor to the Prime Minister of Canada, the Right Honourable Pierre Elliott Trudeau.
In addition to serving on the public boards mentioned in the following table, Mr. Pace is also Chairman of the Walter Gordon Foundation, a director of the Atlantic Salmon Federation and former director of the Asia Pacific Foundation.
Mr. Pace holds an MBA and an LL.B from Dalhousie University and holds an Honourary Doctor of Commerce Degree from Saint Mary’s University.
Mr. Pace has also completed Corporate Director education programs at both Harvard and Chicago Business Schools.
|
||
Chair of the Board, CN
|
|||
President & CEO,
|
|||
The Pace Group
|
|||
Age: 60 (1)
|
|||
Nova Scotia, Canada
|
|||
Director Since:
|
|||
October 25, 1994
|
|||
Independent
|
|||
Principal Competencies | |||
• Human Resources
|
|||
• Transport Industry/Safety
|
|||
• Strategy
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board (Chair)
|
100%
|
High Liner Foods Incorporated
|
(1998-present)
|
||
Audit Committee
|
100%
|
Hydro One Inc.
|
(2007-2014)
|
||
Corporate Governance and Nominating Committee
|
100%
|
Overland Realty Limited
|
(2006-2010)
|
||
Donations and Sponsorships Committee (5)
|
100% | ||||
Environment, Safety & Security Committee
|
100%
|
||||
Human Resources and Compensation Committee
|
100%
|
||||
Investment Committee of CN’s Pension Trust Funds (5)
|
100% | ||||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
99.05%
|
VALUE AT RISK
|
C$25,829,357 (3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
299,124
|
February 2014
|
288,926
|
Robert L. Phillips
|
Mr. Phillips is the President of R.L. Phillips Investments Inc. and was previously President and Chief Executive Officer and director of British Columbia Railway Company Limited from 2001 to 2004. Mr. Phillips was Executive Vice-President, Business Development and Strategy for MacMillan Bloedel Ltd. and, before that, held the position of Chief Executive Officer at PTI Group and Dreco Energy Services Limited. He also enjoyed a prestigious career as a corporate lawyer and was appointed to the Queen’s Counsel in Alberta in 1991.
Mr. Phillips serves on the public boards mentioned in the following table. He has also served as a director of the Canadian Chamber of Commerce, as a member of the Alberta Economic Development Authority (AEDA) and as a director of the Export and Trade Committee of the AEDA.
Mr. Phillips received his Bachelor of Laws (Gold Medalist), and Bachelor of Science, Chemical Engineering (Hons) from the University of Alberta.
|
||
President,
|
|||
R.L. Phillips
|
|||
Investments Inc.
|
|||
Age: 64 (1)
|
|||
British Columbia,
|
|||
Canada
|
|||
Director Since:
|
|||
April 23, 2014
|
|||
Independent
|
|||
Principal Competencies | |||
• Transport Industry/Safety
|
|||
• Strategy
|
|||
• Sales/Marketing
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100% |
West Fraser Timber Co. Ltd (Lead Director)
|
(2005-present)
|
||
Audit Committee
|
100%
|
Precision Drilling Corporation (Chairman)
|
(2004-present)
|
||
Corporate Governance and Nominating Committee |
100%
|
MacDonald Dettwiler & Associates Ltd. (Chairman)
|
(2003-present)
|
||
Environment, Safety & Security Committee
|
100%
|
Canadian Western Bank
|
(2001-present)
|
||
Human Resources and Compensation Committee
|
100% |
Axia NetMedia Corporation
|
(2000-2014)
|
||
Strategic Planning Committee
|
100% |
Epcor Utilities Inc.
|
(2005-2014)
|
||
Capital Power Corporation
|
(2009-2013)
|
||||
2014 VOTES IN FAVOUR
|
99.79%
|
Terra Vest Income Fund
|
(2004-2012)
|
SECURITIES HELD
|
|||||
|
VALUE AT RISK
|
C$1,068,754 (3)
|
Common Shares Owned or Controlled (2)
|
|
February 2015
|
12,377
|
February 2014
|
4,125
|
14 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Laura Stein
|
Ms. Stein is the Executive Vice-President – General Counsel of The Clorox Company (marketer and manufacturer of consumer products) where she serves on the executive committee. From 2000 to 2005, Ms. Stein was Senior Vice-President, General Counsel of the H.J. Heinz Company. She was also previously a corporate lawyer with Morrison & Foerster in San Francisco and Hong Kong.
Ms. Stein is a director of Franklin Resources, Inc. and a former director of Nash Finch Company and serves on the boards of several not-for-profit organizations, including Corporate Pro Bono, Equal Justice Works, the Leadership Council on Legal Diversity and the Association of General Counsel. Previously, Ms. Stein was chair of the Association of Corporate Counsel, co-chair of the General Counsel Committee of the ABA Business Law Section and a director of the Pittsburgh Ballet Theater.
Ms. Stein has received the Margaret Brent Award, the American Bar Association’s highest award for women lawyers; the Sandra Day O’Connor Board Excellence Award; and the Corporate Board Member America’s Top General Counsel Recognition Award.
Ms. Stein received her J.D. from Harvard Law School, and is a graduate of Dartmouth College where she earned an undergraduate and master’s degrees.
|
||
Executive
|
|||
Vice-President –
|
|||
General Counsel
|
|||
The Clorox Company
|
|||
Age: 53 (1)
|
|||
California, U.S.A.
|
|||
Director Since:
|
|||
April 23, 2014
|
|||
Independent
|
|||
Principal Competencies | |||
• Legal
|
|||
• Engineering/Environment
|
|||
• Finance/Accounting
|
|||
MEMBER OF (6)
|
ATTENDANCE 2014
|
OTHER PUBLIC BOARDS DURING PAST 5 YEARS
|
|||
Board
|
100%
|
Franklin Resources Inc.
|
(2005-present)
|
||
Audit Committee
|
100% | ||||
Environment, Safety & Security Committee
|
100%
|
||||
Finance Committee
|
100%
|
||||
Human Resources and Compensation Committee
|
100% | ||||
Strategic Planning Committee
|
100%
|
||||
SECURITIES HELD
|
|||||
2014 VOTES IN FAVOUR
|
99.79%
|
VALUE AT RISK
|
C$571,406 (3) |
Common Shares Owned or Controlled (2)
|
|
February 2015
|
6,610
|
February 2014
|
NIL
|
(1)
|
The age of the directors is provided as at April 21, 2015, the date of the Meeting.
|
(2)
|
The information regarding common shares beneficially owned, controlled or directed has been furnished by the respective nominees individually and includes Deferred Share Units (“DSUs”) under the Deferred Share Unit Plan for Directors (“DSU Plan”) in the case of non-executive directors. In the case of Claude Mongeau it includes DSUs under the Company’s Voluntary Incentive Deferral Plan (“VIDP”) but does not include common shares under stock options. For further details on the VIDP, please see the Deferred Compensation Plans section and for further information on the DSU Plan, please see the “Board of Directors Compensation” section of this Information Circular.
|
(3)
|
The Value at Risk represents the total value of common shares and DSUs which total value is based on the February 27, 2015 closing price of the common shares on the Toronto Stock Exchange (C$86.35) or, for Donald J. Carty, Ambassador Gordon D. Giffin, Edith E. Holiday, James E. O’Connor and Laura Stein, the New York Stock Exchange (U.S.$69.14) using the closing exchange rate (U.S.$1.00 = C$1.2503) on the same date.
|
(4)
|
The information regarding stock options comprises the stock options granted to Claude Mongeau under the Management Long-Term Incentive Plan. For further details on the plan, please see the “Statement of Executive Compensation” section of this Information Circular.
|
(5)
|
The Donations and Sponsorships Committee and the Investment Committee of CN’s Pension Trust Funds are mixed committees composed of both members of the Board of Directors as well as officers of the Company.
|
(6)
|
For a detailed review of the Board and committee attendance by director nominees, please refer to the Attendance Table found in the Statement of Governance Practices of this Information Circular.
|
As of the date hereof, to the knowledge of the Company and based upon information provided to it by the nominees for election to the Board of Directors, no such nominee is or has been, in the last 10 years, a director or executive officer of any company that, while such person was acting in that capacity or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, except for the following:
|
(i)
|
Mr. Mongeau, a director and the President and Chief Executive Officer of the Company, became a director of Nortel Networks Corporation (“NNC”) and Nortel Networks Limited (“NNL”) on June 29, 2006. On January 14, 2009, NNC, NNL and certain other Canadian subsidiaries initiated creditor protection proceedings under the CCAA in Canada. Certain U.S. subsidiaries filed voluntary petitions in the United States under Chapter 11 of the U.S. Bankruptcy Code, and certain Europe, Middle East and Africa subsidiaries made consequential filings in Europe and the Middle East. Mr. Mongeau resigned as a director of NNC and NNL effective August 10, 2009;
|
(ii)
|
Ms. Kempston Darkes, a director of the Company, was an officer of General Motors Corporation (“GM”) when GM filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code on June 1, 2009. None of the operations for which she was directly responsible in Latin America, Africa and the Middle East were included in the bankruptcy filing. GM emerged from bankruptcy protection on July 10, 2009 in a reorganization in which a new entity acquired GM’s most valuable assets. Ms. Kempston Darkes retired as a GM officer on December 1, 2009;
|
(iii)
|
Mr. Giffin, a director of the Company, was a director of AbitibiBowater Inc. until January 22, 2009. AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions in the United States under Chapter 11 of the U.S. Bankruptcy Code on April 16, 2009. AbitibiBowater Inc. and certain of its Canadian subsidiaries filed for creditor protection under the CCAA in Canada on April 17, 2009. Mr. Giffin is no longer a director of AbitibiBowater Inc.; and
|
(iv)
|
Mr. Losier, a director of the Company, was a director of XL-ID Solutions Inc. (formerly, Excellium Inc.) (“XL-ID”) from July 23, 2013 to August 29, 2013. On January 3, 2014, XL-ID announced that it had submitted a proposal to its creditors under the Bankruptcy and Insolvency Act (Canada). On February 13, 2014, XL-ID announced that it had received a final order from the Superior Court of Quebec approving the proposal approved by its creditors.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 15 |
COMPANY NAME
|
|
Union Pacific Corporation (U.S.)
|
Norfolk Southern Corporation (U.S.)
|
Canadian Pacific Railway Ltd. (Cdn.)
|
CSX Corporation (U.S.)
|
COMPANY NAME
|
PRIMARY INDUSTRY
|
COMPANY NAME
|
PRIMARY INDUSTRY
|
|
Agrium Inc.
|
Chemicals
|
CGI Group Inc.
|
IT services
|
|
Air Canada
|
Airlines
|
Manulife Financial Corporation
|
Insurance
|
|
Bank of Montreal
|
Banks
|
Potash Corporation of Saskatchewan
|
Chemicals
|
|
Barrick Gold Corporation
|
Metals & Mining
|
Rogers Communications Inc.
|
Diversified Telecommunication
|
|
BCE Inc.
|
Diversified Telecommunication
|
Sun Life Financial Inc.
|
Insurance
|
|
Bombardier Inc.
|
Aerospace & Defense
|
Suncor Energy Inc.
|
Oil, Gas and Consumable Fuels
|
|
Canadian Imperial Bank of Commerce
|
Banks
|
Teck Resources Ltd.
|
Metals & Mining
|
|
Canadian Natural Resources Ltd.
|
Oil, Gas and Consumable Fuels
|
Telus Corporation
|
Diversified Telecommunication
|
|
Canadian Pacific Railway Ltd.
|
Road & Rail
|
Thomson Reuters Corporation
|
Media
|
|
Canadian Tire Corporation
|
Multiline Retail
|
TransCanada Corporation
|
Oil, Gas and Consumable Fuels
|
|
Cenovus Energy Inc.
|
Oil, Gas and Consumable Fuels
|
In 2015 directors’ compensation moves to a “flat-fee” structure eliminating meeting and travel attendance fees in line with market best practices.
|
16 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The following table shows the compensation levels for CN’s non-executive directors during 2014, together with the new compensation levels as discussed above, effective as of January 1, 2015 (such new levels to remain the same for two years):
|
FEES (U.S.$)
|
FEES (U.S.$)
|
(1) The Board Chair receives no additional director retainer nor committee chair or committee member retainer.
(2) Directors (including Board Chair) may choose to receive all or part of their cash retainer in common shares or DSUs (see compensation table below for details) and their common share grant retainer can also be received in DSUs. The common shares are purchased on the open market.
(3) Committee chairs receive no additional committee chair or committee member retainer in 2014.
(4) The committee member retainer in 2014 was paid on a per-committee basis.
(5) Directors are reimbursed for expenses incurred in attending Board and committee meetings.
|
|
TYPE OF FEE
|
2014
|
2015
|
|
Board Chair Cash Retainer (1) (2)
|
120,000
|
175,000
|
|
Board Chair Share Grant Retainer (1) (2)
|
350,000
|
375,000
|
|
Director Cash Retainer (2)
|
15,000
|
35,000
|
|
Director Share Grant Retainer (2)
|
175,000
|
200,000
|
|
Committee Chair Cash Retainers (2)
|
|||
Audit and HRC Committees Chairs
|
25,000(3)
|
75,000
|
|
Other Committees Chairs
|
15,000(3)
|
65,000
|
|
Committee Member Cash Retainer (2)
|
3,500(4)
|
55,000
|
|
Board Meeting Attendance Fee
|
1,500
|
N/A
|
|
Committee Meeting Attendance Fee
|
1,500
|
N/A
|
|
Travel Attendance Fee (5)
|
1,500
|
N/A
|
FEES EARNED
|
PERCENT-
|
||||||||
DIRECTOR
|
AGE OF
|
||||||||
BOARD
|
BOARD AND
|
TOTAL FEES
|
|||||||
VICE-CHAIR
|
COMMITTEE
|
RECEIVED
|
|||||||
AND
|
COMMITTEE
|
COMMITTEE
|
ATTENDANCE
|
SHARE-
|
ALL OTHER
|
IN COMMON
|
|||
BOARD CHAIR
|
CHAIR
|
MEMBER
|
AND TRAVEL
|
BASED
|
COMPEN-
|
SHARES
|
|||
RETAINER
|
RETAINER
|
RETAINER
|
FEES
|
AWARDS
|
SATION
|
TOTAL
|
AND/OR
|
||
NAME OF DIRECTOR
|
(C$)(1)
|
(C$)(1)
|
(C$)(1)
|
(C$)(1)(2)
|
(C$)(3)
|
(C$)(4)
|
(C$)
|
DSUs(6)
|
|
Current Directors
|
|||||||||
A. Charles Baillie
|
16,646
|
16,646
|
15,536
|
61,300
|
194,198
|
–
|
304,326
|
80%
|
|
Donald J. Carty
|
16,646
|
18,409
|
19,420
|
66,270
|
194,198
|
4,970
|
319,913
|
72%
|
|
Ambassador Gordon D. Giffin
|
16,568
|
27,613
|
14,174
|
69,584
|
194,198
|
1,657
|
323,794
|
60%
|
|
Edith E. Holiday
|
16,568
|
–
|
19,329
|
66,270
|
194,198
|
–
|
296,365
|
66%
|
|
V. Maureen Kempston Darkes
|
16,568
|
16,568
|
15,463
|
67,927
|
194,198
|
–
|
310,724
|
62%
|
|
The Hon. Denis Losier
|
16,568
|
20,249
|
16,752
|
71,240
|
194,198
|
3,314
|
322,321
|
60%
|
|
The Hon. Edward C. Lumley
|
16,568
|
16,568
|
12,886
|
62,957
|
194,198
|
–
|
303,177
|
64%
|
|
The Hon. Kevin G. Lynch
|
11,025
|
–
|
12,863
|
49,703
|
128,625
|
–
|
202,216
|
75%
|
|
James E. O’Connor
|
16,568
|
11,045
|
16,752
|
69,584
|
194,198
|
1,657
|
309,804
|
63%
|
|
Robert Pace (8)
|
92,803
|
9,204
|
6,445
|
67,927
|
321,481
|
3,609
|
501,469
|
82%
|
|
Robert L. Phillips
|
10,952
|
–
|
12,778
|
48,046
|
127,774
|
4,970
|
204,520
|
74%
|
|
Laura Stein
|
10,894
|
–
|
12,710
|
49,703
|
127,097
|
–
|
200,404
|
71%
|
|
Retired Directors
|
|||||||||
Michael R. Armellino (7)
|
5,523
|
5,523
|
6,443
|
26,508
|
64,732
|
–
|
108,729
|
60%
|
|
Hugh J. Bolton (7)
|
5,523
|
5,523
|
5,155
|
23,195
|
64,732
|
–
|
104,128
|
62%
|
|
David G.A. McLean (7)
|
44,180
|
–
|
–
|
23,195
|
129,465
|
570
|
(5) |
197,410
|
66%
|
TOTAL
|
313,600
|
147,348
|
186,706
|
823,409
|
2,517,490
|
20,747
|
4,009,300
|
69%
|
(1)
|
All directors earned compensation in U.S. currency. Compensation received in cash was converted to Canadian dollars using the average rate of exchange of the Bank of Canada for 2014 (U.S.$1.00 = C$1.1045). Compensation elected to be received in common shares or DSUs was converted to Canadian dollars using the closing rate of exchange of the Bank of Canada (U.S.$1.00 = C$1.1097), on the purchase day (February 3, 2014). Robert Pace’s election for such compensation as Chair of the Board was converted to Canadian dollars using the closing rate of exchange of the Bank of Canada on May 13, 2014 (U.S.$1.00 = C$1.0910). The Hon. Kevin G. Lynch, Robert L. Phillips and Laura Stein election for such compensation was converted to Canadian dollars using the closing rate of exchange of the Bank of Canada respectively on April 28, 2014 (U.S.$1.00 = C$1.1025), on May 5, 2014 (U.S.$1.00 = C$1.0952) and on May 7, 2014 (U.S.$1.00 = C$1.0894). In addition to the common shares or DSUs received by the directors, the Board Vice-Chair, and the Board Chair, as described in note (3) below, the directors, the Board Vice-Chair and the Board Chair may choose to receive all or part of their cash retainers in common shares or DSUs. The following directors made such election with respect to the amounts set forth beside their names: A. Charles Baillie (C$48,828), Donald J. Carty (C$36,066), the Hon. Kevin G. Lynch (C$23,888), Robert Pace (C$87,280), Robert L. Phillips (C$23,730) and Laura Stein (C$15,861). The amount of cash retainers elected to be received in common shares or DSUs is included in these columns.
|
(2)
|
Includes travel fees which amounted to a total of C$165,675, in aggregate, for all directors.
|
(3)
|
Represents a common share grant valued at U.S.$175,000 received by each non-executive director as part of the Director Retainer, U.S.$175,000 for the Board Vice-Chair as part of the Board Vice-Chair Retainer, and U.S.$350,000 for the Board Chair as part of the Board Chair Retainer. Such values were converted to Canadian dollars using the closing rate of exchange of the Bank of Canada (U.S.$1.00 = C$1.1097) on February 3, 2014. The Hon. Kevin G. Lynch, Robert L. Phillips and Laura Stein election for such compensation was converted to Canadian dollars using the closing rate of exchange of the Bank of Canada respectively on April 28, 2014 (U.S.$1.00 = C$1.1025), on May 5, 2014 (U.S.$1.00 = C$1.0952) and on May 7, 2014 (U.S.$1.00 = C$1.0894).
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 17 |
(4)
|
Such values represent committee attendance fees received in cash for attendance to meetings of board committees of which they were not members. Such values were converted to Canadian dollars using the average rate of exchange of the Bank of Canada for 2014 (U.S.$1.00 = C$1.1045).
|
(5)
|
Includes the value of insurance premiums for 2014. For Robert Pace: for North American emergency protection outside his province of residence, the annual cost to the Company for such benefits was C$295 (based on an annual premium of C$1,792). For David G.A. McLean: for insurance premiums for medical and dental coverage in Canada and the U.S., the total cost to the Company was C$570 (based on total annual premiums of C$1,841).
|
(6)
|
This percentage is calculated by dividing the aggregate of the cash retainer elected by non-executive directors to be received in common shares or DSUs described in note (1) above and the value provided under the share-based awards column, by the value provided under the total column.
|
(7)
|
Michael R. Armellino, Hugh J. Bolton and David G.A. McLean retired from the Board on April 23, 2014.
|
(8)
|
Robert Pace became Chair of the Board on April 23, 2014. Prior to this date, he had been Board Vice-Chair since April 23, 2013.
|
Directors are required to be paid at least 50% in the form of equity until they attain their share ownership requirements.
|
Directors’ ownership requirement for two years beyond board tenure aligns with longer term stewardship.
|
18 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The following table provides information on the number and the value of common shares and DSUs owned by the Company’s current directors as at February 27, 2015, and the amount needed to meet the Minimum Shareholding Requirement.
|
DIRECTOR
|
YEAR (1)
|
NUMBER
OF COMMON
SHARES OWNED,
CONTROLLED
OR DIRECTED
|
2015
TOTAL VALUE
OF COMMON
SHARES (VALUE
AT RISK)(3)
(C$)
|
NUMBER OF
DSUs HELD
|
2015
TOTAL VALUE
OF DSUs (VALUE
AT RISK)(3)
(C$)
|
TOTAL NUMBER
OF COMMON
SHARES OWNED,
CONTROLLED OR
DIRECTED
AND DSUs (2)
|
2015
TOTAL VALUE
OF COMMON
SHARES AND
DSUs (VALUE
AT RISK) (3)
(C$)
|
GUIDELINE MET
OR INVESTMENT
REQUIRED TO
MEET GUIDELINE
(C$)
|
VALUE AT RISK
AS MULTIPLE OF
SHAREHOLDING
REQUIREMENT
|
A. Charles Baillie
|
2015
|
207,400
|
122,330
|
329,730
|
|||||
2014
|
207,400
|
17,908,990
|
119,166
|
10,563,196
|
326,566
|
28,472,186
|
✓
|
32
|
|
Variation
|
–
|
3,164
|
3,164
|
||||||
Donald J. Carty
|
2015
|
37,620
|
19,047
|
56,667
|
|||||
2014
|
20,000
|
3,252,089
|
18,785
|
1,646,532
|
38,785
|
4,898,621
|
✓
|
6
|
|
Variation
|
17,620
|
262
|
17,882
|
||||||
Ambassador
|
2015
|
42,493
|
44,772
|
87,265
|
|||||
Gordon D. Giffin
|
2014
|
40,118
|
3,673,339
|
43,564
|
3,870,349
|
83,682
|
7,543,688
|
✓
|
9
|
Variation
|
2,375
|
1,208
|
3,583
|
||||||
Edith E. Holiday
|
2015
|
73,341
|
28,396
|
101,737
|
|||||
2014
|
73,341
|
6,340,017
|
25,049
|
2,454,713
|
98,390
|
8,794,730
|
✓
|
10
|
|
Variation
|
–
|
3,347
|
3,347
|
||||||
V. Maureen
|
2015
|
127,368
|
52,096
|
179,464
|
|||||
Kempston Darkes
|
2014
|
124,590
|
10,998,227
|
51,379
|
4,498,490
|
175,969
|
15,496,717
|
✓
|
18
|
Variation
|
2,778
|
717
|
3,495
|
||||||
The Hon. Denis Losier
|
2015
|
184,254
|
104,278
|
288,532
|
|||||
2014
|
184,254
|
15,910,333
|
99,883
|
9,004,405
|
284,137
|
24,914,738
|
✓
|
28
|
|
Variation
|
–
|
4,395
|
4,395
|
||||||
The Hon.
|
2015
|
121,370
|
89,387
|
210,757
|
|||||
Edward C. Lumley
|
2014
|
123,370
|
10,480,300
|
87,170
|
7,718,567
|
210,540
|
18,198,867
|
✓
|
21
|
Variation
|
(2,000)
|
2,217
|
217
|
||||||
The Hon.
|
2015
|
–
|
6,752
|
6,752
|
|||||
Kevin G. Lynch
|
2014
|
–
|
–
|
–
|
583,035
|
–
|
583,035
|
298,427
|
0.7
|
Variation
|
–
|
6,752
|
6,752
|
||||||
Claude Mongeau
|
2015
|
66,503
|
411,150
|
477,653
|
|||||
2014
|
64,496
|
5,742,534
|
405,486
|
35,502,803
|
469,982
|
41,245,337
|
✓
|
see note 4
|
|
Variation
|
2,007
|
5,664
|
7,671
|
||||||
James E. O’Connor
|
2015
|
21,678
|
–
|
21,678
|
|||||
2014
|
18,668
|
1,873,971
|
–
|
–
|
18,668
|
1,873,971
|
✓
|
2
|
|
Variation
|
3,010
|
–
|
3,010
|
||||||
Robert Pace
|
2015
|
200,557
|
98,567
|
299,124
|
|||||
2014
|
191,715
|
17,318,097
|
97,211
|
8,511,260
|
288,926
|
25,829,357
|
✓
|
13
|
|
Variation
|
8,842
|
1,356
|
10,198
|
||||||
Robert L. Phillips
|
2015
|
5,625
|
6,752
|
12,377
|
|||||
2014
|
4,125
|
485,719
|
–
|
583,035
|
4,125
|
1,068,754
|
✓
|
1
|
|
Variation
|
1,500
|
6,752
|
8,252
|
||||||
Laura Stein
|
2015
|
–
|
6,610
|
6,610
|
|||||
2014
|
–
|
–
|
–
|
571,406
|
–
|
571,406
|
310,056
|
0.6
|
|
Variation
|
–
|
6,610
|
6,610
|
(1)
|
The number of common shares and DSUs held by each director for 2015 is set out as at February 27, 2015, and for 2014 is set out as at February 28, 2014.
|
(2)
|
Includes DSUs elected as part of directors compensation and DSUs under the Company’s VIDP held by Claude Mongeau.
|
(3)
|
The total value is based on the February 27, 2015 closing price of the common shares on the Toronto Stock Exchange (C$86.35) or, for Donald J. Carty, Ambassador Gordon D. Giffin, Edith E. Holiday, James E. O’Connor and Laura Stein, the New York Stock Exchange (U.S.$69.14) using the closing exchange rate (U.S.$1.00 = C$1.2503) on the same date.
|
(4)
|
For a discussion on Claude Mongeau’s shareholding requirements, please see the section “Stock Ownership Status” on p. 49 of this Information Circular.
|
Subject to the Minimum Shareholding Requirement, directors may elect to receive all or part of their director, committee member, Board Chair, and committee chair cash retainers either in cash, common shares of the Company purchased on the open market or DSUs. They may also elect to receive their common share grant retainer in DSUs. Each DSU entitles the beneficiary thereof to receive upon resignation, retirement or death, one common share of the Company purchased on the open market, plus additional DSUs reflecting dividend equivalents.
|
Participants in the DSU Plan are credited additional DSUs that are equivalent to the dividends declared on the Company’s common shares. Such additional DSUs are credited to each non-executive director’s account on each dividend payment date. The number of DSUs is calculated using the same rate as for the dividends paid on the common shares.
|
When a director leaves the Board, the Company buys the same number of common shares on the open market as the number of DSUs the director holds in the DSU Plan, after deducting appropriate taxes. These shares are then delivered to the former director. All administration costs as well as any brokerage fees associated with the purchase and registration of common shares are paid by CN.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 19 |
As a Canadian reporting issuer with securities listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”), our corporate governance practices comply with applicable rules adopted by the Canadian Securities Administrators (the “CSA”), applicable provisions of the U.S. Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and related rules of the U.S. Securities and Exchange Commission (“SEC”). We are exempted from complying with many of the NYSE corporate governance rules, provided that we comply with Canadian governance requirements. Except as summarized on our website at www.cn.ca, under Delivering Responsibly/Governance, our governance practices comply with the NYSE corporate governance rules in all significant respects.
|
The Board of Directors is of the opinion that the Company’s corporate governance practices are well designed to assist the Company in achieving its principal corporate objective, which is the enhancement of shareholder value. The mandate of the Board is set out in Schedule “A” to this Information Circular. The Board of Directors has approved the disclosure of the Company’s governance practices described below, on the recommendation of the Corporate Governance and Nominating Committee.
|
The role, mandate and rules of the Board of Directors and of its committees are set forth in our corporate governance manual, a detailed document available on our website. CN is one of the few issuers in Canada with such a comprehensive governance manual publicly available.
|
The Board of Directors reviews and updates our Code of Business Conduct to ensure that it is consistent with current industry trends and standards; clearly communicates CN’s organizational mission, values, and principles; and, most importantly, serves as a reference guide for employees to support everyday decision making. The Code is applicable to directors, officers and employees of CN. It addresses many important matters, including conflicts of interest, protection and proper use of corporate assets and opportunities, confidentiality of corporate information, fair dealing, compliance with laws and reporting of any illegal or unethical behaviour. No waiver has ever been granted to a director or executive officer in connection therewith. The Code of Business Conduct is available on our website at www.cn.ca, under Delivering Responsibly/Governance and in print to any shareholder who requests a copy by contacting our Corporate Secretary. The Code has also been filed with the Canadian and U.S. securities regulatory authorities.
|
The Board, through its Corporate Governance and Nominating Committee, reviews, monitors and oversees the disclosure relating to the Company’s Code of Business Conduct. Each year, management reports to such committee on the implementation of the Code of Business Conduct within the organization and on any material contravention of the Code of Business Conduct by employees of the Company.
|
The Board requests that every director disclose any direct or indirect interest he or she has in any organization, business or association, which could place the director in a conflict of interest. Every year, a questionnaire is sent to each director to ensure that the director is in no such conflict that has not been disclosed. Should there be a discussion or decision relating to an organization, business or association in which a director has an interest, the Board will request that such director not participate or vote in any such discussion or decision.
|
The Company believes that ethical business conduct is an important part of its success. Hence, the mandate of the Board attached as Schedule “A” to this Information Circular states that the Board has the responsibility for overseeing management in the competent and ethical operation of the Company. As part of the Company’s Code of Business Conduct, employees are also required to avoid outside interests that may impair or appear to impair the effective performance of their responsibilities to the Company, and be fair and impartial in all dealings with customers, suppliers and partners. A key person in the implementation of the Company’s Code of Business Conduct is CN’s Ombudsman, who presents reports to the Corporate Governance and Nominating Committee. The office of the Ombudsman offers a confidential, neutral and informal avenue which facilitates fair and equitable resolutions to concerns arising within the Company.
|
The Board of Directors has adopted procedures allowing interested parties to communicate directly with the Board Chair.
|
20 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The Board of Directors also adopted procedures allowing interested parties (i) to submit accounting and auditing complaints or concerns to us and (ii) to communicate directly with the Board Chair, who presides over all non-executive director sessions. These procedures are described on our website at www.cn.ca, under Delivering Responsibly/Governance. The Code of Business Conduct provides that concerns of employees regarding any potential or real wrongdoing in terms of accounting or auditing matters may be submitted confidentially through CN’s Hotline.
|
To better align the interests of the Board of Directors with those of our shareholders, all of the nominees for election to the Board of Directors, except our President and Chief Executive Officer, are independent. In determining whether a director is an independent director, the Board of Directors applies the standards developed by the Canadian securities regulatory authorities, the NYSE and the additional standards adopted by the Board. These standards are set out in CN’s Corporate Governance Manual which is available on our website at www.cn.ca, under Delivering Responsibly/Governance.
|
As shown in the following table, 10 of the 11 nominees for election to the Board of Directors are independent:
|
INDEPENDENCE STATUS
|
|||
NAME
|
INDEPENDENT
|
NOT
INDEPENDENT
|
REASON FOR
NON-INDEPENDENCE
STATUS
|
Donald J. Carty
|
✓
|
||
Ambassador Gordon D. Giffin
|
✓
|
||
Edith E. Holiday
|
✓
|
||
V. Maureen Kempston Darkes
|
✓
|
||
The Hon. Denis Losier
|
✓
|
||
The Hon. Kevin G. Lynch
|
✓
|
||
Claude Mongeau
|
President and Chief
|
||
✓
|
Executive Officer
|
||
of the Company
|
|||
James E. O’Connor
|
✓
|
||
Robert Pace
|
✓
|
||
Robert L. Phillips
|
✓
|
||
Laura Stein
|
✓
|
10 of the 11 nominees for election to the Board of Directors are independent.
|
The following is a brief summary of the mandate of each committee of the Board of Directors.
|
Schedule “B” to this Information Circular provides reports on the activities of each Board Committee.
|
The Audit Committee has the responsibility of overseeing the Company’s financial reporting, monitoring risk management, internal controls and internal and external auditors. The mandate of the Audit Committee is further described in the section entitled “Statement of Corporate Governance Practices — Audit Committee Disclosure” on page 32 of this Information Circular and in the charter of such committee which is included in our Corporate Governance Manual. The charter of the Audit Committee provides that such Committee must be composed solely of independent directors. As at February 27, 2015, all members of the Audit Committee are independent.
|
The Finance Committee has the responsibility of overseeing the Company’s financial policies, and authorizing, approving and recommending financial activities. As part of these responsibilities, the Finance Committee provides oversight with respect to our capital structure, dividend policy, share repurchase program, cash flows and key financial ratios, reviews the opportunities and parameters for debt or equity financing, reviews financing documents and, within the scope of its authority levels established by the Board, may authorize the borrowing of money, the issuing of debt securities or other forms of financing, and makes recommendations to the Board thereon. The responsibilities, powers and operation of the Finance Committee are further described in the charter of such Committee which is included in our Corporate Governance Manual.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 21 |
The Corporate Governance and Nominating Committee has the responsibility of monitoring the composition of the Board of Directors and its committees and overseeing corporate governance matters. As part of its responsibilities, the Corporate Governance and Nominating Committee develops, reviews and monitors criteria for selecting directors, including required or desired competencies and skills to improve the Board of Directors and, in consultation with the Board Chair, identifies candidates qualified to become Board members.
|
This Committee reviews the corporate governance guidelines applicable to the Company, recommends any change that should be made thereto and monitors the disclosure of its practices. The responsibilities, powers and operation of the Corporate Governance and Nominating Committee are further described in the charter of such Committee which is included in our Corporate Governance Manual.
|
The charter of the Corporate Governance and Nominating Committee provides that such Committee must be composed solely of independent directors. As at February 27, 2015, all members of the Corporate Governance and Nominating Committee are independent.
|
The Human Resources and Compensation Committee has the responsibility of monitoring executive management’s performance assessment and succession planning. This Committee also has the mandate to review human resources practices by ensuring, amongst other things, that appropriate human resources systems are in place so that the Company can attract, motivate and retain the quality of personnel required to meet its business objectives. The mandate of the Human Resources and Compensation Committee is further described in the section entitled “Statement of Executive Compensation — Human Resources and Compensation Committee” on page 36 of this Information Circular and in the charter of such Committee which is included in our Corporate Governance Manual. The charter of the Human Resources and Compensation Committee provides that such Committee must be composed solely of independent directors. As at February 27, 2015, all members of the Human Resources and Compensation Committee are independent.
|
The Board has adopted a policy, which is included in our Corporate Governance Manual, that no more than one in three members of the Human Resources and Compensation Committee shall be a sitting CEO of another company, at least one member shall be experienced in executive compensation, and the President and CEO of the Company shall be excluded from the Committee member selection process.
|
The Environment, Safety and Security Committee has the responsibility, amongst other things, of overseeing the development and implementation of environmental, safety and security policies, assessing environmental, safety and security practices, and reviewing the Company’s business plan to ascertain whether environmental, safety and security issues are adequately taken into consideration. The responsibilities, powers and operation of the Environment, Safety and Security Committee are further described in the charter of such Committee which is included in our Corporate Governance Manual.
|
The Strategic Planning Committee, which is composed of all of the Company’s Board Members, focuses on financial and strategic issues, including the review of the key assumptions, as well as the economic, business, regulatory and competitive conditions underlying the Company’s business plan. It also reviews, with the President and Chief Executive Officer and other appropriate executive officers, the Company’s business plan and capital budget prior to their formal approval by the Board of Directors. The responsibilities, powers and operation of the Strategic Planning Committee are further described in the charter of such Committee which is included in our Corporate Governance Manual.
|
The Investment Committee of CN’s Pension Trust Funds, which is a mixed committee composed of directors and officers, has the responsibility, amongst other things, of reviewing the activities of the CN Investment Division, reviewing and approving the CN Investment Incentive Plan and award payouts thereunder, advising the CN Investment Division on investment of assets of CN’s Pension Trust Funds and approving certain of the investments made by CN’s Pension Trust Funds. The responsibilities, powers and operation of the Investment Committee of CN’s Pension Trust Funds are further described in the charter of such Committee which is included in our Corporate Governance Manual.
|
The Donations and Sponsorships Committee, which is a mixed committee composed of directors and officers, has the responsibility, amongst other things, of developing a donations and sponsorships strategy and for reviewing and approving donation and sponsorship requests. The responsibilities, powers and operation of the Donations and Sponsorships Committee are further described in the charter of such Committee which is included in our Corporate Governance Manual.
|
22 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
At CN, the Board is entrusted with the responsibility for identifying and overseeing the significant risks to which CN’s business is exposed and ensuring there are processes in place to effectively identify, monitor and manage them. These processes seek to mitigate risk. A significant risk is generally defined as an exposure that has the potential to materially impact CN’s ability to meet or support its business objectives. The Board delegates responsibility for the execution of certain elements of the risk oversight program to committees of the Board in order to ensure appropriate expertise, attention and diligence, and reports to the Board in the ordinary course.
|
The Board has strong processes in place to identify and monitor the significant risks to which CN is exposed.
|
The Board Chair, in collaboration with the Corporate Secretary, has the responsibility of establishing a schedule for the meetings of the Board of Directors and its committees. During this process, the Corporate Secretary, in collaboration with the Board and committee chairs and the appropriate executive officers, establishes Board and committee working plans for the year. We believe that proceeding in this manner helps in the preparation of in-depth presentations conducive to meaningful information sessions and discussions while allowing management to plan ahead. If, during the course of the year, events or circumstances require Board or committee action or consideration, additional meetings are called. The total number of meetings and the attendance record for each director for all board and committee meetings held during the course of 2014 are set out in the section entitled “Nominees for Election to the Board — Board and Committee Attendance” of this Information Circular.
|
Board and Committee working plans are established for the year.
|
The independent Board members meet before or after every regular in-person meeting of the Board of Directors in in camera sessions, without the presence of management and under the chairmanship of the Board Chair. During the financial year ended December 31, 2014, there were 9 in camera sessions that were attended exclusively by non-executive directors.
|
In camera sessions are held by independent board members at every regular in-person meeting of the board of directors.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 23 |
The following tables show the record of attendance by director at meetings of the Board and its committees, as well as the number of Board and Board committee meetings held during the 12-month period ended December 31, 2014.
|
NUMBER AND % OF MEETINGS ATTENDED | |||||||||||
DIRECTOR (1)
|
BOARD
|
AUDIT
COMMITTEE
|
CORPORATE
GOVERNANCE
AND
NOMINATING
COMMITTEE
|
DONATIONS
AND
SPONSORSHIPS
COMMITTEE
|
ENVIRONMENT,
SAFETY AND
SECURITY
COMMITTEE
|
FINANCE
COMMITTEE
|
HUMAN
RESOURCES
AND COMPENSATION
COMMITTEE
|
INVESTMENT
COMMITTEE
OF CN’S
PENSION
TRUST
FUNDS
|
STRATEGIC
PLANNING
COMMITTEE
|
COMMITTEES
(TOTAL )
|
OVERALL
ATTENDANCE
|
A. Charles Baillie(2)
|
9/9
(100%)
|
–
|
2/2
|
–
|
–
|
7/7
(Chair)
|
5/5
|
4/4
|
3/3
|
21/21
(100%)
|
30/30
(100%)
|
Donald J. Carty(3)
|
9/9
(100%)
|
5/5
(Chair)
|
5/5
|
–
|
3/3
|
3/3
|
3/3
|
1/1
|
3/3
|
23/23
(100%)
|
32/32
(100%)
|
Ambassador
Gordon D. Giffin(4)
|
9/9
(100%)
|
5/5
|
–
|
3/3
|
2/2
|
3/3
|
5/5
(Chair)
|
4/4
|
3/3
|
25/25
(100%)
|
34/34
(100%)
|
Edith E. Holiday
|
9/9
(100%)
|
–
|
5/5
|
–
|
–
|
7/7
|
5/5
|
4/4
|
3/3
|
24/24
(100%)
|
33/33
(100%)
|
V. Maureen
Kempston Darkes(5)
|
9/9
(100%)
|
3/3
|
3/3
|
–
|
5/5
(Chair)
|
4/4
|
5/5
|
1/1
|
3/3
|
24/24
(100%)
|
33/33
(100%)
|
The Hon. Denis Losier(6)
|
9/9
(100%)
|
5/5
|
5/5
(Chair)
|
1/1
|
2/2
|
–
|
5/5
|
4/4
|
3/3
|
25/25
(100%)
|
34/34
(100%)
|
The Hon.
