================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
-----------------
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For January 21, 2003
-----------------
Canadian National Railway Company
(Exact name of registrant as specified in its charter)
Canadian National Railway Company
(Translation of registrant's name into English)
935 de la Gauchetiere Street West
Montreal, Quebec
Canada H3B 2M9
(Address of principal executive office)
Indicate by check mark whether the registrant files or
will file annual reports under cover of Form
20-F or Form 40-F:
Form 20-F Form 40-F X
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A
[GRAPHIC OMITTED] News
North America's Railroad FOR IMMEDIATE RELEASE
Stock symbols: TSX: CNR / NYSE: CNI
www.cn.ca
CN reports solid full-year, fourth-quarter 2002
financial results despite tough environment for grain
Record 2002 free cash flow rises 16 per cent
to $513 million
MONTREAL, Jan. 21, 2003 -- Canadian National today reported 2002 net income of
$800 million, or $3.97 per diluted share, compared with net income of $1,040
million, or $5.23 per diluted share, for 2001.
Operating income for the year ended Dec. 31, 2002, was $1,469 million, compared
with $1,682 million for 2001. Revenues for 2002 were $6,110 million, compared
with $5,652 million for 2001, while operating expenses for 2002 were $4,641
million, compared with $3,970 million for 2001.
CN's 2002 and 2001 results include certain items affecting the comparability of
the Company's financial performance. Excluding these items, 2002 adjusted net
income (1) was $1,052 million, an eight per cent increase over comparable net
income of $978 million for 2001, while the related diluted earnings per share
rose six per cent to $5.22 from $4.92 for 2001.
On an adjusted basis, 2002 operating income increased five per cent to $1,870
million. Operating expenses rose 10 per cent to $4,240 million, owing primarily
to the inclusion of a full year of expenses attributable to the operations of
WC and higher expenses associated with the movement of merchandise traffic. As
adjusted, CN's operating ratio for 2002 was 69.4 per cent, compared with 68.5
per cent for 2001.
CN's 2002 revenues increased by eight per cent, reflecting the acquisition of
Wisconsin Central (WC) and a strong performance by the majority of the
company's business units - petroleum and chemicals, automotive, intermodal and
forest products. Gains by these businesses were partially offset by continued
weakness in Canadian grain and coal revenues.
CN President and Chief Executive Officer E. Hunter Harrison said: "Thanks in
large part to the discipline of our operating plan, CN turned in a solid 2002
financial performance in an extremely challenging environment for bulk
commodities.
"Our business model focuses on service quality, which drove the strong revenue
performance of our service-sensitive merchandise and intermodal units. This
enabled us to offset the sharp downturn in grain revenues. Scheduled
railroading also permitted us to control some of the cost increases associated
with moving a higher proportion of merchandise traffic on our trains, and to
boost asset utilization. As a result, we generated record free cash flow of
$513 million in 2002. All CN employees deserve credit for meeting the
challenge.
"For 2003, we remain cautious about CN's prospects given uneven North American
economic growth, uncertain precipitation levels in Western Canada, and
potentially volatile international energy prices. Based on our superior service
levels, we are optimistic that our merchandise and intermodal revenues will
outpace overall economic growth."
Five of CN's seven business units registered revenue gains in 2002: forest
products (22 per cent); petroleum and chemicals (19 per cent); automotive (14
per cent); metals and minerals (14 per cent); and intermodal (nine per cent).
Grain and fertilizers revenues declined 15 per cent and coal by four per cent.
Carloadings for the year increased nine per cent to 4,164 thousand.
Fourth-quarter 2002 results
Net income for the fourth quarter of 2002 was $22 million, or 11 cents per
diluted share, compared with net income of $296 million, or $1.48 per diluted
share, for the same quarter of 2001. Operating income for the 2002
fourth-quarter was $89 million, compared with $521 million for the same quarter
of 2001.
Revenues for fourth-quarter 2002 increased one per cent to $1,547 million,
while expenses increased to $1,458 million from $1,016 million for the same
quarter of 2001.
As adjusted, fourth-quarter 2002 net income was $274 million ($1.36 per diluted
share), operating income was $490 million, and operating expenses were $1,057
million. On a comparable basis, CN's operating ratio for the final quarter of
2002 was 68.3 per cent, compared with 66.1 per cent for the year-earlier
quarter.
