CN reports Q4-2010 net income of C$503 million, or C$1.08 per diluted share
Comparable adjusted Q4-2009 net income was C$424 million or C$0.90 per diluted share, excluding rail line-sale and deferred income tax recovery(1)
MONTREAL, Jan. 25 /PRNewswire-FirstCall/ - CN (TSX: CNR)(NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2010.
Fourth-quarter and full-year 2010 highlights
- Net income for the final quarter of 2010 was C$503 million, or C$1.08
per diluted share, versus fourth-quarter 2009 net income of
C$582 million or C$1.23 per diluted share.
- Q4-2010 net income increased by 19 per cent over comparable adjusted
2009 net income of C$424 million, with Q4-2010 diluted earnings per
share (EPS) up 20 per cent over adjusted diluted EPS of C$0.90 for the
final quarter of 2009.(1)
- Operating income for the fourth quarter of 2010 increased 19 per cent
to C$774 million.
- Fourth-quarter revenues increased 12 per cent to C$2,117 million on
strong volume growth.
- Fourth-quarter operating ratio improved to 63.4 per cent from 65.3 per
cent for the 2009 final quarter, based on solid operating efficiencies.
- Full-year 2010 free cash flow increased to C$1,122 million from
C$790 million for 2009.(1)
Net income for full-year 2010 was C$2,104 million, or C$4.48 per diluted share, compared with 2009 net income of C$1,854 million, or C$3.92 per diluted share. The financial results for both years included a number of items that affect the comparability of the results, including, in 2010, an after-tax gain on the sale of CN's Oakville Subdivision of C$131 million, or C$0.28 per diluted share.
Excluding these items in both years, adjusted 2010 net income was C$1,973 million, or C$4.20 per diluted share, compared with 2009 adjusted net income of C$1,533 million, or C$3.24 per diluted share. Adjusted diluted EPS for 2010 increased by 30 per cent.(1)
Claude Mongeau, president and chief executive officer, said: "CN's strong fourth-quarter performance capped an impressive year. Operational and service excellence throughout 2010 allowed us to post solid operating metrics while handling a sharp rise in workload with improved reliability for our customers. Innovation, productivity, and supply chain collaboration are clearly paying dividends. These core thrusts are at the heart of our agenda to create value for our customers and shareholders."
Fourth-quarter carloadings and revenue ton-miles grew by more than 10 per cent, while full-year carloadings were up 18 per cent over 2009 and revenue ton-miles increased by 12 per cent.
Foreign currency impact on results
Although CN reports its earnings in Canadian dollars, a large portion of its revenues and expenses is denominated in U.S. dollars. As such, the Company's results are affected by exchange-rate fluctuations. On a constant currency basis that excludes the impact of fluctuations in foreign currency exchange rates, CN's 2010 fourth-quarter and twelve-month net income would have been higher by C$12 million, or C$0.03 per diluted share, and C$103 million, or C$0.22 per diluted share, respectively.(1)
Positive 2011 outlook, increased dividend, and new share buy-back program(2)
Mongeau said: "We believe the North American economy will continue to recover in 2011, but at a slower pace than in 2010, and that global economic conditions will continue to improve. While we expect to face some headwinds from increased depreciation expenses and a higher Canadian dollar, CN is aiming for double-digit growth in 2011 diluted earnings per share (EPS) over adjusted diluted EPS of C$4.20 for 2010. We also expect 2011 free cash flow to be in the order of C$850 million despite higher cash taxes."(1)
In support of top-line growth for 2011, CN expects to take advantage of continued strong growth in overseas container traffic, metal products and iron ore in domestics markets, and wood pulp and lumber offshore. Other growth opportunities include Canadian metallurgical coal and U.S. thermal coal, increased shipments of petroleum and chemicals, and share gains against truck in domestic intermodal.
CN will also pursue a range of service and productivity initiatives. Focus on network velocity, train efficiency, first-mile/last-mile reliability, and safety are expected to help the Company accommodate volume growth at low incremental cost and with a high level of service quality.
