728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads
728 x 90 Leaderboard Ads

CN reports Q4-2017 and full-year financial results

THIS POST WAS ORIGINALLY PUBLISHED ON THIS SITE Click Here To Read Entire Article

Quarter caps strong 2017 performance with top line growth of
over C$1 billion; record investments planned in 2018 to deliver future growth

MONTREAL, Jan. 23, 2018 /PRNewswire/ – CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2017.

Financial results highlights
Fourth-quarter 2017 compared to fourth-quarter 2016

  • Net income increased by 156 per cent to C$2,611 million, and diluted earnings per share (EPS) increased by 164 per cent to C$3.48. Included in net income was a deferred income tax recovery of C$1,764 million (C$2.35 per diluted share) resulting from the enactment of a lower U.S. federal corporate income tax rate.
  • Adjusted net income decreased by six per cent to C$897 million, and adjusted diluted EPS decreased by two per cent to C$1.20. (1)
  • Operating income decreased by seven per cent to C$1,301 million.
  • Revenues increased by two per cent to C$3,285 million.
  • Revenue ton-miles (RTMs) increased by one per cent and carloadings increased by seven per cent.
  • Operating expenses increased by nine per cent to C$1,984 million.
  • Operating ratio of 60.4 per cent, an increase of 3.8 points.

Full-year 2017 compared to full-year 2016

  • Net income increased by 51 per cent to C$5,484 million, and diluted EPS increased by 55 per cent to C$7.24. Included in net income was a deferred income tax recovery of C$1,764 million (C$2.33 per diluted share) resulting from the enactment of a lower U.S. federal corporate income tax rate.
  • Adjusted net income increased by six per cent to C$3,778 million, and adjusted diluted EPS increased by nine per cent to C$4.99. (1)
  • Operating income increased by five per cent to C$5,558 million.
  • Revenues increased by eight per cent to C$13,041 million.
  • RTMs increased by 11 per cent and carloadings increased by 10 per cent.
  • Operating expenses increased by 11 per cent to C$7,483 million.
  • Operating ratio of 57.4 per cent, an increase of 1.5 points.
  • Free cash flow (1) was C$2,778 million, compared with C$2,520 million for 2016.

“Our growth continues to outpace the strengthening economy, and I am pleased with the results our dedicated team generated in 2017,” said Luc Jobin, CN president and chief executive officer. “Throughout the year we faced rapidly changing market demands and in the fourth quarter dealt with challenging operating conditions, including harsh early winter weather across the network, impacting our performance.

“We remain focused on operational efficiency and providing quality service to our customers,” Jobin continued. “In 2018 we are adding new train crews and increasing our capital program to a record C$3.2 billion as we invest in locomotives and build additional capacity for resiliency.” 

2018 outlook, capital program and increased dividend (2)
“As the economic backdrop remains favourable in North America, we expect to see continued volume growth in 2018,” said Jobin.

CN aims to deliver adjusted diluted EPS in the range of C$5.25 to C$5.40 this year compared to adjusted diluted EPS of C$4.99 in 2017. (1)

CN will continue to invest in the safety and efficiency of its network with a capital program in 2018 of C$3.2 billion. The program is highlighted by approximately $700 million for investments to increase capacity, including the acquisition of 60 new locomotives, track infrastructure expansion, and improvements at intermodal terminals. The capital program also includes approximately C$1.6 billion for track infrastructure maintenance supporting safety and efficiency, and approximately C$400 million for continued installation of Positive Train Control in the United States. 

The Company’s Board of Directors today approved a 10 per cent increase to CN’s 2018 quarterly cash dividend, effective for the first quarter of 2018. 

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. The fluctuation of the Canadian dollar relative to the U.S. dollar affects the conversion of the Company’s U.S.-dollar-denominated revenues and expenses. On a constant currency basis, (1) CN’s net income for the three months and year ended Dec. 31, 2017 would have been higher by C$26 million (C$0.03 per diluted share) and C$42 million (C$0.06 per diluted share), respectively. 

Fourth-quarter 2017 revenues, traffic volumes and expenses
Revenues for the quarter increased by two per cent to C$3,285 million, when compared to the same period in 2016. Revenues increased for metals and minerals (20 per cent), intermodal (13 per cent), coal (seven per cent) and automotive (one per cent). Revenues declined for grain and fertilizers (10 per cent), petroleum and chemicals (five per cent), forest products (two per cent) and other revenues (one per cent).