Four of CN's seven business units registered gains during the final quarter of
2002: intermodal (16 per cent); petroleum and chemicals (11 per cent); forest
products (four per cent); and automotive (three per cent). Revenues declined
for grain and fertilizers (21 per cent); metals and minerals (two per cent);
and coal (two per cent.)
Carloadings for the final quarter of 2002 increased six per cent to 1,063
thousand.
The financial results in this press release are reported in Canadian dollars
and, except where noted, were determined on the basis of U.S. generally
accepted accounting principles (U.S. GAAP).
(1) The Company's results of operations include items affecting the
comparability of results. Management believes adjusted consolidated net income
and the resulting adjusted performance measures for items such as operating
income, operating ratio, per share data and other statistical measures are
useful measures of performance that facilitate period-to-period comparisons.
These adjusted measures do not have any standardized meaning prescribed by
generally accepted accounting principles (GAAP) and are not necessarily
comparable to similar measures presented by other companies, and therefore
should not be considered in isolation. Note 11 to the accompanying financial
statements provides a reconciliation of adjusted net income to the Company's
net income reported in accordance with U.S. GAAP. In addition, Supplementary
Pro Forma Information has been presented to facilitate a year-over-year
comparison of the Company's results as if the Company had acquired Wisconsin
Central Transportation Corporation on Jan. 1, 2001.
For 2002 and fourth-quarter 2002, two items affected the comparability of CN's
financial results: a $281-million ($173 million after tax) charge recorded in
Casualty and Other expense, resulting from a change in the company's estimated
liability for U.S. personal injury and other claims; and a $120-million ($79
million after tax) workforce adjustment charge recorded in Labor and Fringe
Benefits expense. For 2001, the comparability of financial results was affected
by a $98-million ($62 million after tax) workforce adjustment charge recorded
in Labor and Fringe Benefits expense; a $101-million ($73 million after tax)
gain from the sale of CN's 50 per cent interest in the Detroit River Tunnel
Company and a $99-million ($71 million after tax) charge to write down CN's net
investment in 360networks Inc. recorded in Other Income; and a $122-million
deferred income tax recovery resulting from the enactment of lower corporate
tax rates in Canada.
This news release contains forward-looking statements. CN cautions that, by
their nature, forward-looking statements involve risk and uncertainties and
that its results could differ materially from those expressed or implied in
such statements. Reference should be made to CN's most recent Form 40-F filed
with the United States Securities and Exchange Commission, and the Annual
Information Form filed with the Canadian securities regulators, for a summary
of major risks.
Canadian National Railway Company 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 cities of Toronto, Buffalo, Chicago, Detroit, Duluth,
Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St.
Louis, and Jackson, Miss., with connections to all points in North America.
- 30 -
Contacts:
Media Investment Community
Mark Hallman Robert Noorigian
System Director, Media Relations Vice-President, Investor Relations
(416) 217-6390 (514) 399-0052
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP)
--------------------------------------------------------------------------------
(In millions, except per share data)
Three months ended Year ended
December 31 December 31
------------------ -----------------
2002 2001 (a) 2002 2001(a)
--------------------------------------------------------------------------------
(Unaudited)
Revenues $ 1,547 $ 1,537 $ 6,110 $ 5,652
--------------------------------------------------------------------------------
Operating expenses 1,458 1,016 4,641 3,970
--------------------------------------------------------------------------------
Operating income 89 521 1,469 1,682
Interest expense (85) (96) (361) (327)
Other income (Note 5) 7 31 76 65
--------------------------------------------------------------------------------
Income before income taxes 11 456 1,184 1,420
Income tax (expense) recovery (Note 6) 11 (160) (384) (380)
================================================================================
Net income (Note 11) $ 22 $ 296 $ 800 $ 1,040
================================================================================
Earnings per share (Note 11)
Basic $ 0.11 $ 1.54 $ 4.07 $ 5.41
Diluted $ 0.11 $ 1.48 $ 3.97 $ 5.23
Weighted-average number of shares
Basic 199.5 192.6 196.7 192.1
Diluted 202.0 201.7 202.8 201.0
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Certain of the 2001 comparative figures have been reclassified in order to be
consistent with the 2002 presentation.