Mongeau added: "With a strong balance sheet and solid prospects for earnings and free cash flow generation, I'm pleased that our Board of Directors has approved a 20 per cent increase in CN's quarterly common-share dividend and a new share repurchase program to buy back up to 16.5 million CN common shares."
Fourth-quarter 2010 revenues and expenses
Revenues for the fourth quarter of 2010 increased by 12 per cent to C$2,117 million. All commodity groups experienced increased revenues: coal (22 per cent), intermodal (17 per cent), grain and fertilizers (13 per cent), metals and minerals (13 per cent), petroleum and chemicals (10 per cent), automotive (10 per cent), and forest products (eight per cent). Revenue ton-miles increased 11 per cent over the fourth quarter of 2009, while rail freight revenue per revenue ton-mile increased by one per cent.
Total operating expenses for the fourth quarter increased by nine per cent to C$1,343 million, with fuel expense up 24 per cent, while labor and fringe benefits expense increased by only two per cent, equipment rents declined six per cent, and casualty and other expense increased by three per cent.
Full-year 2010 revenues and expenses
Revenues for the year increased by 13 per cent to C$8,297 million, mainly due to significantly higher freight volumes as a result of improving economic conditions in North America and globally; the impact of a higher fuel surcharge as a result of year-over-year increases in applicable fuel prices and higher volumes; and freight rate increases. These factors were partly offset by the negative translation impact of the stronger Canadian dollar on U.S.-dollar-denominated revenues.
All commodity groups saw revenue increases for 2010: coal (29 per cent), automotive (29 per cent), intermodal (18 per cent), metals and minerals (18 per cent), grain and fertilizers (six per cent), petroleum and chemicals (five per cent), and forest products (three per cent). Revenue ton-miles for the year increased by 12 per cent from 2009, while rail freight revenue per revenue ton-mile was flat.
Operating expenses for 2010 increased by six per cent to C$5,273 million, mainly due to higher fuel costs, increased labor and fringe benefits expense and higher depreciation and amortization expense. These factors were partly offset by the positive translation impact of the stronger Canadian dollar on U.S.-dollar-denominated expenses, the impact of Elgin, Joliet and Eastern Railway Company (EJ&E) acquisition-related costs recorded in 2009, and lower equipment rents.
CN's operating ratio for 2010 was 63.6 per cent, compared with an adjusted operating ratio -- excluding the EJ&E acquisition-related costs -- of 66.7 per cent in 2009, a 3.1-point improvement.(1)
(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 2011 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 or 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. To the extent that CN has provided guidance that are non-GAAP financial measures, the Company may not be able to provide a reconciliation to the GAAP measures, due to unknown variables and uncertainty related to future results. 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 2011 outlook. The Company is forecasting that North American industrial production for the year will increase by about four per cent. CN also expects U.S. housing starts to be about 675,000 units and U.S. motor vehicles sales to be approximately 13 million units for the year. In addition, CN is assuming a weaker 2010/2011 Canadian grain crop, partly offset by a higher carry-over stock. With these assumptions, CN is targeting carload growth in the mid-single digit range, along with continued pricing improvement above inflation. CN assumes the Canadian-U.S. exchange rate to be around par for 2011, and that the price of crude oil (West Texas Intermediate) for the year to be in the range of US$90-95 per barrel. In 2011, CN plans to invest approximately C$1.7 billion in capital programs, of which more than C$1 billion will be targeted on track infrastructure to maintain a safe and fluid railway network. In addition, the Company will invest in projects to support a number of productivity and growth initiatives.
Important risk 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 matters, 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
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2010 2009 2010 2009
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(Unaudited)
Revenues $ 2,117 $ 1,882 $ 8,297 $ 7,367
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Operating expenses
Labor and fringe
benefits 423 413 1,744 1,696
Purchased services and
material 282 256 1,036 1,027
Fuel 291 234 1,048 820
Depreciation and
amortization 220 197 834 790
Equipment rents 62 66 243 284
Casualty and other 65 63 368 344
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Total operating expenses 1,343 1,229 5,273 4,961
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Operating income 774 653 3,024 2,406
Interest expense (87) (95) (360) (412)
Other income 12 76 212 267
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Income before income taxes 699 634 2,876 2,261
Income tax expense (196) (52) (772) (407)
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Net income $ 503 $ 582 $ 2,104 $ 1,854
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Earnings per share
Basic $ 1.09 $ 1.24 $ 4.51 $ 3.95
Diluted $ 1.08 $ 1.23 $ 4.48 $ 3.92
Weighted-average number of
shares
Basic 461.1 470.5 466.3 469.2
Diluted 464.8 474.8 470.1 473.5
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Certain of the 2009 figures have been restated to conform to the 2010 presentation.