Edward C. Lumley(7)
|
9/9
(100%)
|
–
|
2/2
|
–
|
–
|
7/7
|
5/5
|
4/4
(Chair)
|
3/3
|
21/21
(100%)
|
30/30
(100%)
|
The Hon.
Kevin G. Lynch(8)
|
7/7
(100%)
|
–
|
3/3
|
–
|
3/3
|
5/5
|
3/3
|
–
|
3/3
|
17/17
(100%)
|
24/24
(100%)
|
Claude Mongeau(9)
|
9/9
(100%)
|
–
|
–
|
3/3
(Chair)
|
–
|
–
|
–
|
1/1
|
3/3
|
7/7
(100%)
|
16/16
(100%)
|
James E. O’Connor(10)
|
9/9
(100%)
|
5/5
|
–
|
–
|
5/5
|
7/7
|
3/3
|
1/1
|
3/3
(Chair)
|
24/24
(100%)
|
33/33
(100%)
|
Robert Pace(11)
|
9/9
(100%)
(Chair)
|
3/3
|
5/5
|
3/3
|
3/3
|
–
|
5/5
|
1/1
|
3/3
|
23/23
(100%)
|
32/32
(100%)
|
Robert L. Phillips(12)
|
7/7
(100%)
|
3/3
|
3/3
|
–
|
3/3
|
–
|
3/3
|
–
|
3/3
|
15/15
(100%)
|
22/22
(100%)
|
Laura Stein(13)
|
7/7
(100%)
|
3/3
|
–
|
–
|
3/3
|
5/5
|
3/3
|
–
|
3/3
|
17/17
(100%)
|
24/24
(100%)
|
(1)
|
In addition to committee members, all non-executive board members attended on a non-voting basis the January 2014 meeting of the Human Resources and Compensation Committee. The following directors who did not sit on the Finance Committee attended the October meeting on a non-voting basis: Donald J. Carty, Ambassador Gordon D. Giffin, The Hon. Denis Losier, Robert L. Phillips and Robert Pace. The following directors also attended the November Finance Committee meeting on a non-voting basis: Donald J. Carty, The Hon. Denis Losier and Robert L. Phillips. Messrs. Robert Pace and Robert L. Phillips also attended the April Finance Committee meeting.
|
(2)
|
A. Charles Baillie stepped down as member of the Corporate Governance and Nominating Committee on April 23, 2014.
|
(3)
|
Donald J. Carty became Chair of the Audit Committee, member of the Environment, Safety and Security Committee, member of the Human Resources and Compensation Committee and stepped down as member of the Finance Committee and of the Investment Committee of CN’s Pension Trust Funds on April 23, 2014.
|
(4)
|
Ambassador Gordon D. Giffin stepped down as member of the Finance Committee and of the Environment, Safety and Security Committee on April 23, 2014.
|
(5)
|
V. Maureen Kempston Darkes became a member of the Finance Committee, member of the Corporate Governance and Nominating Committee and stepped down as member of the Audit Committee and of the Investment Committee of CN’s Pension Trust Funds on April 23, 2014.
|
(6)
|
The Hon. Denis Losier became Chair of the Corporate Governance and Nominating Committee and remained member of the Audit Committee. He stepped down as a member of Donations and Sponsorships Committee and of the Environment, Safety and Security Committee on April 23, 2014.
|
(7)
|
The Hon. Edward C. Lumley stepped down as member of the Corporate Governance and Nominating Committee on April 23, 2014.
|
(8)
|
The Hon. Kevin G. Lynch became a member of the Finance Committee, member of the Corporate Governance and Nominating Committee, member of the Environment, Safety and Security Committee, member of the Human Resources and Compensation Committee and member of the Strategic Planning Committee on April 23, 2014.
|
(9)
|
In addition to committee members, Claude Mongeau attended five Audit Committee meetings, five Corporate Governance and Nominating Committee meetings, five Environment, Safety and Security Committee meetings, six Finance Committee meetings and five Human Resources and Compensation Committee meetings on a non-voting basis. Mr. Mongeau stepped down as member of the Investment Committee of CN’s Pension Trust Funds on April 23, 2014.
|
(10)
|
James E. O’Connor became Chair of the Strategic Planning Committee, member of the Human Resources and Compensation Committee and stepped down as member of the Investment Committee of CN’s Pension Trust Funds on April 23, 2014.
|
(11)
|
Robert Pace became Chair of the Board and member of the Environment, Safety and Security Committee and stepped down as member of the Audit Committee and of the Investment Committee of CN’s Pension Trust Funds on April 23, 2014.
|
(12)
|
Robert L. Phillips became a member of the Audit Committee, member of the Corporate Governance and Nominating Committee, member of the Environment, Safety and Security Committee, member of the Human Resources and Compensation Committee and member of the Strategic Planning Committee on April 23, 2014.
|
(13)
|
Laura Stein became a member of the Audit Committee, member of the Finance Committee, member of the Environment, Safety and Security Committee, member of the Human Resources and Compensation Committee and member of the Strategic Planning Committee on April 23, 2014.
|
24 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
BOARD AND BOARD COMMITTEE MEETINGS
|
NUMBER
OF MEETINGS |
Board
|
9
|
Audit Committee
|
5
|
Corporate Governance and Nominating Committee
|
5
|
Donations and Sponsorships Committee
|
3
|
Environment, Safety and Security Committee
|
5
|
Finance Committee
|
7
|
Human Resources and Compensation Committee
|
5
|
Investment Committee of CN’s Pension Trust Funds
|
4
|
Strategic Planning Committee
|
3
|
Any director who has attended less than 75% of Board or committee meetings for more than two years without a valid reason will not be renominated.
|
The Corporate Governance and Nominating Committee, together with the Board Chair, is responsible for determining the needs of the Board in the long term and identifying new candidates to stand as nominees for election or appointment as directors. The last few years, the Corporate Governance and Nominating Committee and the Board Chair focused on board renewal and succession in light of upcoming director retirements, with a view to expanding and completing the Board’s overall expertise in certain areas. The Board Chair and the Corporate Governance and Nominating Committee continue to engage in an on-going, in-depth succession planning process. Board renewal and succession has been an item at most meetings of the Corporate Governance and Nominating Committee. In proposing the list of Board nominees, the Board of Directors is guided by the process described in our Corporate Governance Manual. As part of the process, the Board Chair, in consultation with the Corporate Governance and Nominating Committee, develops a competency matrix based on knowledge areas, types of expertise, gender and geographical representation, and identifies any gaps to be addressed in the director nomination process. The Board ensures that the skill set developed by directors, through their business expertise and experience, meets the needs of the Board. The Board also gives careful consideration to factors such as age, diversity (including gender), geographical location, competencies and experience of current directors, the suitability and performance of directors proposed for election, as well as his or her independence, qualifications, financial acumen, business judgment and board dynamics. This competency matrix is reviewed regularly by the Board Chair with Board members, and is updated as may be required.
|
The Corporate Governance and Nominating Committee regularly reviews its competency matrix in light of upcoming director retirements, with a view of expanding the Board’s overall experience and expertise and filling any gaps so that the needs of the Board are met. The Committee and the Board have approved the matrix set out on page 26 of this Information Circular.
|
See following section on “Board Diversity” for additional information on director selection process.
|
An evergreen list of potential board candidates is maintained and updated from time to time.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 25 |
(1)
|
Definition of competencies:
|
•
|
Sales/Marketing: Experience as a senior executive in a product, service or distribution company; experience in supply chain management and strong knowledge of CN’s markets, customers and strategy.
|
•
|
Finance/Accounting: Experience in corporate finance, overseeing complex financial transactions, investment management; experience in financial accounting and reporting, auditing, and internal controls.
|
•
|
Legal: Experience as a senior practicing lawyer either in private practice or the legal department of a major public entity.
|
•
|
Strategy: Experience in strategic planning and leading growth for a major public entity.
|
•
|
Human Resources: Experience in oversight of compensation programs, particularly compensation programs for executive level employees and incentive based compensation programs and experience with talent management, succession planning, leadership development and executive recruitment.
|
•
|
Engineering/Environment: Thorough understanding of the operations of the transportation industry (particularly the rail industry), environmental issues and transportation industry regulations.
|
•
|
Transport Industry/Safety: Knowledge and experience in the transportation industry, including strategic context and business and safety issues facing the transportation industry.
|
•
|
Public Policy: Experience in, or a strong understanding of, the workings of government and public policy in Canada and the United States.
|
On March 10, 2015 the Board adopted a target of having a minimum representation of one-third of the Board by women by 2017.
|
•
|
access to a significant part of the potential relevant talent pool that can contribute to and lead in a variety of technical and other functional areas;
|
•
|
unique and tangible contributions, resulting from different perspectives, experiences, concerns and sensibilities, in product development, marketing, customer relations, mentoring and employee relations in a world of diverse customers and workforces;
|
•
|
the potential for richer discussion and debate at the executive and board level (and at other levels of management) that may ultimately increase effectiveness in their decision-making and advising functions;
|
•
|
executive teams and boards with diverse backgrounds increase the likelihood that the perspectives and concerns of all stakeholders are represented in discussions; and
|
•
|
signaling CN’s values to various stakeholders, including employees at all levels, shareholders, customers, communities, regulators and other government officials, and the public.
|
26 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
•
|
developed recruitment protocols that seek to include diverse candidates in any director search. These protocols take into account that qualified candidates may be found in a broad array of organizations, including academic institutions, privately held businesses, nonprofit organizations, professions such as accounting, human resources and legal services and trade associations, in addition to the traditional candidate pool of corporate directors and officers;
|
•
|
strived to use, to their fullest potential, the current network of organizations and trade groups that may help identify diverse candidates and may rely on executive search firms to identify diversity candidates as well; and
|
•
|
periodically reviewed director recruitment and selection protocols so that diversity remains a component of any director search.
|
•
|
understand opportunities for personal and professional growth within the Company;
|
•
|
further develop their confidence in operations;
|
•
|
build strong partnerships with fellow employees and communities where CN has operations; and
|
•
|
gain access to mentoring and networking opportunities.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 27 |
No Board members sit together on the Board of another public company.
|
•
|
for candidates that are chief executive officers or other senior executives of public corporations, the Board will prefer individuals who hold no more than two (2) public corporation directorships (excluding CN’s Board) in addition to membership on the board of the corporation at which an individual is employed;
|
•
|
for candidates that have a full-time employment with non-public corporations or other entities and for full-time employees of public corporations (other than chief executive officers or senior executives of such public corporations), the Board will prefer individuals who hold no more than four (4) public corporation directorships (excluding CN’s Board) in addition to membership on the board of the corporation at which an individual is employed; and
|
•
|
for other candidates, the Board will prefer individuals who hold no more than five (5) public corporation directorships (excluding CN’s Board).
|
Our policy on term limits, together with our policy on mandatory retirement age, ensures a fresh perspective in the boardroom.
|
•
|
Effective as of April 23, 2014, but without regard to past service, CN’s Board Chair will serve for a term of five (5) years, renewable for one further three (3) year term, subject to the discretion of the Board of Directors to further extend the term, if deemed appropriate. At the end of the term(s) as Board Chair, the departing Board Chair would not stand for election as a Director of CN at the next annual shareholders’ meeting. The above term(s) for the Board Chair would remain subject to the mandatory retirement age limit of 75 years of age.
|
•
|
Effective as of April 23, 2014, but without regard to past service, committee chairs will serve for a term of three (3) years, renewable for one further two (2) year term, subject to the discretion of the Board of Directors to further extend the term, if deemed appropriate.
|
28 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The Board has implemented a comprehensive assessment process.
|
•
|
The following questionnaires are prepared by the Office of the Corporate Secretary and approved by the Corporate Governance and Nominating Committee and the Board Chair, taking into account current issues, the findings of previous years and input from the Board of Directors:
|
•
|
Board and committee performance evaluation questionnaires, including a self-assessment by individual directors;
|
•
|
Board Chair evaluation questionnaire; and
|
•
|
Committee Chair evaluation questionnaires.
|
•
|
Each questionnaire is then sent to every director and a complete set of the responses is forwarded to the Board Chair, except for the responses to the evaluation questionnaire relating to the Board Chair, which is forwarded directly to each of the Chairs of the Corporate Governance and Nominating Committee and the Human Resources and Compensation Committee.
|
•
|
Following receipt of the completed questionnaires, the Board Chair contacts every director and conducts open and confidential one-on-one meetings. The purpose of these meetings is to discuss the answers received from and in respect of each director, to take into account any comments which the director may have and to review the self-evaluation of each director. One of the Corporate Governance and Nominating Committee or Human Resources and Compensation Committee Chairs also discusses individually with each director his or her responses and comments on the Board Chair evaluation questionnaire
|
•
|
Reports are then made by the Board Chair, the Corporate Governance and Nominating Committee and Human Resources and Compensation Committee Chairs to the Board of Directors, with suggestions to improve the effectiveness of the Board of Directors, Board committees, Board and committee chairs, and separately to individual directors in respect of their personal performance.
|
•
|
The Board Chair and committee chairs take into consideration the overall results and suggestions derived from the annual Board performance assessment in order to improve the functioning and activities of the Board and Board committees.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 29 |
•
|
Annual top 200 business plan;
|
•
|
Annual sales meetings;
|
•
|
Industry conferences or CN’s analyst/investor meetings;
|
•
|
Leadership training sessions and dinners with participants; and
|
•
|
Other company events on an ad hoc basis.
|
•
|
maintains a membership for each director in an organization dedicated to corporate governance and ongoing director education;
|
•
|
each year strongly encourages and funds the attendance of each director at seminars or conferences of interest and relevance;
|
•
|
encourages presentations by outside experts to the Board or committees on matters of particular importance or emerging significance; and
|
•
|
at least annually, holds a Board meeting at or near an operating site or other facility of the Company, a key customer, supplier or affiliated company.
|
30 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
SUBJECT MATTER/TOPIC PRESENTED
|
PRESENTED/HOSTED BY
|
ATTENDED BY
|
SAFETY
|
CN Corporate Services
|
All directors
|
• Emergency Response Co-operation
|
CN Operations
|
|
• Safety Practices
|
||
CUSTOMER RELATIONS
|
CN Marketing
|
All directors
|
• CustomerFIRST Initiatives
|
CN Operations
|
Strategic Planning Committee members
|
• Supply Chain Monitoring Tools
|
||
• Customer Survey
|
||
• Balancing Operational and Service Excellence
|
||
INVESTOR RELATIONS
|
CN Investor Relations
|
All directors
|
• Shareholders
|
||
• Shareholder Associations
|
||
MARKETING
|
CN Marketing
|
All directors
|
• Grain Business
|
CN Network Strategies
|
Strategic Planning Committee members
|
• Export Supply Chain
|
||
• Energy Sector
|
||
• LNG Projects
|
||
FINANCE
|
External Auditors KPMG
|
Audit Committee members
|
• KPMG Training Session
|
CN Accounting
|
|
• Investor Financial Perspectives | RBC Capital Markets | All directors |
• Shareholder Distributions and Capital Structure |
Wells Fargo Securities
|
SUSTAINABILITY
|
Downstream Consulting at IHS/Purvin & Gertz
|
All directors
|
• Environmental Stewardship
|
CN Corporate Services
|
|
• Workforce Renewal and Training Excellence | CN Operations | |
CN Human Resources |
TECHNOLOGY
|
CN Information Technology
|
All directors
|
• Business Intelligence
|
CN Operations
|
|
• Enhanced Risk Mitigation Through Process and Technology
|
||
LAW
|
CN Corporate Services
|
All directors
|
• Competition Bureau Update
|
||
• CTA Review Update
|
•
|
engaging with governments as a participant on advisory councils, review boards and regulatory proceedings;
|
•
|
investment community outreach;
|
•
|
working collaboratively with supply chain partners;
|
•
|
participating in industry associations (Railway Association of Canada; Association of American Railroads);
|
•
|
engaging with suppliers at our annual supplier council and through our Sustainable Procurement Excellence program;
|
•
|
strengthening our relationships and improving our communication with customers;
|
•
|
ensuring the opportunity for regular two-way communication with employees;
|
•
|
structured community engagement; and
|
•
|
open dialogue with Aboriginal peoples.
|
In 2014, CN received a number of awards and recognition including:
• Recognition by the Dow Jones sustainability index as both a North American and a world leader in the transportation and transportation infrastructure sector
• Recognition by CDP as a carbon disclosure leader by being awarded with a position on the A list: the CDP climate performance leadership index 2014
• Awards by Investor Relations Magazine in the following categories (among others): best corporate governance, best investor community meetings and global top 50 company for Investor Relations
• Recognition by Corporate Knights as top 50 Corporate Citizens in Canada
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 31 |
•
|
overseeing financial reporting;
|
•
|
monitoring risk management and internal controls;
|
•
|
monitoring internal auditors; and
|
•
|
monitoring external auditors.
|
32 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The external auditors are prohibited from providing certain non-audit services.
|
All members of the Audit Committee are financially literate and several members are audit committee financial experts.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 33 |
2014 marked the fifth year since Mr. Mongeau’s appointment as President and Chief Executive Officer (the “President and CEO”). The experienced executive team of Named Executive Officers (the “NEOs”) has been stable since his appointment in 2010 with only the Executive Vice-President and Chief Operating Officer position turning over in 2013 with the appointment of Mr. Jim Vena. Since Mr. Mongeau’s appointment, the share price has increased by 179% on the TSX for an annualized return of 23%. The market capitalization of CN has increased by C$38B and the Company attained the fourth largest market capitalization in Canada at the end of 2014.
|
CN continued to deliver solid financial results in 2014 despite brutal winter conditions which impacted operations in the first quarter of the year. Our 2014 financial results are a testimony to the dedication and hard working attitude of CN’s railroaders who showed resilience despite exceptional weather and operational circumstances. CN remains committed to maintain its industry leading position by balancing operational and service excellence, delivering superior growth at low incremental cost, building a solid team of railroaders and actively engaging stakeholders.
|
2014 STRETCH
OBJECTIVE (1) |
2014 ACTUAL
|
|||
IN MILLIONS
(EXCEPT PER SHARE DATA) |
C$
|
C$
|
INCREASE
VS. 2013 |
INCREASE
VS. 2014 |
Revenues (2) ($M)
|
$11,819
|
$12,134
|
+ 14.7%
|
+ 2.7%
|
Operating Income ($M)
|
$4,454
|
$4,624
|
+ 19.4%
|
+ 3.8%
|
EPS
|
$3.55
|
$3.85
|
+ 24.6%
|
+ 8.5%
|
Free Cash Flow ($M)
|
$1,794
|
$2,220
|
+ 36.8%
|
+ 23.7%
|
ROIC
|
15.90%
|
17.36%
|
+ 84bps
|
+ 146bps
|
(1)
|
Adjusted for currency.
|
(2)
|
Adjusted to reflect actual fuel surcharges.
|
The Long-Term Incentive (the “LTI”) valuation methodology for bench-mark, grant and disclosure purposes has been revised to reinforce alignment throughout the compensation review process. Starting in 2014, the disclosed LTI value in the Summary Compensation Table on page 56 will be calculated using the Towers Watson expected life binomial methodology. The same methodology will also be used for benchmarking and grant purposes to ensure consistency throughout the full compensation process.
|
34 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 35 |
All CN independent directors are members of the Human Resources and Compensation Committee. All members have a thorough understanding of compensation policies and principles related to executive compensation and have experience in human resources and compensation matters. Furthermore, members are also members of other committees of the Board and this overlap provides for a strong link between committees’ risk oversight responsibilities.
|
The following is a description of the education, skills and experience of each member of the Committee as at the date of this Information Circular that are relevant to the performance of his/her responsibilities as a member of the Committee, including skills and experience enabling the Committee to make decisions on the suitability of the Company’s compensation policies and practices:
|
•
|
Mr. Baillie is the retired chair and Chief Executive Officer of The Toronto-Dominion Bank. As Chief Executive Officer, the head of the human resources department reported directly to his office. Mr. Baillie is a member of the Governance, Human Resource, Nominating and Compensation Committee at George Weston Limited and has been chair of the Human Resources and Compensation Committee of TELUS Corporation. He has also served on the human resources committees of various other public companies.
|
•
|
Mr. Carty spent 30 years in the airline business before retiring as Vice-Chairman and Chief Financial Officer of Dell, Inc. Mr. Carty has experience in developing and implementing compensation plans and performance-based goals for executive and enterprise-wide personnel. Mr. Carty serves as chair of the Human Resources Committee of Talisman Energy and is actively involved in human resources as Chair of the Board of Directors of the following companies: Porter Airlines Inc., Virgin America Inc. and Research Now Group, Inc.
|
•
|
Mr. Giffin is Senior Partner of the law firm of McKenna Long & Aldridge, where he maintains offices in Washington, D.C. and Atlanta. His practice focuses on international transactions and trade matters and public policy. He has been engaged in the practice of law or government service for more than thirty-five years. Mr. Giffin was United States Ambassador to Canada from August 1997 to April 2001 and had responsibility for personnel matters. Mr. Giffin serves as chair of the board of TransAlta Corporation, as a member of the Management Resources and Compensation Committee of the Canadian Imperial Bank of Commerce and as a member of the Governance and Compensation Committee of Element Financial Corporation.
|
•
|
Ms. Holiday has extensive experience serving as a board member for different companies such as Hess Corporation, RTI International Metals, Inc. and White Mountains Insurance Group, Ltd. and has served on the board of H.J. Heinz Company. As General Counsel at the United States Treasury Department and as Secretary of the Cabinet at The White House, Ms. Holiday was in charge of the supervision of approximately 2,200 lawyers.
|
•
|
Ms. Kempston Darkes was Group Vice-President of General Motors Corporation. She was responsible for supervising human resources and compensation activities. As President Latin America, Africa and Middle East of General Motors Corporation and as President of General Motors of Canada Limited, Ms. Kempston Darkes supervised the senior head of human resources, who reported directly to her office. Ms. Kempston Darkes currently serves on the Compensation and Human Resources Committees of Balfour Beatty Plc. and Enbridge Inc. and has served on the Compensation and Human Resources Committees of Brookfield Asset Management Inc. and Irving Oil Inc.
|
•
|
Mr. Losier was the President and Chief Executive Officer, Assumption Life. As Chief Executive Officer, the Vice-President of Human Resources reported directly to Mr. Losier. Mr. Losier has worked with consultants to assess Assumption Life’s human resources practices and benefits and to measure the competitiveness of its executive compensation policies and practices. In addition, Mr. Losier gained human resources experience by actively participating and developing a leadership succession and development plan in anticipation of his retirement as Chief Executive Officer of Assumption Life. Mr. Losier has also been involved in succession planning for other publicly traded companies.
|
•
|
Mr. Lumley was a Member of Parliament from 1974 to 1984, during which time he held various cabinet portfolios in the Government of Canada. As Minister of the Crown for six cabinet portfolios, he was responsible for many Crown corporations employing thousands of employees. Mr. Lumley has served on the human resources committees of nine public companies and chaired six of them over the years. As chairman of Noranda Manufacturing Group of Companies he was responsible for eight individual operating companies.
|
•
|
Mr. Lynch held various senior positions in the Government of Canada, including as Clerk of the Privy Council, Secretary to the Cabinet and Head of the Public Service of Canada where he was responsible for the overall management of 263,000 employees in 80 departments and agencies of the Canadian government. Mr. Lynch is a member of the Leadership Council of the Bank of Montreal, the Chair of the Corporate Governance Committee of Empire Company Ltd. and a member of the Human Resources Committee of Empire Company Ltd.
|
•
|
Mr. O’Connor was chair of the Board of Directors and Chief Executive Officer of Republic Services, one of the largest waste management companies in the U.S., and was involved in various human resources and compensation matters. Mr. O’Connor also serves as a director on the Board of Clean Energy Fuels Corporation.
|
•
|
Mr. Pace is the Chair of CN’s Board of Directors and President and Chief Executive Officer of The Pace Group and human resources officers within the Group report directly to him. Mr. Pace has more than 25 years of business experience. Between 2005 and 2013, Mr. Pace was the Chair of CN’s Human Resources and Compensation Committee.
|
36 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
•
|
Mr. Phillips served as President and Chief Executive Officer of various companies, including Dreco Energy Services Ltd, PTI Group Inc. and British Columbia Railway Corporation where he gained in depth exposure to human resources and compensation matters. He currently serves on the Human Resources and Compensation Committees of Precision Drilling Corporation, Canadian Western Bank, MacDonald Dettwiler & Associates Ltd and West Fraser Timber Co. Ltd.
|
•
|
Ms. Stein currently serves as Executive Vice-President — General Counsel at The Clorox Company. She also served as Senior Vice-President and General Counsel at H.J. Heinz Company. Ms. Stein gained extensive human resources and compensation experience through the review and execution of compensation matters for both companies. Ms. Stein has also been engaged with shareholders’ advisory groups on various compensation matters.
|
The following table summarizes the Committee members’ human resources and compensation-related experience:
|
NUMBER OF COMMITTEE MEMBERS
|
||
WITH VERY STRONG
|
||
AREA OF EXPERIENCE
|
OR STRONG EXPERIENCE
|
|
Membership on HR committees
|
12/12
|
100%
|
Organizational exposure to the HR function
|
12/12
|
100%
|
Leadership and succession planning, talent development
|
12/12
|
100%
|
Approval of employment contracts
|
11/12
|
92%
|
Development/oversight of incentive programs
|
12/12
|
100%
|
Oversight of stress-testing of incentive programs vs. business/operating performance
|
12/12
|
100%
|
Pension plan administration/oversight
|
9/12
|
75%
|
Interpretation and application of regulatory requirements related to compensation policies and practices
|
11/12
|
92%
|
Engagement with investors and investor representatives on compensation issues
|
7/12
|
58%
|
Oversight of financial analysis related to compensation policies and practices
|
11/12
|
92%
|
Exposure to market analysis related to compensation policies and practices
|
11/12
|
92%
|
Drafting or review of contracts and other legal materials related to compensation policies and practices
|
7/12
|
58%
|
Oversight of labour matters
|
8/12
|
67%
|
Mandate of the Human Resources and Compensation Committee
|
•
|
ensuring that appropriate mechanisms are in place regarding succession planning for the executive management positions, including that of the President and Chief Executive Officer;
|
•
|
reviewing executive management’s performance assessment;
|
•
|
reviewing leadership and talent management for the Company’s key positions;
|
•
|
overseeing the identification and management of risks associated with CN’s compensation policies and practices and reviewing disclosure on: (i) the role of the Committee in that respect; (ii) any practices that CN uses to identify and mitigate such risks and (iii) any identified risk arising from CN’s compensation policies and practices that is reasonably likely to have a material adverse effect on CN;
|
•
|
overseeing the selection of any benchmark group used in determining compensation or any element of compensation and reviewing disclosure on such group;
|
•
|
retaining outside advisors to assist it in the performance of its functions and responsibilities, including compensation consultants, independent legal counsel or other independent advisors and overseeing their work;
|
•
|
evaluate the independence of compensation consultants in accordance with applicable NYSE listing standards or other applicable laws, rules or regulations;
|
•
|
recommending to the Board of Directors executive management’s compensation; and
|
•
|
reviewing human resources practices by ensuring, among other things, that appropriate human resources systems are in place to allow the Company to attract, motivate and retain the quality of personnel required to meet its business objectives.
|
The Committee’s full charter is available as part of CN’s Corporate Governance Manual at www.cn.ca, under Delivering Responsibly/ Governance. Finally, the Committee met five times in 2014 and held in camera sessions during each meeting. The report of the Committee, set forth in Schedule “B” to this Information Circular, outlines the major subject areas reviewed by the Committee during the year.
|
Through its Onboarding Program, CN continues to provide newly hired railroaders with a thoughtful integration into the Company, by equipping them with tools and knowledge to work safely and efficiently and to feel connected to the business. The Company continues to invest in a diverse range of programs to continue to engage with its employees. Employees’ involvement in these programs continues to support CN’s agenda, whether it is CN Ambassadors helping recruit the next generation of railroaders, EcoChampions supporting the Company’s sustainability efforts, Wellness Champions promoting healthy life habits, or Railroaders in the Community engaged in the neighbourhoods where CN operates. The fact that approximately 77% of employees are CN shareholders is another testament to their engagement in the Company’s success.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 37 |
The Company also increased cross-functional awareness through developmental opportunities for key talent, including the LINK business program and internships in transportation. Programs for accelerated business learning were refined as well as those for expanded understanding of our operations. Additionally, the launch of a development portal aimed at providing access to development tools and reference material was completed in 2014. CN continued its ongoing Talent Reviews in 2014 to continue the identification and development of key talent for succession. CN is also consciously weaving a diversity component into talent initiatives to ensure it is creating an environment that allows CN to compete for the best talent. Over 50 review sessions were conducted with business leaders across the Company, including presentations by EVPs to the President and CEO. Customized development plans were then built for railroaders identified as key talent. The functional EVPs presented their strategic plans on talent and succession to the Board, and the Committee is confident that solid leadership development and succession plans are in place.
|
To meet attrition and growth in business volumes, more than 3,900 new railroaders were recruited in 2014. As of December 31, 2014, CN counted 25,530 employees contributing to the success of our organization. The Committee is satisfied that, under Mr. Mongeau’s continued leadership, the proper human resources strategies and systems are in place to attract and retain talented and engaged employees to ensure the Company’s ongoing success.
|
The Committee also independently retains the services of executive compensation consultants to provide advice on compensation recommendations that are presented for Committee approval. Since October 2007, the Committee has retained the services of Hugessen for that purpose. The Committee mandated Hugessen to review and provide advice directly to the Committee on executive compensation recommendations and related questions. In aggregate, the fees invoiced by Hugessen in 2014 totalled approximately C$86,800. The Committee has also reviewed Hugessen’s independence and evaluated their performance for 2014. The Committee is satisfied with the advice received from Hugessen and that such advice is objective and independent. Hugessen also meets the independence requirements of the NYSE Listing Standards and confirmed that on an annualized basis, the amount of fees received by the firm from CN represents less than 5% of the total fees of Hugessen.
|
PERCENTAGE OF TOTAL FEES
|
||||||
TYPE OF FEE
|
SERVICES RENDERED IN 2013
|
SERVICES RENDERED IN 2014
|
FOR SERVICES RENDERED IN 2014
|
|||
(BEFORE TAX)
|
(C$)
|
(C$)
|
(%)
|
|||
Hugessen
|
Towers Watson
|
Hugessen
|
Towers Watson
|
Hugessen
|
Towers Watson
|
|
Executive and Board Compensation-Related Fees
|
131,700
|
207,500
|
86,800
|
322,300
|
100
|
70%
|
All Other Fees
|
0
|
259,600
|
0
|
139,600
|
0
|
30%
|
38 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
This CD&A section explains our executive compensation policy and programs and focuses on the following executives who appear in the compensation tables:
|
Claude Mongeau
|
President and Chief Executive Officer
|
Luc Jobin
|
Executive Vice-President and Chief Financial Officer
|
Jim Vena
|
Executive Vice-President and Chief Operating Officer
|
Jean-Jacques Ruest
|
Executive Vice-President and Chief Marketing Officer
|
Sean Finn
|
Executive Vice-President, Corporate Services and Chief Legal Officer
|
The compensation of the NEOs, other than that of the President and CEO, is recommended by the President and CEO and reviewed and recommended by the Committee for approval by the Board. The compensation of the President and CEO is recommended by the Committee and approved by the independent members of the Board of Directors. The President and CEO serves at the will of the Board. Neither the President and CEO nor the other NEOs have an employment contract. For a discussion on the compensation of the President and CEO, please see the section entitled “President and Chief Executive Officer Compensation” on page 52.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 39 |
The ratings related to the individual component of the bonus for the NEOs were also reviewed by the Committee resulting in an average individual bonus factor of 110%. The individual performance rating, along with the corporate bonus factor, served as the basis for calculating the annual incentive bonus payouts set out in the Summary Compensation Table on page 56. Despite a year of strong results, including the achievement of record volumes and continued industry-leading operating metrics, the Committee reviewed and recommended for Board approval management’s recommendation for a reduced overall individual performance factor for the President and CEO and the COO at 100% in light of the Company’s safety performance. In 2014, the Company experienced a year-over-year deterioration in its quantitative safety metrics, due in part to challenging winter conditions. Management took immediate action and is committed to reverse this trend in 2015, with safety objectives playing an even more prominent role in the individual performance factor of the President and CEO in 2015.
|
Overall, 2014 bonus payouts for NEOs ranged from 170% to 178% of target.
|
To align with mid and long-term business performance and shareholder value creation, long-term incentives consist of a combination of stock options and PSUs. PSUs require the achievement of strong return on investment capital performance and payouts only occur if the share price at time of vesting has increased from the time of grant to ensure that management is rewarded only when shareholder value is created.
|
The payout of the PSUs granted in 2014 to NEOs is subject to a three-year average return on invested capital target for the period ending on December 31, 2016. The table summarizing the performance objectives and payout condition of the 2014 PSU award can be found on page 47.
|
The stock options granted in 2014 are conventional and vest over four years at a rate of 25% at each anniversary date. Stock options have a 10-year term.
|
The Committee reviewed the vesting of the 2012 PSUs against the performance targets. The Company achieved a three-year average return on invested capital to December 31, 2014 of 16.57%, exceeding the target set in 2012. This outcome resulted in a performance vesting factor of 150% of the PSUs awarded in 2012, in accordance with the plan rules. As the minimum average closing share price condition was also met, payout under the plan occurred in February 2015, provided compliance with the other conditions of the award agreements.
|
The table illustrating the 2012 PSU performance objectives and results can be found on page 48.
|
The Company has a formalized compensation philosophy to guide compensation program design and decisions. Many of the characteristics inherent in the Company’s executive compensation program encourage the right behaviours, thus mitigating risks and aligning long-term results with shareholder interests. The following are examples of such characteristics:
|
•
|
Appropriate balance between fixed and variable pay, as well as short and long-term incentives;
|
•
|
Multiple performance metrics are to be met or exceeded in the AIBP;
|
•
|
Overlap of performance measures for short and long-term incentives to mitigate risk;
|
•
|
Incentive payout opportunities are capped and do not have a guaranteed minimum payout;
|
•
|
Cannot engage in hedging activity or in any form of transactions in publicly traded options on CN securities;
|
•
|
Executive compensation clawback policy is in place;
|
•
|
Stock ownership guidelines apply to executives and senior management employees; and
|
•
|
The Committee retains the services of an independent executive compensation consultant.
|
A complete list and description of these risk-mitigating features is available on page 50.
|
40 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The Company’s executive compensation policy and programs are designed to ensure that there is a clear link between the Company’s long-term strategy, its business plan and executive rewards, thus encouraging appropriate behaviours. A significant proportion of executive incentive remuneration is therefore tied to key corporate objectives that play a pivotal role in driving the organization’s short and long-term profitability and return to shareholders. The executive compensation program is also designed to be competitive, in order to attract, retain and motivate outstanding executive talent while providing for appropriate risk control features.
|
The executive compensation program is comprised of five elements: i) base salary; ii) annual incentive bonus; iii) long-term incentives; iv) pension benefits; and v) executive perquisites. The combination of base salary, annual incentive bonus and long-term incentives defines the total direct compensation offering, which is weighted towards variable, “pay-for-performance” elements.
|
The following charts illustrate the President and CEO’s 2014 compensation mix (at target), as well as that of the other NEOs (on average). As shown, a significant component of total compensation is “at risk”:
|
President and CEO | All Other NEOs (Average) | |
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 41 |
The executive compensation policy aims to target total direct compensation between the median and 60th percentile of the executives’ respective comparator groups. Base salaries and target annual bonuses are set with reference to the median level of the respective comparator group, whereas the grant date fair value of long-term incentives is set with reference to the 60th percentile. The Committee believes that the compensation policy and its principles provide for competitive and reasonable compensation levels.
|
The Committee reviews benchmark information in December each year, and approves compensation adjustments in January of the following year by taking into consideration comparator group practices, economic outlook, leadership abilities, retention considerations and succession plans.
|
The annual grant of PSUs and stock options to NEOs and other eligible employees is reviewed and approved by the Board of Directors in January for the then current year. In determining the appropriate long-term incentive fair value granted to each NEO, the Committee considered external market data, as discussed in the “Benchmarking Using Comparator Groups” section, as well as other factors such as individual performance, leadership and talent retention.
|
The compensation of the NEOs, other than that of the President and CEO, is recommended by the President and CEO and reviewed and recommended by the Committee for approval by the Board. The compensation of the President and CEO is recommended by the Committee and approved by the independent members of the Board of Directors.
|
42 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The median and 60th percentile competitive pay levels are determined using comparator groups, which have been carefully reviewed and endorsed by the Committee as being appropriate for the level and nature of the benchmarked positions. In determining compensation for the NEOs, the Company considers a comparator group of North American companies comprised of the following Class I Railroads: Union Pacific Corporation, CSX Corporation, Norfolk Southern Corporation and Canadian Pacific Railway Limited.
|
The comparator group is comprised of Class I Railroads that are similar in terms of industry and complexity, including size, revenue, capital investment, and market capitalization. These companies directly compete with CN for key talent. Furthermore, beginning in 2015, half of CN’s relative total shareholder return performance (please refer to page 50 for a description of the plan) will be measured against the same comparator group.
|
MARKET
|
AVERAGE NUMBER
|
|||
REVENUE
|
NET INCOME
|
CAPITALIZATION
|
OF EMPLOYEES
|
|
COMPARATOR GROUP
|
(MILLIONS)
|
(MILLIONS)
|
(MILLIONS)
|
(THOUSANDS)
|
Union Pacific Corporation
|
U.S.$ 23,988
|
U.S.$ 5,180
|
U.S.$ 105,900
|
47,201
|
CSX Corporation
|
U.S.$ 12,669
|
U.S.$ 1,927
|
U.S.$ 36,200
|
31,512
|
Norfolk Southern Corporation
|
U.S.$ 11,624
|
U.S.$ 2,000
|
U.S.$ 33,900
|
29,063
|
Canadian Pacific Railway Ltd.
|
C$ 6,620
|
C$ 1,476
|
C$ 37,900
|
14,575
|
Average
|
C$ 15,658 (1)
|
C$ 3,010 (1)
|
C$ 60,519 (1)
|
30,588
|
Canadian National Railway Company
|
C$ 12,134
|
C$ 3,167
|
C$ 64,900
|
24,635
|
Rank
|
4
|
2
|
2
|
4
|
The following table summarizes the components of the Company’s executive compensation program, which is driven by the executive compensation policy and weighted towards variable, “pay-for-performance” elements. Each component is then further detailed in this section.
|
COMPONENT
|
2014 DESIGN SUMMARY
|
FORM
|
OPPORTUNITY
|
RISK-MITIGATING
ELEMENTS
|
OBJECTIVES
AND RATIONALE
|
Base Salary
|
• Fixed rate of pay
• Individual salary recommendations based on competitive assessment and economic outlook, leadership, retention and succession considerations
• Performance period: 1 year
|
• Cash
|
• Set with reference
to the median
of the respective
comparator group
|
• Provides for
a balanced mix
of pay components
(fixed vs. variable)
• Use of external
advisor and peer
group analysis
|
• Provide competitive level of fixed compensation
• Recognize sustained individual performance
• Reflect increase in role responsibility and/or
growth in role
|
Annual Incentive
Bonus
|
• Annual awards based on achievement of five pre-determined corporate performance objectives (70%) and individual performance (30%)
• Approximately 4,700 management employees are eligible
• Performance period: 1 year
|
• Cash-based
performance pay
|
• Target is 120%
of base salary for
the President and
CEO and 80% for
the other NEOs.