(a) Includes Wisconsin Central Tranportation Corporation from October 9, 2001.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF OPERATING INCOME (U.S. GAAP)
---------------------------------------------------------------------------------------------
(In millions)
Three months ended December 31 Year ended December 31
------------------------------ -----------------------------
Variance Variance
2002 2001(a) Fav (Unfav) 2002 2001(a) Fav (Unfav)
---------------------------------------------------------------------------------------------
(Unaudited)
Revenues
Petroleum and chemicals $ 283 $ 255 11% $1,102 $ 923 19%
Metals and minerals 123 126 (2%) 521 458 14%
Forest products 327 314 4% 1,323 1,088 22%
Coal 83 85 (2%) 326 338 (4%)
Grain and fertilizers 245 311 (21%) 986 1,161 (15%)
Intermodal 283 245 16% 1,052 969 9%
Automotive 151 146 3% 591 520 14%
Other items 52 55 (5%) 209 195 7%
================================================= ===============
1,547 1,537 1% 6,110 5,652 8%
Operating expenses
Labor and fringe benefits (Note 4) 547 435 (26%) 1,837 1,624 (13%)
Purchased services and material 184 149 (23%) 778 692 (12%)
Depreciation and amortization 150 138 (9%) 584 532 (10%)
Fuel 124 109 (14%) 459 484 5%
Equipment rents 82 88 7% 346 309 (12%)
Casualty and other (Note 2) 371 97 (282%) 637 329 (94%)
------------------------------------------------- ---------------
1,458 1,016 (44%) 4,641 3,970 (17%)
------------------------------------------------- ---------------
Operating income $ 89 $ 521 (83%) $1,469 $1,682 (13%)
========================================================================================
Operating ratio (b) (Note 1) 68.3% 66.1% (2.2) 69.4% 68.5% (0.9)
========================================================================================
See accompanying notes to consolidated financial statements.
Certain of the 2001 comparative figures have been reclassified in order to be consistent
with the 2002 presentation.
(a) Includes Wisconsin Central Transportation Corporation from October 9, 2001.
(b) Excludes a fourth quarter 2002 charge of $281 million to increase the Company's U.S.
personal injury and other claims liability and workforce reduction charges of $120
million and $98 million in 2002 and 2001, respectively.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
--------------------------------------------------------------------------------
(In millions)
December 31 December 31
2002 2001
--------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 25 $ 53
Accounts receivable (Note 7) 722 645
Material and supplies 127 133
Deferred income taxes (Note 6) 122 153
Other 196 180
--------------------------------------------------------------------------------
1,192 1,164
Properties 19,681 19,145
Other assets and deferred charges 865 914
================================================================================
Total assets $ 21,738 $ 21,223
================================================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued charges $ 1,487 $ 1,374
Current portion of long-term debt 574 163
Other 73 132
--------------------------------------------------------------------------------
2,134 1,669
Deferred income taxes (Note 6) 4,826 4,591
Other liabilities and deferred credits 1,406 1,345
Long-term debt (Note 7) 5,003 5,764
Convertible preferred securities (Note 8) - 366
Shareholders' equity:
Common shares (Note 8) 4,785 4,442
Accumulated other comprehensive income 97 58
Retained earnings 3,487 2,988
--------------------------------------------------------------------------------
8,369 7,488
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 21,738 $ 21,223
================================================================================
See accompanying notes to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. GAAP)
-----------------------------------------------------------------------------------------------------
(In millions)
Three months ended Year ended
December 31 December 31
--------------------- -------------------
2002 2001(a) 2002 2001(a)
-----------------------------------------------------------------------------------------------------
(Unaudited)
Common shares (b)
Balance, beginning of period $ 4,848 $ 4,415 $ 4,442 $ 4,349
Stock options exercised 9 27 75 93
Share repurchase program (Note 7) (72) - (72) -
Conversion of convertible preferred securities (Note 8) - - 340 -
-----------------------------------------------------------------------------------------------------
Balance, end of period $ 4,785 $ 4,442 $ 4,785 $ 4,442
=====================================================================================================
Accumulated other comprehensive income
Balance, beginning of period $ 102 $ 68 $ 58 $ 151
Other comprehensive income (loss):
Unrealized foreign exchange gain (loss) on translation of
U.S. dollar denominated long-term debt designated as a
hedge of the net investment in U.S. subsidiaries 1 (39) 51 (202)
Unrealized foreign exchange gain (loss) on translation of
the net investment in foreign operations 12 60 (40) 308
Unrealized holding loss on investment in 360networks Inc. - - - (129)
Unrealized holding gain (loss) on fuel derivative instruments
(Note 9) (1) (20) 68 (38)
Minimum pension liability adjustment (20) (17) (20) (17)
-----------------------------------------------------------------------------------------------------
Other comprehensive income (loss) before income taxes (8) (16) 59 (78)
Income tax (expense) recovery on other comprehensive income
(loss)(Note 6) 3 6 (20) (15)
=====================================================================================================
Other comprehensive income (loss) (5) (10) 39 (93)
-----------------------------------------------------------------------------------------------------
Balance, end of period $ 97 $ 58 $ 97 $ 58
=====================================================================================================
Retained earnings
Balance, beginning of period $ 3,640 $ 2,729 $ 2,988 $ 2,098
Net income 22 296 800 1,040
Share repurchase program (Note 7) (131) - (131) -
Dividends (44) (37) (170) (150)
-----------------------------------------------------------------------------------------------------
Balance, end of period $ 3,487 $ 2,988 $ 3,487 $ 2,988
=====================================================================================================
See accompanying notes to consolidated financial statements.
