CN reports Q4-2009 net income of C$582 million, or C$1.23 per diluted share
Excluding line-sale to Metrolinx and deferred income tax recovery, adjusted Q4-2009 net income was C$424 million or C$0.90 per diluted share
MONTREAL, Jan. 26 /PRNewswire-FirstCall/ - CN (TSX: CNR)(NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2009.
Fourth-quarter and full-year 2009 highlights
- Net income and diluted earnings per share for the final quarter of 2009
increased two per cent from the year-earlier period to C$582 million
and C$1.23, respectively. The results included an after-tax gain of
C$59 million (C$0.12 per diluted share) from a line-sale to Metrolinx,
a transit agency in Toronto, and a deferred income tax recovery of
C$99 million (C$0.21 per diluted share).
- Excluding these items, adjusted fourth-quarter 2009 net income was
C$424 million, or C$0.90 per diluted share, compared with adjusted net
income of C$531 million, or C$1.12 per diluted share, excluding a
deferred income tax recovery, for the year-earlier period.(1)
- Fourth-quarter 2009 revenues declined 14 per cent from a year earlier
to C$1,882 million.
- Fourth-quarter operating ratio was 65.3 per cent, compared with
62.7 per cent for the same quarter of 2008.
- Free cash flow for full-year 2009 was C$790 million, compared with
2008's C$794 million.(1)
Net income for full-year 2009 decreased two per cent from 2008 to C$1,854 million, with diluted earnings per share declining one per cent to C$3.92. The 2009 results included after-tax gains of C$194 million (C$0.41 per diluted share) from two line-sales; a deferred income tax recovery of C$157 million (C$0.33 per diluted share), mainly resulting from the enactment of lower provincial corporate income tax rates; and after-tax acquisition-related costs of C$30 million (C$0.06 per diluted share) related to CN's purchase of the Elgin, Joliet and Eastern Railway Company. Excluding these items, adjusted 2009 net income was C$1,533 million (C$3.24 per diluted share), compared with adjusted 2008 net income, excluding a deferred income tax recovery, of C$1,778 million, or C$3.71 per diluted share.(1)
Claude Mongeau, president and chief executive officer, said: "CN overcame a number of challenges during the fourth quarter, ranging from weather and operational disruptions in Western Canada to a five-day strike by locomotive engineers in Canada. In addition, the stronger Canadian dollar adversely affected our earnings. Despite these challenges, the final quarter of 2009 saw continued sequential improvement in CN's traffic levels and an easing in year-over-year volume comparisons. Carloadings were flat year-over-year, but up four per cent versus the third quarter of 2009."
Fourth-quarter year-over-year growth was in coal, automotive, grain and fertilizers, and petroleum and chemicals volumes as the economic recovery began taking hold. Intermodal volumes declined three per cent, metals and mineral carloadings were down by two per cent, and forest products markets remain depressed.
Mongeau said: "Throughout the year, the CN team raised the bar on operational execution, tightly controlled costs, and generated solid free cash flow and increased shareholder value through the monetization of underutilized assets. As we go forward, we will build on the improvements in operating metrics we achieved in 2009, including train velocity, lower freight car dwell times in terminals, and improved locomotive fuel efficiency."
Foreign currency impact on results
The fluctuation of the Canadian dollar relative to the U.S. dollar, which affects the conversion of CN's U.S.-dollar-denominated revenues and expenses, reduced fourth-quarter 2009 net income by approximately C$35 million (C$0.07 per diluted share), while increasing full-year 2009 net income by C$25 million (C$0.05 per diluted share).
2010 outlook, increased dividend, new share buy-back program(2)
Mongeau said: "CN believes there will be gradual economic recovery in 2010. A number of our markets appear to be improving, and we expect to take advantage of a number of opportunities this year. We are still facing some headwinds, but are aiming for double-digit growth in diluted earnings per share (EPS) in 2010 over adjusted diluted EPS of C$3.24 in 2009, with 2010 free cash flow in the order of C$700 million."(1)
One of the headwinds CN will face in 2010 is the Canadian-U.S. dollar exchange rate, which averaged C$0.88 in 2009 but is expected to be substantially higher in 2010. In addition, CN anticipates increased expenses in 2010, including higher depreciation expense and substantially lower credits for casualty expense.