Maximum payout
is limited to 2.0 times
the target
• For other eligible
management
employees, target
is based on grade
level with a
maximum payout
limited to 1.5 or 2.0
times the target
|
• Use of multiple
performance
metrics
• Plan targets
reviewed and
approved annually
based on in-depth
review of annual
business plan
• Payouts are capped
• No guaranteed
minimum payout
• Payouts
subject to a
clawback policy
|
• Reward the
achievement
of a balanced set
of annual corporate
performance objectives
• Reward the
achievement
of personal objectives
aligned with each
employee’s area
of responsibility
and role in realizing
operating results
• Drive superior
corporate and
individual performance
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 43 |
COMPONENT
|
DESIGN SUMMARY
|
FORM
|
OPPORTUNITY
|
RISK-MITIGATING
ELEMENTS
|
OBJECTIVES
AND RATIONALE
|
Long-Term
Incentives
|
Performance Share Units (PSUs)
• Performance vesting subject to the attainment of 3-year average return on invested capital targets
• Payout conditional on the attainment of a minimum share price during the last three months of the plan period
• Employees must remain in active and continuous service until the last day of the year in which the grant was made to be eligible for payout
• Performance period: 3 years
|
• Performance-based share units payable in cash
|
• Long-term incentive
grant date fair value determined with reference
to the 60th percentile
of the respective comparator group for
NEOs and executives
• PSU performance
vesting factor capped
at 150%
|
• Significant weighting towards long-term incentive compensation
• Overlapping multi-year performance periods
• Mix of financial and market measures
• PSU payouts are capped and there is no minimum guaranteed payout
• Payouts subject to a clawback policy
|
• Align management interests with share- holder value growth
• Reward the achievement of sustained financial performance
• Contribute to retention of key talent
• Recognize individual contribution and potential
|
Stock options
• Conventional stock options that vest over 4 years at a rate of 25% per year
• Grant is approximately of equal value to the Performance Share Units (except for the President and CEO who receives a different proportion due to the 20% limitation under the Management Long-Term Incentive Plan)
• Employees must remain in active and continuous service until the last day of the year in which the grant was made to be eligible for payout
• Performance period: 4-year vesting, 10-year term
|
• Stock options
|
||||
Pension Benefits
|
Canadian Pension Plans
• Defined Benefit Plan: Benefits payable calculated as a percentage of the five-year highest average earnings multiplied by pensionable service
• Pensionable service period for most defined benefit plans: Maximum of 35 years
• Defined Contribution Plan: Benefits based on the participant’s required contributions and on Company- matched contributions
• Non-registered plans: Supplement to the registered plans and provide benefits in excess of the Canadian Income Tax Act limits
U.S. Pension Plans
• Defined Benefit Plan: Benefits payable calculated as a percentage of the five-year highest average earnings (out of the last 10 years) multiplied by credited service
• Maximum of 35 years of credited service for most defined benefit plans
• Savings Plan: 401(k) benefits based on the participant’s voluntary contributions and 50% matching by the Company, limited to 3% of base pay
• Defined Contribution Feature: Additional benefits included in the Savings Plan based on Company contributions equal to 3.5% of base pay
• Non-registered plans: Supplement to the registered plans and provide benefits in excess of IRS and Railroad Retirement Board limits
|
• Cash payments following retirement
|
• Non-registered plans restricted to executives and senior anagement employees
• Most retirement benefits for executives and senior management employees are calculated using base salary and annual bonus (up to target levels)
|
• Annual retirement benefits to President and CEO from non-registered plan capped at U.S.$1M
|
• Provide an effective and attractive executive compensation program
|
Executive
Perquisites
|
• Healthcare and life insurance benefits, annual executive physical exam, club membership, company-leased vehicle, parking, financial counselling and tax services
|
• Non-cash perquisites
|
• Competitive
|
• No tax gross-ups on such perquisites
• Use of corporate aircraft restricted to business-related purposes
|
The Committee normally reviews the base salaries of executives in January each year, by taking into consideration median comparator group practices, economic outlook, leadership abilities, retention considerations and succession plans. The base salaries of NEOs are paid in U.S. dollars in order to provide for a more precise, meaningful and stable comparison with U.S. denominated salaries of incumbents in equivalent positions within the comparator group.
|
The folllowing table presents base salary increases for 2014 and 2015 in U.S. dollars:
|
NAME
|
2013
(U.S.$)
|
2014
(U.S.$)
|
INCREASE
|
2015
(U.S.$)
|
INCREASE
|
Claude Mongeau
|
1,025,000
|
1,075,000
|
4.9%
|
1,075,000
|
0.0%
|
Luc Jobin
|
600,000
|
600,000
|
0.0%
|
600,000
|
0.0%
|
Jim Vena
|
560,000
|
560,000
|
0.0%
|
600,000
|
7.1%
|
Jean-Jacques Ruest
|
560,000
|
560,000
|
0.0%
|
560,000
|
0.0%
|
Sean Finn
|
528,000
|
528,000
|
0.0%
|
528,000
|
0.0%
|
44 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
POSITION
|
MINIMUM
|
TARGET (1)
|
MAXIMUM (1)
|
President and CEO
|
0%
|
120%
|
240%
|
Other NEOs
|
0%
|
80%
|
160%
|
Senior Vice-Presidents
|
0%
|
65%
|
130%
|
Vice-Presidents
|
0%
|
50/60%
|
100/120%
|
The bonus payout received under the AIBP depends on the achievement of both corporate (70%) and individual (30%) objectives. This design reflects the Company’s view that any short-term incentive should be tied both to the overall performance of the Company and to those areas of its business that each employee can influence directly.
|
1.
|
Corporate financial performance: 70% of the bonus was linked to the achievement of a balanced set of objectives that contribute to the Company’s long-term financial growth and profitability. The Committee ensures that performance goals and conditions are directly aligned with the achievement of the Company’s corporate objectives as set out in the Company’s business plan, which is recommended by the Strategic Planning Committee and reviewed and approved by the Board of Directors. These corporate objectives are taken into account in establishing the Company’s targets under the AIBP. In addition, in setting the AIBP targets for the upcoming year, the Company generally excludes items from the prior year that did not necessarily arise as part of the normal business of the Company, which can impact the comparability of the Company’s year-over-year financial performance and the Company’s current year targets in relation to the prior year’s results.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 45 |
CORPORATE OBJECTIVES
AS OF JANUARY 1, 2014(1)
|
CORPORATE OBJECTIVES
AS ADJUSTED(2)
|
RESULTS
2014
(C$)
|
PERFORMANCE
ASSESSMENT
|
||||
IN MILLIONS
(EXCEPT PER SHARE DATA AND ROIC)
|
WEIGHT
|
BASE
(THRESHOLD)
(C$)
|
STRETCH
(MAXIMUM)
(C$)
|
BASE
(THRESHOLD)
(C$)
|
STRETCH
(MAXIMUM)
(C$)
|
||
Revenues
|
25%
|
11,175
|
11,350
|
11,644(3)
|
11,819(3) |
12,134
|
Exceeds
|
Operating Income
|
25%
|
4,130
|
4,255
|
4,329
|
4,454
|
4,624
|
Exceeds
|
Diluted Earnings Per Share
|
15%
|
3.27
|
3.40
|
3.42
|
3.55
|
3.85
|
Exceeds
|
Free Cash Flow (4)
|
20%
|
1,550
|
1,650
|
1,694
|
1,794
|
2,220
|
Exceeds
|
ROIC (5)
|
15%
|
15.30%
|
15.90%
|
15.30%
|
15.90%
|
17.36%
|
Exceeds
|
(1)
|
Corporate objectives assume an exchange rate of U.S.$1.00 = C$1.0277.
|
(2)
|
Corporate objectives and results reflect an actual exchange rate of U.S.$1.00 = C$1.1038.
|
(3)
|
Revenues target has been adjusted to reflect actual fuel surcharges invoiced to clients based on actual oil and diesel prices in 2014.
|
(4)
|
Free cash flow does not have any standardized meaning prescribed by Generally Accepted Accounting Principles 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 for debt obligations and for discretionary uses such as payment of dividends and strategic opportunities. The Company defines its free cash flow measure as the difference between net cash provided by operating activities and net cash used in investing activities; adjusted for changes in restricted cash and cash equivalents and the impact of major acquisitions, if any.
|
(5)
|
ROIC measures the Company’s efficiency in the use of its capital funds and is viewed as a key measure of long-term value generation to its shareholders. ROIC is generally calculated as net income before interest expense, divided by the total of the average net indebtedness and the average shareholders’ equity, and may, in certain instances, be adjusted for certain items as determined by the Committee.
|
As a result of the Company’s focus on operational and service excellence and solid execution despite brutal winter conditions, CN’s 2014 growth continued to outpace that of the overall economy, generating the highest volumes and earnings in its history. The Company produced solid free cash flow, supported in part by the monetization of underutilized assets. The Company continued to reinvest in the business, with 2014 capital spending of C$2.3 billion. At the same time, the Company maintained its commitment to creating shareholder value. In 2014, the Company’s dividend was increased by 16% and 22.4 million shares were repurchased, returning over C$2.3 billion to shareholders.
|
2.
|
Individual performance: 30% of the bonus was based on personal business-oriented goals that considered the strategic and operational priorities related to each executive’s respective function, with a strong overall focus on: balancing operational and service excellence, delivering superior growth, opening new markets with breakthrough opportunities, deepening employee engagement and stakeholder engagement. The individual performance factor can range from 0% to 200% for NEOs and other executives and senior management employees. For all other eligible management employees, the performance factor can range from 0% to 150%. The individual performance factor for the President and CEO is based on an individual assessment reviewed and approved by the Committee.
|
In 2014, the overall average individual performance factor for the NEOs, including the President and CEO, was 110%.
|
Any annual incentive bonus payout under the individual component is conditional upon a payout being declared under the corporate component. In addition, should corporate performance be assessed at “partially meets” (i.e. a corporate performance factor below 100%), the individual performance factor will be prorated to the same level.
|
46 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The following formula illustrates how an eligible management employee’s annual base salary (as at December 31, 2014), target payout (expressed as a percentage of base salary), corporate and individual performance factors interact in the determination of the actual annual bonus payout:
|
The Board of Directors considers a number of factors to assess the Company’s long-term incentive strategy, including the balance between long-term value creation and shareholder wealth protection, executive stock ownership position versus stock option holdings, executive retention risk, as well as the dilution impact of the different long-term incentive vehicles. Since 2005, the Board of Directors has elected to grant a combination of stock options and PSUs to NEOs, as well as to designated executives and senior management employees.
|
The stock options and PSUs granted are of approximately equal value for all eligible employees, except for the President and CEO. The President and CEO’s long-term incentive award has a smaller relative weight in stock option value, due to the 20% limitation on the number of stock options that can be awarded to any one individual in a particular year, pursuant to the terms of the Management Long-Term Incentive Plan (please refer to page 63 for a description of the plan).
|
The annual grant of PSUs and stock options to NEOs and other eligible employees is reviewed and approved at the meetings of the Committee and the Board of Directors which takes place each year in January. In order to determine each NEO’s LTI award, the Committee takes into consideration individual performance, retention risk and succession plans, as well as the Company’s compensation philosophy and the value of LTIs granted over the last three years by the Class I Railroads included in the comparator group (please refer to section “Benchmarking Using Comparator Groups” on page 43). The Committee does not take into account previous executive grants when setting the individual awards, as the LTI plans are inherently performance-based.
|
The exercise price of the stock options granted is equal to the closing price of the Company’s common shares on the TSX or the NYSE on the grant date.
|
The ROIC for each of the applicable plan years is generally calculated as net income before interest expense, divided by the total of the Company’s average net indebtedness and the average shareholders’ equity, and may, in certain instances, be adjusted for certain items as determined by the Committee. ROIC measures the Company’s efficiency in the use of its capital funds and is viewed as a key measure of long-term value generation to its shareholders.
|
The decision to use the ROIC performance measure for both short and long-term incentives is based on a prudent risk management approach in order to focus on ROIC over different time periods (one year vs. three years). Moreover, the weighting of the ROIC condition under the AIBP is limited to 15% of target bonus and ROIC performance objectives are based on the Business Plan. Finally, as explained on page 50, a new Relative TSR condition will be introduced for PSUs in 2015 (in addition to the ROIC performance measure).
|
OBJECTIVE
|
PERFORMANCE
VESTING FACTOR (1)
|
|
Performance Objective:
|
Below 13.5%
|
0% |
Average ROIC for the
|
13.5%
|
50% |
three-year period ending
|
14.5%
|
100% |
on December 31, 2016
|
15.5%
|
125% |
16.5% and above
|
150% | |
Payout Condition:
|
C$59.65 on the TSX
or
U.S.$56.04 on the NYSE
|
|
Minimum average closing
|
||
share price for the last
|
||
three months of 2016
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 47 |
The grant date fair value of the PSUs awarded to each NEO in 2014 is included in the Summary Compensation Table on page 56, under the Share-Based Awards column.
|
The PSUs awarded in 2012 to NEOs and other designated employees vested based on the achievement of an average ROIC for the three-year period ending on December 31, 2014. Over the past three years, CN’s share price has increased by 100% in Canada, in comparison to a 22% increase of the S&P/TSX Composite Index. In addition, the Company’s market capitalization in Canada has increased by nearly C$29 billion during this same period. The Company’s superior performance therefore led to the achievement of a three-year average ROIC of 16.57% and resulting in a performance vesting factor of 150%. As the minimum average closing share price condition was also met, payout occurred in February 2015 in accordance with the Share Units Plan and the 2012 award agreement.
|
OBJECTIVE
|
PERFORMANCE
VESTING
FACTOR (1)
|
RESULTS
|
|
Performance Objective:
|
Below 13.0%
|
0%
|
|
Average ROIC for
|
13.0%
|
50%
|
|
the three-year period
|
14.0%
|
100%
|
16.57%
|
ending on
|
15.0%
|
125%
|
|
December 31, 2014
|
16.0% and above
|
150%
|
|
Payout Condition:
|
|||
Minimum average
|
C$39.01 on the TSX
|
C$77.90
|
|
closing share price
|
or
|
||
for the last three
|
U.S.$38.08 on the NYSE
|
U.S.$68.42
|
|
months of 2014
|
The value vested during the year for each NEO is included in the table Incentive Plan Awards — Value Vested or Earned During the Year, and under the Share-Based Awards — Value Vested During the Year column on page 62.
|
Stock options are granted with the objective of rewarding NEOs and other designated employees for creating sustainable, long-term shareholder value. If the share price increases between the grant date and the vesting date, stock options will have a realizable value. Gains are realized once the stock options are exercised. The gain will be equivalent to the difference between the share price on the date of exercise and the grant date share price, multiplied by the number of stock options exercised.
|
The grant date fair value of the stock options awarded to NEOs in 2014 is included in the Summary Compensation Table on page 56, under the Option-Based Awards column.
|
The value of the Company match received by NEOs in 2014 under the ESIP is indicated in the Details of the All Other Compensation Amounts table on page 59.
|
The Committee strongly supports stock ownership by executives. Stock ownership guidelines require a minimum level of stock ownership, set as a multiple of base salary, to be achieved within a five-year period to align the interests of executives with those of shareholders. As at December 31, 2014, 199 executives and senior management employees are subject to share ownership guidelines. Once executives and senior management employees have met their initial shareholding requirements, they are required to maintain compliance, which is reported annually to the Committee. Stock ownership guidelines can be met through the holding of common shares and vested deferred share units under the Company’s Voluntary Incentive Deferral Plan (the “VIDP”).
|
48 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Stock options (vested or unvested) and unvested LTI grants do not count towards the minimum level of stock ownership. Stock ownership requirements are as follows:
|
GUIDELINES
|
|
President and CEO
|
5 times base salary
|
Executive and Senior Vice-Presidents
|
3 times base salary
|
Vice-Presidents
|
1.5 to 2 times base salary
|
Senior Management
|
1 time base salary
|
The President and CEO is also required to maintain his stock ownership guideline level until one year after retirement. As at December 31, 2014, all NEOs exceeded their share ownership requirements.
|
NAMED EXECUTIVE
OFFICER
|
NUMBER OF
SHARES HELD
|
(1)
|
VALUE OF
HOLDINGS
(C$)
|
(2)
|
VALUE
REQUIRED
TO MEET
GUIDELINES
(C$)
|
(3)
|
HOLDINGS AS
A MULTIPLE OF
BASE SALARY
|
(3)
|
Claude Mongeau
|
477,291
|
38,192,826
|
5,936,690
|
32.2 ×
|
||||
Luc Jobin
|
60,340
|
4,828,407
|
1,988,100
|
7.3 ×
|
||||
Jim Vena
|
58,534
|
4,693,891
|
1,855,560
|
7.6 ×
|
||||
Jean-Jacques Ruest
|
186,250
|
14,903,725
|
1,855,560
|
24.1 ×
|
||||
Sean Finn
|
75,220
|
6,019,104
|
1,749,528
|
10.3 ×
|
(1)
|
Common shares and/or vested deferred share units as at December 31, 2014.
|
(2)
|
Value is based on the closing share price of the common shares on December 31, 2014 on the TSX (C$80.02), or the fair market value at the time of purchase if greater.
|
(3)
|
U.S.$ salaries as at December 31, 2014 were converted to Canadian dollars using the average rate during the year (U.S.$1.00 = C$1.1045).
|
The Management Long-Term Incentive Plan and the Share Units Plan include “double trigger provisions”. Pursuant to such provisions, the vesting of non-performance stock options or PSUs awarded held by a participant would not accelerate upon a Change of Control, unless the participant is terminated without cause or resigns for good reason. A Change of Control means any of the following events:
|
a)
|
in the event the ownership restrictions in the CN Commercialization Act are repealed, a formal bid for a majority of the Company’s outstanding common shares;
|
b)
|
approval by the Company’s shareholders of an amalgamation, merger or consolidation of the Company with or into another corporation, unless the definitive agreement of such transaction provides that at least 51% of the directors of the surviving or resulting corporation immediately after the transaction are the individuals who, at the time of such transaction, constitute the Board and that, in fact, these individuals continue to constitute at least 51% of the board of directors of the surviving or resulting corporation during a period of two consecutive years; or
|
c)
|
approval by the Company’s shareholders of a plan of liquidation or dissolution of the Company.
|
The amended provisions state that acceleration of vesting would not occur if a proper substitute to the original stock options or share units is granted to the participant. If such substitute is granted and a participant is terminated without cause or submits a resignation for good reason within 24 calendar months after a Change of Control, all outstanding substitute stock options or share units which are not then exercisable shall vest and become exercisable or payable in full upon such termination or resignation. Substitute stock options that are vested and exercisable shall remain exercisable for a period of 24 calendar months from the date of such termination or resignation and units shall be paid within 30 days. Discretion is left to the Board of Directors to take into account special circumstances. The definition of a resignation for good reason is included in the Termination and Change of Control Benefits table on page 67.
|
a)
|
the use of confidential CN information for any purpose other than performing his or her duties with CN;
|
b)
|
engaging in any business that competes with CN;
|
c)
|
soliciting, accepting the business of a customer, client, supplier or distributor of CN or hiring or engaging employees of CN;
|
d)
|
taking advantage or profit from any business opportunity of which they became aware in the course of employment with CN; and
|
e)
|
taking any action as a result of which relations between CN and its consultants, customers, clients, suppliers, distributors, employees or others may be impaired or which might otherwise be detrimental to the business interests or reputation of CN.
|
a)
|
the amount of incentive compensation received by the executive or former executive officer was calculated based upon, or contingent on, the achievement of certain financial results that were subsequently the subject of or affected by a restatement of all or a portion of the Company’s financial statements;
|
b)
|
the executive officer engaged in gross negligence, intentional misconduct or fraud that caused or partially caused the need for the restatement; and
|
c)
|
the incentive compensation payment received would have been lower had the financial results been properly reported.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 49 |
•
|
Introduction of Relative Total Shareholder Return performance measures to the PSUs — The introduction of Relative TSR measures will increase alignment between executive pay and shareholder returns and will provide a performance measure based on CN’s performance relative to its peers. For the 2015 award, CN’s relative TSR will be measured against two comparator groups: i) Class I Railroads (same comparator as for NEOs compensation benchmarking), and ii) S&P/TSX 60 companies. The comparator groups were determined considering markets where CN competes for capital investments.
|
•
|
Increased emphasis on PSUs within the overall LTI mix — With the introduction of new performance measures for PSUs, the LTI mix has been adjusted to ensure that a significant portion of LTI awards are based on ROIC and TSR performance.
|
•
|
Maximum payout opportunity increased to align with market practice of other Class I Railroads — Commensurate with the increase to the maximum payout opportunity, the stretch performance level on the ROIC performance conditions will further support strong payout for performance alignment. Further, the introduction of two new relative TSR performance measures will make the achievement of the maximum payout more challenging under the new design.
|
•
|
Settlement of PSUs in equity — The new settlement approach will provide participants with the flexibility of holding CN shares upon settlement to encourage increased share ownership among middle and senior management employees.
|
•
|
Vesting conditions in case of retirement — The minimum service period for PSUs in case of retirement was increased to retain key employees during the critical winter season and the retirement definition for stock options and PSUs was adjusted to support retention of newly hired senior employees.
|
2014 | 2015 | ||
LTI Weighting
|
Stock Options – 50%
|
Stock Options – 45%
|
|
PSUs – 50%
|
PSUs – 55%
|
||
PSUs
|
|||
Performance Criteria
|
100% ROIC and minimum share price condition | 70% ROIC and minimum share price condition 30% Relative TSR ranking against Class I Railroads and S&P/TSX 60 companies | |
Maximum Payout
|
150%
|
200%
|
|
Minimum Service Condition in Case of Retirement
|
12 months
|
15 months
|
|
Settlement
|
Cash-settled
|
Equity-settled in CN common shares purchased on the open market
|
•
|
An annual review of the performance measures under the Company’s AIBP and Share Units Plan takes place to ensure their continued relevance.
|
•
|
The Committee completes a formal assessment of performance each year, and can then use discretion to increase or decrease any compensation awards if it deems appropriate based on market factors or other extenuating circumstances.
|
50 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
•
|
The compensation program appropriately balances fixed and variable pay, as well as short-term and long-term incentives (in aggregate, approximately 80% of NEOs’ target total direct compensation is directly linked to the Company’s performance).
|
•
|
The corporate component of the AIBP includes five performance metrics that are appropriately balanced between “top-line” measures and “bottom-line” measures, thus diversifying the risk associated with the use of any single performance metric (please refer to section “Annual Incentive Bonus Plan” on page 45 for more information).
|
•
|
There are multi-year, overlapping performance periods for the PSUs and stock options, which encourages consistent, long-term behaviour.
|
•
|
The LTI awards, which constitute a significant portion of NEO compensation, vest over a 3 or 4-year period, motivating executives to create longer-term value.
|
•
|
The performance measures used within the Share Units Plan reflect an appropriate balance between financial and share price conditions.
|
•
|
The use of the same performance measure (ROIC) for the AIBP (one year) and PSUs (three-year average) ensures balance between short- and long-term performance sustainability on key capital investment expenditures.
|
•
|
The AIBP and the Share Units Plan are designed to include the possibility of a zero payout, as well as a pre-defined maximum.
|
•
|
Annual retirement benefits for the President and CEO from the non-registered pension plan are capped.
|
•
|
The Company’s executive compensation clawback policy allows the Board, in certain situations, to request the full or partial reimbursement of annual and long-term incentive awards received by executives (please refer to section “Executive Compensation Clawback” on page 49 for more information).
|
•
|
The NEOs are not governed by employment contracts and the long-term incentive plans include “double-trigger provisions”, such that the vesting of LTI awards would generally not accelerate upon a Change in Control.
|
•
|
Under the Company’s Insider Trading Policy, directors, executives and employees are prohibited from engaging in hedging activities against CN securities.
|
•
|
In order to further align their interests with those of shareholders, executives and senior management employees (199 individuals) are required to meet specific stock ownership guidelines. In addition, the President and CEO must maintain his stock ownership level for one year after retirement (please refer to section “Stock Ownership” on page 48 for more information).
|
•
|
Commencing at various dates, for executives and senior management employees, the payout of LTI awards and the payment of retirement benefits under the Company’s non-registered pension plans, are conditional on compliance with the conditions of their benefit plans, award or employment agreements, including but not limited to non-compete, non-solicitation, non-disclosure of confidential information and other restrictive covenants (please refer to section “Non-Compete/Non-Solicitation Provisions” on page 49 for more information).
|
•
|
Management retains the services of an external executive compensation consultant to assist in compensation related matters for its executives. The Committee retains the services of an independent executive compensation consultant to provide advice on compensation recommendations that are presented for Committee approval.
|
Throughout the year, the Committee plays an important oversight role related to the identification and management of risks associated with CN’s compensation programs and practices. For example, in camera sessions, restricted to members of the Committee, are held at the start of each of the Committee meetings to allow for discussion regarding any compensation or risk related issue. The Committee also believes in the benefits of a certain level of overlapping membership between the Audit and the Human Resources and Compensation Committees, particularly with regard to risk monitoring. As such, Donald J. Carty, Chair of the Audit Committee, is a member of the Human Resources and Compensation Committee and Ambassador Gordon D. Giffin, Chair of the Human Resources and Compensation Committee, is a member of the Audit Committee. James E. O’Connor, Chair of the Strategic Planning Committee, is also a member of the Human Resources and Compensation Committee and Ambassador Gordon D. Giffin is a member of the Strategic Planning Committee. These overlaps effectively provide a link between committees’ risk oversight responsibilities.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 51 |
As President and CEO, Mr. Mongeau is responsible for providing leadership and vision for CN, as well as achieving strategic and operational goals that will build long-term shareholder value. More details on his role are available in the Company’s Corporate Governance Manual, available at www.cn.ca, under Delivering Responsibly/Governance.
|
The President and CEO’s annual compensation takes into account factors such as competitive positioning against market, economic outlook, and leadership abilities. Mr. Mongeau’s annual compensation is recommended by the Committee and approved by the independent members of the Board of Directors. The President and CEO serves at the will of the Board and does not have an employment contract.
|
The individual performance of the President and CEO is measured against goals, objectives and standards approved annually by the Committee and the Board. The individual goals set at the beginning of 2014 included elements covering performance in the following areas: balancing operational and service excellence (20%); delivering superior growth (20%); opening new markets with breakthrough opportunities (20%); deepening employee engagement throughout the workforce (20%); and re-building on our momentum with key stakeholders (20%).
|
Specific measures, both quantitative and qualitative, are considered in each of the above-mentioned categories. Additional details on each category are presented below. The Committee reviewed the President and CEO’s performance in each area and, despite a year of strong results, recommended for Board approval management’s recommendation for a reduced overall individual performance factor at 100% in light of the Company’s safety performance. The Committee recommended to the Board the approval of the President and CEO’s annual incentive bonus payout of U.S.$2,193,000 (C$2,544,099).
|
52 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Since 2010, when Mr. Mongeau became CEO, 14,000 new employees have joined CN to replace retiring or departing employees and to support growth. In 2014 alone, CN on-boarded more than 3,900 new employees. Deepening employee engagement remains an important component of Mr. Mongeau’s strategic agenda. CN is carefully recruiting the right railroaders, systematically onboarding employees, and is working diligently to retain its employees. Deepening employee engagement takes many forms, from regular quality communications to structured talent management, and careful leadership development. Two new state-of-the-art training facilities were inaugurated in 2014 and are now bringing CN to the forefront of enhanced training excellence to improve onboarding, accelerate productivity and instill a stronger safety culture.
|
The Company also expanded a Transportation Internship program to offer unionized employees a chance to gain experience in management roles and initiated a program to attract more women in Operations. CN continued to deploy workforce planning at more micro levels to better understand internal workforce movements and predict future talent needs at various levels. A dashboard platform was also introduced in 2014 to give senior leaders access to key, up-to-date people metrics and allow for comparison between groups and territories, as well as identification of risk and problem areas to drive action.
|
Throughout 2014, CN also continued its support of hundreds of CN railroaders in the Community who are champions in the causes they choose to support. CN donated C$690,000 to support its employees, their families and pensioners in their volunteer efforts.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 53 |
Mr. Jobin is accountable for the Company’s financial management and governance, strategic planning and information technology.
|
Mr. Vena’s performance in 2014 was assessed against individual performance objectives, including service, cost control, asset utilization, safety and people. While key metrics in the areas of service, cost control and asset utilization exceeded objectives, Mr Vena was assessed as having, on an overall basis, met his individual performance objectives in light of the Company’s safety performance in 2014. Based on the Company’s financial performance, as well as on his individual assessment, Mr. Vena received a 2014 annual bonus in the amount of U.S.$761,600 (C$883,532).
|
Mr. Ruest’s performance in 2014 was assessed against individual performance objectives, including delivering superior growth, opening new markets, creating new products, balancing operational and service excellence and the leveraging of sales & marketing talent. Mr. Ruest was assessed as having partially exceeded his overall individual performance objectives. Based on the Company’s financial performance, as well as on his individual assessment, Mr. Ruest received a 2014 annual bonus in the amount of U.S.$795,200 (C$922,512).
|
54 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Mr. Finn graduated from the Faculty of Law of the University of Montreal, after which he was admitted to the Quebec Bar, and is a member of the Canadian and American Bar Associations. Mr. Finn has completed the Directors Education Program offered by the Institute of Corporate Directors and the Rotman School of Management, as well as the Excellence in the Boardroom Program at the Rotman School of Management, Executive Programs, University of Toronto.
|
The following Performance Graph illustrates the yearly cumulative total shareholder return on a $100 investment in CN’s common shares compared with the cumulative total return of the S&P/TSX and the S&P 500 Indices from the period beginning December 31, 2009 to the period ending December 31, 2014. It assumes reinvestment of all dividends during the covered period.
|
DEC-09
|
DEC-10
|
DEC-11
|
DEC-12
|
DEC-13
|
DEC-14
|
|
CNR
|
$100
|
$118
|
$144
|
$165
|
$225
|
$300
|
CNI
|
$100
|
$124
|
$149
|
$176
|
$223
|
$274
|
S&P/TSX
|
$100
|
$118
|
$107
|
$115
|
$130
|
$144
|
S&P 500
|
$100
|
$115
|
$117
|
$136
|
$180
|
$205
|
The following graph illustrates the year-over-year increase in cumulative total shareholder return on a C$100 investment in CN’s common shares on the TSX compared with the total compensation earned by NEOs in each year of the five-year period ending on December 31, 2014, and demonstrates the close link between the two. The total compensation earned by NEOs is defined as the amount of base salary and bonus earned during the year, plus the yearly change in unrealized and realized gains from equity-based incentive plans.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 55 |
The following table provides guidance on year-over-year compensation increases as per the Summary Compensation Table based on a constant currency and LTI valuation basis:
|
COMPENSATION CHANGE ON A CONSTANT CURRENCY
|
||
AND LTI VALUATION BASIS, AS APPROVED BY THE BOARD
|
||
CEO
|
OTHER NEOs
|
|
Base Salary
|
4.9%
|
1.4%(1)
|
Long-Term Incentive
|
-7.9%
|
-6.8%
|
Total Compensation
|
-2.8%
|
-4.8%
|
The following table sets forth the annual total compensation in Canadian dollars for the NEOs, for the years ended December 31, 2014, 2013 and 2012. Fluctuation in the exchange rate affects year-over-year comparability. Please refer to page 68 for currency exchange information.
|
NAME AND PRINCIPAL POSITION
|
YEAR
|
SALARY
(C$)
|
SHARE-BASED
AWARDS(1)(3)
(C$ )
|
OPTION-
BASED
AWARDS(2)(3)
(C$ )
|
NON-EQUITY
INCENTIVE
PLAN
COMPENSATION –
ANNUAL
INCENTIVE
PLANS(4)
(C$)
|
PENSION
VALUE(5)
(C$)
|
ALL OTHER
COMPENSATION(6)
(C$)
|
TOTAL
COMPENSATION
(C$)
|
2014
|
1,187,338
|
3,373,982
|
2,113,200
|
2,544,099
|
40,000
|
82,988
|
9,341,607
|
|
Claude Mongeau
|
2013
|
1,055,648
|
3,210,050
|
1,609,300
|
1,644,443
|
628,000
|
82,191
|
8,229,632
|
President and Chief Executive Officer
|
2012
|
999,600
|
2,654,030
|
1,698,400
|
2,208,678
|
314,000
|
84,797
|
7,959,505
|
Luc Jobin
|
2014
|
662,700
|
1,026,176
|
746,194
|
988,405
|
180,833(8)
|
21,021
|
3,625,329
|
Executive Vice-President
|
2013
|
617,940
|
945,575
|
587,818
|
561,517
|
150,669(8)
|
18,694
|
2,882,213
|
and Chief Financial Officer
|
2012
|
574,770
|
902,008(7)
|
625,011
|
710,794
|
141,982(8)
|
16,591
|
2,971,156
|
Jim Vena
|
2014
|
618,520
|
1,026,176
|
746,194
|
883,532
|
288,000
|
14,734
|
3,577,156
|
Executive Vice-President
|
2013
|
546,061
|
980,709
|
554,670
|
518,958
|
2,200,000(9)
|
13,497
|
4,813,895
|
and Chief Operating Officer
|
2012
|
327,869
|
184,402
|
151,003
|
376,500
|
144,000
|
24,329
|
1,208,103
|
Jean-Jacques Ruest
|
2014
|
618,520
|
970,637
|
705,809
|
922,512
|
195,000
|
17,541
|
3,430,019
|
Executive Vice-President
|
2013
|
576,744
|
893,255
|
555,293
|
524,083
|
310,000
|
17,233
|
2,876,608
|
and Chief Marketing Officer
|
2012
|
539,784
|
718,376
|
588,264
|
667,528
|
174,000
|
18,059
|
2,706,011
|
Sean Finn
|
2014
|
583,176
|
832,113
|
605,080
|
833,045
|
182,000
|
15,458
|
3,050,872
|
Executive Vice-President Corporate
|
2013
|
543,787
|
788,070
|
489,905
|
464,652
|
317,000
|
14,846
|
2,618,260
|
Services and Chief Legal Officer
|
2012
|
512,795
|
651,252
|
533,298
|
634,152
|
137,000
|
16,126
|
2,484,623
|
(1)
|
Valuation Disclosure for Share-Based Awards— Consistent with disclosure requirements, the following (a) summarizes the methodology and key assumptions used to calculate the fair value of awards at the grant date and (b) discloses the fair value used for accounting and financial reporting purposes. For 2014 share-based awards, the fair value of awards at the grant date, as shown in the Summary Compensation Table above, reflects the number of PSUs awarded multiplied by the value calculated using the Towers Watson expected life binomial methodology. This methodology was selected as it provides alignment throughout the compensation review process by using the same methodology for benchmarking, grant and disclosure purposes. The value may differs from the value reported for accounting purposes due to the differences in valuation input assumptions, as provided on page 58. For 2012 and 2013 share-based awards, the fair value of awards at the grant date, as shown in the Summary Compensation Table above, reflects the number of PSUs awarded multiplied by the accounting fair value of awards.
|
TOWERS WATSON EXPECTED LIFE BINOMIAL
|
ACCOUNTING VALUATION
|
|||||||||
METHODOLOGY
|
METHODOLOGY
|
VARIANCE
|
||||||||
2014 VALUATION
|
GRANT DATE FAIR
|
2014 VALUATION
|
GRANT DATE FAIR
|
TOWERS WATSON
|
||||||
FACTOR
|
VALUE
|
FACTOR
|
VALUE
|
VS. ACCOUNTING
|
||||||
2014 – Share-Based Award
|
55%
|
C$32.29
|
47.5%
|
C$27.91
|
C$4.38
|
56 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
(2)
|
Valuation Disclosure for Option-Based Awards — Consistent with disclosure requirements, the following (a) summarizes the methodology and key assumptions used to calculate the fair value of awards at the grant date and (b) discloses where the fair value used for accounting and financial reporting purposes. For 2014 option-based awards, the fair value of awards at the grant date, as shown in the Summary Compensation Table above, reflects the number of stock options awarded multiplied by the value calculated using the Towers Watson expected life binomial methodology. This methodology was selected as it provides alignment throughout the compensation review process by using the same methodology for benchmarking, grant and disclosure purposes. The value differs from the value reported for accounting purposes due to the differences in valuation input assumptions, as provided on page 58. For 2012 and 2013 option-based awards, the fair value of awards at the grant date, as shown in the Summary Compensation Table above, reflects the number of stock options awarded multiplied by the accounting fair value of awards.
|
TOWERS WATSON EXPECTED LIFE BINOMIAL
|
ACCOUNTING VALUATION
|
|||||||||
METHODOLOGY
|
METHODOLOGY
|
VARIANCE
|
||||||||
2014 VALUATION
|
GRANT DATE FAIR
|
2014 VALUATION
|
GRANT DATE FAIR
|
TOWERS WATSON
|
||||||
FACTOR
|
VALUE
|
FACTOR
|
VALUE
|
VS. ACCOUNTING
|
||||||
2014 – Option-Based Award
|
20%
|
C$11.74
|
18.9%
|
C$11.08
|
C$0.66
|
(3)
|
LTI Valuation Comparison — CN changed its equity valuation methodology in 2014 to reinforce alignment through its compensation review process. As a result, the LTI values disclosed in the Summary Compensation Table for 2014 are calculated using the Towers Watson expected life binomial methodology. As a result of the change in valuation methodology, comparison between 2014 share-based and option-based award values and historical values is challenging. For comparison purposes, a supplementary Summary Compensation Table for the President and Chief Executive Officer is provided below which shows the grant date fair values for share-based and option-based awards for 2012, 2013 and 2014 solely using the accounting fair value of awards.
|
NAME AND PRINCIPAL POSITION
|
YEAR
|
SALARY
(C$)
|
SHARE-BASED
AWARDS
(C$ )
|
OPTION-
BASED
AWARDS
(C$ )
|
NON-EQUITY
INCENTIVE
PLAN
COMPENSATION –
ANNUAL
INCENTIVE
PLANS
(C$)
|
PENSION
VALUE
(C$)
|
ALL OTHER
COMPENSATION
(C$)
|
TOTAL
COMPENSATION
(C$)
|
Claude Mongeau
|
2014
|
1,187,338
|
2,916,316
|
1,994,400
|
2,544,099
|
40,000
|
82,988
|
8,765,141
|
President and
|
2013
|
1,055,648
|
3,210,050
|
1,609,300
|
1,644,443
|
628,000
|
82,191
|
8,229,632
|
Chief Executive Officer
|
2012
|
999,600
|
2,654,030
|
1,698,400
|
2,208,678
|
314,000
|
84,797
|
7,959,505
|
(4)
|
Represents the incentive award earned under the AIBP for the applicable year. Refer to page 45 for the details of the AIBP.
|
(5)
|
Includes the compensatory value of pension benefits as reported in the “Defined Benefit Plans” and “Defined Contribution Plans” tables in the “Pension Plan Benefits” section on page 65.
|
(6)
|
Includes the value of perquisites, personal benefits and other compensation (as applicable), for example post-retirement benefits or the Employer contribution under the ESIP. Perquisites and other personal benefits that in aggregate amount to less than C$50,000 or 10% of the total salary for any of the NEOs are not reported in this column. Details are provided in the table on page 59. Amounts for Mr. Vena include tax protection payments made on behalf of Mr. Vena for United States income taxes paid in excess of Canadian income taxes on stock options exercised in 2011 and 2012, as Mr. Vena’s duties were required to be performed in the United States. The tax protection amount paid in 2012 was C$15,644.
|
(7)
|
Mr. Jobin’s share-based award includes 3,669 deferred share units which represent the 25% company-match awarded under the VIDP and vest over 4 years, upon the deferral of his 2011 AIBP. The grant date fair value of the award was calculated by multiplying the number of units by C$37.82, the share price on the day of the award.
|
(8)
|
The pension plan value stated for Mr. Jobin excludes the notional investment earnings (and losses) from the Defined Contribution Supplemental Executive Retirement Plan. Refer to page 65 for details of the Defined Contribution Supplemental Executive Retirement Plans.