(a) Includes Wisconsin Central Transportation Corporation from October 9, 2001.
(b) The Company issued 0.2 million and 7.8 million shares for the three months and year ended
December 31, 2002, respectively, as a result of stock options exercised and the conversion of
convertible preferred securities. At December 31, 2002, the Company had 197.5 million common
shares outstanding.
CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP)
-----------------------------------------------------------------------------------------------------
(In millions)
Three months ended Year ended
December 31 December 31
--------------------- -------------------
2002 2001(a) 2002 2001(a)
-----------------------------------------------------------------------------------------------------
(Unaudited)
Operating activities
Net income $ 22 $ 296 $ 800 $ 1,040
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization 152 140 591 538
Deferred income taxes (Note 6) 35 232 272 295
Charge to increase U.S. personal injury and other claims
liability (Note 2) 281 - 281 -
Workforce reduction charges (Note 4) 120 - 120 98
Equity in earnings of English Welsh and Scottish Railway (14) (8) (33) (8)
Gain on sale of investment (Note 5) - - - (101)
Write-down of investment (Note 5) - - - 99
Other changes in:
Accounts receivable (37) 243 (80) 199
Material and supplies 17 24 - 11
Accounts payable and accrued charges (56) (156) (154) (385)
Other net current assets and liabilities (14) (12) (18) (27)
Other (82) (45) (167) (138)
-----------------------------------------------------------------------------------------------------
Cash provided from operating activities 424 714 1,612 1,621
-----------------------------------------------------------------------------------------------------
Investing activities
Net additions to properties (305) (279) (938) (941)
Acquisition of Wisconsin Central Transportation Corporation
(Note 3) - (1,278) - (1,278)
Other, net (1) (20) 14 46
-----------------------------------------------------------------------------------------------------
Cash used by investing activities (306) (1,577) (924) (2,173)
-----------------------------------------------------------------------------------------------------
Dividends paid (44) (37) (170) (150)
Financing activities
Issuance of long-term debt 614 1,477 3,146 4,015
Reduction of long-term debt (491) (1,363) (3,558) (3,336)
Issuance of common shares 7 9 69 61
Repurchase of common shares (Note 7) (203) - (203) -
-----------------------------------------------------------------------------------------------------
Cash provided from (used by) financing activities (73) 123 (546) 740
=====================================================================================================
Net increase (decrease) in cash and cash equivalents 1 (777) (28) 38
Cash and cash equivalents, beginning of period 24 830 53 15
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 25 $ 53 $ 25 $ 53
=====================================================================================================
Supplemental cash flow information
Payments (recoveries) for:
Interest $ 105 $ 51 $ 398 $ 322
Workforce reductions 47 41 177 169
Personal injury and other claims 51 30 156 149
Pensions 40 40 92 69
Income taxes (23) (7) 65 63
=====================================================================================================
See accompanying notes to consolidated financial statements.
Certain of the 2001 comparative figures have been reclassified in order to be consistent with the
2002 presentation.
(a) Includes Wisconsin Central Transportation Corporation from October 9, 2001.
CANADIAN NATIONAL RAILWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
--------------------------------------------------------------------------------
Note 1 - Basis of presentation
In management's opinion, the accompanying unaudited interim consolidated
financial statements, 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, 2002 and
December 31, 2001, its results of operations, changes in shareholders' equity
and cash flows for the three and twelve months ended December 31, 2002 and
2001.
These consolidated financial statements and notes have been prepared using
accounting policies consistent with those used in preparing the Company's
Annual Consolidated Financial Statements. While management believes that the
disclosures presented are adequate to make the information not misleading,
these consolidated financial statements and notes should be read in conjunction
with the Company's Management Discussion and Analysis and Annual Consolidated
Financial Statements.