Mongeau added: "Given the anticipated economic recovery, CN's strong balance sheet and its ability to produce solid cash flow, I'm pleased that the Company's Board of Directors has approved a seven per cent increase in CN's quarterly common-share dividend, and a new share repurchase program to buy-back up to 15 million CN common shares."
Fourth-quarter 2009 revenues and expenses
The 14 per cent decline in fourth-quarter revenues largely resulted from the negative translation impact of the year-over-year stronger Canadian dollar on U.S.-dollar-denominated revenues; a reduction in the fuel surcharge resulting from year-over-year decreases in applicable fuel prices, and lower freight volumes in most markets because of economic conditions. These factors were partly offset by freight rate increases.
All commodity groups experienced decreased revenues: forest products (26 per cent), metals and minerals (20 per cent), petroleum and chemicals (16 per cent), intermodal (13 per cent), automotive (13 per cent), coal (eight per cent), and grain and fertilizers (seven per cent).
Operating expenses for fourth-quarter 2009 declined by 11 per cent to C$1,229 million. The decrease was primarily owing to the positive translation impact of the stronger Canadian dollar on U.S.-dollar-denominated expenses, lower fuel costs, and reduced expenses for casualty and other and purchased services and material. These factors were partly offset by higher labor and fringe-benefits expense.
Full-year 2009 revenues and expenses
Revenues for the year decreased by 13 per cent to C$7,367 million, mainly due to significantly lower freight volumes in almost all markets as a result of economic conditions in the North American and global economies, and a reduction in the fuel surcharge resulting from year-over-year decreases in applicable fuel prices and lower volumes. These factors were partly offset by freight rate increases and the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues.
All commodity groups saw revenue declines for 2009: automotive (24 per cent), metals and minerals (23 per cent), forest products (20 per cent), intermodal (15 per cent), petroleum and chemicals (six per cent), coal (three per cent), and grain and fertilizers (three per cent). Revenue ton-miles for the year declined 10 per cent from 2008.
Operating expenses for 2009 decreased by 11 per cent to C$4,961 million, mainly due to lower fuel costs and reduced expenses for purchased services and material, partly reflecting the impact of reduced freight volumes as well as management's cost-reduction initiatives. These factors were partially offset by the negative translation impact of the weaker Canadian dollar on U.S.-dollar-denominated expenses.
CN's operating ratio for 2009 increased by 1.4 points to 67.3 per cent when compared to 2008.
(1) Please see discussion and reconciliation of non-GAAP adjusted
performance measures in the attached supplementary schedule, Non-GAAP
Measures.
(2) See Forward-Looking Statements for a summary of the key assumptions
and risks regarding CN's 2010 outlook.
Forward-Looking Statements
Certain information included in this news release are "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. CN cautions that, by their nature, these forward-looking statements involve risks, uncertainties and assumptions. The Company cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results of performance of the Company or the rail industry to be materially different from the outlook or any future results or performance implied by such statements. Key assumptions used in determining forward-looking information are set forth below.
Key assumptions
CN made a number of economic and market assumptions in preparing its 2010 outlook. The Company is forecasting that North American industrial production for the year will increase in the range of three to four per cent. Of particular importance is that CN expects U.S. housing starts to be about 750,000 units and U.S. motor vehicles sales to be approximately 11.5 million units for the year. In addition, CN is assuming a 2010/2011 Canadian grain crop in line with the five-year average, and that in 2010 the crop will be complemented by a good carryover stock from 2009. With these assumptions, CN is targeting carload growth in the high-single-digit range, along with pricing improvement of about four per cent. CN expects the Canadian-U.S. exchange rate to be in the range of C$0.95 to par, and that the price of crude oil (West Texas Intermediate) to be about US$75 to US$80 per barrel. In 2010, CN plans to invest approximately C$1.5 billion in capital programs, of which more than C$1 billion will be targeted on track infrastructure to maintain a safe railway and improve the productivity and fluidity of the network.