The increase in revenues was mainly attributable to higher international container traffic via the ports of Prince Rupert and Vancouver, and increased volumes of frac sand; freight rate increases; and higher applicable fuel surcharge rates. These factors were partly offset by the negative translation impact of a stronger Canadian dollar; lower export volumes of U.S. soybeans and reduced shipments of crude oil.

Carloadings for the quarter increased by seven per cent to 1,461 thousand.

RTMs, measuring the relative weight and distance of rail freight transported by CN, increased by one per cent. Rail freight revenue per RTM also increased by one per cent.

Operating expenses for the quarter increased by nine per cent to C$1,984 million, mainly due to higher costs from increased volumes; challenging operating conditions, including harsh early winter weather; and higher fuel prices; partly offset by the positive translation impact of a stronger Canadian dollar.

Full-year 2017 revenues, traffic volumes and expenses
Revenues for 2017 increased by eight per cent to C$13,041 million, when compared to 2016. Revenues increased for metals and minerals (25 per cent), coal (23 per cent), intermodal (12 per cent), automotive (nine per cent), grain and fertilizers (six per cent), other revenues (five per cent), and petroleum and chemicals (two per cent). Revenues declined for forest products (one per cent).

The increase in revenues was mainly attributable to higher volumes of traffic in overseas intermodal, frac sand, coal and petroleum coke exports, and Canadian grain; freight rate increases; and higher applicable fuel surcharge rates; partly offset by the negative translation impact of a stronger Canadian dollar.

Carloadings increased by 10 per cent to 5,737 thousand.

RTMs increased by 11 per cent. Rail freight revenue per RTM decreased by two per cent, mainly driven by an increase in the average length of haul and the negative translation impact of a stronger Canadian dollar; partly offset by freight rate increases and higher applicable fuel surcharge.

Operating expenses increased by 11 per cent to C$7,483 million, mainly due to higher costs from increased volumes and higher fuel prices, partly offset by the positive translation impact of a stronger Canadian dollar.

(1) Non-GAAP Measures
CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). CN also uses non-GAAP measures in this news release that do not have any standardized meaning prescribed by GAAP, including adjusted performance measures, constant currency, and free cash flow. These non-GAAP measures may not be comparable to similar measures presented by other companies. For further details of these non-GAAP measures, including a reconciliation to the most directly comparable GAAP financial measures, refer to the attached supplementary schedule, Non-GAAP Measures.

CN’s full-year adjusted EPS outlook (2) excludes the expected impact of certain income and expense items. However, management cannot individually quantify on a forward-looking basis the impact of these items on its EPS because these items, which could be significant, are difficult to predict and may be highly variable. As a result, CN does not provide a corresponding GAAP measure for, or reconciliation to, its adjusted EPS outlook.

(2) Forward-Looking Statements 
Certain statements included in this news release constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. By their nature, 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. Forward-looking statements may be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “assumes,” “outlook,” “plans,” “targets,” or other similar words.

2018 key assumptions
CN has made a number of economic and market assumptions in preparing its 2018 outlook. The Company assumes that North American industrial production for the year will increase in the range of two to three per cent, and assumes U.S. housing starts in the range of 1.25 million units and U.S. motor vehicle sales of approximately 17 million units. For the 2017/2018 crop year, the grain crops in both Canada and the United States were above their respective three-year averages. The Company assumes that the 2018/2019 grain crops in both Canada and the United States will be in line with their respective three-year averages. CN assumes total RTMs in 2018 will increase in the range of three to five per cent versus 2017. CN expects continued pricing above inflation. CN assumes that in 2018 the value of the Canadian dollar in U.S. currency will be approximately $0.80, and that the average price of crude oil (West Texas Intermediate) will be in the range of US$60 to US$70 per barrel. In 2018, CN plans to invest approximately C$3.2 billion in its capital program, of which C$1.6 billion is targeted toward track infrastructure maintenance.

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 to be materially different from the outlook or any future results or performance implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. 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; increases in maintenance and operating costs; security threats; reliance on technology and related cybersecurity risk; trade restrictions or other changes to international trade arrangements; transportation of hazardous materials; various events which could disrupt operations, including natural events such as severe weather, droughts, fires, floods and earthquakes; climate change; labor negotiations and disruptions; environmental claims; uncertainties of investigations, proceedings or other types of claims and litigation; risks and liabilities arising from derailments; timing and completion of capital programs; 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 and available on CN’s website, for a description of major risk factors.