The Company's results of operations include items affecting the comparability
of results. Management believes adjusted consolidated net income and the
resulting adjusted performance measures for such items as operating income,
operating ratio, per share data and other statistical measures are useful
measures of performance that facilitate period-to-period comparisons. These
adjusted measures do not have any standardized meaning prescribed by GAAP and
are not necessarily comparable to similar measures presented by other
companies, and therefore, should not be considered in isolation. Note 11
provides a reconciliation of adjusted net income to the Company's net income
reported in accordance with U.S. GAAP. In addition, Supplementary Pro Forma
Information has been presented as to facilitate a year over year comparison of
the Company's results as if the Company had acquired Wisconsin Central
Transportation Corporation (WC) on January 1, 2001.
Note 2 - Accounting changes
U.S. personal injury and other claims
In the fourth quarter of 2002, the Company changed its methodology for
estimating its liability for U.S. personal injury and other claims, including
occupational disease claims and claims for property damage, from a case-by-case
approach to an actuarial-based approach. Consequently, the Company recorded a
charge of $281 million ($173 million after tax) to increase its provision for
these claims.
Under the actuarial-based approach, the Company accrues the cost for the
expected number of personal injury claims and existing occupational disease
claims, based on actuarial estimates of the ultimate cost. The Company is
unable to estimate the total cost for unasserted occupational disease claims.
However, a liability for unasserted occupational disease claims is accrued to
the extent they are probable and can be reasonably estimated.
Under the case-by-case approach, a liability was recorded only when the
expected loss was both probable and reasonably estimable based on currently
available information. In addition, the Company did not record a liability for
unasserted claims, as such amounts could not be reasonably estimated under the
case-by-case approach.
The Company's U.S. personal injury and other claims expenses, including the
above-mentioned charge, was $362 million in 2002. Had the Company continued to
apply the case-by-case approach to its U.S. personal injury and other claims
liability, recognizing the effects of the actual claims experience for existing
and new claims in the fourth quarter, these expenses would have been
approximately $135 million in 2002.
Note 3 - Acquisition of Wisconsin Central Transportation Corporation
On January 29, 2001, the Company, through an indirect wholly owned subsidiary,
and WC entered into a merger agreement (the Merger) providing for the
acquisition of all of the shares of WC by the Company for an acquisition cost
of $1,301 million (U.S.$833 million). The Merger was approved by the
shareholders of WC at a special meeting held on April 4, 2001. On September 7,
2001, the U.S. Surface Transportation Board rendered a decision, unanimously
approving the Company's acquisition of WC. On October 9, 2001, the Company
completed its acquisition of WC and began a phased integration of the
companies' operations. The acquisition was financed by debt and cash on hand.
The Company accounted for the Merger using the purchase method of accounting as
required by Statement of Financial Accounting Standards (SFAS) No. 141
"Business Combinations." As such, the Company's consolidated financial
statements include the assets, liabilities and results of operations of WC as
of October 9,
2001, the date of acquisition. The Company had estimated, on a preliminary
basis, the fair values of the assets and liabilities acquired based on
currently available information. In 2002, the Company finalized the allocation
of the purchase price and adjusted the preliminary fair values of the assets
and liabilities acquired as follows: Current assets decreased by $10 million,
Properties increased by $141 million, Other assets & deferred charges decreased
by $98 million, Current liabilities increased by $10 million, Deferred income
taxes increased by $16 million and Other liabilities & deferred credits
increased by $3 million. The increase in Properties and decrease in Other
assets and deferred charges was mainly due to the final valuation of the
Company's foreign equity investment. The remaining adjustments resulted from
additional information obtained for conditions and circumstances that existed
at the time of acquisition.
The following table outlines the final fair values of WC's assets and
liabilities acquired:
In millions
------------------------------------------------
Current assets $ 165
Properties 2,576
Other assets and deferred charges 335
---------
Total assets acquired 3,076
---------
Current liabilities 363
Deferred income taxes 759
Other liabilities and deferred credits 181
Long-term debt 472
---------
Total liabilities assumed 1,775
---------
Net assets acquired $ 1,301
---------
If the Company had acquired WC on January 1, 2001, based on the historical
amounts reported by WC, net of the difference between the Company's cost to
acquire WC and its net assets, revenues, net income, basic and diluted earnings
per share would have been $6,090 million, $1,090 million, $5.67 per basic share
and $5.48 per diluted share, respectively for the year ended December 31, 2001.