|
(9)
|
The increase in pension value for Mr. Vena is mostly attributable to his appointment as Executive Vice-President and Chief Operating Officer of CN on February 19, 2013, which increased his projected pensionable earnings.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 57 |
The fair value of the LTI awards reflects their expected value on the date of the grant. In 2012 and 2013, the expected value was calculated in accordance with Accounting Standards Codification (ASC) 718 — Compensation — Stock Compensation, under U.S. Generally Accepted Accounting Principles. In 2014, the value was calculated based on Towers Watson expected life binomial methodology in an effort to align the valuation methodology used through the compensation review process for benchmarking, grant and disclosure purposes. Share-based awards represent the award of PSUs under the Share Units Plan. Option-based awards represent the award of stock options pursuant to the Management Long-Term Incentive Plan. The grant date fair value for PSUs and stock options considers the following assumptions:
|
SHARE-BASED
|
2012
|
2013
|
2013
|
2014
|
AWARDS (PSUs)
|
(JANUARY)
|
(JANUARY)
|
(FEBRUARY)
|
(FEBRUARY)
|
Closing share price on grant date (C$)
|
38.29
|
47.30
|
50.75
|
58.71
|
0.25% to 0.50% based on
|
||||
Risk-free interest rate over term of the award (1)
|
1.05%
|
1.20%
|
1.21%
|
yield curve
|
Expected stock price volatility over term of the award (2)
|
22%
|
17%
|
17%
|
20%
|
Expected annual dividends per share (C$)
|
0.75
|
0.86
|
0.86
|
0.86
|
Expected term (3)
|
3 years
|
3 years
|
3 years
|
3 years
|
Resulting fair value per unit (C$)
|
18.86
|
27.25
|
34.08
|
32.29
|
OPTION-BASED
|
2012
|
2013
|
2013
|
2014
|
AWARDS
|
(JANUARY)
|
(JANUARY)
|
(FEBRUARY)
|
(FEBRUARY)
|
Closing share price on grant date (C$)
|
38.29
|
47.30
|
50.75
|
58.71
|
0.25% to 1.75% based on
|
||||
Risk-free interest rate over term of the award (1)
|
1.33%
|
1.41%
|
1.48%
|
yield curve
|
Expected stock price volatility over term of the award (2)
|
26%
|
23%
|
23%
|
26%
|
Expected annual dividends per share (C$)
|
0.75
|
0.86
|
0.86
|
0.86
|
Expected term (3)
|
5.4 years
|
5.4 years
|
5.4 years
|
6.25 years
|
Resulting fair value per stock option (C$)
|
7.72
|
8.47
|
9.36
|
11.74
|
(1)
|
Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the award. The Towers Watson Expected Life Binomial model (2014) uses a yield curve for the risk-free interest rate (with different interest rates applying depending on the lattice node) rather than one particular rate.
|
(2)
|
Based on the historical volatility of the Company’s stock over a period commensurate with the expected term of the award, and for option-based awards prior to 2014, also considers the implied volatility from traded options on the Company’s stock.
|
(3)
|
Represents the period of time that awards are expected to be outstanding. For option-based awards, the Company uses historical data to estimate stock option exercise and employee termination. Groups of employees that have similar historical exercise behaviour are considered separately.
|
The share and option-based awards are sensitive to variations in accounting assumptions, in particular the risk-free interest rate and stock price volatility.
|
58 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
ALL OTHER
|
||||||||
COMPENSATION
|
||||||||
(TOTAL OF THE
|
||||||||
PERQUISITES AND OTHER
|
OTHER
|
TWO PREVIOUS
|
||||||
PERSONAL BENEFITS(2)
|
COMPENSATION
|
COLUMNS)
|
||||||
NAME
|
YEAR
|
(C$)
|
(C$)
|
(C$ )
|
||||
Claude Mongeau
|
2014
|
Company-leased vehicle:
|
16,364
|
ESIP Employer contribution:
|
25,174 (3)
|
82,988
|
||
Financial counselling:
|
16,300
|
Post-retirement benefits:
|
2,600 (4)
|
|||||
Healthcare benefits and life insurance:
|
8,402
|
|||||||
Other perquisites:
|
14,148
|
|||||||
2013
|
Company-leased vehicle:
|
16,594
|
ESIP Employer contribution:
|
22,025 (3)
|
82,191
|
|||
Financial counselling:
|
15,980
|
Post-retirement benefits:
|
2,800 (4)
|
|||||
Healthcare benefits and life insurance:
|
9,083
|
|||||||
Other perquisites:
|
15,709
|
|||||||
2012
|
Company-leased vehicle:
|
19,325
|
ESIP Employer contribution:
|
21,027 (3)
|
84,797
|
|||
Financial counselling:
|
15,744
|
Post-retirement benefits:
|
4,628 (4)
|
|||||
Healthcare benefits and life insurance:
|
9,715
|
|||||||
Other perquisites:
|
14,358
|
|||||||
Luc Jobin
|
2014
|
Nil
|
ESIP Employer contribution:
|
14,621 (3)
|
21,021
|
|||
Post-retirement benefits:
|
6,400 (4)
|
|||||||
2013
|
Nil
|
ESIP Employer contribution:
|
12,894 (3)
|
18,694
|
||||
Post-retirement benefits:
|
5,800 (4)
|
|||||||
2012
|
Nil
|
ESIP Employer contribution:
|
12,091 (3)
|
16,591
|
||||
Post-retirement benefits:
|
4,500 (4)
|
|||||||
Jim Vena
|
2014
|
Nil
|
ESIP Employer contribution:
|
13,634 (3)
|
14,734
|
|||
Post-retirement benefits:
|
1,100 (4)
|
|||||||
2013
|
Nil
|
ESIP Employer contribution:
|
10,997 (3)
|
13,497
|
||||
Post-retirement benefits:
|
2,500 (4)
|
|||||||
2012
|
Nil
|
ESIP Employer contribution:
|
6,885 (3)
|
24,329
|
||||
Post-retirement benefits:
|
1,800 (4)
|
|||||||
Tax protection:
|
15,644 (5)
|
|||||||
Jean-Jacques Ruest
|
2014
|
Nil
|
ESIP Employer contribution:
|
13,141 (3)
|
17,541
|
|||
Post-retirement benefits:
|
4,400 (4)
|
|||||||
2013
|
Nil
|
ESIP Employer contribution:
|
12,033 (3)
|
17,233
|
||||
Post-retirement benefits:
|
5,200 (4)
|
|||||||
2012
|
Nil
|
ESIP Employer contribution:
|
11,355 (3)
|
18,059
|
||||
Post-retirement benefits:
|
6,704 (4)
|
|||||||
Sean Finn
|
2014
|
Nil
|
ESIP Employer contribution:
|
12,258 (3)
|
15,458
|
|||
Post-retirement benefits:
|
3,200 (4)
|
|||||||
2013
|
Nil
|
ESIP Employer contribution:
|
11,346 (3)
|
14,846
|
||||
Post-retirement benefits:
|
3,500 (4)
|
|||||||
2012
|
Nil
|
ESIP Employer contribution:
|
10,787 (3)
|
16,126
|
||||
Post-retirement benefits:
|
5,339 (4)
|
(1)
|
This table outlines the perquisites and other compensation received by NEOs in 2012, 2013 and 2014. The amounts are calculated based on the incremental cost to the Company. CN is not providing tax gross-ups on such perquisites and the policy on the usage of the corporate aircraft is restricted to business-related purposes, save for certain exceptional circumstances.
|
(2)
|
Perquisites and other personal benefits include the use of a company-leased vehicle, parking, club membership, executive physical exam, financial counselling and tax services, and certain healthcare benefits and life insurance coverage. The incremental cost to the Company is determined by the actual cost of the company-leased vehicle (including gas and maintenance fees), parking, club membership, annual executive physical exam, financial counselling and tax services and by the cost of certain healthcare benefits and life insurance coverage in excess of that offered to salaried employees. See section “Executive Perquisites” on page 48 for more details. Perquisites and other personal benefits that amount to less than C$50,000 (in aggregate) or 10% of total salary for any of the NEOs are reported as “Nil” in this column.
|
(3)
|
Represents the value of the Company-match under the ESIP.
|
(4)
|
Represents the service cost for post-retirement benefits, if applicable.
|
(5)
|
Amounts for Mr. Vena include tax protection payments made on behalf of Mr. Vena for United States income taxes paid in excess of Canadian income taxes on stock options exercised in 2011 and 2012, as Mr. Vena’s duties were required to be performed in the United States. The tax protection amount paid in 2012 was C$15,644.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 59 |
The following table shows information regarding grants of PSUs made to NEOs under the Share Units Plan, and grants of stock options made under the Management Long-Term Incentive Plan in 2014.
|
SHARE PRICE
|
AWARD’S GRANT
|
||||||||||
SECURITIES, UNITS
|
ON DATE
|
DATE FAIR
|
|||||||||
OR OTHER RIGHTS
|
END OF PLAN PERIOD
|
OF GRANT
|
VALUE(1)
|
||||||||
NAME
|
GRANT DATE
|
AWARD TYPE
|
(#)
|
OR EXPIRY DATE
|
(C$)
|
(C$)
|
|||||
Claude Mongeau
|
February 3, 2014
|
PSUs (2)
|
104,490
|
December 31, 2016
|
58.71
|
3,373,982
|
|||||
Options (3)
|
180,000
|
February 3, 2024
|
58.71
|
2,113,200
|
|||||||
Luc Jobin
|
February 3, 2014
|
PSUs (2)
|
31,780
|
December 31, 2016
|
58.71
|
1,026,176
|
|||||
Options (3)
|
63,560
|
February 3, 2024
|
58.71
|
746,194
|
|||||||
Jim Vena
|
February 3, 2014
|
PSUs (2)
|
31,780
|
December 31, 2016
|
58.71
|
1,026,176
|
|||||
Options (3)
|
63,560
|
February 3, 2024
|
58.71
|
746,194
|
|||||||
Jean-Jacques Ruest
|
February 3, 2014
|
PSUs (2)
|
30,060
|
December 31, 2016
|
58.71
|
970,637
|
|||||
Options (3)
|
60,120
|
February 3, 2024
|
58.71
|
705,809
|
|||||||
Sean Finn
|
February 3, 2014
|
PSUs (2)
|
25,770
|
December 31, 2016
|
58.71
|
832,113
|
|||||
Options (3)
|
51,540
|
February 3, 2024
|
58.71
|
605,080
|
(1)
|
The grant date fair values reported for PSUs and stock options are calculated using the same assumptions as described in the extension to footnotes 1 and 2 of the Summary Compensation Table on page 56.
|
(2)
|
The PSUs granted in 2014 were made under the Share Units Plan. Under this plan, the payout is subject to the attainment of average ROIC targets for the plan period that determine the applicable performance vesting factor (as an example, threshold, target, and maximum performance levels are 50%, 100% and 150% respectively). The payout is also conditional to meeting a minimum share price condition of C$59.65 or U.S.$56.04, as described under “Performance Share Units: 2014 Award” on page 47.
|
(3)
|
The stock options granted in 2014 were made under the Management Long-Term Incentive Plan and vest over a period of four years, with 25% of the stock options vesting at each anniversary date of the award. Unexercised stock options shall expire on the tenth anniversary of the date of the award. See section “Management Long-Term Incentive Plan” on page 63 for a description of the plan.
|
60 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
OPTION-BASED AWARDS (1)
|
SHARE-BASED AWARDS
|
||||||||||||||
MARKET OR
|
|||||||||||||||
PAYOUT VALUE
|
|||||||||||||||
NUMBER OF
|
MARKET OR
|
OF VESTED
|
|||||||||||||
NUMBER OF
|
SHARES OR
|
PAYOUT VALUE
|
SHARE-BASED
|
||||||||||||
SECURITIES
|
VALUE OF
|
UNITS OF
|
OF SHARE-
|
AWARDS THAT
|
|||||||||||
UNDERLYING
|
OPTION
|
OPTION
|
UNEXERCISED
|
SHARES THAT
|
BASED AWARDS
|
HAVE NOT PAID
|
|||||||||
UNEXERCISED
|
EXERCISE
|
EXERCISE
|
OPTION
|
IN-THE-MONEY
|
HAVE NOT
|
THAT HAVE
|
OUT OR
|
||||||||
OPTIONS
|
PRICE (2)
|
PRICE (2)
|
EXPIRATION
|
OPTIONS (3)
|
VESTED (4)
|
NOT VESTED (5)
|
DISTRIBUTED (6)
|
||||||||
NAME
|
(#)
|
($)
|
(C$)
|
DATE
|
(C$)
|
(#)
|
(C$)
|
(C$)
|
|||||||
Claude Mongeau
|
180,000
|
52.93 USD
|
61.40
|
2024/02/03
|
65,652,368
|
222,290
|
17,770,416
|
49,779,246
|
|||||||
190,000
|
47.18 USD
|
54.73
|
2023/01/24
|
||||||||||||
220,000
|
38.19 USD
|
44.30
|
2022/01/26
|
||||||||||||
240,000
|
34.71 USD
|
40.26
|
2021/01/27
|
||||||||||||
256,000
|
25.62 USD
|
29.72
|
2020/01/28
|
||||||||||||
160,000
|
17.09 USD
|
19.82
|
2019/01/26
|
||||||||||||
120,000
|
24.04 USD
|
27.89
|
2018/01/24
|
||||||||||||
92,000
|
22.34 USD
|
25.91
|
2017/01/25
|
||||||||||||
120,000
|
22.46 USD
|
26.06
|
2016/01/27
|
||||||||||||
Luc Jobin
|
63,560
|
52.93 USD
|
61.40
|
2024/02/03
|
17,826,720
|
69,542
|
5,559,583
|
9,142,746
|
|||||||
69,400
|
47.18 USD
|
54.73
|
2023/01/24
|
||||||||||||
80,960
|
38.19 USD
|
44.30
|
2022/01/26
|
||||||||||||
83,840
|
34.71 USD
|
40.26
|
2021/01/27
|
||||||||||||
97,400
|
25.62 USD
|
29.72
|
2020/01/28
|
||||||||||||
70,000
|
22.19 USD
|
25.74
|
2019/06/01
|
||||||||||||
Jim Vena
|
63,560
|
52.93 USD
|
61.40
|
2024/02/03
|
7,498,813
|
62,180
|
4,970,824
|
3,729,376
|
|||||||
44,600
|
50.15 USD
|
58.18
|
2023/02/19
|
||||||||||||
16,200
|
47.18 USD
|
54.73
|
2023/01/24
|
||||||||||||
19,560
|
38.19 USD
|
44.30
|
2022/01/26
|
||||||||||||
20,960
|
34.71 USD
|
40.26
|
2021/01/27
|
||||||||||||
30,200
|
25.62 USD
|
29.72
|
2020/01/28
|
||||||||||||
24,000
|
17.09 USD
|
19.82
|
2019/01/26
|
||||||||||||
8,700
|
24.04 USD
|
27.89
|
2018/01/24
|
||||||||||||
Jean-Jacques Ruest
|
60,120
|
52.93 USD
|
61.40
|
2024/02/03
|
20,812,925
|
62,840
|
5,023,586
|
17,225,596
|
|||||||
65,560
|
47.18 USD
|
54.73
|
2023/01/24
|
||||||||||||
76,200
|
38.19 USD
|
44.30
|
2022/01/26
|
||||||||||||
78,600
|
34.71 USD
|
40.26
|
2021/01/27
|
||||||||||||
87,400
|
25.62 USD
|
29.72
|
2020/01/28
|
||||||||||||
40,000
|
20.96 CAD
|
20.96
|
2019/01/26
|
||||||||||||
30,000
|
24.23 CAD
|
24.23
|
2018/01/24
|
||||||||||||
33,600
|
26.35 CAD
|
26.35
|
2017/01/25
|
||||||||||||
12,800
|
23.48 CAD
|
23.48
|
2016/06/12
|
||||||||||||
23,200
|
25.81 CAD
|
25.81
|
2016/01/27
|
||||||||||||
Sean Finn
|
51,540
|
52.93 USD
|
61.40
|
2024/02/03
|
8,033,985
|
54,690
|
4,372,055
|
4,141,820
|
|||||||
57,840
|
47.18 USD
|
54.73
|
2023/01/24
|
||||||||||||
69,080
|
38.19 USD
|
44.30
|
2022/01/26
|
||||||||||||
73,360
|
34.71 USD
|
40.26
|
2021/01/27
|
||||||||||||
2,400
|
25.62 USD
|
29.72
|
2020/01/28
|
||||||||||||
2,100
|
17.09 USD
|
19.82
|
2019/01/26
|
(1)
|
Includes all stock options granted under the Management Long-Term Incentive Plan and outstanding on December 31, 2014.
|
(2)
|
All stock option exercise prices shown are in Canadian dollars. Where applicable, stock option exercise prices in U.S. dollars resulting from stock option grants to NEOs made in U.S. dollars, were converted to Canadian dollars using the December 31, 2014 exchange rate of U.S.$1.00 = C$1.1601. The following table presents the option exercise prices that were converted to Canadian dollars:
|
OPTION EXERCISE PRICE
|
OPTION EXERCISE PRICE
|
OPTION EXERCISE PRICE
|
OPTION EXERCISE PRICE
|
|||
OPTION EXPIRATION DATE
|
(U.S.$)
|
(C$)
|
OPTION EXPIRATION DATE
|
(U.S.$)
|
(C$)
|
|
2024/02/03
|
52.93
|
61.40
|
2020/01/28
|
25.62
|
29.72
|
|
2023/02/19
|
50.15
|
58.18
|
2019/06/01
|
22.19
|
25.74
|
|
2023/01/24
|
47.18
|
54.73
|
2019/01/26
|
17.09
|
19.82
|
|
2022/01/26
|
38.19
|
44.30
|
2018/01/24
|
24.04
|
27.89
|
|
2021/01/27
|
34.71
|
40.26
|
2017/01/25
|
22.34
|
25.91
|
|
2016/01/27
|
22.46
|
26.06
|
(3)
|
The value of unexercised in-the-money stock options at financial year-end for stock options granted to NEOs in Canadian dollars is the difference between the closing share price of the common shares on December 31, 2014, on the TSX (C$80.02) and the exercise price. The value of unexercised in-the-money stock options at financial year-end for stock options granted to NEOs in U.S. dollars is the difference between the closing share price of the common shares on December 31, 2014 on the NYSE (U.S.$68.91) converted to Canadian dollars based on the December 31, 2014 exchange rate of U.S.$1 = C$1.1601 (i.e. U.S.$68.91 × 1.1601 = C$79.94) and the exercise price converted to Canadian dollars using this same exchange rate. Please refer to Note 2 of this table for additional details. This value has not been, and may never be, realized. The actual gains, if any, will depend on the value of the common shares on the date of exercise.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 61 |
(4)
|
Includes all PSUs outstanding on December 31, 2014 that have not vested on such date under the Share Units Plan. Payouts for these units are conditional upon meeting performance criteria and a minimum share price condition that may or may not be achieved. For Mr. Jobin, the value also includes the company-matched DSUs outstanding on December 31, 2014 (3,062 units) that have not vested on such date under the VIDP. Under the plan, company-match DSUs vest over four years, at a rate of 25% per year.
|
(5)
|
The value of outstanding share units awarded under the Share Units Plan is based on the closing price of the common shares on the TSX on December 31, 2014 (C$80.02) assuming that the target average ROIC objective (i.e. 100%) and the minimum share price condition are met. In accordance with the plan, a performance vesting factor between 0% and 150% will apply to the awarded share units. For Mr. Jobin, the value of the company-matched DSUs awarded under the VIDP is based on the closing price of the common shares on the TSX on December 31, 2014 (C$80.02) and is equivalent to C$245,007.
|
(6)
|
Includes the value as at December 31, 2014 of the 2012 PSU awards granted under the Share Units Plan based on the closing price of the Company’s common shares on the TSX of C$80.02. The average ROIC for the period ending on December 31, 2014 was 16.57%, exceeding the target for the plan period. The performance vesting factor was therefore 150% and the minimum share price condition was also met. Payout for the 2012 PSU award occurred in February 2015 and was based on the average 20-day share price for the period ending January 31, 2015 (C$81.18/U.S.$66.86). Also includes the value as at December 31, 2014 of the DSUs that have vested under the terms of the VIDP and the Senior Executive Bonus Share Plan based on the closing share price of the Company’s common shares on the TSX of C$80.02. Units held under these deferred compensation plans are only payable upon cessation of employment (please refer to page 64 for more details on the Company’s Deferred Compensation Plans). The following table provides the breakdown, for each of the NEOs, of the market value of vested share-based awards that were not paid out or distributed on December 31, 2014:
|
ACCUMULATED
|
|||
2012 PSUs
|
DSUs
|
TOTAL
|
|
NEOs
|
(C$)
|
(C$)
|
(C$)
|
Claude Mongeau
|
16,879,058
|
32,900,188
|
49,779,246
|
Luc Jobin
|
4,854,108
|
4,288,638
|
9,142,746
|
Jim Vena
|
1,172,756
|
2,556,620
|
3,729,376
|
Jean-Jacques Ruest
|
4,568,713
|
12,656,883
|
17,225,596
|
Sean Finn
|
4,141,820
|
0
|
4,141,820
|
The following table shows the value from incentive plans vested or earned by NEOs under the Company’s incentive plans, including the annual incentive bonus, PSUs, DSUs and stock options earned during the financial year ended December 31, 2014.
|
NON-EQUITY INCENTIVE PLAN
|
||||||
OPTION-BASED AWARDS – VALUE
|
SHARE-BASED AWARDS – VALUE
|
COMPENSATION – VALUE
|
||||
VESTED DURING THE YEAR
|
(1)
|
VESTED DURING THE YEAR
|
(2)
|
EARNED DURING THE YEAR
|
(3)
|
|
NAME
|
(C$)
|
(C$)
|
(C$)
|
|||
Claude Mongeau
|
4,159,288
|
16,879,058
|
2,544,099
|
|||
Luc Jobin
|
1,531,537
|
5,012,797
|
988,405
|
|||
Jim Vena
|
488,895
|
1,172,756
|
883,532
|
|||
Jean-Jacques Ruest
|
1,409,128
|
4,568,713
|
922,512
|
|||
Sean Finn
|
1,344,993
|
4,141,820
|
833,045
|
(1)
|
Represents the value of the potential gains from stock options granted under the Management Long-Term Incentive Plan in 2010, 2011, 2012 and 2013 that vested during the 2014 financial year. These grants all vest over four years, with 25% of stock options vesting on each anniversary date (see section “Management Long-Term Incentive Plan” starting on page 63 for a description of the Plan). The potential gains are calculated as the difference between the closing price of the common shares on each of the stock option grant anniversary dates in 2014 and the exercise price, converted to Canadian dollars when applicable using the exchange rate on such vesting date (see “Currency Exchange Information” on page 68). This value has not been, and may never be, realized. The actual gains, if any, will depend on the value of the common shares on the date of exercise.
|
(2)
|
Includes PSUs granted in 2012 that vested on December 31, 2014 under the Share Units Plan and, for Mr. Jobin, the 25% of the Company-matched DSUs that vested on January 31, 2014 under the VIDP. The PSU values included in the table have been calculated by multiplying the number of units granted by the performance vesting factor of 150% and by the closing price of the common shares on December 31, 2014 on the TSX (C$80.02). As provided under the plan, the actual payout occurred in February 2015 and was based on the average 20-day share price for the period ending January 31, 2015 (C$81.18/U.S.$66.86).
|
(3)
|
Represents the amount of bonus earned under the AIBP for the financial year ending on December 31, 2014.
|
The following table lists the number of shares acquired and the value realized as a result of stock options exercised by NEOs in 2014 as well as PSUs which vested on December 31, 2014. For stock options exercised, the value realized is calculated by multiplying the number of shares acquired by the difference between the exercise price and the market price of CN common shares on the exercise date.
|
STOCK OPTIONS
|
PSUs
|
|||||||
VALUE REALIZED
|
||||||||
NUMBER OF SHARES
|
VALUE REALIZED ON EXERCISE
|
ON DECEMBER 31, 2014
|
TOTAL VALUE REALIZED
|
|||||
NAME
|
ACQUIRED ON EXERCISE
|
(C$)
|
(C$)
|
(C$)
|
||||
Claude Mongeau
|
160,000
|
9,333,703
|
16,879,058
|
26,212,761
|
||||
Luc Jobin
|
0
|
0
|
4,854,108
|
4,854,108
|
||||
Jim Vena
|
0
|
0
|
1,172,756
|
1,172,756
|
||||
Jean-Jacques Ruest
|
32,000
|
1,444,669
|
4,568,713
|
6,013,382
|
||||
Sean Finn
|
98,800
|
4,222,923
|
4,141,820
|
8,364,743
|
62 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The Management Long-Term Incentive Plan was approved by the Company’s shareholders on May 7, 1996 and amended on April 28, 1998, April 21, 2005, April 24, 2007, March 4, 2008 and on January 27, 2015.
|
STOCK OPTIONS OUTSTANDING AND AVAILABLE FOR GRANT AS OF FEBRUARY 28, 2014
|
# COMMON
|
% OF OUTSTANDING
|
|||
SHARES
|
COMMON SHARES
|
|||
Stock options already granted and outstanding
|
8,054,207
|
1.00%
|
||
Stock options issuable under the Plan
|
18,408,405
|
2.28%
|
||
Shares issued following the exercise of stock options
|
93,537,388
|
11.59%
|
The following table presents information concerning stock options granted under the Plan as at December 31 of the years indicated below.
|
2014
|
2013
|
|||
Number of stock options granted during the year
|
961,490
|
1,063,920
|
||
Number of employees who were granted stock options
|
195
|
199
|
||
Number of stock options outstanding at year-end
|
7,537,564
|
7,684,324
|
||
Weighted average exercise price of stock options outstanding
|
C$37.37
|
C$30.97
|
||
Number of stock options granted as a % of outstanding shares
|
0.12%
|
0.13%
|
||
Number of stock options exercised
|
1,079,870
|
1,448,406
|
Grant Currency
|
Same currency as the recipient’s salary
|
|
Exercise Price
|
At least equal to the closing share price of the common shares on the TSX or the NYSE (depending on the grant currency) on the grant date.
|
|
Term
|
Ten years
|
|
Vesting Criteria
|
Stock options may become exercisable on the anniversary date (“conventional stock options”) and/or upon meeting performance targets (“performance options”) as established for each grant.
|
|
Since 2005, grants have been of conventional stock options, which vest over four years, with 25% of stock options vesting on each anniversary.
|
||
Termination Conditions
|
Stock options shall be cancelled upon the termination of a participant’s employment for cause or if the participant voluntarily terminates employment.
|
|
In the event that a participant’s employment is terminated by the Company other than for cause, all stock options held by such participant shall be cancelled three months after termination of the participant’s employment.
|
||
In the case of retirement, stock options are cancelled three years after the retirement date.
|
||
In the event of a participant’s death, all available stock options may be exercised by the estate within a period of twelve months.
|
||
In the event non-compete, non-solicitation, confidentiality or other conditions of the grant are breached, stock options shall be forfeited and cancelled.
|
||
These conditions are subject to the discretion of the Committee.
|
At the 2007 annual meeting, shareholders approved an ordinary resolution confirming the addition of new amendment provisions to the Plan. Such amendment provisions state that the Board of Directors or the Committee, as provided in the Plan or pursuant to a specific delegation and in accordance with applicable legislation and regulations, may amend any of the provisions of the Plan or suspend or terminate the Plan or amend the terms of any then outstanding award of stock options under the Plan (the “Options”) provided, however, that the Company shall obtain shareholder approval for:
|
(i)
|
any amendment to the maximum number of common shares issuable under the Plan, except for adjustments in the event that such shares are subdivided, consolidated, converted or reclassified by the Company or that any other action of a similar nature affecting such shares is taken by the Company (a “Share Adjustment”);
|
(ii)
|
any amendment which would allow non-employee directors to be eligible for new awards under the Plan;
|
(iii)
|
any amendment which would permit any Option granted under the Plan to be transferable or assignable other than by will or pursuant to succession laws (estate settlements);
|
(iv)
|
the addition of a cashless exercise feature, payable in cash or common shares, which does not provide for a full deduction of the number of underlying shares from the Plan reserve;
|
(v)
|
the addition in the Plan of deferred or performance share unit provisions or any other provisions which result in participants receiving common shares while no cash consideration is received by the Company;
|
(vi)
|
any reduction in the exercise price of an Option after the Option has been granted to a participant or any cancellation of an Option and the substitution of that Option by a new Option with a reduced exercise price granted to the same participant, except in the case of a Share Adjustment;
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 63 |
(vii)
|
any extension to the term of an outstanding Option beyond the original expiry date, except in the case of an extension due to a blackout period;
|
(viii)
|
any increase to the maximum number of common shares that may be issued:
|
a.
|
under the Plan to anyone participant during any calendar year; or
|
b.
|
under the Plan and under any other plan to anyone participant, and
|
(ix)
|
the addition in the Plan of any form of financial assistance and any amendment to a financial assistance provision which is more favourable to participants.
|
The Voluntary Incentive Deferral Plan was introduced by the Company in 2002. This plan allows NEOs and other senior management employees to elect to defer up to 100% of their annual bonus, PSU payouts and other amounts paid under an eligible incentive plan (as approved by the Board of Directors) into deferred share units (the “DSUs”) payable in cash upon retirement or termination of employment. A DSU is equivalent to a common share of the Company and earns notional dividends, which are re-invested into additional DSUs, when cash dividends are paid on the Company’s common shares. The amount deferred is converted into a number of units at the deferral date, using the 20-day average closing share price on the deferral date. Deferral elections are made at least six months prior to the end of the performance period of the incentive plan. The maximum total amount participants can defer to DSUs is equivalent to their ownership requirement under the Stock Ownership guidelines (see section on “Stock Ownership” under “Other Key Compensation Programs of the Company” on page 48 for a detailed description). In other words, the election to receive eligible incentive payments in DSUs is not available to a participant when the market value of the participant’s vested DSU account is sufficient to meet the Company’s stock ownership guidelines.
|
The Company also credits a company match equal to 25% of the number of DSUs resulting from an eligible deferral. These company-matched DSUs vest over a period of four years (25% per year) from the deferral date.
|
The payout of the DSUs is established based on the 20-day average closing share price at the retirement or termination date and includes the vested company-matched DSUs as well as notional dividends accrued over the deferral period. A lump sum payment is made to eligible Canadian executives following their termination. For eligible U.S. tax payers, in compliance with U.S. tax regulations, payment of amounts deferred or vested after December 31, 2004 is made after a six-month waiting period as a lump sum or in monthly instalments not exceeding ten years, in accordance with the executive’s irrevocable election.
|
The President and CEO is eligible for the same compensation, benefit plans and programs as the other executives except for the following:
|
•
|
Under the AIBP, his target payout is 120% of base salary with a payout ranging from 0% to 240%.
|
•
|
Mr. Mongeau’s supplemental pension plan remains in effect, but the annual pension benefit payable under this plan upon retirement is capped at U.S.$1,000,000. See also the “Pension Plan Benefits” section that starts on page 65.
|
•
|
Mr. Mongeau is required to maintain a minimum level of stock ownership equivalent to five times his annual salary. He is also required to maintain this stock ownership level for one year following retirement.
|
•
|
Mr. Mongeau is limited to participating in only one outside public company board.
|
The Company has not entered into formal employment agreements with the other NEOs. It has only provided appointment letters setting forth general details of employment which are all described in this Information Circular.
|
64 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
Canadian Pension Plans and Other Retirement Arrangements
|
•
|
1.7% of highest average earnings up to the average year’s maximum pensionable earnings (the “YMPE”) as defined under the Quebec/Canada Pension Plan, multiplied by the number of years of pensionable service (maximum 35 years)
|
•
|
2.0% of highest average earnings in excess of the YMPE, multiplied by the number of years of pensionable service (maximum 35 years).
|
Messrs. Mongeau, Vena, Ruest and Finn have each signed an SRS agreement.
|
The annual amount payable under the SRS equals 2% of the employee’s highest average earnings in excess of the average earnings that result in the maximum pension under the CNPP and SMPP (approximately C$145,976 in 2014), multiplied by the number of years of pensionable service (maximum 35 years).
|
SRS benefits for employees who entered into an SRS agreement prior to July 1, 2002 vest after two years of employment. For employees who entered into an SRS agreement on or after July 1, 2002, the SRS benefits become vested only if the employee remains in active service for two years and until the age of 55. SRS retirement benefits are paid out of operating funds and secured through letters of credit.
|
The DCPP is a federally-registered defined contribution pension plan that was introduced for executives and senior management employees on January 1, 2006. For non-unionized employees other than executives and senior management, a separate defined contribution plan was also introduced on the same date. Executives and senior management employees hired prior to January 1, 2006 had a one-time opportunity to either join the DCPP or maintain participation in the CNPP and SMPP mentioned above. Messrs. Mongeau, Vena, Ruest and Finn elected to remain in the CNPP and SMPP. Executives and senior management employees hired on or after January 1, 2006 automatically join the DCPP.
|
Executives participating in the DCPP contribute a specific percentage of their pensionable earnings into their account and the Company contributes the same percentage, subject to the maximum contribution imposed by the Canadian Income Tax Act (C$24,930 in 2014).
|
The contribution percentage for executives depends on age and service as follows:
|
POINTS (SUM OF AGE AND SERVICE)
|
% OF PENSIONABLE EARNINGS
|
Up to 39
|
6%
|
40–49
|
7%
|
50–59
|
8%
|
60 and above
|
9%
|
The DC SERP is a non-registered defined contribution pension plan designed to provide executives and senior management employees with retirement benefits in excess of the Canadian Income Tax Act limits applicable to the DCPP described above. Once contributions have reached the limit prescribed by the Canadian Income Tax Act in the DCPP in a given year, an amount equal to employer and employee contributions in excess of the limit is gradually credited by the Company to a notional account under the DC SERP. These notional contributions vest after two years of employment. Employees do not contribute to the DC SERP.
|
Notional contributions accrue investment credits using investment options as selected by the participant in the DCPP. No withdrawals or distributions are permitted prior to employment termination.
|
Effective January 1, 2011, the DC SERP was amended to include certain confidentiality, non-compete, non-solicitation and other covenants as a condition of payment of retirement benefits accruing as of the effective date.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015 | 65 |
The following amounts have been calculated using the actuarial assumptions disclosed in Note 12 — Pensions and Other Postretirement Benefits, on page 73 of the 2014 Annual Report and in Note 11 — Pensions, on page 71 of the 2013 Annual Report, available on the Company’s website at www.cn.ca and on SEDAR at www.sedar.com. The amounts calculated in this table are estimates only and are based on assumptions, which may or may not materialize. Amounts shown in this table include pension benefits from the Company’s defined benefit registered pension plans and non-registered supplemental pension arrangements for 2014 and are in Canadian dollars.
|
NAME
|
NUMBER OF
YEARS OF
CREDITED
SERVICE
(#)
|
ANNUAL BENEFITS PAYABLE
|
OPENING
PRESENT
VALUE OF
DEFINED
BENEFIT
OBLIGATION (3)
(C$)
|
COMPENSATORY CHANGE (1)
(C$)
|
NON-COMPENSATORY
CHANGE (4)
(C$)
|
CLOSING
PRESENT
VALUE OF
DEFINED
BENEFIT
OBLIGATION(3)
(C$)
|
||||
AT YEAR
END
(C$)
|
AT AGE 65 (2)
(C$)
|
SERVICE
COST
|
IMPACT
OF SALARY/
BONUS
|
IMPACT
OF PLAN
CHANGES
|
TOTAL
|
|||||
Claude Mongeau
|
20.67
|
1,056,000
|
1,291,000
|
12,014,000
|
615,000
|
(575,000)
|
0
|
40,000
|
4,409,000
|
16,463,000
|
Jim Vena
|
35.00
|
563,000
|
792,000
|
8,132,000
|
110,000
|
178,000
|
0
|
288,000
|
2,919,000
|
11,339,000
|
Jean-Jacques Ruest
|
18.67
|
394,000
|
507,000
|
4,557,000
|
253,000
|
(58,000)
|
0
|
195,000
|
1,449,000
|
6,201,000
|
Sean Finn
|
21.00
|
425,000
|
590,000
|
5,056,000
|
248,000
|
(66,000)
|
0
|
182,000
|
1,655,000
|
6,893,000
|
(1)
|
The change in present value that is attributable to compensation includes the service cost net of employee contributions, the increase in earnings in excess or below what was assumed and the impact of plan changes. The service cost net of employee contributions is the estimated value of the employer portion of benefits accrued during the calendar year.
|
(2)
|
The projected pension is based on current compensation levels and assumes the executive will receive 80% of his target bonus for the years after 2014.
|
(3)
|
The present value of the defined benefit obligation is the value of the benefits accrued for all service to the specified point in time.
|
(4)
|
The change in present value that is not compensatory includes employee contributions, interest cost, changes in assumptions and gains and losses other than those resulting from a difference in earnings. The impact on the present value at the end of 2014 relating to the change in assumptions was mainly due to the decrease in the discount rate and the increase in the currency exchange rate, which increased the present value.
|
ACCUMULATED VALUE
|
COMPENSATORY
|
NON‑COMPENSATORY
|
ACCUMULATED VALUE
|
||||||
AT START OF YEAR
|
AMOUNT
|
(1)
|
AMOUNT
|
(2)
|
AT YEAR END
|
||||
NAME
|
(C$)
|
(C$)
|
(C$)
|
(C$)
|
|||||
Luc Jobin (3)
|
790,380
|
180,833
|
113,237
|
1,084,450
|
(1)
|
Represents employer contributions and notional contributions.
|
(2)
|
Represents employee contributions and, if any, investment gains and losses and notional investment credits and losses.
|
(3)
|
Mr. Jobin participates in the Defined Contribution Pension Plan and DC SERP.
|
The following table provides the total present value for CN’s non-registered defined benefit and defined contribution plans. These amounts were determined using the actuarial assumptions disclosed in Note 12 — Pensions and Other Postretirement Benefits, on page 73 of the 2014 Annual Report and in Note 11 — Pensions, on page 71 of the 2013 Annual Report, available on the Company’s website at www.cn.ca and on SEDAR at www.sedar.com. Amounts include the value of pension benefits for active, deferred and retired executive and senior management participants for 2014.
|
OPENING PRESENT VALUE OF BENEFIT OBLIGATION
|
CLOSING PRESENT VALUE OF BENEFIT OBLIGATION
|
|||
PLANS
|
(C$)
|
(C$)
|
||
Non-Registered Defined Benefit Plans in Canada and U.S.
|
284,500,000
|
347,900,000
|
(1)
|
|
Non-Registered Defined Contribution Plans in Canada and U.S.
|
2,300,000
|
3,200,000
|
66 | CN MANAGEMENT INFORMATION CIRCULAR 2015 |
The Company does not have contractual arrangements or other agreements in connection with termination, resignation, retirement, change of control or a change in responsibilities of a Named Executive Officer, other than the conditions provided in the compensation plans, and summarized as follows:
|
RESIGNATION
|
INVOLUNTARY TERMINATION
|
RETIREMENT
|
CHANGE OF CONTROL
|
TERMINATION FOR CAUSE
|
||||
Annual Incentive Bonus Plan
|
Forfeits eligibility to the plan
|
Entitled to a bonus based on corporate and individual performance and prorated on active service in plan year
|
Entitled to a bonus based on corporate and individual performance and prorated on active service in plan year (minimum of 3 months), subject to providing a 6-month notice period prior to retirement
|
No specific provision
|
Forfeits eligibility to the plan
|
|||
Stock Options (1)
|
All stock options are cancelled
|
Grants made before January 2009
Continued vesting for three months
Exercise of vested stock options within three months or otherwise forfeited
|
Grants made since January 2009
Continued vesting for three months
Exercise of vested stock options within three months or otherwise forfeited
|
Grants made before January 2009
Continued vesting for three years
Exercise of vested stock options within three years or otherwise forfeited
|
Grants made since January 2009
Subject to respect of 2-year non-compete, nonsolicitation and confidentiality provisions
Continued vesting for three years
Exercise of vested stock options within three years or otherwise forfeited
Since 2011, the above conditions only apply if the executive remains in continuous and active service until the last day of the year in which the grant was made
|
Grants made prior to March 4, 2008
Immediate vesting of conventional stock options
|
Grants made since March 4, 2008
If proper substitute is granted, immediate vesting would occur only if participant is terminated without cause or resigns for good reason (2) within two years of the Change of Control
|
All stock options are cancelled
|
Performance Shares Units (1) | All PSUs are cancelled |
Partial payout if performance criteria met and prorated based on active service during the plan period
Subject to respect of 2-year non-compete, non-solicitation and confidentiality provisions
|
Full payout if performance criteria met and if the executive remains in continuous and active service until the last day of the year in which the grant was made
Subject to respect of 2-year non-compete, non-solicitation and confidentiality provisions
|
If proper substitute is granted, immediate vesting would occur only if participant is terminated without cause or resigns for good reason (2) within two years of the Change in Control
|
All PSUs are cancelled
|
|||
Deferred Share Units
|
Payment of all vested units, including the vested company- matched DSUs
|
Payment of all vested units, including the vested company-matched DSUs | Payment of all vested units, including the vested company-matched DSUs | Immediate vesting of unvested company-matched DSUs | Payment of all vested units, including the vested company- matched DSUs | |||
Registered Pension Plans
|
Payment of vested benefits
|
Payment of vested benefits
|
Payment of vested benefits
|
Payment of vested benefits | Payment of vested benefits | |||
Non-Registered Pension Plans and Arrangements (1)
|
Payment of vested benefits
|
Payment of vested benefits
|
Payment of vested benefits
|
Payment of vested benefits
|
Payment of vested benefits, except for SRS benefits which are forfeited
|
(1)
|
In the event of resignation, involuntary termination, retirement or change of control, the payment of awards or vested benefits is subject to certain non-compete, non-solicitation, non-disclosure of confidential information and other restrictive provisions as per the respective plan rules and arrangements.