Forward-looking statements reflect information as of the date on which they are made. 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 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.

This earnings news release is available on the Company’s website at www.cn.ca/financial-results and on SEDAR at www.sedar.com as well as on the U.S. Securities and Exchange Commission’s website at www.sec.gov through EDGAR. 

CN is a true backbone of the economy whose team of approximately 24,000 railroaders transports more than C$250 billion worth of goods annually for a wide range of business sectors, ranging from resource products to manufactured products to consumer goods, across a rail network of approximately 20,000 route-miles spanning Canada and mid-America. CN – Canadian National Railway Company, along with its operating railway subsidiaries – serves the cities and ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the metropolitan areas of Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth, Minn./Superior, Wis., and Jackson, Miss., with connections to all points in North America. For more information about CN, visit the Company’s website at www.cn.ca.

Selected Railroad Statistics – unaudited

Three months ended December 31

Year ended December 31

2017

2016

2017

2016

Financial measures

Key financial performance indicators (1)

Total revenues ($ millions)

3,285

3,217

13,041

12,037

Rail freight revenues ($ millions)

3,091

3,022

12,293

11,326

Operating income ($ millions)

1,301

1,395

5,558

5,312

Net income ($ millions)

2,611

1,018

5,484

3,640

Diluted earnings per share ($)

3.48

1.32

7.24

4.67

Adjusted diluted earnings per share ($) (2)

1.20

1.23

4.99

4.59

Free cash flow ($ millions) (2)

457

777

2,778

2,520

Gross property additions ($ millions)

908

723

2,703

2,752

Share repurchases ($ millions)

456

446

2,000

2,000

Dividends per share ($)

0.4125

0.3750

1.6500

1.5000

Financial position (1)

Total assets ($ millions)

37,629

37,057

37,629

37,057

Total liabilities ($ millions)

20,973

22,216

20,973

22,216

Shareholders’ equity ($ millions)

16,656

14,841

16,656

14,841

Financial ratio

Operating ratio (%)

60.4

56.6

57.4

55.9

Operational measures (3)

Statistical operating data

Gross ton miles (GTMs) (millions)

117,599

114,424

469,200

423,426

Revenue ton miles (RTMs) (millions)

59,477

58,906

237,098

214,327

Carloads (thousands)

1,461

1,369

5,737

5,205

Route miles (includes Canada and the U.S.)

19,500

19,600

19,500

19,600

Employees (end of period)

23,945

22,249

23,945

22,249

Employees (average for the period)

23,859

22,231

23,074

22,322

Key operating measures

Rail freight revenue per RTM (cents)

5.20

5.13

5.18

5.28

Rail freight revenue per carload ($)

2,116

2,207

2,143

2,176

GTMs per average number of employees (thousands)

4,929

5,147

20,335

18,969

Operating expenses per GTM (cents)

1.69

1.59

1.59

1.59

Labor and fringe benefits expense per GTM (cents)

0.50

0.49

0.47

0.50

Diesel fuel consumed (US gallons in millions)

112.2

107.3

441.4

398.9

Average fuel price ($/US gallon)

2.98

2.58

2.74

2.34

GTMs per US gallon of fuel consumed

1,048

1,066

1,063

1,061

Terminal dwell (hours)

18.4

14.5

16.2

14.0

Train velocity (miles per hour)

23.8

26.6

25.3

27.3

Safety indicators (4)

Injury frequency rate (per 200,000 person hours)

2.16

1.75

1.83

1.70

Accident rate (per million train miles)

2.18

1.71

1.83

1.42

(1)

Amounts expressed in Canadian dollars and prepared in accordance with United States generally accepted accounting principles (GAAP), unless otherwise noted.

(2)

See supplementary schedule entitled Non-GAAP Measures for an explanation of these non-GAAP measures.  

(3)

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. Definitions of these indicators are provided on CN’s website, www.cn.ca/glossary.

(4)

Based on Federal Railroad Administration (FRA) reporting criteria.  