Important factors that could affect the forward-looking statements include, but are not limited to, the effects of general economic and business conditions, industry competition, inflation, currency and interest rate fluctuations, changes in fuel prices, legislative and/or regulatory developments, compliance with environmental laws and regulations, actions by regulators, various events which could disrupt operations, including natural events such as severe weather, droughts, floods and earthquakes, labor negotiations and disruptions, environmental claims, uncertainties of investigations, proceedings or other types of claims and litigation, risks and liabilities arising from derailments, and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should be made to "Management's Discussion and Analysis" in CN's annual and interim reports, Annual Information Form and Form 40-F filed with Canadian and U.S. securities regulators, available on CN's website, for a summary of major risks.
CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable Canadian securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related maters, or any other forward-looking statement.
CN - Canadian National Railway Company and its operating railway subsidiaries - spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, and Jackson, Miss., with connections to all points in North America. For more information on CN, visit the Company's website at www.cn.ca.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP)
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(In millions, except per share data)
Three months ended Year ended
December 31 December 31
---------------------- -----------------------
2009 2008 2009 2008
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(Unaudited)
Revenues $ 1,882 $ 2,200 $ 7,367 $ 8,482
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Operating expenses
Labor and fringe
benefits 413 397 1,696 1,674
Purchased services and
material 256 301 1,027 1,137
Fuel 221 304 769 1,403
Depreciation and
amortization 197 197 790 725
Equipment rents 66 79 284 262
Casualty and other 76 102 395 387
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Total operating expenses 1,229 1,380 4,961 5,588
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Operating income 653 820 2,406 2,894
Interest expense (95) (110) (412) (375)
Other income 76 19 267 26
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Income before income
taxes 634 729 2,261 2,545
Income tax expense (52) (156) (407) (650)
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Net income $ 582 $ 573 $ 1,854 $ 1,895
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Earnings per share
Basic $ 1.24 $ 1.22 $ 3.95 $ 3.99
Diluted $ 1.23 $ 1.21 $ 3.92 $ 3.95
Weighted-average number
of shares
Basic 470.5 468.1 469.2 474.7
Diluted 474.8 472.5 473.5 480.0
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These unaudited interim consolidated financial statements, expressed in Canadian dollars, and prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Canadian National Railway Company's (the Company) financial position as at December 31, 2009 and December 31, 2008, and its results of operations, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2009 and 2008. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2009 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and Management's Discussion and Analysis (MD&A).
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
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(In millions)
December 31 December 31
2009 2008
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(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 352 $ 413
Accounts receivable 797 913
Material and supplies 170 200
Deferred income taxes 105 98
Other 66 132
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1,490 1,756
Properties 22,630 23,203
Intangible and other assets 1,056 1,761
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Total assets $ 25,176 $ 26,720
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other $ 1,167 $ 1,386
Current portion of long-term debt 70 506
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1,237 1,892
Deferred income taxes 5,119 5,511
Other liabilities and deferred credits 1,196 1,353
Long-term debt 6,391 7,405
Shareholders' equity:
Common shares 4,266 4,179
Accumulated other comprehensive loss (948) (155)
Retained earnings 7,915 6,535
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11,233 10,559
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Total liabilities and shareholders' equity $ 25,176 $ 26,720
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These unaudited interim consolidated financial statements, expressed in Canadian dollars, and prepared in accordance with U.S. GAAP, contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as at December 31, 2009 and December 31, 2008, and its results of operations, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2009 and 2008. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2009 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and MD&A.