These pro forma figures do not reflect synergies, and accordingly, do not
account for any potential increases in operating income, any estimated cost
savings or facilities consolidation.
In 2002, the Company sold its interests in Tranz Rail Holdings Limited and
Australian Transport Network Limited for aggregate net proceeds of $69 million,
which approximated the carrying value of the investments. The Company had
acquired these investments through its acquisition of WC in 2001 and had
accounted for them as "available for sale" in accordance with the Financial
Accounting Standards Board's Emerging Issues Task Force (EITF) 87-11,
"Allocation of Purchase Price to Assets to be Sold".
Note 4 - Workforce reduction charges
In 2002, the Company announced 1,146 job reductions, in a renewed drive to
improve productivity in all its corporate and operating functions, and recorded
a charge of $120 million, $79 million after tax. In 2001, a charge of $98
million, $62 million after tax, was recorded for the reduction of 690
positions. Reductions relating to these charges were 388 in 2001, 433 in 2002,
with the remainder to be completed by the end of 2003. The charges included
payments for severance, early retirement incentives and bridging to early
retirement, to be made to affected employees.
Note 5 - Other income
In June 2001, the Company recorded a charge of $99 million, $71 million after
tax, to write down its net investment in 360networks Inc.
In the first quarter of 2001, the Company recorded a gain of $101 million, $73
million after tax, from the sale of its 50 percent interest in the Detroit
River Tunnel Company (DRT). The DRT is a 1.6-mile rail-only tunnel crossing the
Canada-U.S. border between Detroit and Windsor, Ontario.
Note 6 - Income taxes
In 2001, the Company recorded a reduction of $90 million to its net deferred
income tax liability resulting from the enactment of lower corporate tax rates
in Canada. As a result, for the year ended December 31, 2001, a deferred income
tax recovery of $122 million was recorded in the Consolidated statement of
income and a deferred income tax expense of $32 million was recorded in Other
comprehensive income.
Note 7 - Financing activities
Share repurchase program
On October 22, 2002, the Board of Directors of the Company approved a share
repurchase program which allows for the repurchase of up to 13 million common
shares between October 25, 2002 and October 24, 2003 pursuant to a normal
course issuer bid, at prevailing market prices. As at December 31, 2002, $203
million was used to repurchase 3.0 million common shares at an average price of
$67.68 per share.
Revolving credit facilities
In December 2002, the Company entered into a U.S.$1,000 million three-year
revolving credit facility and concurrently terminated its previous revolving
credit facilities before their scheduled maturity in March 2003. The credit
facility provides for borrowings at various interest rates, plus applicable
margins, and contains customary financial covenants. Throughout the year, the
Company was in compliance with all financial covenants contained in its
outstanding revolving credit agreements. The Company's borrowings of U.S.$172
million (Cdn$273 million) outstanding at December 31, 2001 were entirely repaid
in the first quarter of 2002. At December 31, 2002, the Company had borrowings
under its revolving credit facility of U.S.$90 million (Cdn$142 million) at an
average interest rate of 1.77%. Outstanding letters of credit under the
previous facilities were transferred into the current facility. As at December
31, 2002, letters of credit under the revolving credit facility amounted to
$295 million.
Commercial paper
The Company has a commercial paper program, which is backed by a portion of its
revolving credit facility, enabling it to issue commercial paper up to a
maximum aggregate principal amount of $600 million, or the U.S. dollar
equivalent. Commercial paper debt is due within one year but has been
classified as long-term debt, reflecting the Company's intent and contractual
ability to refinance the short-term borrowing through subsequent issuances of
commercial paper or drawing down on the long-term revolving credit facility. As
at December 31, 2002, the Company had U.S.$136 million (Cdn$214 million) of
commercial paper outstanding under this program.
Accounts receivable securitization
The sale of a portion of the Company's accounts receivable is conducted under a
securitization program, which has a $350 million maximum limit and will expire
in June 2003. The program is subject to customary credit rating and reporting
requirements. In the event the program is terminated before its scheduled
maturity, the Company expects to have sufficient liquidity remaining in its
revolving credit facility to meet its payment obligations. The Company intends
to renew or replace the program upon expiration. At December 31, 2002, pursuant
to the agreement, $173 million and U.S.$113 million (Cdn$177 million) had been
sold on a limited recourse basis, an increase of $5 million from the level of
accounts receivable sold at December 31, 2001.