Supplementary Information – unaudited

Three months ended December 31

Year ended December 31

2017

2016

% Change
Fav (Unfav)

% Change at

constant
currency

Fav (Unfav) (1)

2017

2016

% Change
Fav (Unfav)

% Change at
constant
currency

Fav (Unfav) (1)

Revenues ($ millions) (2)

Petroleum and chemicals

543

572

(5%)

(2%)

2,208

2,174

2%

3%

Metals and minerals

377

313

20%

25%

1,523

1,218

25%

27%

Forest products

437

447

(2%)

1%

1,788

1,797

(1%)

1%

Coal

145

136

7%

9%

535

434

23%

25%

Grain and fertilizers

585

647

(10%)

(7%)

2,214

2,098

6%

7%

Intermodal

816

720

13%

15%

3,200

2,846

12%

13%

Automotive

188

187

1%

5%

825

759

9%

10%

Total rail freight revenues

3,091

3,022

2%

5%

12,293

11,326

9%

10%

Other revenues

194

195

(1%)

3%

748

711

5%

6%

Total revenues

3,285

3,217

2%

5%

13,041

12,037

8%

10%

Revenue ton miles (RTMs) (millions) (3)

Petroleum and chemicals

10,697

11,803

(9%)

(9%)

44,375

43,395

2%

2%

Metals and minerals

6,833

5,593

22%

22%

27,938

20,233

38%

38%

Forest products

7,418

7,751

(4%)

(4%)

30,510

31,401

(3%)

(3%)

Coal

3,866

3,446

12%

12%

14,539

11,032

32%

32%

Grain and fertilizers

14,590

16,203

(10%)

(10%)

56,123

51,485

9%

9%

Intermodal

15,127

13,194

15%

15%

59,356

53,056

12%

12%

Automotive

946

916

3%

3%

4,257

3,725

14%

14%

Total RTMs

59,477

58,906

1%

1%

237,098

214,327

11%

11%

Rail freight revenue / RTM (cents) (2) (3)

Petroleum and chemicals

5.08

4.85

5%

8%

4.98

5.01

(1%)

1%

Metals and minerals

5.52

5.60

(1%)

3%

5.45

6.02

(9%)

(8%)

Forest products

5.89

5.77

2%

6%

5.86

5.72

2%

4%

Coal

3.75

3.95

(5%)

(3%)

3.68

3.93

(6%)

(5%)

Grain and fertilizers

4.01

3.99

1%

3%

3.94

4.07

(3%)

(2%)

Intermodal

5.39

5.46

(1%)

1%

5.39

5.36

1%

1%

Automotive

19.87

20.41

(3%)

2%

19.38

20.38

(5%)

(3%)

Total rail freight revenue / RTM

5.20

5.13

1%

4%

5.18

5.28

(2%)

(1%)

Carloads (thousands) (3)

Petroleum and chemicals

154

156

(1%)

(1%)

614

599

3%

3%

Metals and minerals

257

230

12%

12%

995

807

23%

23%

Forest products

102

108

(6%)

(6%)

424

440

(4%)

(4%)

Coal

76

92

(17%)

(17%)

303

333

(9%)

(9%)

Grain and fertilizers

161

177

(9%)

(9%)

619

602

3%

3%

Intermodal

647

541

20%

20%

2,514

2,163

16%

16%

Automotive

64

65

(2%)

(2%)

268

261

3%

3%

Total carloads

1,461

1,369

7%

7%

5,737

5,205

10%

10%

Rail freight revenue / carload ($) (2) (3)

Petroleum and chemicals

3,526

3,667

(4%)

3,596

3,629

(1%)

1%

Metals and minerals

1,467

1,361

8%

12%

1,531

1,509

1%

3%

Forest products

4,284

4,139

4%

7%

4,217

4,084

3%

5%

Coal

1,908

1,478

29%

32%

1,766

1,303

36%

37%

Grain and fertilizers

3,634

3,655

(1%)

2%

3,577

3,485

3%

4%

Intermodal

1,261

1,331

(5%)

(4%)

1,273

1,316

(3%)

(3%)

Automotive

2,938

2,877

2%

6%

3,078

2,908

6%

8%

Total rail freight revenue / carload

2,116

2,207

(4%)

(1%)

2,143

2,176

(2%)

(1)

See supplementary schedule entitled Non-GAAP Measures for an explanation of this non-GAAP measure.