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, 2010 and December 31, 2009, and its results of operations, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2010 and 2009. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2010 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
2010 2009
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(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 490 $ 352
Accounts receivable 775 797
Material and supplies 210 170
Deferred income taxes 53 105
Other 62 66
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Total current assets 1,590 1,490
Properties 22,917 22,630
Intangible and other assets 699 1,056
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Total assets $ 25,206 $ 25,176
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable and other $ 1,366 $ 1,167
Current portion of long-term debt 540 70
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Total current liabilities 1,906 1,237
Deferred income taxes 5,152 5,119
Other liabilities and deferred credits 1,333 1,196
Long-term debt 5,531 6,391
Shareholders' equity:
Common shares 4,252 4,266
Accumulated other comprehensive loss (1,709) (948)
Retained earnings 8,741 7,915
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Total shareholder's equity 11,284 11,233
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Total liabilities and shareholders' equity $ 25,206 $ 25,176
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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, 2010 and December 31, 2009, and its results of operations, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2010 and 2009. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2010 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and MD&A.
Subsequent event
On January 24, 2011, the Board of Directors of the Company approved a new share repurchase program which allows for the repurchase of up to 16.5 million common shares between January 28, 2011 and December 31, 2011 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
----------------------- -----------------------
2010 2009 2010 2009
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(Unaudited)
Common shares(1)
Balance, beginning of
period $ 4,270 $ 4,239 $ 4,266 $ 4,179
Stock options exercised
and other 15 27 124 87
Share repurchase
program (33) - (138) -
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Balance, end of period $ 4,252 $ 4,266 $ 4,252 $ 4,266
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Accumulated other
comprehensive loss
Balance, beginning of
period $ (973) $ (288) $ (948) $ (155)
Other comprehensive
income (loss):
Unrealized foreign
exchange gain (loss) on:
Translation of the net
investment in foreign
operations (201) (114) (330) (998)
Translation of US
dollar-denominated
long-term debt
designated as a hedge
of the net investment
in U.S. subsidiaries 193 113 315 976
Pension and other
postretirement benefit
plans:
Net actuarial loss
arising during the
period (931) (868) (931) (868)
Prior service cost
arising during the
period (5) (2) (5) (2)
Amortization of prior
service cost included
in net periodic
benefit cost - 3 2 5
Amortization of net
actuarial loss
included in net
periodic benefit cost
(income) (1) 1 1 2
Derivative instruments - - (1) -
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Other comprehensive loss
before income taxes (945) (867) (949) (885)
Income tax recovery 209 207 188 92
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Other comprehensive loss (736) (660) (761) (793)
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Balance, end of period $ (1,709) $ (948) $ (1,709) $ (948)
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Retained earnings
Balance, beginning of
period $ 8,560 $ 7,452 $ 7,915 $ 6,535
Net income 503 582 2,104 1,854
Share repurchase
program (197) - (775) -
Dividends (125) (119) (503) (474)
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Balance, end of period $ 8,741 $ 7,915 $ 8,741 $ 7,915
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(1) During the three months and year ended December 31, 2010, the Company