Note 8 - Termination of conversion rights of 5.25% Convertible preferred
securities ("Securities")
On May 6, 2002, the Company met the conditions required to terminate the
Securities holders' right to convert their Securities into common shares of the
Company, and set the conversion termination date as July 3, 2002. The
conditions were met when the Company's common share price exceeded 120% of the
conversion price of U.S.$38.48 per share for a specified period, and all
accrued interest on the Securities had been paid. On July 3, 2002, Securities
that had not been previously surrendered for conversion were deemed converted,
resulting in the issuance of 6.0 million common shares of the Company.
Note 9 - Derivative instruments
At December 31, 2002, a portion of the Company's fuel requirement has been
hedged using derivative instruments that are carried at market value on the
balance sheet. These fuel hedges are accounted for as cash flow hedges whereby
the effective portion of the change in the market value of the derivative
instruments has been recorded in Other comprehensive income. At December 31,
2002, Accumulated other comprehensive income included an unrealized holding
gain of $30 million, $20 million after tax, ($38 million unrealized holding
loss, $25 million after tax at December 31, 2001) of which $29 million relates
to derivative instruments that will mature within the next twelve months.
Note 10 - Commitments
As at December 31, 2002, the Company had commitments to acquire railroad ties,
rail, freight cars and locomotives at an aggregate cost of $183 million ($52
million at December 31, 2001).
CANADIAN NATIONAL RAILWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
--------------------------------------------------------------------------------
Note 11 - Net income and earnings per share
In addition to the inclusion of a full year of WC results of operations in 2002
as explained in Note 3, the comparability of the results of operations for the
three months and year ended December 31, 2002 and 2001 is also impacted by the
following items:
-----------------------------------------------------------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
--------------------------------- ---------------------------------
2002 2001(a) 2001 2002 2001(a) 2001
pro forma(b) pro forma(b)
-----------------------------------------------------------------------------------------------------------------------
(In millions) (Unaudited)
Income before income taxes, excluding undernoted
items $ 412 $ 456 $ 459 $ 1,585 $ 1,516 $ 1,595
Income tax expense (138) (160) (162) (533) (538) (567)
-----------------------------------------------------------------------------------------------------------------------
Adjusted net income 274 296 297 1,052 978 1,028
Undernoted items, net of tax:
Charge to increase U.S. personal injury
and other claims liability (173) - - (173) - -
Workforce reduction charges (79) - - (79) (62) (62)
Write-down of net investment in 360networks Inc. - - - - (71) (71)
Deferred income tax recovery - - - - 122 122
Gain on sale of Detroit River Tunnel Company - - - - 73 73
-----------------------------------------------------------------------------------------------------------------------
(252) - - (252) 62 62
Net income $ 22 $ 296 $ 297 $ 800 $ 1,040 $ 1,090
=======================================================================================================================
The following table provides a reconciliation between basic and diluted earnings per share:
Three months ended Year ended
December 31 December 31
--------------------------------- ---------------------------------
2002 2001(a) 2001 2002 2001(a) 2001
pro forma(b) pro forma(b)
-----------------------------------------------------------------------------------------------------------------------
(In millions, except per share data) (Unaudited)
Net income .................................... $ 22 $ 296 $ 297 $ 800 $ 1,040 $ 1,090
Income impact on assumed conversion of
preferred securities (Note 8) .............. - 3 3 6 12 12
------------------------------------------------------------------------------------------------------------------------
$ 22 $ 299 $ 300 $ 806 $ 1,052 $ 1,102
Weighted-average shares outstanding ........... 199.5 192.6 192.6 196.7 192.1 192.1
Effect of dilutive securities and stock options 2.5 9.1 9.1 6.1 8.9 8.9
------------------------------------------------------------------------------------------------------------------------
Weighted-average diluted shares outstanding ... 202.0 201.7 201.7 202.8 201.0 201.0
Basic earnings per share ...................... $ 0.11 $ 1.54 $ 1.54 $ 4.07 $ 5.41 $ 5.67
Diluted earnings per share .................... $ 0.11 $ 1.48 $ 1.49 $ 3.97 $ 5.23 $ 5.48
=======================================================================================================================
(a) Includes Wisconsin Central Transportation Corporation from October 9, 2001.
(b) The pro forma figures reflect the Company's results of operations as if the Company had acquired WC on January 1, 2001.
See Note 1 and Note 3 to consolidated financial statements.