Subsequent event
On January 26, 2010, the Board of Directors of the Company approved a new share repurchase program which allows for the repurchase of up to 15.0 million common shares between January 29, 2010 and December 31, 2010 pursuant to a normal course issuer bid, at prevailing market prices or such other prices as may be permitted by the Toronto Stock Exchange.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. GAAP)
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(In millions)
Three months ended Year ended
December 31 December 31
---------------------- -----------------------
2009 2008 2009 2008
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(Unaudited)
Common shares(1)
Balance, beginning of
period $ 4,239 $ 4,171 $ 4,179 $ 4,283
Stock options exercised
and other 27 9 87 68
Share repurchase
programs - (1) - (172)
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Balance, end of period $ 4,266 $ 4,179 $ 4,266 $ 4,179
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Accumulated other
comprehensive income
(loss)
Balance, beginning of
period $ (288) $ 54 $ (155) $ (31)
Other comprehensive
income (loss):
Unrealized foreign
exchange gain (loss) on:
Translation of the net
investment in foreign
operations (114) 860 (998) 1,259
Translation of
U.S. dollar-denominated
long-term debt
designated as a hedge
of the net investment
in U.S. subsidiaries 113 (877) 976 (1,266)
Pension and other
postretirement benefit
plans:
Net actuarial
loss arising during
the period (868) (452) (868) (452)
Prior service cost
arising during the
period (2) (3) (2) (3)
Amortization of net
actuarial loss (gain)
included in net
periodic benefit cost
(income) 1 - 2 (2)
Amortization of prior
service cost included
in net periodic benefit
cost (income) 3 3 5 21
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Other comprehensive loss
before income taxes (867) (469) (885) (443)
Income tax recovery 207 260 92 319
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Other comprehensive loss (660) (209) (793) (124)
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Balance, end of period $ (948) $ (155) $ (948) $ (155)
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Retained earnings
Balance, beginning of
period $ 7,452 $ 6,073 $ 6,535 $ 5,925
Net income 582 573 1,854 1,895
Share repurchase
programs - (3) - (849)
Dividends (119) (108) (474) (436)
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Balance, end of period $ 7,915 $ 6,535 $ 7,915 $ 6,535
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(1) During the three months and year ended December 31, 2009, the Company
issued 0.9 million and 2.8 million common shares, respectively, as a
result of stock options exercised. At December 31, 2009, the Company
had 471.0 million common shares outstanding.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP)
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(In millions)
Three months ended Year ended
December 31 December 31
---------------------- -----------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 582 $ 573 $ 1,854 $ 1,895
Adjustments to reconcile
net income to net cash
provided from operating
activities:
Depreciation and
amortization 197 197 790 725
Deferred income taxes (8) 43 138 230
Gain on disposal of
property (69) - (226) -
Other changes in:
Accounts receivable 41 (173) 39 (432)
Material and supplies 65 25 32 (23)
Accounts payable and
other (12) (28) (204) (127)
Other current assets (9) 2 77 37
Other (108) (139) (221) (274)
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Cash provided from
operating activities 679 500 2,279 2,031
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Investing activities
Property additions (564) (480) (1,402) (1,424)
Acquisitions, net of cash
acquired - (50) (373) (50)
Disposal of property 74 - 231 -
Other, net 57 32 107 74
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Cash used by investing
activities (433) (498) (1,437) (1,400)
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Financing activities
Issuance of long-term
debt 1 1,003 1,626 4,433
Reduction of long-term
debt (39) (793) (2,109) (3,589)
Issuance of common shares
due to exercise of stock
options and related
excess tax benefits
realized 24 6 73 54
Repurchase of common
shares - (4) - (1,021)
Dividends paid (119) (108) (474) (436)
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Cash provided from (used