|
(2)
|
A resignation for good reason may take place only during the twenty-four months following a change of control if (i) the executive is required to relocate his or her office or home base to a location that is outside a 100 kilometer radius of his or her office or home base immediately prior to the change of control or (ii) the executive is assigned a set of responsibilities and/or the employment or continued employment of the executive on terms and conditions that are not the substantial equivalent of such executive’s set of responsibilities and/or terms and conditions of employment in effect immediately prior to the change of control.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
67
|
On December 31, 2014, Mr. Vena was eligible for retirement with unreduced retirement benefits. Messrs. Ruest and Finn were also eligible for retirement but did not have sufficient service for unreduced retirement benefits. Had Messrs. Vena, Ruest and Finn retired on December 31, 2014, no incremental amounts would be payable. Share-based awards, option-based awards and other benefits will be treated as per the terms of the plans under which they were granted, as described in the summary Termination and Change of Control Benefits table on page 67.
|
NAME
|
SHARE
UNITS PLAN (1)
(C$)
|
STOCK
OPTIONS
(C$)
|
DEFERRED
SHARE UNITS (2)
(C$)
|
TOTAL
(C$)
|
Claude Mongeau
|
0
|
0
|
0
|
0
|
Luc Jobin
|
0
|
0
|
245,007
|
245,007
|
Jim Vena
|
0
|
0
|
0
|
0
|
Jean-Jacques Ruest
|
0
|
0
|
0
|
0
|
Sean Finn
|
0
|
0
|
0
|
0
|
(1)
|
An NEO would be eligible for immediate vesting only if no proper substitute is granted, or if the executive is terminated without cause or resigns for good reason within two years of the change of control.
|
(2)
|
An NEO would be eligible for immediate vesting of the unvested company-matched deferred share units allocated to an executive following the deferral of compensation in previous years (see section “Deferred Compensation Plans” on page 64 for a description of the Voluntary Incentive Deferral Plan). The value shown is equal to the number of deferred share units that would vest multiplied by the closing share price of common shares on December 31, 2014 (C$80.02).
|
Compensation disclosed in the section “Statement of Executive Compensation” that is paid in U.S. dollars was converted to Canadian dollars using the following currency exchange rates:
|
EXCHANGE RATE USED
|
ACTUAL RATE U.S.$1 = C$X
|
||
Salary
|
Average rate during the year
|
2014:
|
1.1045
|
All other compensation
|
2013:
|
1.0299
|
|
2012:
|
0.9996
|
||
Annual incentive bonus plan
|
When bonus is earned (i.e. December 31)
|
December 31, 2014:
|
1.1601
|
December 31, 2013:
|
1.0636
|
||
December 31, 2012:
|
0.9949
|
||
Pension value
|
December 31
|
December 31, 2014:
|
1.1601
|
Value of unexercised in-the-money options
|
December 31, 2013:
|
1.0636
|
|
Market value of share-based awards that have not vested
|
December 31, 2012:
|
0.9949
|
|
Non-equity incentive plan compensation –
|
|||
Value earned during the year
|
|||
Termination scenarios – incremental costs
|
|||
Option-based awards – Value vested during the year
|
Actual vesting date of the grants made on:
|
February 19, 2014:
|
1.1082
|
February 19, 2013
|
January 24, 2014:
|
1.1073
|
|
January 24, 2013
|
January 26, 2014:
|
1.1073
|
|
January 26, 2012
|
January 27, 2014:
|
1.1112
|
|
January 27, 2011
|
January 28, 2014:
|
1.1156
|
|
January 28, 2010
|
68
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
PLAN CATEGORY
|
NUMBER OF SECURITIES TO BE
ISSUED UPON EXERCISE
OF OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
|
WEIGHTED AVERAGE EXERCISE
PRICE OF OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
(C$)
|
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATION PLANS
(EXCLUDING SECURITIES
REFLECTED IN THE FIRST COLUMN)
|
Equity compensation plans approved by securityholders
|
7,537,564
|
37.37
|
19,242,358
|
Equity compensation plans not approved by securityholders
|
Nil
|
Nil
|
Nil
|
Total
|
7,537,564
|
37.37
|
19,242,358
|
As of February 27, 2015, there was no outstanding indebtedness of current and former directors or officers of the Company and its subsidiaries, whether entered into in connection with the purchase of common shares of the Company or otherwise.
|
The management of the Company is not aware of any material interest, direct or indirect, of any informed person of the Company, any proposed director or any associate or affiliate of any informed person or proposed director in any transaction since the commencement of the Company’s most recently completed financial year, or in any proposed transaction, that has materially affected or would materially affect the Company or any of its affiliates or subsidiaries.
|
The Company is a reporting issuer in Canada and the United States and is required to file various documents, including an annual information form and financial statements. Financial information is provided in the Company’s comparative financial statements and Management’s Discussion and Analysis for its most recently completed financial year. Copies of these documents and additional information relating to the Company are available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, or may be obtained on request from the Corporate Secretary of the Company by calling (514) 399-7091 or Investor Relations at (514) 399-0052.
|
The Board of Directors of the Company has approved the contents of this Information Circular and its sending to the shareholders.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
69
|
The Board approves all matters expressly required herein, under the Canada Business Corporations Act and other applicable legislation and CN’s Articles and By-laws. The Board may assign to Board committees the prior review of any issues it is responsible for, or as required by applicable laws. Board committee recommendations are generally subject to Board approval. The Board has delegated the approval of certain matters to management pursuant to its Standing Resolutions on Delegation of Authority, as amended from time to time.
|
As part of its stewardship responsibility, the Board advises management on significant business issues and has the following responsibilities:
|
A.
|
APPROVING CN’S STRATEGY
|
•
|
adopting a strategic planning process, approving and reviewing, on at least an annual basis, a business plan and a strategic framework which take into account, among other things, the opportunities and risks of the business, and monitoring the implementation of the business plan by management.
|
B.
|
ASSESSING AND OVERSEEING THE SUCCESSION PLANNING OF EXECUTIVE MANAGEMENT
|
•
|
appointing executive management and monitoring the President and Chief Executive Officer (the “President and CEO”) and executive management performance taking into consideration Board expectations and fixed objectives, approving the President and CEO’s corporate goals and objectives and approving annually the President and CEO and executive management compensation;
|
•
|
ensuring that an appropriate portion of the President and CEO and executive management compensation is tied to both the short- and longer-term performance of CN; and
|
•
|
taking all reasonable steps to ensure that processes are in place for the recruitment, training, development and retention of executives who exhibit the highest standards of integrity as well as competence.
|
C.
|
MONITORING CORPORATE GOVERNANCE ISSUES AND BOARD RENEWAL
|
•
|
monitoring the size and composition of the Board to favour effective decision-making;
|
•
|
taking all reasonable measures to satisfy itself as to the integrity of management and that management creates a culture of integrity throughout CN;
|
•
|
monitoring and reviewing, as appropriate, CN’s approach to governance issues and monitoring and reviewing, as appropriate, CN’s Corporate Governance Manual and policies and measures for receiving shareholder feedback;
|
•
|
taking all reasonable steps to ensure the highest quality of ethical standards, including reviewing, on a regular basis, the Code of Business Conduct applicable to CN’s directors, its President and CEO, senior financial officers, other executives and employees, monitoring compliance with such code, approving any waiver from compliance with the code for directors and executive officers and ensuring appropriate disclosure of any such waiver;
|
•
|
ensuring the regular performance assessment of the Board, Board committees, Board and committee chairs and individual directors and determining their remuneration;
|
•
|
approving the list of Board nominees for election by shareholders and filling Board vacancies;
|
•
|
adopting and reviewing orientation and continuing education programs for directors;
|
•
|
overseeing the disclosure of a method for interested parties to communicate directly with the Board Chair or with the non-management directors as a group; and
|
•
|
ensuring a Board succession and renewal plan is in place.
|
D.
|
MONITORING FINANCIAL MATTERS AND INTERNAL CONTROLS
|
•
|
monitoring the quality and integrity of CN’s accounting and financial reporting systems, disclosure controls and procedures, internal controls and management information systems, including by overseeing:
|
(i)
|
the integrity and quality of CN’s financial statements and other financial information and the appropriateness of their disclosure;
|
(ii)
|
the review of the Audit Committee on external auditors’ independence and qualifications;
|
(iii)
|
the performance of CN’s internal audit function and of CN’s external auditors; and
|
(iv)
|
CN’s compliance with applicable legal and regulatory requirements (including those related to environment, safety and security);
|
•
|
ensuring that an appropriate risk assessment process is in place to identify, assess and manage the principal risks of CN’s business and financial strategy; and
|
•
|
adopting communications and disclosure policies and monitoring CN’s investor relations programs.
|
70
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
E.
|
MONITORING PENSION FUND MATTERS
|
•
|
monitoring and reviewing, as appropriate, CN’s pension fund policies and practices, including the investment policies of the Canadian National Railway Pension Trust Funds or any other pension trust fund established in connection with a new pension plan or any other pension plan offered or administered by CN (the “CN’s Pension Trust Funds”); and
|
•
|
approving the annual budget of the Investment Division of CN’s Pension Trust Funds.
|
F.
|
MONITORING ENVIRONMENTAL, SAFETY AND SECURITY MATTERS
|
•
|
monitoring and reviewing, as appropriate, CN’s environmental, safety and security policies and practices.
|
The non-executive Board members meet before or after every Board meeting without the presence of management and under the chairmanship of the Board Chair. If such group includes directors who are not independent, an executive session including only independent directors is held regularly.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
71
|
The following are reports of each Board committee as of December 31, 2014. These reports provide details on the activities of each committee but are not meant to be exhaustive.
|
2014 HIGHLIGHTS |
In 2014, the Audit Committee, in accordance with its mandate:
FINANCIAL INFORMATION
• reviewed and approved the 2013 annual and 2014 quarterly results, Management’s Discussion and Analysis and the earnings press releases of the Company;
• reviewed the independent auditors’ reports of the external auditors on the consolidated financial statements of the Company, as well as the internal controls over financial reporting;
• reviewed financial information contained in the 2013 Annual Information Form, the 2013 Form 40-F and other reports requiring Board approval;
• reviewed and approved Audit Committee Report and other information appearing in the 2014 Management Information Circular;
• reviewed analysis and communications materials prepared by management, the internal auditors or external auditors setting forth any significant financial reporting issues;
• reviewed the compliance of management’s certification of financial reports with applicable legislation;
• reviewed, with the external auditors and management, the quality, appropriateness and disclosure of the Company’s critical accounting principles and policies, underlying assumptions and reporting practices, and any proposed changes thereto;
|
• reviewed judgments made in connection with the preparation of the financial statements, if any, including analyses of the effect of alternative generally accepted accounting principles and/or methods;
• reviewed financial statements for CN’s pension plans with the independent auditors and responsible officers;
• reviewed with external auditors and management, changes in accounting for CN’s pension plans and other post employment benefits; and
• held in camera meetings with management.
INTERNAL AUDITORS
• reviewed and approved the internal audit plan;
• monitored the internal audit function’s performance, its responsibilities, staffing, budget and the compensation of its members; and
• held in camera meetings with the Chief, Internal Audit.
|
EXTERNAL AUDITORS
• reviewed and approved the results of the external audit;
• recommended to the Board the appointment and terms of engagement of the Company’s external auditors;
• evaluated, remunerated and monitored the qualifications, performance and independence of the external auditors;
• discussed, approved and oversaw the disclosure of all audit, review and attest services provided by the external auditors;
• determined which non-audit services the external auditors are prohibited from providing, and pre-approved and oversaw the disclosure of permitted non-audit services by the external auditors to the Company, in accordance with applicable laws and regulations;
• reviewed the formal statement from the external auditors confirming their independence and reviewed hiring policies for employees or former employees of the Company’s external auditors;
• reviewed the external auditors observations on Capital; and
• held in camera meetings with external auditors.
RISK MANAGEMENT
• reviewed the Company’s risk assessment and risk management policies including information technology risk management, and Business Interruption management; and
• assisted the Board with the oversight of the Company’s compliance with applicable legal and regulatory requirements.
|
INTERNAL CONTROL
• received management’s report assessing the adequacy and effectiveness of the Company’s disclosure controls and procedures and systems of internal control;
• reviewed procedures established for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters or employee concerns regarding accounting or auditing matters;
• reviewed minutes of the Corporate Disclosure Committee; and
• reviewed project management processes and controls.
COMMITTEE PERFORMANCE
• reviewed the processes in place to evaluate the performance of the Audit Committee; and
• reviewed and approved a forward-looking agenda for the committee.
OTHER
• made recommendations to the Board with respect to the declaration of dividends; and
• monitored the tax affairs of the Company.
Submitted by the members of the Audit Committee.
|
72
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
2014 HIGHLIGHTS |
In 2014, the Finance Committee, in accordance with its mandate:
FINANCIAL POLICIES
• provided oversight with respect to CN’s capital structure, cash flows and key financial ratios;
• made recommendations to the Board with respect to the Company’s financial policies and financial matters affecting the Company;
• reviewed policies with respect to distributions to shareholders, including policies on dividends, and policies regarding financial hedging, short-term investment and credit; and
• reviewed the Company’s credit ratings and monitored the Company’s activities with respect to credit rating agencies.
|
FINANCING
• reviewed the Company’s liquidity position, including the Company’s capital expenditures, capital structure, short-term investments and credit facilities;
• reviewed Treasury and transactional activities;
• reviewed prospectuses, offering memoranda and other documents, as well as reviewed and recommended two public offerings, the first, CN’s first Canadian debt offering, consisting of one tranche of C$250 million 2.75% Notes due 2021 and the second, a public two-tranche debt offering of U.S.$600 million, comprised of U.S.$250 million Floating Rate Notes due 2017, and U.S.$350 million 2.95% Notes due 2024; and
• reviewed and recommended the extension of CN’s Revolving Credit facility and Letter of Credit facilities.
|
FINANCIAL ACTIVITIES
• recommended decisions related to indebtedness of the Company, as well as loans, guarantees or extension of credit;
• reviewed and recommended the share repurchase program and related progress reports;
• reviewed and recommended significant increase of CN’s Capital Budget;
• reviewed, recommended and monitored significant capital and other expenditures, such as capacity improvements in the Winnipeg-Edmonton and Winnipeg-Chicago corridors, material purchases of products and services, as well as projected and actual returns from investments;
• reviewed the Company’s Locomotive Acquisition Plan;
• oversaw post-completion audits of significant capital projects approved by the Board and post-completion audits carried out by the internal auditors or the external auditors, and reviewed their reports; and
• reviewed and recommended to the Board the sale of a portion of the Guelph Subdivision to Metrolinx and the Deux-Montagnes Subdivision to AMT.
|
COMMITTEE PERFORMANCE
• reviewed the processes in place to evaluate the performance of the Finance Committee;
• assessed the adequacy of the Finance Committee’s Charter and made a report thereon to the Board; and
• reviewed and approved a forward-looking agenda for the committee.
OTHER
• benchmarked quarterly results to those of other major railways.
Submitted by the members of the Finance Committee.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
73
|
2014 HIGHLIGHTS |
In 2014, the Corporate Governance and Nominating Committee, in accordance with its mandate:
COMPOSITION OF THE BOARD AND ITS COMMITTEES
• reviewed the size and composition of the Board and assisted the Board in determining Board Committee size, composition and mandate;
• reviewed directors’ independence and financial literacy;
• reviewed criteria for selecting directors and assessed the competencies and skills of the Board members in relation to the Company’s circumstances and needs;
• identified candidates qualified to become Board members, and recommended director nominees for the next annual meeting of shareholders; and
• reviewed director succession and board renewal in light of upcoming director retirements and evergreen list.
|
PERFORMANCE OF THE BOARD AND ITS COMMITTEES
• reviewed the performance of the Board, Board Committees, Board and Committee Chairs and Board members, including reviewing the Board, Committee, peer and Chair evaluation process and the development of Management Information Circular questionnaires.
DIRECTOR COMPENSATION
• reviewed the compensation of Board members against peer compensation;
• in January 2015, recommended to the Board changes to the remuneration of the Board Chair, the Committee Chairs and non-executive directors to move compensation to a “flat-fee” structure; and
• in January 2015, recommended to the Board ownership guidelines beyond board tenure.
|
CONTINUING EDUCATION FOR DIRECTORS
• monitored and reviewed the Company’s orientation and continuing education programs for directors.
CORPORATE GOVERNANCE INITIATIVES
• reviewed and recommended changes to the Company’s corporate governance guidelines and monitored disclosure of corporate governance guidelines in accordance with applicable rules and regulations;
• led the annual review of the Company’s Corporate Governance Manual, including recommending to the Board an update to include recent best practices;
• reviewed, monitored and oversaw compliance with CN’s Code of Business Conduct;
• reviewed adherence to, and updated the Company’s Aircraft Utilization Policy;
• monitored developments, proposed rule changes and changes to securities laws, disclosure and other regulatory requirements;
• reviewed the 2014 Management Information Circular;
• reviewed the 2013 Annual Report;
• reviewed Annual Report of CN’s Ombudsman;
• recommended to the Board a date and location for the Annual Meeting;
|
• monitored the Company’s Corporate Disclosure and Communications Policy and the Investor Relations Program and reviewed feedback from shareholders and shareholder associations;
• assisted the Board with the oversight of the Company’s corporate governance and monitored legal & regulatory requirements, as well as best practices; and
• in March 2015, reviewed and recommended to the Board the adoption of the policy regarding diversity on the CN Board of Directors.
COMMITTEE PERFORMANCE
• reviewed the processes in place to evaluate the performance of the Corporate Governance and Nominating Committee;
• reviewed and approved a forward-looking agenda for the Committee; and
• retained the services of independent compensation advisors to help carry its responsibilities and approved appropriate fees for such services.
Submitted by the members of the Corporate Governance and Nominating Committee.
|
74
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
2014 HIGHLIGHTS |
In 2014, the Human Resources and Compensation Committee, in accordance with its mandate:
SUCCESSION PLANNING
• reviewed the mechanisms in place regarding succession planning for executive management positions, including that of the President and CEO;
• reviewed the leadership team assessment, including in-depth functional talent reviews; and
• reviewed the succession plan for management put into place by the President and CEO, including processes to identify, develop and retain the talent of outstanding officers.
PRESIDENT AND CEO COMPENSATION
• reviewed corporate goals and objectives relevant to the President and CEO, evaluated his mid-year and annual performance based on those goals and objectives and recommended compensation based on this evaluation, for approval by the Independent Board members; and
• developed 2014 performance objectives in conjunction with the President and CEO.
APPOINTMENT OF EXECUTIVE MANAGEMENT
• recommended the appointment of executive management and approved the terms and conditions of their appointment and termination or retirement.
|
EXECUTIVE COMPENSATION
• reviewed the validity of the Company’s benchmark group used in determining the compensation of executives;
• reviewed the evaluation of executive management’s performance and recommended to the Board executive management’s compensation;
• examined and reviewed each element of executive compensation and reported on compensation practices;
• monitored any potential risks that could arise from CN’s compensation programs and practices, while ensuring proper risk identification and mitigation practices were in place;
• reviewed performance of NEOs and the Company’s annual performance as measured under the AIBP;
• closely monitored bonus outlook, as well as PSU vesting outlook; and
• reviewed and recommended proposed 2014 bonus targets and performance targets related to PSUs.
EXECUTIVE COMPENSATION DISCLOSURE
• produced for review and approval by the Board a report on executive compensation for inclusion in the 2014 Management Information Circular.
|
COMPENSATION PHILOSOPHY
• monitored the compensation philosophy and policy that rewards the creation of shareholder value and reflects the appropriate balance between the short- and longer-term performance of the Company; and
• monitored the Company policy relating to the positioning of total direct compensation for executives.
PENSION PLANS
• reviewed and monitored the financial position of CN’s pension plans; and
• reviewed and recommended Pension Plan amendments.
HUMAN RESOURCES INITIATIVES
• reviewed changes to the long-term incentive plan design;
• reviewed settlement method for PSUs and DSUs to equity-settlement;
• closely monitored the labour negotiation process;
• monitored pension and strategic labour and social issues;
• reviewed and discussed strategies for hiring, training, engaging, and developing talent; and
• reviewed and discussed strategies for workforce planning.
|
COMMITTEE PERFORMANCE
• reviewed the processes in place to evaluate the performance of the Human Resources and Compensation Committee;
• reviewed and approved a forward-looking agenda for the Committee;
• retained the service of independent compensation advisors to help it carry its responsibilities and approved appropriate fees for such services; and
• recommended amendments to the Human Resources and Compensation Committee Charter.
Submitted by the members of the Human Resources and Compensation Committee.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
75
|
REPORT OF THE ENVIRONMENT, SAFETY AND SECURITY COMMITTEE | REPORT OF THE STRATEGIC PLANNING COMMITTEE | |
MEMBERS | MEMBERS | |
V.M. Kempston Darkes (Chair), D.J. Carty, K.G. Lynch, | J.E. O’Connor (Chair), A.C. Baillie, D.J. Carty, G.D. Giffin, | |
J.E. O’Connor, R. Pace, R.L. Phillips, L. Stein | E.E. Holiday, V.M. Kempston Darkes, D. Losier, K.G. Lynch, | |
E.C. Lumley, C. Mongeau, R. Pace, R.L. Phillips, L. Stein
|
2014 HIGHLIGHTS | 2014 HIGHLIGHTS |
In 2014, the Environment, Safety and Security Committee, in accordance with its mandate:
ENVIRONMENTAL, HEALTH AND SAFETY AUDITS
• oversaw the development and implementation of environmental, safety and security policies, procedures and guidelines;
• reviewed environmental, health and safety audits and assessments of compliance, taking all reasonable steps to ensure that the Company is exercising due diligence;
• reviewed progress of Sustainability Action Plan;
• reviewed the Company’s business plan to ascertain that environmental, safety and security issues are taken into consideration;
• ensured appropriate employee training standards and communications are developed and implemented; and
• reviewed all significant safety and security matters.
ACCOUNTING ACCRUAL
• monitored accounting accrual for environmental costs in conjunction with the Audit Committee.
|
ENVIRONMENTAL INVESTIGATIONS AND JUDGMENTS
• reviewed reports in respect of all notices, complaints, investigations and proceedings by governmental authorities, and all judgments and orders in respect of environmental, safety and security matters.
OTHER
• reviewed Canadian and U.S. environmental and safety, legal and regulatory developments of importance to the Company;
• monitored results from various security initiatives and use of technology in risk mitigation; and
• reviewed industry safety and security matters related to crude oil rail transportation.
COMMITTEE PERFORMANCE
• reviewed the processes in place to evaluate the performance of the Environment, Safety and Security Committee.
Submitted by the members of the Environment, Safety and Security Committee.
|
In 2014, the Strategic Planning Committee, in accordance with its mandate:
STRATEGIC DIRECTION
• focused on financial and strategic issues, including the review of key assumptions underlying the business plan;
• reviewed and approved the Company’s strategic direction, including its 2015-2017 business plan and 2015 capital budget; and
• obtained regular briefings and presentations on strategic and financial issues.
|
COMMITTEE PERFORMANCE
• reviewed the processes in place to evaluate the performance of the Strategic Planning Committee.
Submitted by the members of the Strategic Planning Committee.
|
76
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
REPORT OF THE INVESTMENT COMMITTEE OF CN’S PENSION TRUST FUNDS |
REPORT OF THE DONATIONS AND SPONSORSHIPS COMMITTEE
|
|
MEMBERS | MEMBERS | |
E.C. Lumley (Chair), A.C. Baillie, G.D. Giffin, E.E. Holiday, D. Losier |
C. Mongeau (Chair), G.D. Giffin, R. Pace
|
|
2014 HIGHLIGHTS | 2014 HIGHLIGHTS |
In 2014, the Investment Committee of CN’s Pension Trust Funds, in accordance with its mandate:
INVESTMENT DIVISION
• reviewed the activities of the CN Investment Division and advised the Investment Division on investment of assets of CN’s Pension Trust Funds in accordance with applicable policies and procedures;
• reviewed and approved the Statement of Investment Policies and Procedures for CN’s pension plans;
• reviewed and approved the Investment Strategy of the CN Investment Division;
• reviewed and approved the CN Investment Incentive Plan and any award payouts thereunder; and
• reviewed and approved the annual budget of the CN Investment Division and the CN Investment Incentive Plan.
|
COMMITTEE PERFORMANCE
• reviewed the processes in place to evaluate the performance of the Investment Committee of CN’s Pension Trust Funds.
Submitted by the members of the Investment Committee of CN’s Pension Trust Funds.
|
In 2014, the Donations and Sponsorships Committee, in accordance with its mandate:
DONATIONS AND SPONSORSHIP STRATEGY
• reviewed and approved the general donations and sponsorships strategy and goals of the Company;
• reviewed and approved the 2014 budget for donations and sponsorships; and
• reviewed the CN Stronger Communities Fund Guidelines.
DONATIONS AND SPONSORSHIP REQUESTS
• reviewed donation requests and approved selected donations by the Company, including those having a total cost of more than $100,000;
• recommended to the Board for approval sponsorships by the Company, including those having a total cost of more than $500,000; and
• reviewed reports from the Vice-President, Public and Government
• Affairs concerning sponsorships having a total cost of more than $50,000 and donations of more than $100,000 and on other matters.
|
COMMITTEE PERFORMANCE
• reviewed committee mandate and processes in place to evaluate the performance of the Donations and Sponsorships Committee.
Submitted by the members of the Donations and Sponsorships Committee.
|
CN MANAGEMENT INFORMATION CIRCULAR 2015
|
77
|
The Forest Stewardship Council® (FSC®) is an international certification and labeling system for products that come from responsibly managed forests, and verified recycled sources. Under FSC certification, forests are certified against a set of strict environmental and social standards, and fibre from certified forests is tracked all the way to the consumer through the chain of custody-certification system.
CN shows its concern for protecting the environment through the use of FSC-certified paper.
Printed in Canada
|
|
8th Floor, 100 University Avenue
Toronto, Ontario M5J 2Y1
www.computershare.com
|
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Security Class
|
|||
Holder Account Number
|
|||
Form of Proxy - Annual Meeting to be held on Tuesday, April 21, 2015 |
1.
|
Every shareholder has the right to appoint some other person of their choice, who need not be a shareholder, to attend and act on their behalf at the meeting. If you wish to appoint a person other than the persons whose names are printed herein, please insert the name of your chosen proxyholder in the space provided (see reverse).
|
2.
|
If the securities are registered in the name of more than one owner (for example, joint ownership, trustees, executors, etc.), then all those registered should sign this proxy. If you are voting on behalf of a corporation or another individual you may be required to provide documentation evidencing your power to sign this proxy with signing capacity stated.
|
3.
|
This form of proxy should be signed in the exact manner as the name appears on the proxy.
|
4.
|
This form of proxy should be read in conjunction with the accompanying Notice of Annual Meeting of Shareholders and Management Information Circular.
|
5.
|
If this form of proxy is not dated, it will be deemed to bear the date on which it is mailed by Management to the holder.
|
6.
|
The shares represented by this proxy will be voted as directed by the holder, however, if such a direction is not made in respect of any matter, this proxy will be voted “FOR” items 1, 2 and 3 and in favour of Management’s proposals generally.
|
● Call the number listed BELOW from a touch tone telephone.
1-866-732-VOTE (8683) Toll Free
|
● Go to the following web site:
www.investorvote.com
● Smartphone?
Scan the QR code to vote now.
|
●You can enroll to receive future securityholder communications electronically by visiting www.computershare.com/eDelivery and clicking on “eDelivery Signup”.
|
CONTROL NUMBER
|
+ |
+
|
This Form of Proxy is solicited by and on behalf of Management. |
Appointment of Proxyholder
I/We being holder(s) of Common Shares of Canadian National Railway Company hereby appoint: Robert Pace, or failing him, Claude Mongeau
|
OR
|
Print the name of the person you are appointing if this person is someone other than the Chair of the Board or the President and Chief Executive Officer of the Company.
|
For |
Withhold
|
For
|
Withhold
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For
|
Withhold
|
|||||||
01. Donald J. Carty
|
|
|
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06. The Hon. Kevin G. Lynch
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|
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10. Robert L. Phillips
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--- | |
Fold
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||||||||||||
02. Ambassador
Gordon D. Giffin
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07. Claude Mongeau |
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11. Laura Stein
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03. Edith E. Holiday
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08. James E. O'Connor
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04. V. Maureen Kempston
Darkes
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09. Robert Pace |
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|
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05. The Hon. Denis Losier
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||||||||||||
For | Withhold | |||||||||||
2. Appointment of Auditors
|
||||||||||||
Appointment of KPMG LLP as Auditors
|
||||||||||||
For | Against | |||||||||||
3. Non-binding Advisory Vote on Executive Compensation
|
||||||||||||
Non-binding advisory resolution to accept the approach to executive compensation disclosed in the accompanying Management
Information Circular, the full text of which resolution is set out on p. 9 of the accompanying Management Information Circular.
|
Signature(s) | Date | |
Authorized Signature(s) - This section must be completed for your instructions to be executed.
I/We authorize you to act in accordance with my/our instructions set out above. I/We hereby revoke any proxy previously given with respect to the Meeting. If no voting instructions are indicated above, this Proxy will be voted as recommended by the Board of Directors and Management.
|
Quarterly reports
To reduce costs and help protect the environment, we will not send you CN’s quarterly financial reports and related management’s discussion and analysis (MD&A), unless you tell us that you want to receive them by checking the box below. You will be required to complete this request on an annual basis.
|
Annual report
By law, we must send you our annual financial statements and related management’s discussion and analysis (MD&A), unless you tell us that you do not want to receive them by checking the box below.
|
Please send me CN's quarterly financial reports
If you do not check the box or do not return this form, we will assume that you do not want to receive CN's quarterly financial reports and MD&A.
|
Please do not send me CN's annual financial statements and MD&A
If you do not check the box or do not return this form, we will assume that you want to receive CN's annual financial statements and MD&A.
|
C N R Q |
0 5 2 3 2 8
|
A R 2
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+
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1
|
A message from the Chairman
|
Except where otherwise indicated, all financial information reflected in this document is expressed in Canadian dollars and determined on the basis of United States generally accepted accounting principles (U.S. GAAP).
|
2
|
A message from Claude Mongeau
|
|
4
|
Building for the future:
|
|
With network capacity
With the next generation
Through innovation
With safety as a priority
|
||
8
|
Expanding our network
|
|
10
|
Board of Directors
|
|
11
|
Financial Section (U.S. GAAP)
|
|
96
|
Corporate Governance – Delivering Responsibly
|
|
97
|
Shareholder and Investor Information
|
Canadian National Railway Company
|
2014 Annual Report
|
1
|
“Our journey
since privatization in 1995 has been truly transformational.”
|
2
|
2014 Annual Report
|
Canadian National Railway Company
|
“We believe that a commercial framework and a stable regulatory environment are essential for an effective, well-functioning rail transportation marketplace.”
|
Canadian National Railway Company
|
2014 Annual Report
|
3
|
4
|
2014 Annual Report
|
Canadian National Railway Company
|
Canadian National Railway Company
|
2014 Annual Report
|
5
|
6
|
2014 Annual Report
|
Canadian National Railway Company
|
Canadian National Railway Company
|
2014 Annual Report
|
7
|
2010
|
2011
|
2012
|
2013
|
2014
|
||
Capital expenditures
|
1,718M
|
1,712M
|
1,825M
|
2,017M
|
2,297M
|
|
% of total
|
||||||
Track and roadway
|
60
|
69
|
74
|
69
|
70
|
|
Rolling stock
|
24
|
11
|
11
|
14
|
14
|
|
Information technology
|
7
|
8
|
7
|
7
|
6
|
|
Other
|
9
|
12
|
8
|
10
|
10
|
|
8
|
2014 Annual Report
|
Canadian National Railway Company
|
Canadian National Railway Company
|
2014 Annual Report
|
9
|
Robert Pace, D.Comm.
|
Ambassador Gordon D. Giffin
|
The Honourable
|
Committees:
|
||
Chairman of the Board
|
Senior Partner
|
Edward C. Lumley, P.C., LL.D.
|
1
|
Audit
|
|
Canadian National Railway Company
|
McKenna, Long & Aldridge
|
Vice-Chairman
|
2
|
Finance
|
|
President and
|
Committees: 1, 4, 6*, 7, 8
|
BMO Capital Markets
|
3
|
Corporate governance
|
|
Chief Executive Officer
|
Committees: 2, 6, 7, 8*
|
and nominating
|
|||
The Pace Group
|
Edith E. Holiday
|
4
|
Donations and
|
||
Committees: 3, 4, 5, 6, 7
|
Corporate Director and Trustee,
|
The Honourable Kevin G.
|
sponsorships
|
||
Former General Counsel,
|
Lynch, P.C., O.C., PH.D., LL.D.
|
5
|
Environment, safety
|
||
Claude Mongeau
|
United States Treasury Department
|
Vice-Chair
|
and security
|
||
President and
|
and Secretary of the Cabinet
|
BMO Financial Group
|
6
|
Human resources and
|
|
Chief Executive Officer
|
The White House
|
Committees: 2, 3, 5, 6, 7
|
compensation
|
||
Canadian National Railway Company
|
Committees: 2, 3, 6, 7, 8
|
7
|
Strategic planning
|
||
Committees: 4*, 7
|
James E. O’Connor
|
8
|
Investment committee
|
||
V. Maureen Kempston Darkes,
|
Former Chairman and CEO
|
of CN’s Pension Trust
|
|||
A. Charles Baillie, O.C., LL.D.
|
O.C., D.Comm., LL.D.
|
Republic Services, Inc.
|
Funds
|
||
Former Chairman and CEO
|
Retired Group Vice-President
|
Committees: 1, 2, 5, 6, 7*
|
*
|
denotes chair of the committee
|
|
The Toronto-Dominion Bank
|
General Motors Corporation
|
||||
Committees: 2*, 6, 7, 8
|
and President
|
Robert L. Phillips
|
|||
GM Latin America,
|
President
|
||||
Donald J. Carty, O.C., LL.D.
|
Africa and Middle East
|
R.L. Phillips Investments Inc.
|
|||
Retired Vice-Chairman and
|
Committees: 2, 3, 5*, 6, 7
|
Committees: 1, 3, 5, 6, 7
|
|||
Chief Financial Officer
|
|||||
Dell, Inc.
|
The Honourable
|
Laura Stein
|
|||
Committees: 1*, 3, 5, 6, 7
|
Denis Losier, P.C., LL.D., C.M.
|
Senior Vice-President,
|
|||
Retired President and
|
General Counsel
|
||||
Chief Executive Officer
|
The Clorox Company
|
||||
Assumption Life
|
Committees: 1, 2, 5, 6, 7
|
||||
Committees: 1, 3*, 6, 7, 8
|
Chairman of the Board and Select Senior Officers of the Company
|
As at December 31, 2014
|
||
Robert Pace
|
Sean Finn
|
Mike Cory
|
John Orr
|
Chairman of the Board
|
Executive Vice-President
|
Senior Vice-President
|
Vice-President
|
Corporate Services and
|
Western Region
|
Eastern Region
|
|
Claude Mongeau
|
Chief Legal Officer
|
||
President and
|
Jeff Liepelt
|
Russell J. Hiscock
|
|
Chief Executive Officer
|
Luc Jobin
|
Senior Vice-President
|
President and
|
Executive Vice-President and
|
Southern Region
|
Chief Executive Officer
|
|
Chief Financial Officer
|
CN Investment Division
|
||
Janet Drysdale
|
|||
Jean-Jacques Ruest
|
Vice-President
|
||
Executive Vice-President and
|
Investor Relations
|
||
Chief Marketing Officer
|
|||
Kimberly A. Madigan
|
|||
Jim Vena
|
Vice-President
|
||
Executive Vice-President and
|
Human Resources
|
||
Chief Operating Officer
|
10
|
2014 Annual Report
|
Canadian National Railway Company
|
Contents
|
12
|
Selected Railroad Statistics – unaudited
|
|
Management’s Discussion and Analysis
|
|||
13
|
Business profile
|
||
13
|
Corporate organization
|
||
13
|
Strategy overview
|
||
16
|
Forward-looking statements
|
||
16
|
Financial outlook
|
||
17
|
Financial highlights
|
||
18
|
Adjusted performance measures
|
||
19
|
Revenues
|
||
23
|
Operating expenses
|
||
24
|
Other income and expenses
|
||
24
|
2013 compared to 2012
|
||
28
|
Summary of quarterly financial data
|
||
28
|
Summary of fourth quarter 2014
|
||
29
|
Financial position
|
||
30
|
Liquidity and capital resources
|
||
35
|
Off balance sheet arrangements
|
||
35
|
Financial instruments
|
||
37
|
Outstanding share data
|
||
37
|
Critical accounting estimates
|
||
45
|
Business risks
|
||
55
|
Controls and procedures
|
||
Consolidated Financial Statements
|
|||
56
|
Management’s Report on Internal Control over Financial Reporting
|
||
56
|
Report of Independent Registered Public Accounting Firm
|
||
57
|
Report of Independent Registered Public Accounting Firm
|
||
58
|
Consolidated Statement of Income
|
||
59
|
Consolidated Statement of Comprehensive Income
|
||
60
|
Consolidated Balance Sheet
|
||
61
|
Consolidated Statement of Changes in Shareholders’ Equity
|
||
62
|
Consolidated Statement of Cash Flows
|
Notes to Consolidated Financial Statements
|
|||
63
|
1
|
Summary of significant accounting policies
|
|
66
|
2
|
Recent accounting pronouncement
|
|
67
|
3
|
Other income
|
|
68
|
4
|
Income taxes
|
|
69
|
5
|
Earnings per share
|
|
69
|
6
|
Accounts receivable
|
|
70
|
7
|
Properties
|
|
70
|
8
|
Intangible and other assets
|
|
70
|
9
|
Accounts payable and other
|
|
71
|
10
|
Long-term debt
|
|
73
|
11
|
Other liabilities and deferred credits
|
|
73
|
12
|
Pensions and other postretirement benefits
|
|
80
|
13
|
Share capital
|
|
82
|
14
|
Stock plans
|
|
89
|
15
|
Accumulated other comprehensive loss
|
|
90
|
16
|
Major commitments and contingencies
|
|
94
|
17
|
Financial instruments
|
|
95
|
18
|
Segmented information
|
Canadian National Railway Company
|
2014 Annual Report
|
11
|
2014
|
2013
|
2012
|
||||||||||
Financial measures
|
||||||||||||
Key financial performance indicators
|
||||||||||||
Total revenues ($ millions)
|
12,134 | 10,575 | 9,920 | |||||||||
Rail freight revenues ($ millions) (1)
|
11,455 | 9,951 | 9,306 | |||||||||
Operating income ($ millions)
|
4,624 | 3,873 | 3,685 | |||||||||
Adjusted diluted earnings per share ($) (2)
|
3.76 | 3.06 | 2.81 | |||||||||
Free cash flow ($ millions) (3)
|
2,220 | 1,623 | 1,661 | |||||||||
Gross property additions ($ millions)
|
2,297 | 2,017 | 1,825 | |||||||||
Share repurchases ($ millions)
|
1,505 | 1,400 | 1,400 | |||||||||
Dividends per share ($)
|
1.00 | 0.86 | 0.75 | |||||||||
Financial position
|
||||||||||||
Total assets ($ millions)
|
31,792 | 30,163 | 26,659 | |||||||||
Total liabilities ($ millions)
|
18,322 | 17,210 | 15,641 | |||||||||
Shareholders’ equity ($ millions)
|
13,470 | 12,953 | 11,018 | |||||||||
Financial ratios
|
||||||||||||
Operating ratio (%)
|
61.9 | 63.4 | 62.9 | |||||||||
Adjusted debt-to-total capitalization ratio (%) (4)
|
40.1 | 39.4 | 40.4 | |||||||||
Adjusted debt-to-adjusted EBITDA (times) (4)
|
1.58 | 1.72 | 1.61 | |||||||||
Operational measures (5)
|
||||||||||||
Statistical operating data
|
||||||||||||
Gross ton miles (GTM) (millions)
|
448,765 | 401,390 | 383,754 | |||||||||
Revenue ton miles (RTM) (millions)
|
232,138 | 210,133 | 201,496 | |||||||||
Carloads (thousands)
|
5,625 | 5,190 | 5,059 | |||||||||
Route miles (includes Canada and the U.S.)