issued 0.5 million and 3.4 million common shares, respectively, as a
result of stock options exercised and repurchased 3.5 million and
15.0 million common shares, respectively, under its 2010 share
repurchase program. At December 31, 2010, the Company had
459.4 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
----------------------- -----------------------
2010 2009 2010 2009
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(Unaudited)
Operating activities
Net income $ 503 $ 582 $ 2,104 $ 1,854
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 220 197 834 790
Deferred income taxes 74 (8) 418 138
Gain on disposal of
property - (69) (152) (226)
Changes in operating
assets and liabilities:
Accounts receivable 19 41 (3) 39
Material and supplies 59 65 (43) 32
Accounts payable and
other 273 (12) 285 (204)
Other current assets (12) (9) 13 77
Other, net (81) (108) (457) (221)
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Net cash provided by
operating activities 1,055 679 2,999 2,279
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Investing activities
Property additions (762) (564) (1,586) (1,402)
Acquisitions, net of cash
acquired - - - (373)
Disposal of property 1 74 168 231
Other, net 14 57 35 107
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Net cash used in
investing activities (747) (433) (1,383) (1,437)
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Financing activities
Issuance of long-term
debt - 1 - 1,626
Repayment of long-term
debt (26) (39) (184) (2,109)
Issuance of common shares
due to exercise of stock
options and related
excess tax benefits
realized 14 24 115 73
Repurchase of common
shares (230) - (913) -
Dividends paid (125) (119) (503) (474)
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Net cash used in
financing activities (367) (133) (1,485) (884)
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Effect of foreign
exchange fluctuations on
US dollar-denominated
cash and cash equivalents 1 6 7 (19)
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Net increase (decrease)
in cash and cash
equivalents (58) 119 138 (61)
Cash and cash equivalents,
beginning of period 548 233 352 413
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Cash and cash equivalents,
end of period $ 490 $ 352 $ 490 $ 352
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Supplemental cash flow
information
Net cash receipts from
customers and other $ 2,201 $ 1,965 $ 8,404 $ 7,505
Net cash payments for:
Employee services,
suppliers and other
expenses (985) (1,059) (4,334) (4,323)
Interest (102) (101) (366) (407)
Personal injury and
other claims (17) (26) (64) (112)
Pensions (14) (48) (427) (139)
Income taxes (28) (52) (214) (245)
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Net cash provided by
operating activities $ 1,055 $ 679 $ 2,999 $ 2,279
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Certain of the 2009 figures have been restated to conform to the 2010
presentation.
CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS(1) (U.S. GAAP)
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Three months ended Year ended
December 31 December 31
----------------------- -----------------------
2010 2009 2010 2009
-------------------------------------------------------------------------
(Unaudited)
Statistical operating data
Rail freight revenues
($ millions) 1,896 1,679 7,417 6,632
Gross ton miles (GTM)
(millions) 87,813 78,760 341,219 304,690
Revenue ton miles (RTM)
(millions) 46,586 41,819 179,232 159,862
Carloads (thousands) 1,190 1,077 4,696 3,991
Route miles (includes
Canada and the U.S.) 20,560 21,094 20,560 21,094
Employees (end of period) 22,279 21,501 22,279 21,501
Employees (average for
the period) 22,229 21,478 21,967 21,793
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Productivity
Operating ratio (%) 63.4 65.3 63.6 67.3
Rail freight revenue per
RTM (cents) 4.07 4.01 4.14 4.15
Rail freight revenue per
carload ($) 1,593 1,559 1,579 1,662
Operating expenses per
GTM (cents) 1.53 1.56 1.55 1.63
Labor and fringe benefits
expense per GTM (cents) 0.48 0.52 0.51 0.56
GTMs per average number