by) financing activities (133) 104 (884) (559)
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Effect of foreign
exchange fluctuations on
U.S. dollar-denominated
cash and cash equivalents 6 19 (19) 31
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Net increase (decrease)
in cash and cash
equivalents 119 125 (61) 103
Cash and cash equivalents,
beginning of period 233 288 413 310
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Cash and cash equivalents,
end of period $ 352 $ 413 $ 352 $ 413
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Supplemental cash flow
information
Net cash receipts from
customers and other $ 1,965 $ 1,987 $ 7,505 $ 8,012
Net cash payments for:
Employee services,
suppliers and other
expenses (1,057) (1,171) (4,314) (4,920)
Interest (101) (124) (407) (396)
Workforce reductions (4) (5) (17) (22)
Personal injury and
other claims (26) (29) (112) (91)
Pensions (46) (50) (131) (127)
Income taxes (52) (108) (245) (425)
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Cash provided from
operating activities $ 679 $ 500 $ 2,279 $ 2,031
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CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS(1) (U.S. GAAP)
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Three months ended Year ended
December 31 December 31
---------------------- -----------------------
2009 2008 2009 2008
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(Unaudited)
Statistical operating data
Rail freight revenues
($ millions) 1,679 1,977 6,632 7,641
Gross ton miles (GTM)
(millions) 78,760 81,871 304,690 339,854
Revenue ton miles (RTM)
(millions) 41,819 42,382 159,862 177,951
Carloads (thousands) 1,077 1,078 3,991 4,615
Route miles (includes
Canada and the U.S.) 21,094 20,961 21,094 20,961
Employees (end of period) 21,501 22,227 21,501 22,227
Employees (average for
the period) 21,478 22,461 21,793 22,695
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Productivity
Operating ratio (%) 65.3 62.7 67.3 65.9
Rail freight revenue per
RTM (cents) 4.01 4.66 4.15 4.29
Rail freight revenue per
carload ($) 1,559 1,834 1,662 1,656
Operating expenses per
GTM (cents) 1.56 1.69 1.63 1.64
Labor and fringe benefits
expense per GTM (cents) 0.52 0.48 0.56 0.49
GTMs per average number of
employees (thousands) 3,667 3,645 13,981 14,975
Diesel fuel consumed
(U.S. gallons in millions) 83 93 327 380
Average fuel price
($/U.S. gallon) 2.33 2.88 2.12 3.39
GTMs per U.S. gallon of
fuel consumed 949 880 932 894
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Safety indicators
Injury frequency rate per
200,000 person hours(2) 2.09 1.72 1.78 1.78
Accident rate per million
train miles(2) 3.30 2.83 2.27 2.58
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Financial ratio
Debt to total
capitalization ratio (%
at end of period) 36.5 42.8 36.5 42.8
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(1) Includes data relating to companies acquired as of the date of
acquisition.
(2) Based on Federal Railroad Administration (FRA) reporting criteria.
Certain statistical data and related productivity measures are based on estimated data available at such time and are subject to change as more complete information becomes available.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY INFORMATION (U.S. GAAP)
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Three months ended Year ended
December 31 December 31
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Variance Variance
Fav Fav
2009 2008 (Unfav) 2009 2008 (Unfav)
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(Unaudited)
Revenues (millions
of dollars)
Petroleum and
chemicals 302 359 (16%) 1,260 1,346 (6%)
Metals and minerals 189 237 (20%) 728 950 (23%)
Forest products 271 366 (26%) 1,147 1,436 (20%)
Coal 122 132 (8%) 464 478 (3%)
Grain and
fertilizers 356 381 (7%) 1,341 1,382 (3%)
Intermodal 341 390 (13%) 1,337 1,580 (15%)
Automotive 98 112 (13%) 355 469 (24%)
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Total rail freight
revenue 1,679 1,977 (15%) 6,632 7,641 (13%)
Other revenues 203 223 (9%) 735 841 (13%)
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Total revenues 1,882 2,200 (14%) 7,367 8,482 (13%)
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Revenue ton miles
(millions)
Petroleum and
chemicals 7,270 7,678 (5%) 29,381 32,346 (9%)
Metals and
minerals 3,507 3,982 (12%) 12,994 17,953 (28%)
Forest products 6,910 7,848 (12%) 27,594 33,847 (18%)