|
19,600 | 20,000 | 20,100 | |||||||||
Employees (end of year)
|
25,530 | 23,721 | 23,430 | |||||||||
Employees (average for the year)
|
24,635 | 23,705 | 23,466 | |||||||||
Key operating measures
|
||||||||||||
Rail freight revenue per RTM (cents) (1)
|
4.93 | 4.74 | 4.62 | |||||||||
Rail freight revenue per carload ($) (1)
|
2,036 | 1,917 | 1,839 | |||||||||
GTMs per average number of employees (thousands)
|
18,217 | 16,933 | 16,354 | |||||||||
Operating expenses per GTM (cents)
|
1.67 | 1.67 | 1.62 | |||||||||
Labor and fringe benefits expense per GTM (cents)
|
0.52 | 0.54 | 0.51 | |||||||||
Diesel fuel consumed (US gallons in millions)
|
440.5 | 403.7 | 388.7 | |||||||||
Average fuel price ($ per US gallon)
|
3.72 | 3.55 | 3.47 | |||||||||
GTMs per US gallon of fuel consumed
|
1,019 | 994 | 987 | |||||||||
Terminal dwell (hours)
|
16.9 | 15.8 | 15.6 | |||||||||
Train velocity (miles per hour)
|
25.7 | 26.6 | 27.2 | |||||||||
Safety indicators
|
||||||||||||
Injury frequency rate (per 200,000 person hours) (6)
|
1.81 | 1.69 | 1.42 | |||||||||
Accident rate (per million train miles) (6)
|
2.73 | 2.11 | 2.10 |
|
(1)
|
In 2014, certain Other revenues were reclassified to the commodity groups within rail freight revenues. This change has no impact on the Company’s previously reported results of operations as Total revenues remain unchanged. The 2013 and 2012 comparative figures have been reclassified in order to be consistent with the 2014 presentation.
|
|
(2)
|
See the section entitled Adjusted performance measures in the MD&A for an explanation of this non-GAAP measure.
|
|
(3)
|
See the section entitled Liquidity and capital resources – Free cash flow in the MD&A for an explanation of this non-GAAP measure.
|
|
(4)
|
See the section entitled Liquidity and capital resources – Credit measures in the MD&A for an explanation of this non-GAAP measure.
|
|
(5)
|
Statistical operating data, key operating measures and safety indicators are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available, as such, certain of the comparative data have been restated. Definitions of these indicators are provided on our website, www.cn.ca/glossary.
|
|
(6)
|
Based on Federal Railroad Administration (FRA) reporting criteria.
|
12
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
13
|
14
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
•
|
The Company generated the highest volumes and earnings in its history and CN’s growth continued to outpace that of the overall economy, mainly attributable to a record 2013/2014 Canadian grain crop, strong energy markets and new intermodal business.
|
•
|
The Company repurchased 22.4 million shares during the year, returning over $1.5 billion to its shareholders.
|
•
|
The Company paid quarterly dividends of $0.2500 per share amounting to $818 million.
|
•
|
CN spent $2.3 billion in its capital program, with $1.25 billion targeted at maintaining the safety and integrity of the network, particularly track infrastructure; $375 million for equipment capital expenditures, including 60 new high-horsepower locomotives, and $675 million on initiatives to support growth and drive productivity.
|
•
|
The Company’s sustainability practices earned it a place as the leader in the Transportation and Transportation Infrastructure Industry sector of the Dow Jones Sustainability World Index.
|
•
|
CN was awarded with a position on The A List: The CDP Climate Performance Leadership Index 2014 for its actions to reduce carbon emissions and mitigate the business risks of climate change.
|
•
|
CN opened two new state-of-the-art training facilities, one located in Winnipeg, Manitoba, in April 2014, the other located in suburban Chicago, Illinois, in July 2014, as part of a new revitalized company-wide training program.
|
•
|
CN plans to invest approximately $2.6 billion in its 2015 capital program, of which over $1.3 billion is targeted toward track infrastructure, $500 million on equipment capital expenditures, including adding 90 new high-horsepower locomotives, and $800 million on initiatives to support growth and drive productivity.
|
•
|
The Company’s Board of Directors approved an increase of 25% to the quarterly dividend to common shareholders, from $0.2500 per share in 2014 to $0.3125 per share in 2015.
|
•
|
The Company’s Board of Directors approved a new share repurchase program which allows for the repurchase of up to 28.0 million common shares between October 24, 2014 and October 23, 2015.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
15
|
Forward-looking statements
|
Key assumptions or expectations
|
Statements relating to general economic and business conditions, including those referring to revenue growth opportunities
|
· North American and global economic growth
· Long-term growth opportunities being less affected by current economic conditions
· Year-over-year carload growth
|
Statements relating to the Company’s ability to meet debt repayments and future obligations in the foreseeable future, including income tax payments, and capital spending
|
· North American and global economic growth
· Adequate credit ratios
· Investment grade credit rating
· Access to capital markets
· Adequate cash generated from operations and other sources of financing
|
Statements relating to pension contributions
|
· Adequate cash generated from operations and other sources of financing
· Adequate long-term return on investment on pension plan assets
· Level of funding as determined by actuarial valuations, particularly influenced by discount rates for funding purposes
|
16
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Change
|
||||||||||||||||||||
Favorable/(Unfavorable)
|
||||||||||||||||||||
In millions, except percentage and per share data
|
2014
|
2013
|
2012
|
2014 vs 2013
|
2013 vs 2012
|
|||||||||||||||
Revenues
|
$ | 12,134 | $ | 10,575 | $ | 9,920 | 15 | % | 7 | % | ||||||||||
Operating income
|
$ | 4,624 | $ | 3,873 | $ | 3,685 | 19 | % | 5 | % | ||||||||||
Net income
|
$ | 3,167 | $ | 2,612 | $ | 2,680 | 21 | % | (3 | %) | ||||||||||
Adjusted net income (1)
|
$ | 3,095 | $ | 2,582 | $ | 2,456 | 20 | % | 5 | % | ||||||||||
Basic earnings per share
|
$ | 3.86 | $ | 3.10 | $ | 3.08 | 25 | % | 1 | % | ||||||||||
Adjusted basic earnings per share (1)
|
$ | 3.77 | $ | 3.07 | $ | 2.82 | 23 | % | 9 | % | ||||||||||
Diluted earnings per share
|
$ | 3.85 | $ | 3.09 | $ | 3.06 | 25 | % | 1 | % | ||||||||||
Adjusted diluted earnings per share (1)
|
$ | 3.76 | $ | 3.06 | $ | 2.81 | 23 | % | 9 | % | ||||||||||
Dividends declared per share
|
$ | 1.00 | $ | 0.86 | $ | 0.75 | 16 | % | 15 | % | ||||||||||
Total assets
|
$ | 31,792 | $ | 30,163 | $ | 26,659 | 5 | % | 13 | % | ||||||||||
Total long-term liabilities
|
$ | 16,121 | $ | 14,712 | $ | 13,438 | (10 | %) | (9 | %) | ||||||||||
Operating ratio
|
61.9% | 63.4% | 62.9% |
1.5-pts
|
(0.5)-pts
|
|||||||||||||||
Free cash flow (2)
|
$ | 2,220 | $ | 1,623 | $ | 1,661 | 37 | % | (2 | %) |
|
(1)
|
See the section of this MD&A entitled Adjusted performance measures for an explanation of this non-GAAP measure.
|
|
(2)
|
See the section of this MD&A entitled Liquidity and capital resources – Free cash flow for an explanation of this non-GAAP measure.
|
|
•
|
higher freight volumes due to a record 2013/2014 Canadian grain crop, strong energy markets, particularly crude oil and frac sand, as well as new intermodal and automotive business;
|
|
•
|
the positive translation impact of the weaker Canadian dollar on US dollar-denominated revenues; and
|
|
•
|
freight rate increases.
|
|
•
|
the negative translation impact of a weaker Canadian dollar on US dollar-denominated expenses;
|
|
•
|
increased purchased services and material expense;
|
|
•
|
higher fuel costs; and
|
|
•
|
increased labor and fringe benefits expense.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
17
|
In millions, except per share data
|
||||||||||||
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Net income as reported
|
$ | 3,167 | $ | 2,612 | $ | 2,680 | ||||||
Adjustments:
|
||||||||||||
Other income
|
(80 | ) | (69 | ) | (281 | ) | ||||||
Income tax expense
|
8 | 39 | 57 | |||||||||
Adjusted net income
|
$ | 3,095 | $ | 2,582 | $ | 2,456 | ||||||
Basic earnings per share as reported
|
$ | 3.86 | $ | 3.10 | $ | 3.08 | ||||||
Impact of adjustments, per share
|
(0.09 | ) | (0.03 | ) | (0.26 | ) | ||||||
Adjusted basic earnings per share
|
$ | 3.77 | $ | 3.07 | $ | 2.82 | ||||||
Diluted earnings per share as reported
|
$ | 3.85 | $ | 3.09 | $ | 3.06 | ||||||
Impact of adjustments, per share
|
(0.09 | ) | (0.03 | ) | (0.25 | ) | ||||||
Adjusted diluted earnings per share
|
$ | 3.76 | $ | 3.06 | $ | 2.81 |
18
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions, unless otherwise indicated
|
||||||||||||||||
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Rail freight revenues
|
$ | 11,455 | $ | 9,951 | 15 | % | 11 | % | ||||||||
Other revenues
|
679 | 624 | 9 | % | 4 | % | ||||||||||
Total revenues
|
$ | 12,134 | $ | 10,575 | 15 | % | 10 | % | ||||||||
Rail freight revenues
|
||||||||||||||||
Petroleum and chemicals
|
$ | 2,354 | $ | 1,952 | 21 | % | 15 | % | ||||||||
Metals and minerals
|
1,484 | 1,240 | 20 | % | 14 | % | ||||||||||
Forest products
|
1,523 | 1,424 | 7 | % | 2 | % | ||||||||||
Coal
|
740 | 713 | 4 | % | - | |||||||||||
Grain and fertilizers
|
1,986 | 1,638 | 21 | % | 17 | % | ||||||||||
Intermodal
|
2,748 | 2,429 | 13 | % | 11 | % | ||||||||||
Automotive
|
620 | 555 | 12 | % | 6 | % | ||||||||||
Total rail freight revenues
|
$ | 11,455 | $ | 9,951 | 15 | % | 11 | % | ||||||||
Revenue ton miles (RTM) (millions)
|
232,138 | 210,133 | 10 | % | 10 | % | ||||||||||
Rail freight revenue/RTM (cents)
|
4.93 | 4.74 | 4 | % | - | |||||||||||
Carloads (thousands)
|
5,625 | 5,190 | 8 | % | 8 | % | ||||||||||
Rail freight revenue/carload (dollars)
|
2,036 | 1,917 | 6 | % | 2 | % |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 2,354 | $ | 1,952 | 21 | % | 15 | % | ||||||||
RTMs (millions)
|
53,169 | 44,634 | 19 | % | 19 | % | ||||||||||
Revenue/RTM (cents)
|
4.43 | 4.37 | 1 | % | (3 | %) |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
19
|
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 1,484 | $ | 1,240 | 20 | % | 14 | % | ||||||||
RTMs (millions)
|
24,686 | 21,342 | 16 | % | 16 | % | ||||||||||
Revenue/RTM (cents)
|
6.01 | 5.81 | 3 | % | (2 | %) |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 1,523 | $ | 1,424 | 7 | % | 2 | % | ||||||||
RTMs (millions)
|
29,070 | 29,630 | (2 | %) | (2 | %) | ||||||||||
Revenue/RTM (cents)
|
5.24 | 4.81 | 9 | % | 4 | % |
20
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 740 | $ | 713 | 4 | % | - | |||||||||
RTMs (millions)
|
21,147 | 22,315 | (5 | %) | (5 | %) | ||||||||||
Revenue/RTM (cents)
|
3.50 | 3.20 | 9 | % | 5 | % |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 1,986 | $ | 1,638 | 21 | % | 17 | % | ||||||||
RTMs (millions)
|
51,326 | 43,180 | 19 | % | 19 | % | ||||||||||
Revenue/RTM (cents)
|
3.87 | 3.79 | 2 | % | (1 | %) |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
21
|
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 2,748 | $ | 2,429 | 13 | % | 11 | % | ||||||||
RTMs (millions)
|
49,581 | 46,291 | 7 | % | 7 | % | ||||||||||
Revenue/RTM (cents)
|
5.54 | 5.25 | 6 | % | 3 | % |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 620 | $ | 555 | 12 | % | 6 | % | ||||||||
RTMs (millions)
|
3,159 | 2,741 | 15 | % | 15 | % | ||||||||||
Revenue/RTM (cents)
|
19.63 | 20.25 | (3 | %) | (8 | %) |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 679 | $ | 624 | 9 | % | 4 | % |
22
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
% Change
|
Percentage of revenues
|
||||||||||||||||||||||||
at constant
|
|||||||||||||||||||||||||
In millions
|
Year ended December 31,
|
2014
|
2013
|
% Change
|
currency
|
2014
|
2013
|
||||||||||||||||||
Labor and fringe benefits
|
$ | 2,319 | $ | 2,182 | (6 | %) | (4 | %) | 19.1 | % | 20.6 | % | |||||||||||||
Purchased services and material
|
1,598 | 1,351 | (18 | %) | (15 | %) | 13.2 | % | 12.8 | % | |||||||||||||||
Fuel
|
1,846 | 1,619 | (14 | %) | (7 | %) | 15.2 | % | 15.3 | % | |||||||||||||||
Depreciation and amortization
|
1,050 | 980 | (7 | %) | (5 | %) | 8.7 | % | 9.3 | % | |||||||||||||||
Equipment rents
|
329 | 275 | (20 | %) | (13 | %) | 2.7 | % | 2.6 | % | |||||||||||||||
Casualty and other
|
368 | 295 | (25 | %) | (20 | %) | 3.0 | % | 2.8 | % | |||||||||||||||
Total operating expenses
|
$ | 7,510 | $ | 6,702 | (12 | %) | (8 | %) | 61.9 | % | 63.4 | % |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
23
|
•
|
freight rate increases;
|
•
|
higher freight volumes due to strong energy markets, market share gains, as well as growth in the North American economy;
|
•
|
the positive translation impact of the weaker Canadian dollar on US dollar-denominated revenues; and
|
•
|
higher fuel surcharge revenues, mainly as a result of higher freight volumes.
|
•
|
higher labor and fringe benefits expense;
|
•
|
the negative translation impact of the weaker Canadian dollar on US dollar-denominated expenses; and
|
•
|
increased purchased services and material expense, in part due to weather-related conditions;
|
•
|
partly offset by lower casualty and other expense.
|
24
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions, unless otherwise indicated
|
||||||||||||||||
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Rail freight revenues
|
$ | 9,951 | $ | 9,306 | 7 | % | 5 | % | ||||||||
Other revenues
|
624 | 614 | 2 | % | - | |||||||||||
Total revenues
|
$ | 10,575 | $ | 9,920 | 7 | % | 5 | % | ||||||||
Rail freight revenues
|
||||||||||||||||
Petroleum and chemicals
|
$ | 1,952 | $ | 1,655 | 18 | % | 16 | % | ||||||||
Metals and minerals
|
1,240 | 1,159 | 7 | % | 5 | % | ||||||||||
Forest products
|
1,424 | 1,341 | 6 | % | 4 | % | ||||||||||
Coal
|
713 | 731 | (2 | %) | (4 | %) | ||||||||||
Grain and fertilizers
|
1,638 | 1,613 | 2 | % | - | |||||||||||
Intermodal
|
2,429 | 2,261 | 7 | % | 7 | % | ||||||||||
Automotive
|
555 | 546 | 2 | % | - | |||||||||||
Total rail freight revenues
|
$ | 9,951 | $ | 9,306 | 7 | % | 5 | % | ||||||||
Revenue ton miles (RTM) (millions)
|
210,133 | 201,496 | 4 | % | 4 | % | ||||||||||
Rail freight revenue/RTM (cents)
|
4.74 | 4.62 | 3 | % | 1 | % | ||||||||||
Carloads (thousands)
|
5,190 | 5,059 | 3 | % | 3 | % | ||||||||||
Rail freight revenue/carload (dollars)
|
1,917 | 1,839 | 4 | % | 3 | % |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 1,952 | $ | 1,655 | 18 | % | 16 | % | ||||||||
RTMs (millions)
|
44,634 | 37,449 | 19 | % | 19 | % | ||||||||||
Revenue/RTM (cents)
|
4.37 | 4.42 | (1 | %) | (3 | %) |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 1,240 | $ | 1,159 | 7 | % | 5 | % | ||||||||
RTMs (millions)
|
21,342 | 20,236 | 5 | % | 5 | % | ||||||||||
Revenue/RTM (cents)
|
5.81 | 5.73 | 1 | % | (1 | %) |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 1,424 | $ | 1,341 | 6 | % | 4 | % | ||||||||
RTMs (millions)
|
29,630 | 29,674 | - | - | ||||||||||||
Revenue/RTM (cents)
|
4.81 | 4.52 | 6 | % | 4 | % |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
25
|
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 713 | $ | 731 | (2 | %) | (4 | %) | ||||||||
RTMs (millions)
|
22,315 | 23,570 | (5 | %) | (5 | %) | ||||||||||
Revenue/RTM (cents)
|
3.20 | 3.10 | 3 | % | 2 | % |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 1,638 | $ | 1,613 | 2 | % | - | |||||||||
RTMs (millions)
|
43,180 | 45,417 | (5 | %) | (5 | %) | ||||||||||
Revenue/RTM (cents)
|
3.79 | 3.55 | 7 | % | 5 | % |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 2,429 | $ | 2,261 | 7 | % | 7 | % | ||||||||
RTMs (millions)
|
46,291 | 42,396 | 9 | % | 9 | % | ||||||||||
Revenue/RTM (cents)
|
5.25 | 5.33 | (2 | %) | (2 | %) |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 555 | $ | 546 | 2 | % | - | |||||||||
RTMs (millions)
|
2,741 | 2,754 | - | - | ||||||||||||
Revenue/RTM (cents)
|
20.25 | 19.83 | 2 | % | - |
% Change
|
||||||||||||||||
at constant
|
||||||||||||||||
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
||||||||||||
Revenues (millions)
|
$ | 624 | $ | 614 | 2 | % | - |
26
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
% Change
|
Percentage of revenues
|
||||||||||||||||||||||||
at constant
|
|||||||||||||||||||||||||
In millions
|
Year ended December 31,
|
2013
|
2012
|
% Change
|
currency
|
2013
|
2012
|
||||||||||||||||||
Labor and fringe benefits
|
$ | 2,182 | $ | 1,952 | (12 | %) | (11 | %) | 20.6 | % | 19.7 | % | |||||||||||||
Purchased services and material
|
1,351 | 1,248 | (8 | %) | (7 | %) | 12.8 | % | 12.6 | % | |||||||||||||||
Fuel
|
1,619 | 1,524 | (6 | %) | (3 | %) | 15.3 | % | 15.4 | % | |||||||||||||||
Depreciation and amortization
|
980 | 924 | (6 | %) | (5 | %) | 9.3 | % | 9.3 | % | |||||||||||||||
Equipment rents
|
275 | 249 | (10 | %) | (8 | %) | 2.6 | % | 2.5 | % | |||||||||||||||
Casualty and other
|
295 | 338 | 13 | % | 15 | % | 2.8 | % | 3.4 | % | |||||||||||||||
Total operating expenses
|
$ | 6,702 | $ | 6,235 | (7 | %) | (6 | %) | 63.4 | % | 62.9 | % |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
27
|
2014 Quarters | 2013 Quarters | |||||||||||||||||||||||||||||||
In millions, except per share data
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
||||||||||||||||||||||||
Revenues
|
$ | 3,207 | $ | 3,118 | $ | 3,116 | $ | 2,693 | $ | 2,745 | $ | 2,698 | $ | 2,666 | $ | 2,466 | ||||||||||||||||
Operating income
|
$ | 1,260 | $ | 1,286 | $ | 1,258 | $ | 820 | $ | 967 | $ | 1,084 | $ | 1,042 | $ | 780 | ||||||||||||||||
Net income
|
$ | 844 | $ | 853 | $ | 847 | $ | 623 | $ | 635 | $ | 705 | $ | 717 | $ | 555 | ||||||||||||||||
Basic earnings per share
|
$ | 1.04 | $ | 1.04 | $ | 1.03 | $ | 0.75 | $ | 0.76 | $ | 0.84 | $ | 0.85 | $ | 0.65 | ||||||||||||||||
Diluted earnings per share
|
$ | 1.03 | $ | 1.04 | $ | 1.03 | $ | 0.75 | $ | 0.76 | $ | 0.84 | $ | 0.84 | $ | 0.65 | ||||||||||||||||
Dividends declared per share
|
$ | 0.250 | $ | 0.250 | $ | 0.250 | $ | 0.250 | $ | 0.215 | $ | 0.215 | $ | 0.215 | $ | 0.215 |
2014 Quarters | 2013 Quarters | |||||||||||||||||||||||||||||||
In millions, except per share data
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
||||||||||||||||||||||||
Income tax expenses (1)
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | (19 | ) | $ | (5 | ) | $ | - | ||||||||||||||
After-tax gain on disposal of property (2) (3) (4)
|
- | - | - | 72 | - | - | 18 | 36 | ||||||||||||||||||||||||
Impact on net income
|
$ | - | $ | - | $ | - | $ | 72 | $ | - | $ | (19 | ) | $ | 13 | $ | 36 | |||||||||||||||
Impact on basic earnings per share
|
$ | - | $ | - | $ | - | $ | 0.09 | $ | - | $ | (0.02 | ) | $ | 0.01 | $ | 0.04 | |||||||||||||||
Impact on diluted earnings per share
|
$ | - | $ | - | $ | - | $ | 0.09 | $ | - | $ | (0.02 | ) | $ | 0.01 | $ | 0.04 |
(1)
|
Income tax expenses resulted from the enactment of provincial corporate income tax rate changes.
|
(2)
|
The Company sold the Deux-Montagnes in the first quarter of 2014 for $97 million. A gain on disposal of $80 million ($72 million after-tax) was recognized in Other income.
|
(3)
|
In the second quarter of 2013, the Company entered into an exchange of easements without monetary consideration. A gain of $29 million ($18 million after-tax) was recognized in Other income.
|
(4)
|
The Company sold the Lakeshore West in the first quarter of 2013 for $52 million. A gain on disposal of $40 million ($36 million after-tax) was recognized in Other income.
|
28
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
December 31,
|
2014
|
2013
|
Foreign
exchange
impact
|
Variance
excluding
foreign
exchange
|
Explanation of variance,
other than foreign exchange impact
|
||||||||||||
Total assets
|
$ | 31,792 | $ | 30,163 | $ | 1,134 | $ | 495 | ||||||||||
Variance mainly due to:
|
||||||||||||||||||
Properties
|
28,514 | 26,227 | 1,032 | 1,255 |
Increase primarily due to gross property additions of $2,297 million, partly offset by depreciation of $1,050 million.
|
|||||||||||||
Pension asset
|
882 | 1,662 | - | (780 | ) |
Decrease due primarily to the decrease in the year-end discount rate from 4.73% in 2013 to 3.87% in 2014.
|
||||||||||||
Total liabilities
|
$ | 18,322 | $ | 17,210 | $ | 1,057 | $ | 55 | ||||||||||
Variance mainly due to:
|
||||||||||||||||||
Accounts payable and other
|
1,657 | 1,477 | 49 | 131 |
Increase primarily due to higher income and other taxes payable of $112 million.
|
|||||||||||||
Other liabilities and deferred credits
|
704 | 815 | 37 | (148 | ) |
Decrease primarily due to lower stock-based compensation liabilities of $149 million as a result of the modification of certain stock-based compensation awards from cash settled to equity settled.
|
||||||||||||
Pension and other postretirement benefits
|
650 | 541 | 14 | 95 |
Increase due primarily to the decrease in the year-end discount rate from 4.73% in 2013 to 3.87% in 2014.
|
In millions
|
December 31,
|
2014
|
2013
|
Variance
|
Explanation of variance
|
|||||||||||||
Total shareholders’ equity
|
$ | 13,470 | $ | 12,953 | $ | 517 | ||||||||||||
Variance mainly due to:
|
||||||||||||||||||
Common shares
|
3,718 | 3,795 | (77 | ) |
Decrease due to share repurchases.
|
|||||||||||||
Additional paid-in capital
|
439 | 220 | 219 |
Increase primarily due to the modification of certain stock-based compensation awards from cash settled to equity settled.
|
||||||||||||||
Accumulated other comprehensive loss
|
(2,427 | ) | (1,850 | ) | (577 | ) |
Increase in comprehensive loss due to after-tax amounts
of $728 million to recognize the funded status of the Company’s pension and other postretirement benefit
plans, offset by $151 million for foreign exchange gains and other.
|
|||||||||||
Retained earnings
|
11,740 | 10,788 | 952 |
Increase due to current year net income of $3,167 million, partly offset by share repurchases of $1,397 million and dividends paid of $818 million.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
29
|
30
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
Variance
|
|||||||||
Net cash provided by operating activities
|
$ | 4,381 | $ | 3,548 | $ | 833 | |||||||
Net cash used in investing activities
|
(2,176 | ) | (1,852 | ) | (324 | ) | |||||||
Net cash used in financing activities
|
(2,370 | ) | (1,656 | ) | (714 | ) | |||||||
Effect of foreign exchange fluctuations
|
|||||||||||||
on US dollar-denominated cash and cash equivalents
|
3 | 19 | (16 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents
|
(162 | ) | 59 | (221 | ) | ||||||||
Cash and cash equivalents, beginning of year
|
214 | 155 | 59 | ||||||||||
Cash and cash equivalents, end of year
|
$ | 52 | $ | 214 | $ | (162 | ) |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
31
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
||||||
Track and roadway (1)
|
$ | 1,604 | $ | 1,400 | |||||
Rolling stock
|
325 | 286 | |||||||
Buildings
|
104 | 104 | |||||||
Information technology
|
144 | 130 | |||||||
Other
|
120 | 97 | |||||||
Gross property additions
|
2,297 | 2,017 | |||||||
Less: Capital leases (2)
|
- | 44 | |||||||
Property additions
|
$ | 2,297 | $ | 1,973 |
(1)
|
In both 2014 and 2013, approximately 90% of the Track and roadway property additions were incurred to renew the basic infrastructure. Costs relating to normal repairs and maintenance of Track and roadway properties are expensed as incurred, and amounted to approximately 12% of the Company’s total operating expenses in both 2014 and 2013.
|
(2)
|
During 2013, the Company recorded $44 million in assets it acquired through equipment leases for which an equivalent amount was recorded in debt.
|
•
|
$1.3 billion on track infrastructure to continue operating a safe railway and improve the productivity and fluidity of the network; including the replacement of rail, ties, and other track materials, bridge improvements, as well as various branch line upgrades;
|
•
|
$500 million on equipment capital expenditures, allowing the Company to tap growth opportunities and improve the quality of the fleet; and in order to handle expected traffic increase and improve operational efficiency, CN expects to take delivery of 90 new high-horsepower locomotives; and
|
•
|
$800 million on initiatives to enable growth and drive productivity, such as additional track infrastructure; investments in yards, intermodal terminals, transload and distribution centers; and on information technology to improve service and operating efficiency.
|
32
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
|
•
|
On January 15, 2014, repaid US$325 million 4.95% Notes due 2014 upon maturity;
|
|
•
|
On February 18, 2014, issued $250 million 2.75% Notes due 2021, in the Canadian capital markets, which resulted in net proceeds of $247 million;
|
|
•
|
On November 14, 2014, issued US$250 million (C$284 million) Floating Rate Notes due 2017, and US$350 million (C$398 million) 2.95% Notes due 2024, in the U.S. capital markets, which resulted in net proceeds of US$593 million (C$675 million); and
|
|
•
|
Net repayment of commercial paper of $277 million.
|
|
•
|
On March 12, 2013, through a wholly-owned subsidiary, repurchased 85% of the 4.40% Notes due 2013, with a carrying value of US$340 million pursuant to a tender offer for a total cost of US$341 million, including consent payments. The remaining 15% of the 4.40% Notes with a carrying value of US$60 million were repaid upon maturity;
|
|
•
|
On November 7, 2013, issued US$350 million (C$365 million) Floating Rate Notes due 2015, and US$250 million (C$260 million) 4.50% Notes due 2043, in the U.S. capital markets, which resulted in net proceeds of US$592 million (C$617 million); and
|
|
•
|
Net issuance of commercial paper of $268 million.
|
In millions, except per share data
|
Total
|
|||||||||||||||
Year ended December 31,
|
2014
|
2013
|
2012
|
program
|
||||||||||||
October 2014 – October 2015 program
|
||||||||||||||||
Number of common shares (1)
|
5.6 | N/A | N/A | 5.6 | ||||||||||||
Weighted-average price per share (2)
|
$ | 73.29 | N/A | N/A | $ | 73.29 | ||||||||||
Amount of repurchase
|
$ | 410 | N/A | N/A | $ | 410 | ||||||||||
October 2013 – October 2014 program
|
||||||||||||||||
Number of common shares (1)
|
16.8 | 5.5 | N/A | 22.3 | ||||||||||||
Weighted-average price per share (2)
|
$ | 65.40 | $ | 55.25 | N/A | $ | 62.88 | |||||||||
Amount of repurchase
|
$ | 1,095 | $ | 305 | N/A | $ | 1,400 | |||||||||
October 2012 – October 2013 program
|
||||||||||||||||
Number of common shares (1)
|
N/A | 22.1 | 7.2 | 29.3 | ||||||||||||
Weighted-average price per share (2)
|
N/A | $ | 49.51 | $ | 42.11 | $ | 47.68 | |||||||||
Amount of repurchase
|
N/A | $ | 1,095 | $ | 305 | $ | 1,400 | |||||||||
Total for the year
|
||||||||||||||||
Number of common shares (1)
|
22.4 | 27.6 | 33.8 | (3) | ||||||||||||
Weighted-average price per share (2)
|
$ | 67.38 | $ | 50.65 | $ | 41.36 | ||||||||||
Amount of repurchase
|
$ | 1,505 | $ | 1,400 | $ | 1,400 | (3) |
(1)
|
Includes common shares purchased in the first and fourth quarters of 2014, 2013 and 2012 pursuant to private agreements between the Company and arm’s-length third-party sellers.
|
(2)
|
Includes brokerage fees.
|
(3)
|
Includes repurchases from the October 2011 – October 2012 program, which consists of 26.6 million common shares, a weighted-average price per share of $41.16 and an amount of repurchase of $1,095 million.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
33
|
2020 &
|
||||||||||||||||||||||||||||
In millions
|
Total
|
2015
|
2016
|
2017
|
2018
|
2019
|
thereafter
|
|||||||||||||||||||||
Debt obligations (1)
|
$ | 7,739 | $ | 456 | $ | 634 | $ | 577 | $ | 606 | $ | 636 | $ | 4,830 | ||||||||||||||
Interest on debt obligations (2)
|
5,571 | 366 | 355 | 342 | 313 | 270 | 3,925 | |||||||||||||||||||||
Capital lease obligations (3)
|
815 | 107 | 343 | 164 | 15 | 15 | 171 | |||||||||||||||||||||
Operating lease obligations (4)
|
712 | 155 | 116 | 94 | 77 | 56 | 214 | |||||||||||||||||||||
Purchase obligations (5)
|
1,054 | 719 | 316 | 14 | 3 | - | 2 | |||||||||||||||||||||
Pension contributions (6)
|
1,005 | 87 | 228 | 230 | 230 | 230 | - | |||||||||||||||||||||
Other long-term liabilities reflected on the balance sheet (7)
|
755 | 64 | 39 | 54 | 40 | 37 | 521 | |||||||||||||||||||||
Total contractual obligations
|
$ | 17,651 | $ | 1,954 | $ | 2,031 | $ | 1,475 | $ | 1,284 | $ | 1,244 | $ | 9,663 |
(1)
|
Presented net of unamortized discounts, of which $833 million relates to non-interest bearing Notes due in 2094, and excludes capital lease obligations of $670 million which are included in “Capital lease obligations“. Also includes $50 million outstanding under the accounts receivable securitization program.
|
(2)
|
Interest payments on the floating rate notes are calculated based on the three-month London Interbank Offered Rate effective as at December 31, 2014.
|
(3)
|
Includes $670 million of minimum lease payments and $145 million of imputed interest at rates ranging from 0.7% to 8.5%.
|
(4)
|
Includes minimum rental payments for operating leases having initial non-cancelable lease terms of one year or more. The Company also has operating lease agreements for its automotive fleet with one-year non-cancelable terms for which its practice is to renew monthly thereafter. The estimated annual rental payments for such leases are approximately $25 million and generally extend over five years.
|
(5)
|
Includes commitments for railroad ties, rail, freight cars, locomotives and other equipment and services, and outstanding information technology service contracts and licenses.
|
(6)
|
The Company’s pension contributions are based on actuarial funding valuations. The estimated minimum required payments for pension contributions, excluding current service cost, are based on actuarial funding valuations as at December 31, 2013 that were filed in June 2014. Voluntary contributions can be treated as a prepayment against the Company’s required special solvency deficit payments. As at December 31, 2014, the Company had $143 million of accumulated prepayments under the CN Pension Plan which remain available to offset future required solvency deficit payments. The Company expects to use these prepayments to satisfy a portion of its 2015 required solvency deficit payment. Actuarial valuations are generally required annually and as such, future payments for pension contributions are subject to re-evaluation on an annual basis. See the sections of this MD&A entitled Business risks – Pension funding volatility and Critical accounting estimates – Pensions and other postretirement benefits.
|
(7)
|
Includes expected payments for workers’ compensation, workforce reductions, postretirement benefits other than pensions, net unrecognized tax benefits and environmental liabilities that have been classified as contractual settlement agreements.
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
||||||
Net cash provided by operating activities
|
$ | 4,381 | $ | 3,548 | |||||
Net cash used in investing activities
|
(2,176 | ) | (1,852 | ) | |||||
Net cash provided before financing activities
|
2,205 | 1,696 | |||||||
Adjustment: Change in restricted cash and cash equivalents
|
15 | (73 | ) | ||||||
Free cash flow
|
$ | 2,220 | $ | 1,623 |
34
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Adjusted debt-to-total capitalization ratio
|
||||||||
December 31,
|
2014
|
2013
|
||||||
Debt-to-total capitalization ratio (1)
|
38.4% | 37.7% | ||||||
Add: Impact of present value of operating lease commitments (2)
|
1.7% | 1.7% | ||||||
Adjusted debt-to-total capitalization ratio
|
40.1% | 39.4% | ||||||
Adjusted debt-to-adjusted EBITDA
|
||||||||
In millions, unless otherwise indicated
|
||||||||
Twelve months ended December 31,
|
2014 | 2013 | ||||||
Debt
|
$ | 8,409 | $ | 7,840 | ||||
Add: Present value of operating lease commitments (2)
|
607 | 570 | ||||||
Adjusted debt
|
9,016 | 8,410 | ||||||
Operating income
|
4,624 | 3,873 | ||||||
Add: Depreciation and amortization
|
1,050 | 980 | ||||||
EBITDA (excluding Other income)
|
5,674 | 4,853 | ||||||
Add: Deemed interest on operating leases
|
28 | 28 | ||||||
Adjusted EBITDA
|
$ | 5,702 | $ | 4,881 | ||||
Adjusted debt-to-adjusted EBITDA
|
1.58 times
|
1.72 times
|
(1)
|
Debt-to-total capitalization is calculated as total long-term debt plus current portion of long-term debt, divided by the sum of total debt plus total shareholders’ equity.
|
(2)
|
The operating lease commitments have been discounted using the Company’s implicit interest rate for each of the periods presented.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
35
|
36
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
37
|
38
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
December 31,
|
2014
|
2013
|
||||||
Pension asset
|
$ | 882 | $ | 1,662 | |||||
Pension liability
|
400 | 303 | |||||||
Other postretirement benefits liability
|
267 | 256 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
39
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Net periodic benefit cost (income) for pensions
|
$ | (4 | ) | $ | 90 | $ | (9 | ) | |||||
Net periodic benefit cost for other postretirement benefits
|
12 | 14 | 14 |
In millions
|
December 31,
|
2014
|
2013
|
||||||
Projected pension benefit obligation
|
$ | 17,279 | $ | 15,510 | |||||
Accumulated other postretirement benefit obligation
|
267 | 256 |
40
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
2014
|
2013
|
2012
|
2011
|
2010
|
||||||||||||||||
Actual
|
10.1 | % | 11.2 | % | 7.7 | % | 0.3 | % | 8.7 | % | ||||||||||
Market-related value
|
7.6 | % | 7.3 | % | 2.3 | % | 3.0 | % | 4.8 | % | ||||||||||
Expected
|
7.00 | % | 7.00 | % | 7.25 | % | 7.50 | % | 7.75 | % |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
41
|
CN
|
BC Rail
|
U.S. and
|
|||||||||||||||
In millions
|
December 31, 2014
|
Pension Plan
|
Pension Plan
|
other plans
|
Total
|
||||||||||||
Plan assets by category
|
|||||||||||||||||
Cash and short-term investments
|
$ | 536 | $ | 20 | $ | 23 | $ | 579 | |||||||||
Bonds
|
4,776 | 196 | 93 | 5,065 | |||||||||||||
Mortgages
|
126 | 4 | 1 | 131 | |||||||||||||
Equities
|
6,681 | 215 | 118 | 7,014 | |||||||||||||
Real estate
|
306 | 10 | 1 | 317 | |||||||||||||
Oil and gas
|
1,325 | 43 | 6 | 1,374 | |||||||||||||
Infrastructure
|
853 | 28 | 4 | 885 | |||||||||||||
Absolute return
|
1,685 | 54 | 7 | 1,746 | |||||||||||||
Risk-based allocation
|
612 | 20 | 3 | 635 | |||||||||||||
Other (1)
|
5 | 1 | 9 | 15 | |||||||||||||
Total plan assets
|
$ | 16,905 | $ | 591 | $ | 265 | $ | 17,761 | |||||||||
Projected benefit obligation at end of year
|
$ | 16,059 | $ | 561 | $ | 659 | $ | 17,279 | |||||||||
Company contributions in 2014
|
90 | 1 | 20 | 111 | |||||||||||||
Employee contributions in 2014
|
58 | - | - | 58 |
(1)
|
Other consists of operating assets of $145 million ($85 million in 2013) and liabilities of $130 million ($24 million in 2013) required to administer the trust funds’ investment assets and the plans’ benefit and funding activities.
|
42
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
2014
|
2013
|
2012
|
|||||||||
Beginning of year
|
$ | 210 | $ | 209 | $ | 199 | ||||||
Accruals and other
|
28 | 38 | 55 | |||||||||
Payments
|
(35 | ) | (37 | ) | (45 | ) | ||||||
End of year
|
$ | 203 | $ | 210 | $ | 209 | ||||||
Current portion – End of year
|
$ | 28 | $ | 31 | $ | 39 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
43
|
In millions
|
2014
|
2013
|
2012
|
|||||||||
Beginning of year
|
$ | 106 | $ | 105 | $ | 111 | ||||||
Accruals and other
|
2 | 18 | 31 | |||||||||
Payments
|
(22 | ) | (24 | ) | (34 | ) | ||||||
Foreign exchange
|
9 | 7 | (3 | ) | ||||||||
End of year
|
$ | 95 | $ | 106 | $ | 105 | ||||||
Current portion – End of year
|
$ | 20 | $ | 14 | $ | 43 |
In millions
|
2014
|
2013
|
2012
|
|||||||||
Beginning of year
|
$ | 119 | $ | 123 | $ | 152 | ||||||
Accruals and other
|
11 | 12 | (4 | ) | ||||||||
Payments
|
(19 | ) | (18 | ) | (24 | ) | ||||||
Foreign exchange
|
3 | 2 | (1 | ) | ||||||||
End of year
|
$ | 114 | $ | 119 | $ | 123 | ||||||
Current portion – End of year
|
$ | 45 | $ | 41 | $ | 31 |
(a)
|
the lack of specific technical information available with respect to many sites;
|
(b)
|
the absence of any government authority, third-party orders, or claims with respect to particular sites;
|
44
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
(c)
|
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; and
|
(d)
|
the determination of the Company’s liability in proportion to other potentially responsible parties and the ability to recover costs from any third parties with respect to particular sites.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
45
|
•
|
Unifor (formerly Canadian Auto Workers (CAW)) governing clerical, intermodal, shopcraft employees and owner operator truck drivers;
|
•
|
the Teamsters Canada Rail Conference governing rail traffic controllers (TCRC-RCTC);
|
46
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
|
•
|
the Teamsters Canada Rail Conference governing locomotive engineers (TCRC-LE); and
|
|
•
|
the United Steelworkers of America (USW) governing track workers.