of employees (thousands) 3,950 3,667 15,533 13,981
Diesel fuel consumed
(US gallons in millions) 91.2 83.5 355.7 327.3
Average fuel price
($/US gallon) 2.83 2.49 2.64 2.28
GTMs per US gallon of
fuel consumed 963 943 959 931
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Safety indicators
Injury frequency rate per
200,000 person hours(2) 1.74 2.09 1.71 1.78
Accident rate per million
train miles(2) 2.29 3.30 2.03 2.27
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Financial ratio
Debt-to-total
capitalization ratio (%
at end of period) 35.0 36.5 35.0 36.5
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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 of the 2009 comparative figures have been restated in order to be consistent with the 2010 presentation. 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
SUPPLEMENTARY INFORMATION (U.S. GAAP)
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Three months ended Year ended
December 31 December 31
------------------------------- --------------------------------
% %
Change Change
at at
cons- cons-
tant tant
curren- curren-
% cy % cy
Change Fav Change Fav
Fav (Unfav) Fav (Unfav)
2010 2009 (Unfav) (1) 2010 2009 (Unfav) (1)
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(Unaudited)
Revenues
(millions
of
dollars)
Petroleum
and
chemi-
cals 331 302 10% 13% 1,322 1,260 5% 12%
Metals
and
minerals 214 189 13% 16% 861 728 18% 27%
Forest
products 293 271 8% 11% 1,183 1,147 3% 11%
Coal 149 122 22% 25% 600 464 29% 35%
Grain and
ferti-
lizers 401 356 13% 15% 1,418 1,341 6% 11%
Inter-
modal 400 341 17% 18% 1,576 1,337 18% 20%
Automo-
tive 108 98 10% 13% 457 355 29% 39%
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Total rail
freight
revenues 1,896 1,679 13% 15% 7,417 6,632 12% 18%
Other
revenues 221 203 9% 11% 880 735 20% 26%
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Total
revenues 2,117 1,882 12% 15% 8,297 7,367 13% 19%
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Revenue
ton miles
(millions)
Petroleum
and
chemi-
cals 7,950 7,270 9% 9% 31,190 29,381 6% 6%
Metals
and
minerals 4,154 3,507 18% 18% 16,443 12,994 27% 27%
Forest
products 7,055 6,910 2% 2% 28,936 27,594 5% 5%
Coal 5,118 4,176 23% 23% 19,766 14,805 34% 34%
Grain and
ferti-
lizers 12,700 11,281 13% 13% 44,549 40,859 9% 9%
Inter-
modal 9,011 8,095 11% 11% 35,803 32,159 11% 11%
Automo-
tive 598 580 3% 3% 2,545 2,070 23% 23%
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46,586 41,819 11% 11% 179,232 159,862 12% 12%
Rail
freight
reve-
nue /
RTM
(cents)
Total rail
freight
revenue
per RTM 4.07 4.01 1% 4% 4.14 4.15 - 5%
Commodity
groups:
Petroleum
and
chemi-
cals 4.16 4.15 - 3% 4.24 4.29 (1%) 6%
Metals
and
minerals 5.15 5.39 (4%) (2%) 5.24 5.60 (6%) 1%
Forest
products 4.15 3.92 6% 9% 4.09 4.16 (2%) 6%
Coal 2.91 2.92 - 2% 3.04 3.13 (3%) 1%
Grain and
ferti-
lizers 3.16 3.16 - 2% 3.18 3.28 (3%) 2%
Inter-
modal 4.44 4.21 5% 6% 4.40 4.16 6% 8%
Automo-
tive 18.06 16.90 7% 10% 17.96 17.15 5% 13%
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Carloads
(thou-
sands)
Petroleum
and
chemi-
cals 136 126 8% 8% 549 511 7% 7%
Metals
and
minerals 244 224 9% 9% 990 721 37% 37%
Forest
products 106 100 6% 6% 423 403 5% 5%
Coal 123 113 9% 9% 499 426 17% 17%
Grain and
ferti-
lizers 164 147 12% 12% 579 530 9% 9%
Inter-
modal 369 321 15% 15% 1,455 1,246 17% 17%
Automo-
tive 48 46 4% 4% 201 154 31% 31%
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1,190 1,077 10% 10% 4,696 3,991 18% 18%
Rail
freight
reve-
nue /
carload
(dollars)
Total rail
freight
revenue
per
carload 1,593 1,559 2% 4% 1,579 1,662 (5%) -
Commodity
groups:
Petroleum
and
chemi-
cals 2,434 2,397 2% 4% 2,408 2,466 (2%) 4%
Metals
and
minerals 877 844 4% 7% 870 1,010 (14%) (7%)
Forest
products 2,764 2,710 2% 5% 2,797 2,846 (2%) 6%
Coal 1,211 1,080 12% 14% 1,202 1,089 10% 15%
Grain and
ferti-
lizers 2,445 2,422 1% 3% 2,449 2,530 (3%) 2%
Inter-
modal 1,084 1,062 2% 3% 1,083 1,073 1% 3%
Automo-
tive 2,250 2,130 6% 9% 2,274 2,305 (1%) 6%
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(1) See supplementary schedule entitled Non-GAAP Measures for an
explanation of this non-GAAP measure.