(2)

Amounts expressed in Canadian dollars.

(3)

Statistical operating data and related key operating measures are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available.

Non-GAAP Measures – unaudited

In this supplementary schedule, the word “Company” or “CN” means Canadian National Railway Company and, as the context requires, its wholly-owned subsidiaries. Financial information included in this schedule is expressed in Canadian dollars, unless otherwise noted.

CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). The Company also uses non-GAAP measures that do not have any standardized meaning prescribed by GAAP, including adjusted performance measures, constant currency, free cash flow, and adjusted debt-to-adjusted EBITDA multiple. These non-GAAP measures may not be comparable to similar measures presented by other companies. From management’s perspective, these non-GAAP measures are useful measures of performance and provide investors with supplementary information to assess the Company’s results of operations and liquidity. These non-GAAP measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

Adjusted performance measures

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 CN’s normal day-to-day operations and could distort the analysis of trends in business performance. Management uses these measures, which exclude certain income and expense items in its results that management believes are not reflective of CN’s underlying business operations, to set performance goals and as a means to measure CN’s performance. The exclusion of items in adjusted net income and adjusted earnings per share does not, however, imply that these items are necessarily non-recurring. These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

For the three months and year ended December 31, 2017, the Company reported adjusted net income of $897 million, or $1.20 per diluted share, and $3,778 million, or $4.99 per diluted share, respectively. The adjusted figures for the year ended December 31, 2017 exclude a net deferred income tax recovery of $1,706 million ($2.25 per diluted share) consisting of the following:

  • in the fourth quarter, a deferred income tax recovery of $1,764 million ($2.35 per diluted share for the quarter and $2.33 per diluted share for the year) resulting from the enactment of a lower federal corporate income tax rate due to the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) and a deferred income tax expense of $50 million ($0.07 per diluted share) resulting from the enactment of higher provincial corporate income tax rates;
  • in the third quarter, a deferred income tax expense of $31 million ($0.04 per diluted share) resulting from the enactment of a higher state corporate income tax rate;
  • in the second quarter, a deferred income tax recovery of $18 million ($0.02 per diluted share) resulting from the enactment of a lower provincial corporate income tax rate; and
  • in the first quarter, a deferred income tax recovery of $5 million ($0.01 per diluted share) resulting from the enactment of a lower provincial corporate income tax rate.

For the three months and year ended December 31, 2016, the Company reported adjusted net income of $952 million, or $1.23 per diluted share and $3,581 million, or $4.59 per diluted share, respectively. The adjusted figures for the year ended December 31, 2016 exclude a gain on disposal of track leading into Montreal’s Central Station, together with the rail fixtures (collectively the “Viaduc du Sud”), of $76 million, or $66 million after-tax ($0.09 per diluted share) in the fourth quarter and a deferred income tax expense of $7 million ($0.01 per diluted share) in the second quarter, resulting from the enactment of a higher provincial corporate income tax rate.

The following table provides a reconciliation of net income and earnings per share, as reported for the three months and years ended December 31, 2017 and 2016, to the adjusted performance measures presented herein:

Three months ended December 31

Year ended December 31

In millions, except per share data

2017

2016

2017

2016

Net income as reported

$

2,611

$

1,018

$

5,484

$

3,640

Adjustments:

Other income

(76)

(76)

Income tax expense (recovery)

(1,714)

10

(1,706)

17

Adjusted net income

$

897

$

952

$

3,778

$

3,581

Basic earnings per share as reported

$

3.50

$

1.33

$

7.28

$

4.69

Impact of adjustments, per share

(2.29)

(0.09)

(2.26)

(0.08)

Adjusted basic earnings per share

$

1.21

$

1.24

$

5.02

$

4.61

Diluted earnings per share as reported

$

3.48

$

1.32

$

7.24

$

4.67

Impact of adjustments, per share

(2.28)

(0.09)

(2.25)

(0.08)

Adjusted diluted earnings per share

$

1.20

$

1.23

$

4.99

$

4.59

Constant currency

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 therefore, may 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 rates of the comparable period in the prior year. The average foreign exchange rates were $1.27 and $1.30 per US$1.00, respectively, for the three months and year ended December 31, 2017, and $1.33 per US$1.00 for both the three months and year ended December 31, 2016.