|
(a)
|
the Government to specify minimum amounts of grain to be moved in future grain crop years;
|
(b)
|
the Agency to extend current interswitching limits for specific regions or specific commodities;
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
47
|
(c)
|
the Agency to make regulations specifying what constitutes ‘operational terms’ for the purpose of the establishment of service level agreements; and
|
(d)
|
the Agency to order a railway company to pay shippers for expenses incurred as a result of the railway’s failure to fulfill its service obligations.
|
48
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
49
|
50
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
51
|
(a)
|
Border security arrangements, pursuant to an agreement the Company and Canadian Pacific Railway Company entered into with the CBP and the CBSA.
|
(b)
|
The CBP’s Customs-Trade Partnership Against Terrorism (C-TPAT) program and designation as a low-risk carrier under CBSA’s Customs Self-Assessment (CSA) program.
|
(c)
|
Regulations imposed by the CBP requiring advance notification by all modes of transportation for all shipments into the U.S. The CBSA is also working on similar requirements for Canada-bound traffic.
|
(d)
|
Inspection for imported fruits and vegetables grown in Canada and the agricultural quarantine and inspection (AQI) user fee for all traffic entering the U.S. from Canada.
|
(e)
|
Gamma ray screening of cargo entering the U.S. from Canada, and potential security and agricultural inspections at the Canada/U.S. border.
|
52
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
(a)
|
The PHMSA requires carriers operating in the U.S. to report annually the volume and route-specific data for cars containing these commodities; conduct a safety and security risk analysis for each used route; identify a commercially practicable alternative route for each used route; and select for use the practical route posing the least safety and security risk.
|
(b)
|
The TSA requires rail carriers to provide upon request, within five minutes for a single car and 30 minutes for multiple cars, location and shipping information on cars on their networks containing toxic inhalation hazard materials and certain radioactive or explosive materials; and ensure the secure, attended transfer of all such cars to and from shippers, receivers and other carriers that will move from, to, or through designated high-threat urban areas.
|
(c)
|
The PHMSA has issued regulations to enhance the crashworthiness protection of tank cars used to transport toxic inhalation hazard materials and to limit the operating conditions of such cars.
|
(d)
|
In Canada, the Transportation of Dangerous Goods Act establishes the safety requirements for the transportation of goods classified as dangerous and enables the establishment of regulations for security training and screening of personnel working with dangerous goods, as well as the development of a program to require a transportation security clearance for dangerous goods and that dangerous goods be tracked during transport.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
53
|
54
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
55
|
*
|
FCPA auditor, FCA, public accountancy permit No. A106087
|
56
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
*
|
FCPA auditor, FCA, public accountancy permit No. A106087
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
57
|
In millions, except per share data
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Revenues
|
$ | 12,134 | $ | 10,575 | $ | 9,920 | |||||||
Operating expenses
|
|||||||||||||
Labor and fringe benefits
|
2,319 | 2,182 | 1,952 | ||||||||||
Purchased services and material
|
1,598 | 1,351 | 1,248 | ||||||||||
Fuel
|
1,846 | 1,619 | 1,524 | ||||||||||
Depreciation and amortization
|
1,050 | 980 | 924 | ||||||||||
Equipment rents
|
329 | 275 | 249 | ||||||||||
Casualty and other
|
368 | 295 | 338 | ||||||||||
Total operating expenses
|
7,510 | 6,702 | 6,235 | ||||||||||
Operating income
|
4,624 | 3,873 | 3,685 | ||||||||||
Interest expense
|
(371 | ) | (357 | ) | (342 | ) | |||||||
Other income (Note 3)
|
107 | 73 | 315 | ||||||||||
Income before income taxes
|
4,360 | 3,589 | 3,658 | ||||||||||
Income tax expense (Note 4)
|
(1,193 | ) | (977 | ) | (978 | ) | |||||||
Net income
|
$ | 3,167 | $ | 2,612 | $ | 2,680 | |||||||
Earnings per share (Note 5)
|
|||||||||||||
Basic
|
$ | 3.86 | $ | 3.10 | $ | 3.08 | |||||||
Diluted
|
$ | 3.85 | $ | 3.09 | $ | 3.06 | |||||||
Weighted-average number of shares (Note 5)
|
|||||||||||||
Basic
|
819.9 | 843.1 | 871.1 | ||||||||||
Diluted
|
823.5 | 846.1 | 875.4 |
58
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Net income
|
$ | 3,167 | $ | 2,612 | $ | 2,680 | |||||||
Other comprehensive income (loss) (Note 15)
|
|||||||||||||
Net gain (loss) on foreign currency translation
|
75 | 46 | (5 | ) | |||||||||
Net change in pension and other postretirement benefit plans (Note 12)
|
(995 | ) | 1,775 | (540 | ) | ||||||||
Amortization of gain on treasury lock
|
(1 | ) | - | - | |||||||||
Other comprehensive income (loss) before income taxes
|
(921 | ) | 1,821 | (545 | ) | ||||||||
Income tax recovery (expense)
|
344 | (414 | ) | 127 | |||||||||
Other comprehensive income (loss)
|
(577 | ) | 1,407 | (418 | ) | ||||||||
Comprehensive income
|
$ | 2,590 | $ | 4,019 | $ | 2,262 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
59
|
In millions
|
December 31,
|
2014
|
2013
|
||||||
Assets
|
|||||||||
Current assets
|
|||||||||
Cash and cash equivalents
|
$ | 52 | $ | 214 | |||||
Restricted cash and cash equivalents (Note 10)
|
463 | 448 | |||||||
Accounts receivable (Note 6)
|
928 | 815 | |||||||
Material and supplies
|
335 | 274 | |||||||
Deferred and receivable income taxes (Note 4)
|
163 | 137 | |||||||
Other
|
125 | 89 | |||||||
Total current assets
|
2,066 | 1,977 | |||||||
Properties (Note 7)
|
28,514 | 26,227 | |||||||
Pension asset (Note 12)
|
882 | 1,662 | |||||||
Intangible and other assets (Note 8)
|
330 | 297 | |||||||
Total assets
|
$ | 31,792 | $ | 30,163 |
Liabilities and shareholders’ equity
|
|||||||||
Current liabilities
|
|||||||||
Accounts payable and other (Note 9)
|
$ | 1,657 | $ | 1,477 | |||||
Current portion of long-term debt (Note 10)
|
544 | 1,021 | |||||||
Total current liabilities
|
2,201 | 2,498 | |||||||
Deferred income taxes (Note 4)
|
6,902 | 6,537 | |||||||
Other liabilities and deferred credits (Note 11)
|
704 | 815 | |||||||
Pension and other postretirement benefits (Note 12)
|
650 | 541 | |||||||
Long-term debt (Note 10)
|
7,865 | 6,819 | |||||||
Shareholders’ equity
|
|||||||||
Common shares (Note 13)
|
3,718 | 3,795 | |||||||
Additional paid-in capital (Note 13)
|
439 | 220 | |||||||
Accumulated other comprehensive loss (Note 15)
|
(2,427 | ) | (1,850 | ) | |||||
Retained earnings
|
11,740 | 10,788 | |||||||
Total shareholders’ equity
|
13,470 | 12,953 | |||||||
Total liabilities and shareholders’ equity
|
$ | 31,792 | $ | 30,163 |
Robert Pace
|
Claude Mongeau
|
Director
|
Director
|
60
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Issued and
|
Common
|
Accumulated
|
||||||||||||||||||
outstanding
|
shares and
|
other
|
Total
|
|||||||||||||||||
common shares
|
additional
|
comprehensive
|
Retained
|
shareholders’
|
||||||||||||||||
In millions
|
(Note 13)
|
paid-in capital
|
loss
|
earnings
|
equity
|
|||||||||||||||
Balance at December 31, 2011
|
884.2 | $ | 4,141 | $ | (2,839 | ) | $ | 9,378 | $ | 10,680 | ||||||||||
Net income
|
2,680 | 2,680 | ||||||||||||||||||
Stock-based compensation and other (Notes 13, 14)
|
6.4 | 128 | 128 | |||||||||||||||||
Share repurchase programs (Note 13)
|
(33.8 | ) | (161 | ) | (1,239 | ) | (1,400 | ) | ||||||||||||
Other comprehensive loss (Note 15)
|
(418 | ) | (418 | ) | ||||||||||||||||
Dividends ($0.75 per share)
|
(652 | ) | (652 | ) | ||||||||||||||||
Balance at December 31, 2012
|
856.8 | 4,108 | (3,257 | ) | 10,167 | 11,018 | ||||||||||||||
Net income
|
2,612 | 2,612 | ||||||||||||||||||
Stock-based compensation and other (Notes 13, 14)
|
1.4 | 40 | 40 | |||||||||||||||||
Share repurchase programs (Note 13)
|
(27.6 | ) | (133 | ) | (1,267 | ) | (1,400 | ) | ||||||||||||
Other comprehensive income (Note 15)
|
1,407 | 1,407 | ||||||||||||||||||
Dividends ($0.86 per share)
|
(724 | ) | (724 | ) | ||||||||||||||||
Balance at December 31, 2013
|
830.6 | 4,015 | (1,850 | ) | 10,788 | 12,953 | ||||||||||||||
Net income
|
3,167 | 3,167 | ||||||||||||||||||
Stock-based compensation and other (Notes 13, 14)
|
1.2 | 250 | 250 | |||||||||||||||||
Share repurchase programs (Note 13)
|
(22.4 | ) | (108 | ) | (1,397 | ) | (1,505 | ) | ||||||||||||
Other comprehensive loss (Note 15)
|
(577 | ) | (577 | ) | ||||||||||||||||
Dividends ($1.00 per share)
|
(818 | ) | (818 | ) | ||||||||||||||||
Balance at December 31, 2014
|
809.4 | $ | 4,157 | $ | (2,427 | ) | $ | 11,740 | $ | 13,470 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
61
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Operating activities
|
|||||||||||||
Net income
|
$ | 3,167 | $ | 2,612 | $ | 2,680 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||||||||
Depreciation and amortization
|
1,050 | 980 | 924 | ||||||||||
Deferred income taxes (Note 4)
|
416 | 331 | 451 | ||||||||||
Gain on disposal of property (Note 3)
|
(80 | ) | (69 | ) | (281 | ) | |||||||
Changes in operating assets and liabilities:
|
|||||||||||||
Accounts receivable
|
(59 | ) | 32 | (20 | ) | ||||||||
Material and supplies
|
(51 | ) | (38 | ) | (30 | ) | |||||||
Accounts payable and other
|
- | (245 | ) | 129 | |||||||||
Other current assets
|
5 | 13 | (13 | ) | |||||||||
Pensions and other, net
|
(67 | ) | (68 | ) | (780 | ) | |||||||
Net cash provided by operating activities
|
4,381 | 3,548 | 3,060 | ||||||||||
Investing activities
|
|||||||||||||
Property additions
|
(2,297 | ) | (1,973 | ) | (1,731 | ) | |||||||
Disposal of property (Note 3)
|
173 | 52 | 311 | ||||||||||
Change in restricted cash and cash equivalents
|
(15 | ) | 73 | (22 | ) | ||||||||
Other, net
|
(37 | ) | (4 | ) | 21 | ||||||||
Net cash used in investing activities
|
(2,176 | ) | (1,852 | ) | (1,421 | ) | |||||||
Financing activities
|
|||||||||||||
Issuance of debt (Note 10)
|
1,022 | 1,582 | 493 | ||||||||||
Repayment of debt (Note 10)
|
(822 | ) | (1,413 | ) | (58 | ) | |||||||
Net issuance (repayment) of commercial paper (Note 10)
|
(277 | ) | 268 | (82 | ) | ||||||||
Issuance of common shares due to exercise of stock options and related excess tax benefits realized (Note 14)
|
30 | 31 | 117 | ||||||||||
Repurchase of common shares (Note 13)
|
(1,505 | ) | (1,400 | ) | (1,400 | ) | |||||||
Dividends paid
|
(818 | ) | (724 | ) | (652 | ) | |||||||
Net cash used in financing activities
|
(2,370 | ) | (1,656 | ) | (1,582 | ) | |||||||
Effect of foreign exchange fluctuations on US dollar-denominated cash and cash equivalents
|
3 | 19 | (3 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents
|
(162 | ) | 59 | 54 | |||||||||
Cash and cash equivalents, beginning of year
|
214 | 155 | 101 | ||||||||||
Cash and cash equivalents, end of year
|
$ | 52 | $ | 214 | $ | 155 | |||||||
Supplemental cash flow information
|
|||||||||||||
Net cash receipts from customers and other
|
$ | 12,029 | $ | 10,640 | $ | 9,877 | |||||||
Net cash payments for:
|
|||||||||||||
Employee services, suppliers and other expenses
|
(6,333 | ) | (5,558 | ) | (5,241 | ) | |||||||
Interest
|
(409 | ) | (344 | ) | (364 | ) | |||||||
Personal injury and other claims (Note 16)
|
(57 | ) | (61 | ) | (79 | ) | |||||||
Pensions (Note 12)
|
(127 | ) | (239 | ) | (844 | ) | |||||||
Income taxes (Note 4)
|
(722 | ) | (890 | ) | (289 | ) | |||||||
Net cash provided by operating activities
|
$ | 4,381 | $ | 3,548 | $ | 3,060 |
62
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
63
|
1
|
Summary of significant accounting policies continued
|
|
•
|
Grading: installation of road bed, retaining walls, drainage structures;
|
|
•
|
Rail and related track material: installation of 39 or more continuous feet of rail;
|
|
•
|
Ties: installation of 5 or more ties per 39 feet;
|
|
•
|
Ballast: installation of 171 cubic yards of ballast per mile.
|
64
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
(a)
|
the cost of pension benefits provided in exchange for employees’ services rendered during the year;
|
(b)
|
the interest cost of pension obligations;
|
(c)
|
the expected long-term return on pension fund assets;
|
(d)
|
the amortization of prior service costs and amendments over the expected average remaining service life of the employee group covered by the plans; and
|
(e)
|
the amortization of cumulative net actuarial gains and losses in excess of 10% of the greater of the beginning of year balances of the projected benefit obligation or market-related value of plan assets, over the expected average remaining service life of the employee group covered by the plans.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
65
|
1
|
Summary of significant accounting policies continued
|
66
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Gain on disposal of property (1)
|
$ | 99 | $ | 64 | $ | 295 | |||||||
Gain on disposal of land
|
21 | 19 | 20 | ||||||||||
Other (2)
|
(13 | ) | (10 | ) | - | ||||||||
Total other income
|
$ | 107 | $ | 73 | $ | 315 |
(1)
|
In addition to the disposals of property described herein, 2014 includes other gains of $19 million; 2013 includes other losses of $5 million; and 2012 includes other gains of $14 million.
|
(2)
|
Includes foreign exchange gains and losses.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
67
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Canadian statutory federal tax rate
|
15.0% | 15.0% | 15.0% | ||||||||||
Income tax expense at the
|
|||||||||||||
Canadian statutory federal tax rate
|
$ | 654 | $ | 538 | $ | 549 | |||||||
Income tax expense (recovery) resulting from:
|
|||||||||||||
Provincial and foreign taxes (1)
|
531 | 423 | 425 | ||||||||||
Deferred income tax adjustments due to rate enactments (2)
|
- | 24 | 35 | ||||||||||
Gain on disposals (3)
|
(19 | ) | (9 | ) | (44 | ) | |||||||
Other (4)
|
27 | 1 | 13 | ||||||||||
Income tax expense
|
$ | 1,193 | $ | 977 | $ | 978 | |||||||
Cash payments for income taxes
|
$ | 722 | $ | 890 | $ | 289 |
(1)
|
Includes mainly Canadian provincial taxes and U.S. federal and state taxes.
|
(2)
|
Includes the net income tax expense resulting from the enactment of provincial and state corporate tax rates.
|
(3)
|
Relates to the permanent differences arising from lower capital gain tax rates on the gain on disposal of the Company’s properties in Canada.
|
(4)
|
Includes adjustments relating to the resolution of matters pertaining to prior years’ income taxes, including net recognized tax benefits, and other items.
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Income before income taxes
|
|||||||||||||
Domestic
|
$ | 3,042 | $ | 2,445 | $ | 2,656 | |||||||
Foreign
|
1,318 | 1,144 | 1,002 | ||||||||||
Total income before income taxes
|
$ | 4,360 | $ | 3,589 | $ | 3,658 | |||||||
Current income tax expense
|
|||||||||||||
Domestic
|
$ | 522 | $ | 404 | $ | 314 | |||||||
Foreign
|
255 | 242 | 213 | ||||||||||
Total current income tax expense
|
$ | 777 | $ | 646 | $ | 527 | |||||||
Deferred income tax expense
|
|||||||||||||
Domestic
|
$ | 271 | $ | 279 | $ | 370 | |||||||
Foreign
|
145 | 52 | 81 | ||||||||||
Total deferred income tax expense
|
$ | 416 | $ | 331 | $ | 451 |
In millions
|
December 31,
|
2014
|
2013
|
||||||
Deferred income tax assets
|
|||||||||
Pension liability
|
$ | 120 | $ | 89 | |||||
Personal injury and legal claims
|
60 | 64 | |||||||
Environmental and other reserves
|
173 | 171 | |||||||
Other postretirement benefits liability
|
80 | 77 | |||||||
Net operating losses and tax credit carryforwards (1)
|
20 | 19 | |||||||
Total deferred income tax assets
|
$ | 453 | $ | 420 | |||||
Deferred income tax liabilities
|
|||||||||
Properties
|
$ | 6,946 | $ | 6,232 | |||||
Pension asset
|
232 | 438 | |||||||
Other
|
109 | 213 | |||||||
Total deferred income tax liabilities
|
$ | 7,287 | $ | 6,883 | |||||
Total net deferred income tax liability
|
$ | 6,834 | $ | 6,463 | |||||
Total net deferred income tax liability
|
|||||||||
Domestic
|
$ | 2,841 | $ | 2,920 | |||||
Foreign
|
3,993 | 3,543 | |||||||
Total net deferred income tax liability
|
$ | 6,834 | $ | 6,463 | |||||
Total net deferred income tax liability
|
$ | 6,834 | $ | 6,463 | |||||
Net current deferred income tax asset
|
68 | 74 | |||||||
Net noncurrent deferred income tax liability
|
$ | 6,902 | $ | 6,537 |
(1)
|
Net operating losses and tax credit carryforwards will expire between the years 2017 and 2034.
|
68
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Gross unrecognized tax benefits at beginning of year
|
$ | 30 | $ | 36 | $ | 46 | |||||||
Increases for:
|
|||||||||||||
Tax positions related to the current year
|
3 | 2 | 1 | ||||||||||
Tax positions related to prior years
|
3 | 4 | 3 | ||||||||||
Decreases for:
|
|||||||||||||
Tax positions related to prior years
|
- | (4 | ) | - | |||||||||
Settlements
|
- | (8 | ) | (13 | ) | ||||||||
Lapse of the applicable statute of limitations
|
(1 | ) | - | (1 | ) | ||||||||
Gross unrecognized tax benefits at end of year
|
$ | 35 | $ | 30 | $ | 36 | |||||||
Adjustments to reflect tax treaties and other arrangements
|
(6 | ) | (5 | ) | (6 | ) | |||||||
Net unrecognized tax benefits at end of year
|
$ | 29 | $ | 25 | $ | 30 |
In millions, except per share data
|
||||||||||||
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Net income
|
$ | 3,167 | $ | 2,612 | $ | 2,680 | ||||||
Weighted-average basic shares outstanding
|
819.9 | 843.1 | 871.1 | |||||||||
Effect of stock-based compensation
|
3.6 | 3.0 | 4.3 | |||||||||
Weighted-average diluted shares outstanding
|
823.5 | 846.1 | 875.4 | |||||||||
Basic earnings per share
|
$ | 3.86 | $ | 3.10 | $ | 3.08 | ||||||
Diluted earnings per share
|
$ | 3.85 | $ | 3.09 | $ | 3.06 |
In millions
|
December 31,
|
2014
|
2013
|
||||||
Freight
|
$ | 777 | $ | 675 | |||||
Non-freight
|
160 | 147 | |||||||
Gross accounts receivable
|
937 | 822 | |||||||
Allowance for doubtful accounts
|
(9 | ) | (7 | ) | |||||
Net accounts receivable
|
$ | 928 | $ | 815 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
69
|
December 31, 2014
|
December 31, 2013
|
|||||||||||||||||||||||||||
Depreciation
|
Accumulated
|
Accumulated
|
||||||||||||||||||||||||||
In millions
|
rate
|
Cost
|
depreciation
|
Net
|
Cost
|
depreciation
|
Net
|
|||||||||||||||||||||
Properties including capital leases
|
||||||||||||||||||||||||||||
Track and roadway (1)
|
2 | % | $ | 29,995 | $ | 7,332 | $ | 22,663 | $ | 27,833 | $ | 7,103 | $ | 20,730 | ||||||||||||||
Rolling stock
|
5 | % | 5,552 | 2,107 | 3,445 | 5,193 | 1,894 | 3,299 | ||||||||||||||||||||
Buildings
|
2 | % | 1,545 | 560 | 985 | 1,392 | 521 | 871 | ||||||||||||||||||||
Information technology (2)
|
11 | % | 1,068 | 492 | 576 | 1,000 | 455 | 545 | ||||||||||||||||||||
Other
|
5 | % | 1,549 | 704 | 845 | 1,388 | 606 | 782 | ||||||||||||||||||||
Total properties including capital leases
|
$ | 39,709 | $ | 11,195 | $ | 28,514 | $ | 36,806 | $ | 10,579 | $ | 26,227 | ||||||||||||||||
Capital leases included in properties
|
||||||||||||||||||||||||||||
Track and roadway (3)
|
$ | 417 | $ | 63 | $ | 354 | $ | 417 | $ | 58 | $ | 359 | ||||||||||||||||
Rolling stock
|
808 | 292 | 516 | 982 | 358 | 624 | ||||||||||||||||||||||
Buildings
|
109 | 23 | 86 | 109 | 21 | 88 | ||||||||||||||||||||||
Other
|
108 | 29 | 79 | 102 | 22 | 80 | ||||||||||||||||||||||
Total capital leases included in properties
|
$ | 1,442 | $ | 407 | $ | 1,035 | $ | 1,610 | $ | 459 | $ | 1,151 |
(1)
|
Includes $2,079 million and $1,911 million of land as at December 31, 2014 and December 31, 2013, respectively.
|
(2)
|
The Company capitalized $102 million in 2014 and $85 million in 2013 of internally developed software costs pursuant to FASB ASC 350-40, Intangibles – Goodwill and Other, Internal – Use Software.
|
(3)
|
Includes $108 million of right-of-way access in both years.
|
In millions
|
December 31,
|
2014
|
2013
|
||||||
Deferred and long-term receivables
|
$ | 141 | $ | 109 | |||||
Intangible assets
|
62 | 59 | |||||||
Investments (1) (2)
|
58 | 57 | |||||||
Other
|
69 | 72 | |||||||
Total intangible and other assets
|
$ | 330 | $ | 297 |
(1)
|
As at December 31, 2014, the Company had $47 million ($46 million as at December 31, 2013) of investments accounted for under the equity method and $11 million ($11 million as at December 31, 2013) of investments accounted for under the cost method.
|
(2)
|
See Note 17 – Financial instruments, for the fair value of Investments.
|
In millions
|
December 31,
|
2014
|
2013
|
||||||
Trade payables
|
$ | 464 | $ | 408 | |||||
Payroll-related accruals
|
317 | 351 | |||||||
Income and other taxes
|
208 | 96 | |||||||
Accrued charges
|
166 | 156 | |||||||
Stock-based compensation liability (Note 14)
|
106 | 80 | |||||||
Accrued interest
|
95 | 125 | |||||||
Personal injury and other claims provisions (Note 16)
|
48 | 45 | |||||||
Environmental provisions (Note 16)
|
45 | 41 | |||||||
Other postretirement benefits liability (Note 12)
|
17 | 18 | |||||||
Other
|
191 | 157 | |||||||
Total accounts payable and other
|
$ | 1,657 | $ | 1,477 |
70
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Outstanding
|
|||||||||||||||||
US dollar-
|
|||||||||||||||||
denominated
|
December 31,
|
||||||||||||||||
In millions
|
Maturity
|
amount
|
2014
|
2013
|
|||||||||||||
Notes and debentures (1)
|
|||||||||||||||||
Canadian National series:
|
|||||||||||||||||
4.95 | % |
6-year notes (2)
|
Jan. 15, 2014
|
US$
|
- | $ | - | $ | 346 | ||||||||
- |
2-year floating rate notes (3)
|
Nov. 6, 2015
|
350 | 406 | 372 | ||||||||||||
5.80 | % |
10-year notes (2)
|
June 1, 2016
|
250 | 290 | 266 | |||||||||||
1.45 | % |
5-year notes (2)
|
Dec. 15, 2016
|
300 | 348 | 319 | |||||||||||
- |
3-year floating rate notes (3)
|
Nov. 14, 2017
|
250 | 290 | - | ||||||||||||
5.85 | % |
10-year notes (2)
|
Nov. 15, 2017
|
250 | 290 | 266 | |||||||||||
5.55 | % |
10-year notes (2)
|
May 15, 2018
|
325 | 377 | 346 | |||||||||||
6.80 | % |
20-year notes (2)
|
July 15, 2018
|
200 | 232 | 213 | |||||||||||
5.55 | % |
10-year notes (2)
|
Mar. 1, 2019
|
550 | 638 | 585 | |||||||||||
2.75 | % |
7-year notes (2)
|
Feb. 18, 2021
|
250 | - | ||||||||||||
2.85 | % |
10-year notes (2)
|
Dec. 15, 2021
|
400 | 464 | 425 | |||||||||||
2.25 | % |
10-year notes (2)
|
Nov. 15, 2022
|
250 | 290 | 266 | |||||||||||
7.63 | % |
30-year debentures
|
May 15, 2023
|
150 | 174 | 159 | |||||||||||
2.95 | % |
10-year notes (2)
|
Nov. 21, 2024
|
350 | 406 | - | |||||||||||
6.90 | % |
30-year notes (2)
|
July 15, 2028
|
475 | 551 | 505 | |||||||||||
7.38 | % |
30-year debentures (2)
|
Oct. 15, 2031
|
200 | 232 | 213 | |||||||||||
6.25 | % |
30-year notes (2)
|
Aug. 1, 2034
|
500 | 581 | 532 | |||||||||||
6.20 | % |
30-year notes (2)
|
June 1, 2036
|
450 | 522 | 479 | |||||||||||
6.71 | % |
Puttable Reset Securities PURSSM (2)
|
July 15, 2036
|
250 | 290 | 266 | |||||||||||
6.38 | % |
30-year debentures (2)
|
Nov. 15, 2037
|
300 | 348 | 319 | |||||||||||
3.50 | % |
30-year notes (2)
|
Nov. 15, 2042
|
250 | 290 | 266 | |||||||||||
4.50 | % |
30-year notes (2)
|
Nov. 7, 2043
|
250 | 290 | 266 | |||||||||||
Illinois Central series:
|
|||||||||||||||||
5.00 | % |
99-year income debentures
|
Dec. 1, 2056
|
- | - | 7 | |||||||||||
7.70 | % |
100-year debentures
|
Sep. 15, 2096
|
125 | 145 | 133 | |||||||||||
BC Rail series:
|
|||||||||||||||||
Non-interest bearing 90-year subordinated notes (4)
|
July 14, 2094
|
842 | 842 | ||||||||||||||
Total notes and debentures
|
US$
|
6,425 | $ | 8,546 | $ | 7,391 | |||||||||||
Other
|
|||||||||||||||||
Commercial paper
|
- | 273 | |||||||||||||||
Accounts receivable securitization
|
50 | 250 | |||||||||||||||
Capital lease obligations
|
670 | 783 | |||||||||||||||
Total debt, gross
|
9,266 | 8,697 | |||||||||||||||
Less: Net unamortized discount
|
857 | 857 | |||||||||||||||
Total debt (5)
|
8,409 | 7,840 | |||||||||||||||
Less: Current portion of long-term debt
|
544 | 1,021 | |||||||||||||||
Total long-term debt
|
$ | 7,865 | $ | 6,819 |
(1)
|
The Company’s notes, debentures and revolving credit facility are unsecured.
|
(2)
|
The fixed rate debt securities are redeemable, in whole or in part, at the option of the Company, at any time, at the greater of par and a formula price based on interest rates prevailing at the time of redemption.
|
(3)
|
These 2-year and 3-year floating rate notes bear interest at the three-month London Interbank Offered Rate (LIBOR) plus 0.20% and LIBOR plus 0.17%, respectively. The interest rate on the 2-year floating rate notes as at December 31, 2014 was 0.43% (0.44% as at December 31, 2013). The interest rate on the 3-year floating rate notes issued in 2014 was 0.40%.
|
(4)
|
The Company records these notes as a discounted debt of $9 million, using an imputed interest rate of 5.75%. The discount of $833 million is included in the net unamortized discount.
|
(5)
|
See Note 17 – Financial instruments, for the fair value of debt.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
71
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Issuances of commercial paper
|
$ | 2,443 | $ | 3,255 | $ | 1,861 | |||||||
Repayments of commercial paper
|
(2,720 | ) | (2,987 | ) | (1,943 | ) | |||||||
Net issuance (repayment) of commercial paper
|
$ | (277 | ) | $ | 268 | $ | (82 | ) |
72
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Capital
|
||||||||||||
In millions
|
leases
|
Debt
|
Total
|
|||||||||
2015(1)
|
$ | 88 | $ | 456 | $ | 544 | ||||||
2016
|
311 | 634 | 945 | |||||||||
2017
|
152 | 577 | 729 | |||||||||
2018
|
8 | 606 | 614 | |||||||||
2019
|
8 | 636 | 644 | |||||||||
2020 and thereafter
|
103 | 4,830 | 4,933 | |||||||||
Total
|
$ | 670 | $ | 7,739 | $ | 8,409 |
(1)
|
Current portion of long-term debt.
|
In millions
|
December 31,
|
2014
|
2013
|
|||||
Notes and debentures
|
US $
|
6,425 |
US $
|
6,157 | ||||
Capital lease obligations
|
448 | 573 | ||||||
Total amount of US dollar-denominated debt in US$
|
US $
|
6,873 |
US $
|
6,730 | ||||
Total amount of US dollar-denominated debt in C$
|
$ | 7,973 | $ | 7,158 |
In millions
|
December 31,
|
2014
|
2013
|
||||||
Personal injury and other claims provisions, net of current portion (Note 16)
|
$ | 250 | $ | 271 | |||||
Stock-based compensation liability, net of current portion (Note 14)
|
91 | 240 | |||||||
Environmental provisions, net of current portion (Note 16)
|
69 | 78 | |||||||
Deferred credits and other
|
294 | 226 | |||||||
Total other liabilities and deferred credits
|
$ | 704 | $ | 815 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
73
|
74
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Target
|
Percentage
|
|||||||||||
long-term
|
of plan assets
|
|||||||||||
asset mix
|
2014
|
2013
|
||||||||||
Cash and short-term investments
|
3% | 3 | % | 5 | % | |||||||
Bonds and mortgages
|
37% | 29 | % | 25 | % | |||||||
Equities
|
45% | 39 | % | 41 | % | |||||||
Real estate
|
4% | 2 | % | 2 | % | |||||||
Oil and gas
|
7% | 8 | % | 8 | % | |||||||
Infrastructure
|
4% | 5 | % | 5 | % | |||||||
Absolute return
|
- | 10 | % | 10 | % | |||||||
Risk-based allocation
|
- | 4 | % | 4 | % | |||||||
Total
|
100% | 100 | % | 100 | % |
(a)
|
Cash and short-term investments consist primarily of highly liquid securities which ensure adequate cash flows are available to cover near-term benefit payments. Short-term investments are mainly obligations issued by Canadian chartered banks.
|
(b)
|
Bonds include bond instruments, issued or guaranteed by governments and corporate entities, as well as corporate notes. As at December 31, 2014, 82% of bonds were issued or guaranteed by Canadian, U.S. or other governments. Mortgages consist of mortgage products which are primarily conventional or participating loans secured by commercial properties.
|
(c)
|
Equity investments are primarily publicly traded securities, well diversified by country, issuer and industry sector. In 2014, the most significant allocation to an individual issuer was approximately 2% and the most significant allocation to an industry sector was approximately 23%.
|
(d)
|
Real estate is a diversified portfolio of Canadian land and commercial properties held by the Trusts’ wholly-owned subsidiaries.
|
(e)
|
Oil and gas investments include petroleum and natural gas properties operated by the Trusts’ wholly-owned subsidiaries and listed and non-listed Canadian securities of oil and gas companies.
|
(f)
|
Infrastructure investments include participations in private infrastructure funds, public and private debt and publicly traded equity securities of infrastructure and utility companies. Some of these investments are held by the Trusts’ wholly-owned subsidiaries.
|
(g)
|
Absolute return investments are primarily a portfolio of units of externally managed hedge funds, which are invested in various long/short strategies within multi-strategy, fixed income, equities, global macro and commodity funds, as presented in the table of fair value measurement. Managers are monitored on a continuous basis through investment and operational due diligence.
|
(h)
|
Risk-based allocation investments are a portfolio of units of externally managed funds where the overall risk of the asset class is managed in order to capture over time different asset classes risk premiums. Some of these investments are held by the Trusts’ wholly-owned subsidiaries.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
75
|
12 Pensions and other postretirement benefits continued |
Fair value measurements at December 31, 2014
|
||||||||||||||||
In millions
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Cash and short-term investments (1)
|
$ | 579 | $ | 64 | $ | 515 | $ | - | ||||||||
Bonds (2)
|
||||||||||||||||
Canada, U.S. and supranational
|
1,450 | - | 1,450 | - | ||||||||||||
Provinces of Canada and municipalities
|
2,701 | - | 2,701 | - | ||||||||||||
Corporate
|
618 | - | 618 | - | ||||||||||||
Emerging market debt
|
296 | - | 296 | - | ||||||||||||
Mortgages (3)
|
131 | - | 131 | - | ||||||||||||
Equities (4)
|
||||||||||||||||
Canadian
|
2,096 | 2,072 | - | 24 | ||||||||||||
U.S.
|
1,493 | 1,493 | - | - | ||||||||||||
International
|
3,425 | 3,425 | - | - | ||||||||||||
Real estate (5)
|
317 | - | - | 317 | ||||||||||||
Oil and gas (6)
|
1,374 | 349 | 17 | 1,008 | ||||||||||||
Infrastructure (7)
|
885 | 14 | 107 | 764 | ||||||||||||
Absolute return funds (8)
|
||||||||||||||||
Multi-strategy
|
591 | - | 591 | - | ||||||||||||
Fixed income
|
471 | - | 428 | 43 | ||||||||||||
Equity
|
299 | - | 299 | - | ||||||||||||
Global macro
|
384 | - | 384 | - | ||||||||||||
Commodity
|
1 | - | 1 | - | ||||||||||||
Risk-based allocation (9)
|
635 | - | 635 | - | ||||||||||||
Total
|
$ | 17,746 | $ | 7,417 | $ | 8,173 | $ | 2,156 | ||||||||
Other (10)
|
15 | |||||||||||||||
Total plan assets
|
$ | 17,761 |
Fair value measurements at December 31, 2013 | ||||||||||||||||
In millions
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Cash and short-term investments (1)
|
$ | 897 | $ | 16 | $ | 881 | $ | - | ||||||||
Bonds (2)
|
||||||||||||||||
Canada, U.S. and supranational
|
1,416 | - | 1,416 | - | ||||||||||||
Provinces of Canada and municipalities
|
2,297 | - | 2,297 | - | ||||||||||||
Corporate
|
111 | - | 111 | - | ||||||||||||
Emerging market debt
|
261 | - | 261 | - | ||||||||||||
Mortgages (3)
|
166 | - | 166 | - | ||||||||||||
Equities (4)
|
||||||||||||||||
Canadian
|
2,160 | 2,138 | - | 22 | ||||||||||||
U.S.
|
1,307 | 1,307 | - | - | ||||||||||||
International
|
3,421 | 3,421 | - | - | ||||||||||||
Real estate (5)
|
299 | - | - | 299 | ||||||||||||
Oil and gas (6)
|
1,380 | 379 | 40 | 961 | ||||||||||||
Infrastructure (7)
|
788 | 10 | 115 | 663 | ||||||||||||
Absolute return funds (8)
|
||||||||||||||||
Multi-strategy
|
460 | - | 460 | - | ||||||||||||
Fixed income
|
519 | - | 486 | 33 | ||||||||||||
Equity
|
391 | 2 | 389 | - | ||||||||||||
Global macro
|
328 | - | 328 | - | ||||||||||||
Risk-based allocation (9)
|
607 | - | 607 | - | ||||||||||||
Total
|
$ | 16,808 | $ | 7,273 | $ | 7,557 | $ | 1,978 | ||||||||
Other (10)
|
61 | |||||||||||||||
Total plan assets
|
$ | 16,869 |
76
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Fair value measurements based on significant unobservable inputs (Level 3) | ||||||||||||||||||||||||
Absolute
|
||||||||||||||||||||||||
In millions
|
Equities
|
(4) |
Real estate
|
(5) |
Oil and gas
|
(6) |
Infrastructure
|
(7) |
return
|
(8) |
Total
|
|||||||||||||
Balance at December 31, 2012
|
$ | 22 | $ | 279 | $ | 940 | $ | 577 | $ | 10 | $ | 1,828 | ||||||||||||
Actual return relating to assets still
|
||||||||||||||||||||||||
held at the reporting date
|
2 | 26 | 72 | 43 | 3 | 146 | ||||||||||||||||||
Purchases
|
2 | - | - | 120 | 20 | 142 | ||||||||||||||||||
Sales
|
(4 | ) | (6 | ) | (51 | ) | (77 | ) | - | (138 | ) | |||||||||||||
Balance at December 31, 2013
|
$ | 22 | $ | 299 | $ | 961 | $ | 663 | $ | 33 | $ | 1,978 | ||||||||||||
Actual return relating to assets still
|
||||||||||||||||||||||||
held at the reporting date
|
1 | 21 | - | 2 | 1 | 25 | ||||||||||||||||||
Purchases
|
4 | - | 47 | 159 | 9 | 219 | ||||||||||||||||||
Sales
|
(3 | ) | (3 | ) | - | (60 | ) | - | (66 | ) | ||||||||||||||
Balance at December 31, 2014
|
$ | 24 | $ | 317 | $ | 1,008 | $ | 764 | $ | 43 | $ | 2,156 |
(1)
|
Cash and short-term investments are valued at cost, which approximates fair value, and are categorized as Level 1 for cash and Level 2 for short-term investments.
|
(2)
|
Bonds are valued using mid-price bids obtained from independent pricing data suppliers. When prices are not available from independent sources, the fair value is based on the present value of future cash flows using current market yields for comparable instruments. All bonds are categorized as Level 2.
|
(3)
|
Mortgages are secured by real estate. The fair value of $131 million ($166 million in 2013) of mortgages categorized as Level 2 is based on the present value of future cash flows using current market yields for comparable instruments.
|
(4)
|
The fair value of equity investments categorized as Level 1 is based on quoted prices in active markets. The fair value of equity investments of $24 million ($22 million in 2013) categorized as Level 3 represent units in private equity funds which are valued by their independent administrators.
|
(5)
|
The fair value of real estate investments of $317 million ($299 million in 2013) includes land and buildings net of related mortgage debt of $34 million ($41 million in 2013) and is categorized as Level 3. Land is valued based on the fair value of comparable assets, and buildings are valued based on the present value of estimated future net cash flows or the fair value of comparable assets. Independent valuations of land and buildings are performed triennially on a rotational basis. Mortgage debt is valued based on the present value of future cash flows using current market yields for comparable instruments.
|
(6)
|
Oil and gas investments categorized as Level 1 are valued based on quoted prices in active markets. Investments in oil and gas equities traded on a secondary market are valued based on the most recent transaction price and are categorized as Level 2. Investments of $1,008 million ($961 million in 2013) categorized as Level 3 consist of operating oil and gas properties and the fair value is based on estimated future net cash flows that are discounted using prevailing market rates for transactions in similar assets. The future net cash flows are based on forecasted oil and gas prices and projected future annual production and costs.
|
(7)
|
Infrastructure investments consist of $14 million ($10 million in 2013) of publicly traded equity securities of infrastructure companies categorized as Level 1, $107 million ($115 million in 2013) of term loans, bonds and infrastructure funds issued by infrastructure companies categorized as Level 2 and $764 million ($663 million in 2013) of infrastructure funds that are categorized as Level 3 and are valued based on discounted cash flows or earnings multiples. Distributions may be received throughout the term of the funds and/or upon the sale of the underlying investments.