Coal 4,176 3,697 13% 14,805 14,886 (1%)
Grain and
fertilizers 11,281 10,592 7% 40,859 42,507 (4%)
Intermodal 8,095 8,027 1% 32,159 33,822 (5%)
Automotive 580 558 4% 2,070 2,590 (20%)
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41,819 42,382 (1%) 159,862 177,951 (10%)
Rail freight
revenue /
RTM (cents)
Total rail freight
revenue per RTM 4.01 4.66 (14%) 4.15 4.29 (3%)
Commodity groups:
Petroleum and
chemicals 4.15 4.68 (11%) 4.29 4.16 3%
Metals and
minerals 5.39 5.95 (9%) 5.60 5.29 6%
Forest products 3.92 4.66 (16%) 4.16 4.24 (2%)
Coal 2.92 3.57 (18%) 3.13 3.21 (2%)
Grain and
fertilizers 3.16 3.60 (12%) 3.28 3.25 1%
Intermodal 4.21 4.86 (13%) 4.16 4.67 (11%)
Automotive 16.90 20.07 (16%) 17.15 18.11 (5%)
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Carloads
(thousands)
Petroleum and
chemicals 126 123 2% 511 547 (7%)
Metals and
minerals 224 228 (2%) 721 1,025 (30%)
Forest products 100 116 (14%) 403 511 (21%)
Coal 113 95 19% 426 375 14%
Grain and
fertilizers 147 143 3% 530 579 (8%)
Intermodal 321 332 (3%) 1,246 1,377 (10%)
Automotive 46 41 12% 154 201 (23%)
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1,077 1,078 - 3,991 4,615 (14%)
Rail freight
revenue /
carload (dollars)
Total rail freight
revenue per
carload 1,559 1,834 (15%) 1,662 1,656 -
Commodity groups:
Petroleum and
chemicals 2,397 2,919 (18%) 2,466 2,461 -
Metals and
minerals 844 1,039 (19%) 1,010 927 9%
Forest products 2,710 3,155 (14%) 2,846 2,810 1%
Coal 1,080 1,389 (22%) 1,089 1,275 (15%)
Grain and
fertilizers 2,422 2,664 (9%) 2,530 2,387 6%
Intermodal 1,062 1,175 (10%) 1,073 1,147 (6%)
Automotive 2,130 2,732 (22%) 2,305 2,333 (1%)
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Such statistical data and related productivity measures are based on estimated data available at such time and are subject to change as more complete information becomes available.
CANADIAN NATIONAL RAILWAY COMPANY
NON-GAAP MEASURES - unaudited
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Adjusted performance measures
For the three and twelve months ended December 31, 2009, the Company reported adjusted net income of $424 million, or $0.90 per diluted share and $1,533 million or $3.24 per diluted share, respectively. The adjusted figures for the three months ended December 31, 2009 exclude the gain on sale of the Lower Newmarket subdivision of $69 million or $59 million after-tax ($0.12 per diluted share) and a deferred income tax recovery of $99 million ($0.21 per diluted share), resulting from the enactment of a lower provincial corporate income tax rate. The adjusted figures for the twelve months ended December 31, 2009 exclude the gain on sale of the Lower Newmarket subdivision of $69 million or $59 million after-tax ($0.12 per diluted share); the gain on sale of the Weston subdivision of $157 million or $135 million after-tax ($0.29 per diluted share); EJ&E acquisition-related costs of $49 million or $30 million after-tax ($0.06 per diluted share); and a deferred income tax recovery of $157 million ($0.33 per diluted share), of which $126 million ($0.27 per diluted share) resulted from the enactment of lower provincial corporate income tax rates, $16 million ($0.03 per diluted share) resulted from the recapitalization of a foreign investment and $15 million ($0.03 per diluted share) resulted from the resolution of various income tax matters and adjustments related to tax filings of prior years.
For the three months and year ended December 31, 2008, the Company reported adjusted net income of $531 million, or $1.12 per diluted share and $1,778 million, or $3.71 per diluted share, respectively. The fourth quarter adjusted figures exclude the impact of a net deferred income tax recovery of $42 million ($0.09 per diluted share) resulting from the resolution of various income tax matters and adjustments related to tax filings of prior years. The year-to-date December 31, 2008 adjusted figures exclude a deferred income tax recovery of $117 million ($0.24 per diluted share), of which $83 million ($0.17 per diluted share) was due to the resolution of various income tax matters and adjustments related to tax filings of prior years, $23 million ($0.05 per diluted share) was due to the enactment of corporate income tax rate changes in Canada and $11 million ($0.02 per diluted share) was due to net capital losses arising from the reorganization of a subsidiary.