On a constant currency basis, the Company’s net income for the three months and year ended December 31, 2017 would have been higher by $26 million ($0.03 per diluted share) and $42 million ($0.06 per diluted share), respectively.

Free cash flow

Management believes that free cash flow is a useful measure of liquidity as it demonstrates the Company’s ability to generate cash for debt obligations and for discretionary uses such as payment of dividends, share repurchases, 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 the impact of major acquisitions, if any. Free cash flow does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

The following table provides a reconciliation of net cash provided by operating activities as reported for the three months and years ended December 31, 2017 and 2016, to free cash flow:

Three months ended December 31

Year ended December 31

In millions

2017

2016

2017

2016

Net cash provided by operating activities

$

1,349

$

1,378

$

5,516

$

5,202

Net cash used in investing activities (1)

(892)

(601)

(2,738)

(2,682)

Free cash flow

$

457

$

777

$

2,778

$

2,520

(1)

As a result of the retrospective adoption of Accounting Standards Update 2016-18 in the first quarter of 2017, changes in restricted cash and cash equivalents are no longer classified as investing activities within the Consolidated Statements of Cash Flows and are no longer included as an adjustment in the Company’s definition of free cash flow. There is no impact to free cash flow resulting from this reclassification.

Adjusted debt-to-adjusted EBITDA multiple

Management believes that the adjusted debt-to-adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) multiple is a useful credit measure because it reflects the Company’s ability to service its debt and other long term obligations. The Company calculates the adjusted debt-to-adjusted EBITDA multiple as adjusted debt divided by adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

The following table provides a reconciliation of debt and net income to the adjusted measures presented below, which have been used to calculate the adjusted debt-to-adjusted EBITDA multiple:

In millions, unless otherwise indicated

As at and for the year ended December 31,

2017

2016

Debt

$

10,828

$

10,937

Adjustment: Present value of operating lease commitments (1)

478

533

Adjusted debt

$

11,306

$

11,470

Net income

$

5,484

$

3,640

Interest expense

481

480

Income tax expense (recovery)

(395)

1,287

Depreciation and amortization

1,281

1,225

EBITDA

6,851

6,632

Adjustments:

Other income

(12)

(95)

Deemed interest on operating leases

22

24

Adjusted EBITDA

$

6,861

$

6,561

Adjusted debt-to-adjusted EBITDA multiple (times)

1.65

1.75

(1)

The operating lease commitments have been discounted using the Company’s implicit interest rate for each of the periods presented.

Consolidated Statements of Income – unaudited

Three months ended

Year ended

December 31

December 31

In millions, except per share data

2017

2016

2017

2016

Revenues

$

3,285

$

3,217

$

13,041

$

12,037

Operating expenses

Labor and fringe benefits

589

565

2,221

2,119

Purchased services and material

473

428

1,769

1,592

Fuel

379

312

1,362

1,051

Depreciation and amortization

316

310

1,281

1,225

Equipment rents

107

96

418

375

Casualty and other

120

111

432

363

Total operating expenses

1,984

1,822

7,483

6,725

Operating income

1,301

1,395

5,558

5,312

Interest expense

(117)

(123)

(481)

(480)

Other income

4

91

12

95

Income before income taxes

1,188

1,363

5,089

4,927

Income tax recovery (expense) (Note 3)

1,423

(345)

395

(1,287)

Net income

$

2,611

$

1,018

$

5,484

$

3,640

Earnings per share

Basic

$

3.50

$

1.33

$

7.28

$

4.69

Diluted

$

3.48

$

1.32

$

7.24

$

4.67

Weighted-average number of shares

Basic

746.2

766.7

753.6

776.0

Diluted

750.0

770.1

757.3

779.2

Dividends declared per share

$

0.4125

$

0.3750

$

1.6500

$

1.5000

See accompanying notes to unaudited consolidated financial statements.

Consolidated Statements of Comprehensive Income – unaudited

Three months ended

Year ended

December 31

December 31

In millions

2017

2016

2017

2016

Net income

$

2,611

$

1,018

$

5,484

$

3,640

Other comprehensive income (loss)

Net gain (loss) on foreign currency translation

(6)

57

(197)

(45)

Net change in pension and other postretirement benefit plans

(361)

(826)

(224)

(694)

Other comprehensive loss before income taxes

(367)

(769)

(421)

(739)

Income tax recovery (expense)

105

242

(5)

148

Other comprehensive loss

(262)

(527)

(426)

(591)

Comprehensive income

$

2,349

$

491

$

5,058

$

3,049

See accompanying notes to unaudited consolidated financial statements.