|
(8)
|
Absolute return investments are valued using the net asset value as reported by the independent fund administrators. All absolute return investments have contractual redemption frequencies, ranging from monthly to annually, and redemption notice periods varying from 5 to 90 days. Absolute return investments that have redemption dates less frequent than every four months or that have restrictions on contractual redemption features at the reporting date are categorized as Level 3.
|
(9)
|
Risk-based allocation investments are valued using the net asset value as reported by the independent fund administrators and are categorized as Level 2. All funds have contractual redemption frequencies ranging from daily to annually, and redemption notice periods varying from 5 to 60 days.
|
(10)
|
Other consists of operating assets of $145 million ($85 million in 2013) and liabilities of $130 million ($24 million in 2013) required to administer the Trusts’ investment assets and the plans’ benefit and funding activities. Such assets are valued at cost and have not been assigned to a fair value category.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
77
|
Pensions
|
Other postretirement benefits
|
||||||||||||||||
In millions
|
Year ended December 31,
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
Change in benefit obligation
|
|||||||||||||||||
Projected benefit obligation at beginning of year
|
$ | 15,510 | $ | 16,335 | $ | 256 | $ | 277 | |||||||||
Amendments
|
2 | - | 2 | - | |||||||||||||
Interest cost
|
711 | 658 | 12 | 11 | |||||||||||||
Actuarial loss (gain) on projected benefit obligation
|
1,815 | (747 | ) | 6 | (22 | ) | |||||||||||
Service cost
|
132 | 155 | 2 | 3 | |||||||||||||
Plan participants’ contributions
|
58 | 56 | - | - | |||||||||||||
Foreign currency changes
|
22 | 16 | 7 | 5 | |||||||||||||
Benefit payments, settlements and transfers
|
(971 | ) | (963 | ) | (18 | ) | (18 | ) | |||||||||
Projected benefit obligation at end of year
|
$ | 17,279 | $ | 15,510 | $ | 267 | $ | 256 | |||||||||
Component representing future salary increases
|
(349 | ) | (344 | ) | - | - | |||||||||||
Accumulated benefit obligation at end of year
|
$ | 16,930 | $ | 15,166 | $ | 267 | $ | 256 | |||||||||
Change in plan assets
|
|||||||||||||||||
Fair value of plan assets at beginning of year
|
$ | 16,869 | $ | 15,811 | $ | - | $ | - | |||||||||
Employer contributions
|
111 | 226 | - | - | |||||||||||||
Plan participants’ contributions
|
58 | 56 | - | - | |||||||||||||
Foreign currency changes
|
15 | 10 | - | - | |||||||||||||
Actual return on plan assets
|
1,679 | 1,728 | - | - | |||||||||||||
Benefit payments, settlements and transfers
|
(971 | ) | (962 | ) | - | - | |||||||||||
Fair value of plan assets at end of year
|
$ | 17,761 | $ | 16,869 | $ | - | $ | - | |||||||||
Funded status – Excess (deficiency) of fair value of plan assets
over projected benefit obligation at end of year
|
$ | 482 | $ | 1,359 | $ | (267 | ) | $ | (256 | ) |
Pensions
|
Other postretirement benefits
|
||||||||||||||||
In millions
|
December 31,
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
Noncurrent assets – Pension asset
|
$ | 882 | $ | 1,662 | $ | - | $ | - | |||||||||
Current liabilities (Note 9)
|
- | - | (17 | ) | (18 | ) | |||||||||||
Noncurrent liabilities – Pension and other postretirement benefits
|
(400 | ) | (303 | ) | (250 | ) | (238 | ) | |||||||||
Total amount recognized
|
$ | 482 | $ | 1,359 | $ | (267 | ) | $ | (256 | ) |
Pensions
|
Other postretirement benefits
|
||||||||||||||||
In millions
|
December 31,
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
Net actuarial gain (loss)
|
$ | (2,502 | ) | $ | (1,515 | ) | $ | 17 | $ | 27 | |||||||
Prior service cost
|
(20 | ) | (22 | ) | (5 | ) | (5 | ) |
78
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Pensions |
Other postretirement benefits
|
||||||||||||||||
In millions
|
December 31,
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
Projected benefit obligation
|
$ | 646 | $ | 527 | N/A | N/A | |||||||||||
Accumulated benefit obligation
|
585 | 475 | N/A | N/A | |||||||||||||
Fair value of plan assets
|
246 | 224 | N/A | N/A |
Pensions |
Other postretirement benefits
|
||||||||||||||||||||||||
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
2014
|
2013
|
2012
|
||||||||||||||||||
Current service cost
|
$ | 132 | $ | 155 | $ | 134 | $ | 2 | $ | 3 | $ | 4 | |||||||||||||
Interest cost
|
711 | 658 | 740 | 12 | 11 | 13 | |||||||||||||||||||
Curtailment gain
|
- | - | - | - | - | (6 | ) | ||||||||||||||||||
Settlement loss (gain) (1)
|
3 | 4 | (12 | ) | - | - | - | ||||||||||||||||||
Expected return on plan assets
|
(978 | ) | (958 | ) | (994 | ) | - | - | - | ||||||||||||||||
Amortization of prior service cost
|
4 | 4 | 4 | 2 | 1 | 3 | |||||||||||||||||||
Amortization of net actuarial loss (gain)
|
124 | 227 | 119 | (4 | ) | (1 | ) | - | |||||||||||||||||
Net periodic benefit cost (income)
|
$ | (4 | ) | $ | 90 | $ | (9 | ) | $ | 12 | $ | 14 | $ | 14 |
(1)
|
The 2012 figure includes the settlement gain related to the termination of the former CEO’s retirement benefit plan.
|
Pensions
|
Other postretirement benefits
|
|||||||||||||||||||||||
December 31,
|
2014
|
2013
|
2012
|
2014
|
2013
|
2012
|
||||||||||||||||||
To determine projected benefit obligation
|
||||||||||||||||||||||||
Discount rate (1)
|
3.87
|
%
|
4.73
|
%
|
4.15
|
%
|
3.86
|
%
|
4.69
|
%
|
4.01
|
%
|
||||||||||||
Rate of compensation increase (2)
|
3.00
|
%
|
3.00
|
%
|
3.00
|
%
|
3.00
|
%
|
3.00
|
%
|
3.00
|
%
|
||||||||||||
To determine net periodic benefit cost
|
||||||||||||||||||||||||
Discount rate (1)
|
4.73
|
%
|
4.15
|
%
|
4.84
|
%
|
4.69
|
%
|
4.01
|
%
|
4.70
|
%
|
||||||||||||
Rate of compensation increase (2)
|
3.00
|
%
|
3.00
|
%
|
3.25
|
%
|
3.00
|
%
|
3.00
|
%
|
3.25
|
%
|
||||||||||||
Expected return on plan assets (3)
|
7.00
|
%
|
7.00
|
%
|
7.25
|
%
|
N/A
|
N/A
|
N/A
|
(1)
|
The Company’s discount rate assumption, which is set annually at the end of each year, is used to determine the projected benefit obligation at the end of the year and the net periodic benefit cost for the following year. The discount rate is used to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments with a rating of AA or better, would provide the necessary cash flows to pay for pension benefits as they become due. The discount rate is determined by management with the aid of third-party actuaries. For the Canadian pension and other postretirement benefit plans, future expected benefit payments at each measurement date are discounted using spot rates from a derived AA corporate bond yield curve. The derived curve is based on observed rates for AA corporate bonds with short-term maturities and a projected AA corporate curve for longer-term maturities based on spreads between observed AA corporate bonds and AA provincial bonds. The derived curve is expected to generate cash flows that match the estimated future benefit payments of the plans as the bond rate for each maturity year is applied to the plans’ corresponding expected benefit payments of that year.
|
(2)
|
The rate of compensation increase is determined by the Company based upon its long-term plans for such increases.
|
(3)
|
To develop its expected long-term rate of return assumption used in the calculation of net periodic benefit cost applicable to the market-related value of assets, the Company considers multiple factors. The expected long-term rate of return is determined based on expected future performance for each asset class and is weighted based on the current asset portfolio mix. Consideration is taken of the historical performance, the premium return generated from an actively managed portfolio, as well as current and future anticipated asset allocations, economic developments, inflation rates and administrative expenses. Based on these factors, the rate is determined by the Company. For 2014, the Company used a long-term rate of return assumption of 7.00% on the market-related value of plan assets to compute net periodic benefit cost (income). The Company has elected to use a market-related value of assets, whereby realized and unrealized gains/losses and appreciation/depreciation in the value of the investments are recognized over a period of five years, while investment income is recognized immediately. In 2015, the Company will maintain the expected long-term rate of return on plan assets at 7.00% to reflect management’s current view of long-term investment returns.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
79
|
One-percentage-point
|
||||||||
In millions
|
Increase
|
Decrease
|
||||||
Effect on total service and interest costs
|
$ | 1 | $ | (1 | ) | |||
Effect on benefit obligation
|
12 | (10 | ) |
Other
|
||||||||
postretirement
|
||||||||
In millions
|
Pensions
|
benefits
|
||||||
2015
|
$ | 1,011 | $ | 17 | ||||
2016
|
1,034 | 17 | ||||||
2017
|
1,048 | 18 | ||||||
2018
|
1,059 | 18 | ||||||
2019
|
1,067 | 18 | ||||||
Years 2020 to 2024
|
5,379 | 81 |
|
•
|
Unlimited number of Common Shares, without par value
|
|
•
|
Unlimited number of Class A Preferred Shares, without par value, issuable in series
|
|
•
|
Unlimited number of Class B Preferred Shares, without par value, issuable in series
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Issued and outstanding common shares at beginning of year
|
830.6 | 856.8 | 884.2 | ||||||||||
Number of common shares repurchased
|
(22.4 | ) | (27.6 | ) | (33.8 | ) | |||||||
Stock options exercised
|
1.2 | 1.4 | 6.4 | ||||||||||
Issued and outstanding common shares at end of year
|
809.4 | 830.6 | 856.8 |
80
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions, except per share data
|
||||||||||||
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Number of common shares repurchased (1)
|
22.4 | 27.6 | 33.8 | |||||||||
Weighted-average price per share (2)
|
$ | 67.38 | $ | 50.65 | $ | 41.36 | ||||||
Amount of repurchase
|
$ | 1,505 | $ | 1,400 | $ | 1,400 |
(1)
|
Includes common shares purchased in the first and fourth quarters of 2014, 2013 and 2012 pursuant to private agreements between the Company and arm’s-length third-party sellers.
|
(2)
|
Includes brokerage fees.
|
2014 | 2013 | 2012 | ||||||||||||||||||||||
Issued and
|
Common
|
Issued and
|
Common
|
Issued and
|
Common
|
|||||||||||||||||||
outstanding
|
shares and
|
outstanding
|
shares and
|
outstanding
|
shares and
|
|||||||||||||||||||
common
|
additional
|
common
|
additional
|
common
|
additional
|
|||||||||||||||||||
In millions
|
shares
|
paid-in capital
|
shares
|
paid-in capital
|
shares
|
paid-in capital
|
||||||||||||||||||
Stock options exercised
|
1.2 | $ | 25 | 1.4 | $ | 28 | 6.4 | $ | 102 | |||||||||||||||
Equity settled stock-based compensation expense
|
- | 11 | - | 9 | - | 10 | ||||||||||||||||||
Excess tax benefits on stock-based compensation
|
- | 5 | - | 3 | - | 16 | ||||||||||||||||||
Modification of stock-based compensation awards (1)
|
- | 209 | - | - | - | - | ||||||||||||||||||
Total stock-based compensation and other
|
1.2 | $ | 250 | 1.4 | $ | 40 | 6.4 | $ | 128 |
(1)
|
Represents the fair value of cash settled stock-based compensation awards modified in 2014 to settle in common shares of the Company and includes $132 million related to deferred share units (DSUs), $60 million related to performance share units (PSUs) and $17 million related to other plans. See Note 14 – Stock plans.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
81
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Number of participants holding shares
|
18,488 | 18,488 | 17,423 | |||||||||
Total number of ESIP shares purchased on behalf of employees (millions)
|
2.1 | 2.3 | 2.5 | |||||||||
Expense for Company contribution (millions)
|
$ | 34 | $ | 30 | $ | 24 |
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Cash settled awards
|
|||||||||||||
Share Units Plan
|
$ | 117 | $ | 92 | $ | 76 | |||||||
Voluntary Incentive Deferral Plan (VIDP)
|
33 | 35 | 19 | ||||||||||
Total cash settled awards
|
$ | 150 | $ | 127 | $ | 95 | |||||||
Equity settled awards
|
|||||||||||||
Share Units Plan
|
$ | 2 | $ | - | $ | - | |||||||
Stock option awards
|
9 | 9 | 10 | ||||||||||
Total equity settled awards
|
$ | 11 | $ | 9 | $ | 10 | |||||||
Total stock-based compensation expense
|
$ | 161 | $ | 136 | $ | 105 | |||||||
Tax benefit recognized in income
|
$ | 43 | $ | 35 | $ | 25 |
82
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
PSUs
|
DSUs
|
|||||||||||||||
In millions
|
Nonvested
|
Vested
|
Nonvested
|
Vested
|
||||||||||||
Outstanding at December 31, 2013
|
1.7 | 0.9 | - | 2.3 | ||||||||||||
Granted (Payout)
|
0.8 | (0.9 | ) | - | (0.1 | ) | ||||||||||
Modifications (1)
|
(0.9 | ) | - | - | (1.7 | ) | ||||||||||
Forfeited/Settled
|
- | - | - | - | ||||||||||||
Vested during year
|
(0.9 | ) | 0.9 | - | - | |||||||||||
Outstanding at December 31, 2014
|
0.7 | 0.9 | - | 0.5 |
(1)
|
On December 9, 2014, certain cash settled awards were modified to settle in common shares of the Company. From the modification date, these units are accounted for as equity settled awards.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
83
|
In millions, unless otherwise indicated
|
PSUs (1)
|
DSUs (2)
|
Total
|
|||||||||||||||||||||||||||||
Year of grant
|
2014
|
2013
|
2012
|
2011
|
2010
|
2009
|
||||||||||||||||||||||||||
Stock-based compensation expense (recovery) recognized over requisite service period
|
||||||||||||||||||||||||||||||||
Year ended December 31, 2014
|
$ | 42 | $ | 33 | $ | 44 | $ | (2 | ) | N/A | N/A | $ | 33 | $ | 150 | |||||||||||||||||
Year ended December 31, 2013 (3)
|
N/A | $ | 34 | $ | 37 | $ | 34 | $ | (4 | ) | $ | (9 | ) | $ | 35 | $ | 127 | |||||||||||||||
Year ended December 31, 2012
|
N/A | N/A | $ | 24 | $ | 26 | $ | 26 | $ | - | $ | 19 | $ | 95 | ||||||||||||||||||
Liability outstanding
|
||||||||||||||||||||||||||||||||
December 31, 2014
|
$ | 19 | $ | 32 | $ | 106 | $ | - | N/A | N/A | $ | 40 | $ | 197 | ||||||||||||||||||
December 31, 2013
|
N/A | $ | 34 | $ | 61 | $ | 80 | $ | - | $ | - | $ | 145 | $ | 320 | |||||||||||||||||
Fair value per unit
|
||||||||||||||||||||||||||||||||
December 31, 2014 ($)
|
$ | 72.00 | $ | 79.01 | $ | 80.02 | N/A | N/A | N/A | $ | 80.02 | N/A | ||||||||||||||||||||
Fair value of awards vested during the year
|
||||||||||||||||||||||||||||||||
Year ended December 31, 2014
|
$ | - | $ | - | $ | 106 | $ | - | N/A | N/A | $ | - | $ | 106 | ||||||||||||||||||
Year ended December 31, 2013
|
N/A | $ | - | $ | - | $ | 80 | N/A | N/A | $ | 1 | $ | 81 | |||||||||||||||||||
Year ended December 31, 2012
|
N/A | N/A | $ | - | $ | - | $ | 70 | N/A | $ | 1 | $ | 71 | |||||||||||||||||||
Nonvested awards at December 31, 2014
|
||||||||||||||||||||||||||||||||
Unrecognized compensation cost
|
$ | 17 | $ | 10 | $ | - | $ | - | N/A | N/A | $ | - | $ | 27 | ||||||||||||||||||
Remaining recognition period (years)
|
2.0 | 1.0 | N/A | N/A | N/A | N/A | N/A | (4) | N/A | |||||||||||||||||||||||
Assumptions (5)
|
||||||||||||||||||||||||||||||||
Stock price ($)
|
$ | 80.02 | $ | 80.02 | $ | 80.02 | N/A | N/A | N/A | $ | 80.02 | N/A | ||||||||||||||||||||
Expected stock price volatility (6)
|
16% | 17% | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Expected term (years) (7)
|
2.0 | 1.0 | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Risk-free interest rate (8)
|
1.02% | 0.99% | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Dividend rate ($) (9)
|
$ | 1.00 | $ | 1.00 | N/A | N/A | N/A | N/A | 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.
|
(2)
|
Compensation cost is based on intrinsic value.
|
(3)
|
Includes the reversal of approximately $20 million of stock-based compensation expense related to the forfeiture of PSUs by former executives.
|
(4)
|
The remaining recognition period has not been quantified as it relates solely to the 25% Company grant and the dividends earned thereon, representing a minimal number of units.
|
(5)
|
Assumptions used to determine fair value are at December 31, 2014.
|
(6)
|
Based on the historical volatility of the Company’s stock over a period commensurate with the expected term of the award.
|
(7)
|
Represents the remaining period of time that awards are expected to be outstanding.
|
(8)
|
Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the awards.
|
(9)
|
Based on the annualized dividend rate.
|
84
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
PSUs | DSUs | |||||||||||||||||||||||
Weighted-
|
Weighted-
|
|||||||||||||||||||||||
average
|
average
|
|||||||||||||||||||||||
Units
|
Units
|
grant date
|
Units
|
Units
|
grant date
|
|||||||||||||||||||
Nonvested
|
Vested
|
fair value
|
Nonvested
|
Vested
|
fair value
|
|||||||||||||||||||
In millions
|
In millions
|
In millions
|
In millions
|
|||||||||||||||||||||
Outstanding at December 31, 2013
|
- | - | N/A | - | - | N/A | ||||||||||||||||||
Modification (1) (2)
|
0.9 | - | $ | 71.05 | - | 1.7 | $ | 76.29 | ||||||||||||||||
Outstanding at December 31, 2014
|
0.9 | - | $ | 71.05 | - | 1.7 | $ | 76.29 |
(1)
|
On December 9, 2014, 0.9 million cash-settled PSUs were modified to settle in common shares of the Company. From the modification date, these units are accounted for as equity settled awards. The modification affected PSUs held by 133 employees and did not result in the recognition of incremental compensation cost as the settlement conditions of these awards was unchanged.
|
(2)
|
On December 9, 2014, 1.7 million cash-settled DSUs were modified to settle in common shares of the Company. From the modification date, these units are accounted for as equity settled awards. The modification affected DSUs held by 104 employees and did not result in the recognition of incremental compensation cost as the settlement conditions of these awards was unchanged. Vested DSUs are convertible into common shares of the Company at the time of cessation of employment. As at December 31, 2014, the aggregate intrinsic value of vested DSUs amounted to $138 million.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
85
|
In millions, unless otherwise indicated
|
PSUs (1) |
DSUs (2)
|
Total
|
|||||||||||||
Year of grant
|
2014
|
2013
|
||||||||||||||
Stock-based compensation expense
|
||||||||||||||||
recognized over requisite service period
|
||||||||||||||||
Year ended December 31, 2014 (3)
|
$ | 1 | $ | 1 | $ | - | $ | 2 | ||||||||
Fair value per unit
|
||||||||||||||||
At grant date ($) (4)
|
$ | 66.84 | $ | 75.15 | $ | 76.29 | N/A | |||||||||
Fair value of awards vested during the year
|
||||||||||||||||
Year ended December 31, 2014
|
$ | - | $ | - | $ | 1 | $ | 1 | ||||||||
Nonvested awards at December 31, 2014
|
||||||||||||||||
Unrecognized compensation cost
|
$ | 15 | $ | 8 | $ | 1 | $ | 24 | ||||||||
Remaining recognition period (years)
|
2.0 | 1.0 | N/A | (5) | N/A | |||||||||||
Assumptions
|
||||||||||||||||
Grant price ($) (6)
|
$ | 76.29 | $ | 76.29 | $ | 76.29 | N/A | |||||||||
Expected stock price volatility (7)
|
15 | % | 17 | % | N/A | N/A | ||||||||||
Expected term (years) (8)
|
2.0 | 1.0 | N/A | N/A | ||||||||||||
Risk-free interest rate (9)
|
1.02 | % | 0.98 | % | N/A | N/A | ||||||||||
Dividend rate ($) (10)
|
$ | 1.00 | $ | 1.00 | N/A | N/A |
(1)
|
Compensation cost is based on the fair value of the awards at the modification date using the lattice-based valuation model that uses the assumptions as presented herein.
|
(2)
|
Compensation cost is based on intrinsic value at the modification date.
|
(3)
|
Comparative information for the years ended December 31, 2013 and 2012 has not been provided as no equity settled PSUs or DSUs were outstanding.
|
(4)
|
Grant date is December 9, 2014 which is the modification date of the cash settled awards to equity settled awards.
|
(5)
|
The remaining recognition period has not been quantified as it relates solely to the 25% Company grant and the dividends earned thereon, representing a minimal number of units.
|
(6)
|
Stock price at the modification date.
|
(7)
|
Based on the historical volatility of the Company’s stock over a period commensurate with the expected term of the award.
|
(8)
|
Represents the remaining period of time that awards are expected to be outstanding.
|
(9)
|
Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the awards.
|
(10)
|
Based on the annualized dividend rate.
|
86
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Options outstanding
|
Nonvested options
|
|||||||||||||||
Weighted-
|
Weighted-
|
|||||||||||||||
Number
|
average
|
Number
|
average grant
|
|||||||||||||
of options
|
exercise price
|
of options
|
date fair value
|
|||||||||||||
In millions
|
In millions
|
|||||||||||||||
Outstanding at December 31, 2013 (1)
|
7.7 | $ | 30.97 | 2.7 | $ | 7.89 | ||||||||||
Granted
|
1.0 | $ | 58.74 | 1.0 | $ | 11.09 | ||||||||||
Exercised
|
(1.2 | ) | $ | 22.97 | N/A | N/A | ||||||||||
Vested
|
N/A | N/A | (1.2 | ) | $ | 7.59 | ||||||||||
Outstanding at December 31, 2014 (1)
|
7.5 | $ | 37.37 | 2.5 | $ | 9.25 | ||||||||||
Exercisable at December 31, 2014 (1)
|
5.0 | $ | 30.31 | N/A | N/A |
(1)
|
Stock options with a US dollar exercise price have been translated to Canadian dollars using the foreign exchange rate in effect at the balance sheet date.
|
Options outstanding |
Options exercisable
|
|||||||||||||||||||||||||||||
Weighted-
|
Weighted-
|
Weighted-
|
||||||||||||||||||||||||||||
Number
|
average years
|
average
|
Aggregate
|
Number
|
average
|
Aggregate
|
||||||||||||||||||||||||
of options
|
to expiration
|
exercise price
|
intrinsic value
|
of options
|
exercise price
|
intrinsic value
|
||||||||||||||||||||||||
Range of exercise prices
|
In millions
|
In millions
|
In millions
|
In millions
|
||||||||||||||||||||||||||
$ | 16.93 – $23.03 | 0.9 | 3.7 | $ | 20.19 | $ | 52 | 0.9 | $ | 20.19 | $ | 52 | ||||||||||||||||||
$ | 23.04 – $30.75 | 2.6 | 3.3 | $ | 27.04 | 139 | 2.6 | $ | 27.04 | 139 | ||||||||||||||||||||
$ | 30.76 – $41.85 | 1.5 | 6.3 | $ | 38.19 | 62 | 1.0 | $ | 38.19 | 41 | ||||||||||||||||||||
$ | 41.86 – $57.61 | 1.5 | 7.6 | $ | 48.71 | 49 | 0.5 | $ | 47.40 | 18 | ||||||||||||||||||||
$ | 57.62 – $80.15 | 1.0 | 9.1 | $ | 60.29 | 20 | - | $ | 58.18 | - | ||||||||||||||||||||
Balance at December 31, 2014 (1)
|
7.5 | 5.6 | $ | 37.37 | $ | 322 | 5.0 | $ | 30.31 | $ | 250 |
(1)
|
Stock options with a US dollar exercise price have been translated to Canadian dollars using the foreign exchange rate in effect at the balance sheet date. As at December 31, 2014, substantially all stock options outstanding were in-the-money. The weighted-average years to expiration of exercisable stock options was 4.4 years.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
87
|
Year of grant
|
2014
|
2013
|
2012
|
2011
|
2010
|
2009
|
2008
|
Total
|
||||||||||||||||||||||||
Stock-based compensation expense
|
||||||||||||||||||||||||||||||||
recognized over requisite service period (1)
|
||||||||||||||||||||||||||||||||
Year ended December 31, 2014
|
$ | 6 | $ | 1 | $ | 1 | $ | 1 | $ | - | N/A | N/A | $ | 9 | ||||||||||||||||||
Year ended December 31, 2013
|
N/A | $ | 5 | $ | 2 | $ | 1 | $ | 1 | $ | - | N/A | $ | 9 | ||||||||||||||||||
Year ended December 31, 2012
|
N/A | N/A | $ | 4 | $ | 2 | $ | 2 | $ | 2 | $ | - | $ | 10 | ||||||||||||||||||
Fair value per unit
|
||||||||||||||||||||||||||||||||
At grant date ($)
|
$ | 11.09 | $ | 8.52 | $ | 7.74 | $ | 7.83 | $ | 6.55 | $ | 6.30 | $ | 6.22 | N/A | |||||||||||||||||
Fair value of awards vested during the year
|
||||||||||||||||||||||||||||||||
Year ended December 31, 2014
|
$ | - | $ | 2 | $ | 2 | $ | 3 | $ | 2 | N/A | N/A | $ | 9 | ||||||||||||||||||
Year ended December 31, 2013
|
N/A | $ | - | $ | 2 | $ | 3 | $ | 2 | $ | 4 | N/A | $ | 11 | ||||||||||||||||||
Year ended December 31, 2012
|
N/A | N/A | $ | - | $ | 2 | $ | 2 | $ | 4 | $ | 3 | $ | 11 | ||||||||||||||||||
Nonvested awards at December 31, 2014
|
||||||||||||||||||||||||||||||||
Unrecognized compensation cost
|
$ | 4 | $ | 2 | $ | 1 | $ | - | $ | - | N/A | N/A | $ | 7 | ||||||||||||||||||
Remaining recognition period (years)
|
3.0 | 2.0 | 1.0 | - | - | N/A | N/A | N/A | ||||||||||||||||||||||||
Assumptions
|
||||||||||||||||||||||||||||||||
Grant price ($)
|
$ | 58.74 | $ | 47.47 | $ | 38.35 | $ | 34.47 | $ | 27.38 | $ | 21.07 | $ | 24.25 | N/A | |||||||||||||||||
Expected stock price volatility (2)
|
23 | % | 23 | % | 26 | % | 26 | % | 28 | % | 39 | % | 27 | % | N/A | |||||||||||||||||
Expected term (years) (3)
|
5.4 | 5.4 | 5.4 | 5.3 | 5.4 | 5.3 | 5.3 | N/A | ||||||||||||||||||||||||
Risk-free interest rate (4)
|
1.51 | % | 1.41 | % | 1.33 | % | 2.53 | % | 2.44 | % | 1.97 | % | 3.58 | % | N/A | |||||||||||||||||
Dividend rate ($) (5)
|
$ | 1.00 | $ | 0.86 | $ | 0.75 | $ | 0.65 | $ | 0.54 | $ | 0.51 | $ | 0.46 | 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 average of the historical volatility of the Company’s stock over a period commensurate with the expected term of the award and the implied volatility from traded options on the Company’s stock.
|
(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.
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Total intrinsic value
|
$ | 50 | $ | 45 | $ | 167 | |||||||
Cash received upon exercise of options
|
25 | 28 | 102 | ||||||||||
Related excess tax benefit realized
|
5 | 3 | 16 |
88
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
Foreign
|
Pension
|
||||||||||||||||||||||
currency
|
and other
|
Total
|
Income tax
|
Total
|
|||||||||||||||||||
translation
|
postretirement
|
Derivative
|
before
|
recovery
|
net of
|
||||||||||||||||||
In millions
|
adjustments
|
benefit plans
|
instruments
|
tax
|
(expense)
|
tax
|
|||||||||||||||||
Balance at December 31, 2011
|
$ | (574 | ) | $ | (2,750 | ) | $ | 8 | $ | (3,316 | ) | $ | 477 | $ | (2,839 | ) | |||||||
Other comprehensive income (loss) before reclassifications:
|
|||||||||||||||||||||||
Unrealized foreign exchange loss on translation of net investment in foreign operations
|
(128 | ) | (128 | ) | 2 | (126 | ) | ||||||||||||||||
Unrealized foreign exchange gain on translation of US dollar-denominated long-term debt designate as a hedge of the net investment in U.S. subsidiaries
|
123 | 123 | (19 | ) | 104 | ||||||||||||||||||
Actuarial loss arising during year
|
(660 | ) | (660 | ) | 176 | (484 | ) | ||||||||||||||||
Prior service costs from plan amendment arising during year
|
(6 | ) | (6 | ) | 2 | (4 | ) | ||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss:
|
|||||||||||||||||||||||
Amortization of net actuarial loss
|
119 | 119 | (1) | (32 | ) (2) | 87 | |||||||||||||||||
Amortization of prior service cost
|
7 | 7 | (1) | (2 | ) (2) | 5 | |||||||||||||||||
Other comprehensive income (loss)
|
(5 | ) | (540 | ) | - | (545 | ) | 127 | (418 | ) | |||||||||||||
Balance at December 31, 2012
|
$ | (579 | ) | $ | (3,290 | ) | $ | 8 | $ | (3,861 | ) | $ | 604 | $ | (3,257 | ) | |||||||
Other comprehensive income (loss) before reclassifications:
|
|||||||||||||||||||||||
Unrealized foreign exchange gain on translation of net investment in foreign operations
|
440 | 440 | 7 | 447 | |||||||||||||||||||
Unrealized foreign exchange loss on translation of US dollar-denominated long-term debt designate as a hedge of the net investment in U.S. subsidiaries
|
(394 | ) | (394 | ) | 52 | (342 | ) | ||||||||||||||||
Actuarial gain arising during year
|
1,544 | 1,544 | (412 | ) | 1,132 | ||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss:
|
|||||||||||||||||||||||
Amortization of net actuarial loss
|
226 | 226 | (1) | (60 | ) (2) | 166 | |||||||||||||||||
Amortization of prior service cost
|
5 | 5 | (1) | (1 | ) (2) | 4 | |||||||||||||||||
Other comprehensive income (loss)
|
46 | 1,775 | - | 1,821 | (414 | ) | 1,407 | ||||||||||||||||
Balance at December 31, 2013
|
$ | (533 | ) | $ | (1,515 | ) | $ | 8 | $ | (2,040 | ) | $ | 190 | $ | (1,850 | ) | |||||||
Other comprehensive income (loss) before reclassifications:
|
|||||||||||||||||||||||
Unrealized foreign exchange gain on translation of net investment in foreign operations
|
644 | 644 | 4 | 648 | |||||||||||||||||||
Unrealized foreign exchange loss on translation of US dollar-denominated long-term debt designated as a hedge of the net investment in U.S. subsidiaries
|
(569 | ) | (569 | ) | 73 | (496 | ) | ||||||||||||||||
Actuarial loss arising during year
|
(1,117 | ) | (1,117 | ) | 300 | (817 | ) | ||||||||||||||||
Prior service costs from plan amendment arising during year
|
(4 | ) | (4 | ) | 1 | (3 | ) | ||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss:
|
|||||||||||||||||||||||
Amortization of net actuarial loss
|
120 | 120 | (1) | (32 | ) (2) | 88 | |||||||||||||||||
Amortization of prior service cost
|
6 | 6 | (1) | (2 | ) (2) | 4 | |||||||||||||||||
Amortization of gain on treasury lock
|
(1 | ) (3) | (1 | ) | - | (1 | ) | ||||||||||||||||
Other comprehensive income (loss)
|
75 | (995 | ) | (1 | ) | (921 | ) | 344 | (577 | ) | |||||||||||||
Balance at December 31, 2014
|
$ | (458 | ) | $ | (2,510 | ) | $ | 7 | $ | (2,961 | ) | $ | 534 | $ | (2,427 | ) |
(1)
|
Reclassified to Labor and fringe benefits on the Consolidated Statement of Income and included in components of net periodic benefit cost. See Note 12 – Pensions and other postretirement benefits.
|
(2)
|
Included in Income tax expense on the Consolidated Statement of Income.
|
(3)
|
Related to treasury lock transactions settled in prior years, which are being amortized over the terms of the related debt to Interest expense on the Consolidated Statement of Income.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
89
|
In millions
|
Operating
|
Capital
|
||||||
2015
|
$ | 155 | $ | 107 | ||||
2016
|
116 | 343 | ||||||
2017
|
94 | 164 | ||||||
2018
|
77 | 15 | ||||||
2019
|
56 | 15 | ||||||
2020 and thereafter
|
214 | 171 | ||||||
Total
|
$ | 712 | 815 | |||||
Less: Imputed interest on capital leases at rates ranging from approximately 0.7% to 8.5%
|
145 | |||||||
Present value of minimum lease payments included in debt (Note 10)
|
$ | 670 |
In millions
|
2014
|
2013
|
2012
|
|||||||||
Beginning of year
|
$ | 210 | $ | 209 | $ | 199 | ||||||
Accruals and other
|
28 | 38 | 55 | |||||||||
Payments
|
(35 | ) | (37 | ) | (45 | ) | ||||||
End of year
|
$ | 203 | $ | 210 | $ | 209 | ||||||
Current portion – End of year
|
$ | 28 | $ | 31 | $ | 39 |
90
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
In millions
|
2014
|
2013
|
2012
|
|||||||||
Beginning of year
|
$ | 106 | $ | 105 | $ | 111 | ||||||
Accruals and other
|
2 | 18 | 31 | |||||||||
Payments
|
(22 | ) | (24 | ) | (34 | ) | ||||||
Foreign exchange
|
9 | 7 | (3 | ) | ||||||||
End of year
|
$ | 95 | $ | 106 | $ | 105 | ||||||
Current portion – End of year
|
$ | 20 | $ | 14 | $ | 43 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
91
|
In millions
|
2014
|
2013
|
2012
|
|||||||||
Beginning of year
|
$ | 119 | $ | 123 | $ | 152 | ||||||
Accruals and other
|
11 | 12 | (4 | ) | ||||||||
Payments
|
(19 | ) | (18 | ) | (24 | ) | ||||||
Foreign exchange
|
3 | 2 | (1 | ) | ||||||||
End of year
|
$ | 114 | $ | 119 | $ | 123 | ||||||
Current portion – End of year
|
$ | 45 | $ | 41 | $ | 31 |
(a)
|
the lack of specific technical information available with respect to many sites;
|
(b)
|
the absence of any government authority, third-party orders, or claims with respect to particular sites;
|
(c)
|
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; and
|
(d)
|
the determination of the Company’s liability in proportion to other potentially responsible parties and the ability to recover costs from any third parties with respect to particular sites.
|
92
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
•
|
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;
|
•
|
contracts granting rights to others to use the Company’s property, such as leases, licenses and easements;
|
•
|
contracts for the sale of assets;
|
•
|
contracts for the acquisition of services;
|
•
|
financing agreements;
|
•
|
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;
|
•
|
transfer agent and registrar agreements in respect of the Company’s securities;
|
•
|
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;
|
•
|
pension transfer agreements;
|
•
|
master agreements with financial institutions governing derivative transactions;
|
•
|
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; and
|
•
|
acquisition agreements.
|
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
93
|
Level 1:
|
Quoted prices for identical instruments in active markets.
|
Level 2:
|
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
|
Level 3:
|
Significant inputs to the valuation model are unobservable.
|
94
|
2014 Annual Report
|
U.S. GAAP
|
Canadian National Railway Company
|
December 31, 2014
|
December 31, 2013
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
In millions
|
amount
|
value
|
amount
|
value
|
||||||||||||
Financial assets
|
||||||||||||||||
Investments (Note 8)
|
$ | 58 | $ | 183 | $ | 57 | $ | 164 | ||||||||
Financial liabilities
|
||||||||||||||||
Total debt (Note 10)
|
$ | 8,409 | $ | 9,767 | $ | 7,840 | $ | 8,683 |
(a)
|
each region’s sole business activity is the transportation of freight over the Company’s extensive rail network;
|
(b)
|
the regions service national accounts that extend over the Company’s various commodity groups and across its rail network;
|
(c)
|
the services offered by the Company stem predominantly from the transportation of freight by rail with the goal of optimizing the rail network as a whole; and
|
(d)
|
the Company and its subsidiaries, not its regions, are subject to single regulatory regimes in both Canada and the U.S.
|
In millions
|
Year ended December 31,
|
2014
|
2013
|
2012
|
|||||||||
Revenues
|
|||||||||||||
Canada
|
$ | 8,108 | $ | 7,149 | $ | 6,770 | |||||||
U.S.
|
4,026 | 3,426 | 3,150 | ||||||||||
Total revenues
|
$ | 12,134 | $ | 10,575 | $ | 9,920 | |||||||
Net income
|
|||||||||||||
Canada
|
$ | 2,249 | $ | 1,762 | $ | 1,972 | |||||||
U.S.
|
918 | 850 | 708 | ||||||||||
Total net income
|
$ | 3,167 | $ | 2,612 | $ | 2,680 |
In millions
|
December 31,
|
2014 | 2013 | |||||||
Properties
|
||||||||||
Canada
|
$ | 15,798 | $ | 15,056 | ||||||
U.S.
|
12,716 | 11,171 | ||||||||
Total properties
|
$ | 28,514 | $ | 26,227 |
Canadian National Railway Company
|
U.S. GAAP
|
2014 Annual Report
|
95
|
96
|
2014 Annual Report
|
Canadian National Railway Company
|
Shareholder and Investor Information
Annual meeting
The annual meeting of shareholders will be held at 8:30 a.m. CDT on April 21, 2015 at:
The Peabody Memphis
Venetian Room
149 Union Avenue
Memphis, Tennessee, US
Annual information form
The annual information form may be obtained by writing to:
The Corporate Secretary
Canadian National Railway Company
935 de La Gauchetière Street
West Montreal, Quebec H3B 2M9
It is also available on CN’s website.
Transfer agent and registrar
Computershare Trust Company of Canada
Offices in:
Montreal, Quebec;
Toronto, Ontario;
Calgary, Alberta;
Vancouver, British Columbia
Telephone: 1-800-564-6253
www.investorcentre.com
Co-transfer agent and co-registrar
Computershare Trust Company N.A.
Att: Stock Transfer Department
Overnight Mail Delivery:
250 Royall Street, Canton MA 02021
Regular Mail Delivery: P.O. Box 43078,
Providence, RI 02940-3078
Telephone: 1-800-962-4284
Additional copies of this report are available from:
CN Public Affairs
935 de La Gauchetière Street
West Montreal, Quebec H3B 2M9
Telephone: 1-888-888-5909
Email: contact@cn.ca
|
Shareholder services
Shareholders having inquiries concerning their shares, wishing to obtain information about CN, or to receive dividends by direct deposit or in U.S. dollars may obtain detailed information by communicating with:
Computershare Trust Company of Canada
Shareholder Services
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Telephone: 1-800-564-6253
www.investorcentre.com
Stock exchanges
CN common shares are listed on the Toronto and New York stock exchanges.
Ticker symbols:
CNR (Toronto Stock Exchange)
CNI (New York Stock Exchange)
Investor relations
Janet Drysdale
Vice-President, Investor Relations
Telephone: 514-399-0052
Head office
Canadian National Railway Company
935 de La Gauchetière Street
West Montreal, Quebec H3B 2M9
P.O. Box 8100
Montreal, Quebec H3C 3N4
La version française du présent rapport est disponible à l’adresse suivante :
Affaires publiques du CN
935, rue de La Gauchetière Ouest
Montréal (Québec) H3B 2M9
Téléphone : 1-888-888-5909
Courriel : contact@cn.ca
|
Canadian National Railway Company
|
2014 Annual Report
|
97
|