Management believes that adjusted net income and adjusted earnings per share are useful measures of performance that can facilitate period-to-period comparisons, as they exclude items that do not necessarily arise as part of the normal day-to-day operations of the Company and could distort the analysis of trends in business performance. The exclusion of such items in adjusted net income and adjusted earnings per share does not, however, imply that such items are necessarily non-recurring. These adjusted measures do not have any standardized meaning prescribed by GAAP and may, therefore, not be comparable to similar measures presented by other companies. The reader is advised to read all information provided in the Company's 2009 Annual Consolidated Financial Statements, Notes thereto and Management's Discussion and Analysis (MD&A). The following tables provide a reconciliation of net income and earnings per share, as reported for the three months and year ended December 31, 2009 and 2008, to the adjusted performance measures presented herein.
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Three months ended Year ended
December 31, 2009 December 31, 2009
--------------------------- ----------------------------
In millions,
except per Adjust- Ad- Adjust- Ad-
share data Reported ments justed Reported ments justed
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Revenues $ 1,882 $ - $ 1,882 $ 7,367 $ - $ 7,367
Operating
expenses 1,229 - 1,229 4,961 (49) 4,912
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Operating income 653 - 653 2,406 49 2,455
Interest expense (95) - (95) (412) - (412)
Other income 76 (69) 7 267 (226) 41
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Income before
income taxes 634 (69) 565 2,261 (177) 2,084
Income tax
expense (52) (89) (141) (407) (144) (551)
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Net income $ 582 $ (158) $ 424 $ 1,854 $ (321) $ 1,533
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Operating ratio 65.3% 65.3% 67.3% 66.7%
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Basic earnings
per share $ 1.24 $ (0.33) $ 0.91 $ 3.95 $ (0.68) $ 3.27
Diluted
earnings per
share $ 1.23 $ (0.33) $ 0.90 $ 3.92 $ (0.68) $ 3.24
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Three months ended Year ended
December 31, 2008 December 31, 2008
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In millions,
except per Adjust- Ad- Adjust- Ad-
share data Reported ments justed Reported ments justed
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Revenues $ 2,200 $ - $ 2,200 $ 8,482 $ - $ 8,482
Operating
expenses 1,380 - 1,380 5,588 - 5,588
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Operating income 820 - 820 2,894 - 2,894
Interest expense (110) - (110) (375) - (375)
Other income 19 - 19 26 - 26
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Income before
income taxes 729 - 729 2,545 - 2,545
Income tax
expense (156) (42) (198) (650) (117) (767)
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Net income $ 573 $ (42) $ 531 $ 1,895 $ (117) $ 1,778
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Operating ratio 62.7% 62.7% 65.9% 65.9%
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Basic earnings
per share $ 1.22 $ (0.09) $ 1.13 $ 3.99 $ (0.24) $ 3.75
Diluted
earnings per
share $ 1.21 $ (0.09) $ 1.12 $ 3.95 $ (0.24) $ 3.71
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Free cash flow
The Company generated $133 million and $790 million of free cash flow for the three months and year ended December 31, 2009, respectively, compared to $311 million and $794 million for the same periods in 2008. Free cash flow does not have any standardized meaning prescribed by GAAP and may, therefore, not be comparable to similar measures presented by other companies. The Company believes that free cash flow is a useful measure of performance as it demonstrates the Company's ability to generate cash after the payment of capital expenditures and dividends. The Company defines free cash flow as cash provided from operating activities, adjusted for changes in the accounts receivable securitization program and in cash and cash equivalents resulting from foreign exchange fluctuations, less cash used by investing activities, adjusted for the impact of major acquisitions, and the payment of dividends, calculated as follows:
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Three months ended Year ended
December 31 December 31
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In millions 2009 2008 2009 2008
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Cash provided from
operating activities $ 679 $ 500 $ 2,279 $ 2,031
Cash used by investing
activities (433) (498) (1,437) (1,400)
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Cash provided before
financing activities 246 2 842 631
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Adjustments:
Change in accounts
receivable
securitization - 398 68 568
Dividends paid (119) (108) (474) (436)
Acquisition of EJ&E - - 373 -
Effect of foreign
exchange fluctuations
on U.S. dollar-
denominated cash and
cash equivalents 6 19 (19) 31
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Free cash flow $ 133 $ 311 $ 790 $ 794
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SOURCE CN
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