Consolidated Balance Sheets – unaudited

December 31

December 31

In millions

2017

2016

Assets

Current assets

Cash and cash equivalents

$

70

$

176

Restricted cash and cash equivalents

483

496

Accounts receivable

984

875

Material and supplies

424

363

Other current assets

229

197

Total current assets

2,190

2,107

Properties 

34,189

33,755

Pension asset

994

907

Intangible and other assets

256

288

Total assets

$

37,629

$

37,057

Liabilities and shareholders’ equity

Current liabilities

Accounts payable and other

$

1,903

$

1,519

Current portion of long-term debt

2,080

1,489

Total current liabilities

3,983

3,008

Deferred income taxes 

6,953

8,473

Other liabilities and deferred credits

590

593

Pension and other postretirement benefits

699

694

Long-term debt

8,748

9,448

Shareholders’ equity

Common shares

3,780

3,730

Common shares in Share Trusts

(168)

(137)

Additional paid-in capital

242

364

Accumulated other comprehensive loss

(2,784)

(2,358)

Retained earnings

15,586

13,242

Total shareholders’ equity

16,656

14,841

Total liabilities and shareholders’ equity

$

37,629

$

37,057

See accompanying notes to unaudited consolidated financial statements.

Consolidated Statements of Changes in Shareholders’ Equity – unaudited

Number of

common shares

Common

shares

Common

shares

in Share

Trusts

Additional

paid-in

capital

Accumulated

other

comprehensive

loss

Retained

earnings

Total

shareholders’

equity

Outstanding

Share

Trusts

In millions

Balance at December 31, 2015

787.2

1.4

$

3,705

$

(100)

$

475

$

(1,767)

$

12,637

$

14,950

Net income

3,640

3,640

Stock options exercised

1.6

73

(12)

61

Settlement of equity settled awards

79

(138)

(59)

Stock-based compensation expense

and other                             

62

(3)

59

Repurchase of common shares

(26.4)

(127)

(1,873)

(2,000)

Share purchases by Share Trusts

(0.7)

0.7

(60)

(60)

Share settlements by Share Trusts

0.3

(0.3)

23

(23)

Other comprehensive loss

(591)

(591)

Dividends ($1.50 per share)

(1,159)

(1,159)

Balance at December 31, 2016

762.0

1.8

3,730

(137)

364

(2,358)

13,242

14,841

Net income

5,484

5,484

Stock options exercised

1.2

68

(10)

58

Settlement of equity settled awards

84

(166)

(82)

Stock-based compensation expense

and other

78

(3)

75

Repurchase of common shares

(20.4)

(102)

(1,898)

(2,000)

Share purchases by Share Trusts

(0.5)

0.5

(55)

(55)

Share settlements by Share Trusts

0.3

(0.3)

24

(24)

Other comprehensive loss

(426)

(426)

Dividends ($1.65 per share)

(1,239)

(1,239)

Balance at December 31, 2017

742.6

2.0

$

3,780

$

(168)

$

242

$

(2,784)

$

15,586

$

16,656

See accompanying notes to unaudited consolidated financial statements.

Consolidated Statements of Cash Flows – unaudited

Three months ended

Year ended

December 31

December 31

In millions

2017

2016

2017

2016

Operating activities

Net income

$

2,611

$

1,018

$

5,484

$

3,640

Adjustments to reconcile net income to net cash

  provided by operating activities:

Depreciation and amortization

316

310

1,281

1,225

Deferred income taxes

(1,603)

240

(1,195)

704

Gain on disposal of property

(76)

(76)

Changes in operating assets and liabilities:

Accounts receivable

3

5

(125)

(3)

Material and supplies

(2)

44

(70)

(2)

Accounts payable and other

118

(76)

418

(51)

Other current assets

(61)

(20)

(80)

21

Pensions and other, net

(33)

(67)

(197)

(256)

Net cash provided by operating activities

1,349

1,378

5,516

5,202

Investing activities

Property additions

(878)

(666)

(2,673)

(2,695)

Disposal of property

85

85

Other, net

(14)

(20)

(65)

(72)