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 months and year ended December 31, 2010, the Company reported adjusted net income of $503 million, or $1.08 per diluted share and $1,973 million, or $4.20 per diluted share, respectively. The adjusted figures for the year ended December 31, 2010 exclude the gain on sale of the Company's Oakville subdivision of $152 million, or $131 million after-tax ($0.28 per diluted share).
For the three months and year 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 year 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.
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 2010 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, 2010 and 2009, to the adjusted performance measures presented herein.
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Three months ended Year ended
December 31, 2010 December 31, 2010
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In millions,
except per Adjust- Adjust-
share data Reported ments Adjusted Reported ments Adjusted
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Revenues $ 2,117 $ - $ 2,117 $ 8,297 $ - $ 8,297
Operating
expenses 1,343 - 1,343 5,273 - 5,273
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Operating
income 774 - 774 3,024 - 3,024
Interest
expense (87) - (87) (360) - (360)
Other income 12 - 12 212 (152) 60
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Income
before
income
taxes 699 - 699 2,876 (152) 2,724
Income tax
expense (196) - (196) (772) 21 (751)
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Net income $ 503 $ - $ 503 $ 2,104 $ (131) $ 1,973
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Operating
ratio 63.4% 63.4% 63.6% 63.6%
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Basic
earnings
per share $ 1.09 $ - $ 1.09 $ 4.51 $ (0.28) $ 4.23
Diluted
earnings
per share $ 1.08 $ - $ 1.08 $ 4.48 $ (0.28) $ 4.20
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Three months ended Year ended
December 31, 2009 December 31, 2009
------------------------------ ------------------------------
In millions,
except per Adjust- Adjust-
share data Reported ments Adjusted Reported ments Adjusted
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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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Constant currency
Although CN conducts its business and reports its earnings in Canadian dollars, a large portion of revenues and expenses is denominated in US dollars. As such, the Company's results are affected by exchange-rate fluctuations.
Financial results at "constant currency" allow results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Measures at constant currency are considered non-GAAP measures and do not have any standardized meaning prescribed by GAAP and may, therefore, not be comparable to similar measures presented by other companies. Financial results at constant currency are obtained by translating the current period results denominated in US dollars at the foreign exchange rate of the comparable period of the prior year. The average foreign exchange rates for the three months and year ended December 31, 2010 were 1.01 and 1.03, respectively, and 1.06 and 1.14, respectively, for 2009.
On a constant currency basis, the Company's 2010 fourth quarter and twelve-month net income would have been higher by $12 million, or $0.03 per diluted share and $103 million, or $0.22 per diluted share, respectively. The following table presents a reconciliation of 2010 net income as reported to net income on a constant currency basis:
Three months ended Year ended
December 31, December 31,
In millions 2010 2010
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Net income, as reported $ 503 $ 2,104
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Add back:
Negative impact due to the
strengthening Canadian dollar
included in net income 9 70
Add:
Increase due to the strengthening
Canadian dollar on additional
year-over-year US$ net income 3 33
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Impact of foreign exchange using
constant currency rates 12 103
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Net income, on a constant currency basis $ 515 $ 2,207
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Free cash flow
The Company generated $184 million and $1,122 million of free cash flow for the three months and year ended December 31, 2010, respectively, compared to $133 million and $790 million for the same periods in 2009, respectively. 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 2010 2009 2010 2009
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Net cash provided by
operating activities $ 1,055 $ 679 $ 2,999 $ 2,279
Net cash used in
investing activities (747) (433) (1,383) (1,437)
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Net cash provided before
financing activities 308 246 1,616 842
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Adjustments:
Change in accounts
receivable
securitization - - 2 68
Dividends paid (125) (119) (503) (474)
Acquisition of EJ&E - - - 373
Effect of foreign
exchange fluctuations on
US dollar-denominated
cash and cash equivalents 1 6 7 (19)
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Free cash flow $ 184 $ 133 $ 1,122 $ 790
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SOURCE CN
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