Net cash used in investing activities (1)

(892)

(601)

(2,738)

(2,682)

Financing activities

Issuance of debt

423

916

1,509

Repayment of debt

(777)

(439)

(841)

(955)

Net issuance of commercial paper

662

401

379

137

Settlement of foreign exchange forward contracts on long-term debt

15

(6)

(15)

(21)

Issuance of common shares for stock options exercised

20

15

58

61

Withholding taxes remitted on the net settlement of equity settled awards

(2)

(4)

(57)

(44)

Repurchase of common shares

(473)

(446)

(2,016)

(1,992)

Purchase of common shares for settlement of equity settled awards

(3)

(1)

(25)

(15)

Purchase of common shares by Share Trusts

(55)

(60)

(55)

(60)

Dividends paid

(307)

(287)

(1,239)

(1,159)

Net cash used in financing activities

(497)

(827)

(2,895)

(2,539)

Effect of foreign exchange fluctuations on US dollar-denominated

cash, cash equivalents, restricted cash, and restricted cash equivalents

2

7

(2)

15

Net decrease in cash, cash equivalents, restricted cash,

and restricted cash equivalents (1)

(38)

(43)

(119)

(4)

Cash, cash equivalents, restricted cash, and restricted cash

equivalents, beginning of period (1)

591

715

672

676

Cash, cash equivalents, restricted cash, and restricted cash

equivalents, end of period (1)

$

553

$

672

$

553

$

672

Cash and cash equivalents, end of period

$

70

$

176

$

70

$

176

Restricted cash and cash equivalents, end of period

483

496

483

496

Cash, cash equivalents, restricted cash, and restricted cash

equivalents, end of period (1)

$

553

$

672

$

553

$

672

Supplemental cash flow information

Interest paid

$

(104)

$

(113)

$

(477)

$

(470)

Income taxes paid

$

(214)

$

(87)

$

(712)

$

(653)

(1)

The Company adopted Accounting Standards Update 2016-18 in the first quarter of 2017 on a retrospective basis. Comparative balances have been reclassified to conform to the current presentation. See Note 2 – Recent accounting pronouncements for additional information.

See accompanying notes to unaudited consolidated financial statements.

Notes to Unaudited Consolidated Financial Statements

1 – Basis of presentation

In these notes, the word “Company” or “CN” means, Canadian National Railway Company and, as the context requires, its wholly-owned subsidiaries.

The accompanying unaudited Interim Consolidated Financial Statements, expressed in Canadian dollars, have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial statements. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim operating results are not necessarily indicative of the results that may be expected for the full year.

These unaudited Interim Consolidated Financial Statements have been prepared using accounting policies consistent with those used in preparing CN’s 2016 Annual Consolidated Financial Statements, except as disclosed in Note 2 – Recent accounting pronouncements,  and should be read in conjunction with such statements and Notes thereto.

2 – Recent accounting pronouncements

The following recent Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board was adopted by the Company during the current year:

Standard

Description

Impact

ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash

 

Requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

The Company elected to early adopt the amendments of this ASU in the first quarter of 2017 on a retrospective basis. As a result of the adoption of this ASU, changes in restricted cash and cash equivalents are no longer classified as investing activities, and the Company’s Consolidated Statements of Cash Flows now explain the change during the period in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents.

3 – Income taxes

U.S. Tax Cuts and Job Act
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“U.S. Tax Reform”). The U.S. Tax Reform reduces the U.S. federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The U.S. Tax Reform also allows for immediate capital expensing of new investments in certain qualified depreciable assets made after September 27, 2017, which will be phased down starting in year 2023. As a result of the U.S. Tax Reform, the Company’s net deferred income tax liability decreased by $1,764 million.

The U.S. Tax Reform introduces other important changes to U.S. corporate income tax laws that may significantly affect CN in future years including, the creation of a new Base Erosion Anti-abuse Tax (BEAT) that subjects certain payments from U.S. corporations to foreign related parties to additional taxes, and limitations to the deduction for net interest expense incurred by U.S. corporations. Future regulations and interpretations to be issued by U.S. authorities may also impact the Company’s estimates and assumptions used in calculating its income tax provisions.

SOURCE CN

Related Links

http://www.cn.ca

About The Author

Related posts

Leave a Reply

Your email address will not be published. Required fields are marked *