CANADIAN NATIONAL RAILWAY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
--------------------------------------------------------------------------------
Note 12 - Stock-based compensation cost
The Company accounts for stock-based compensation in accordance with Accounting
Principles Board Opinion (APB) 25, "Accounting for Stock Issued to Employees,"
and related interpretations. Accordingly, compensation cost is recorded for the
Company's performance-based stock option awards and no compensation cost is
recorded for the Company's conventional stock-option awards. If compensation
cost had been determined based upon fair values at the date of grant for awards
under all plans, consistent with the methods of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's pro forma net income and earnings per
share would have been as follows:
Three months ended Year ended
December 31 December 31
-----------------------------------------
2002 2001 2002 2001
--------------------------------------------------------------------------------
(Unaudited)
Net income, as reported (in millions) $ 22 $ 296 $ 800 $ 1,040
Add (deduct) compensation cost, net of
applicable taxes, determined under:
Intrinsic value method for
performance-based awards (APB 25) 4 13 9 19
Fair value method for all
awards (SFAS 123) (13) (7) (45) (28)
----------------------------------------
Pro forma net income (in millions) $ 13 $ 302 $ 764 $ 1,031
========================================
Basic earnings per share, as reported $ 0.11 $ 1.54 $ 4.07 $ 5.41
Basic earnings per share, pro forma $ 0.07 $ 1.57 $ 3.88 $ 5.37
Diluted earnings per share, as
reported $ 0.11 $ 1.48 $ 3.97 $ 5.23
Diluted earnings per share, pro forma $ 0.06 $ 1.52 $ 3.80 $ 5.19
--------------------------------------------------------------------------------
These pro forma amounts include compensation cost as calculated using the
Black-Scholes option-pricing model with the following assumptions:
Three months ended Year ended
December 31 December 31
-----------------------------------------
2002(a) 2001 2002 2001
--------------------------------------------------------------------------------
Expected option life (years) 7.0 7.0 7.0 7.0
Risk-free interest rate 5.79% 5.36% 5.79% 5.36%
Expected stock price volatility 30% 30% 30% 30%
Average dividend per share $ 0.86 $ 0.78 $ 0.86 $ 0.78
================================================================================
Three months ended Year ended
December 31 December 31
-----------------------------------------
2002(a) 2001 2002 2001
--------------------------------------------------------------------------------
Weighted average fair
value of options granted $ - $ 13.88 $ 30.98 $ 13.79
================================================================================
(a) In the fourth quarter of 2002, the Company did not grant any stock-option
awards.
CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
--------------------------------------------------------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
------------------------ -----------------------
2002 2001(a) 2002 2001(a)
--------------------------------------------------------------------------------------------------------------------
(Unaudited)
Rail operations
Freight revenues ($ millions) 1,495 1,482 5,901 5,457
Gross ton miles (millions) 79,618 76,994 309,295 293,857
Revenue ton miles (RTM) (millions) 40,795 39,828 159,876 153,095
Route miles (includes Canada and the U.S.) 17,821 17,986 17,821 17,986
Operating expenses per RTM (cents)(b) 2.59 2.55 2.65 2.53
Freight revenue per RTM (cents) 3.66 3.72 3.69 3.56
Carloads (thousands) 1,063 1,007 4,164 3,821
Freight revenue per carload ($) 1,406 1,472 1,417 1,428
Diesel fuel consumed (Liters in millions) 373 341 1,420 1,328
Average fuel price ($/Liter) 0.34 0.35 0.32 0.36
Revenue ton miles per liter of fuel consumed 109 117 113 115
Gross ton miles per liter of fuel consumed 213 226 218 221
Diesel fuel consumed (U.S. gallons in millions) 98 90 375 351
Average fuel price ($/U.S. gallon) 1.28 1.31 1.20 1.35
Revenue ton miles per U.S. gallon of fuel consumed 416 443 426 436
Gross ton miles per U.S. gallon of fuel consumed 812 855 825 837
Locomotive bad order ratio (%)(c) 7.2 6.8 7.0 7.1
Freight car bad order ratio (%) 6.0 5.5 6.0 5.7
--------------------------------------------------------------------------------------------------------------------
Productivity
Operating ratio (%)(b) 68.3 66.1 69.4 68.5
Freight revenue per route mile ($ thousands) 84 82 331 303
Revenue ton miles per route mile (thousands) 2,289 2,214 8,971 8,512
Freight revenue per average number of employees ($ thousands) 66 62 254 241
Revenue ton miles per average number of employees (thousands) 1,796 1,671 6,894 6,754
====================================================================================================================
Employees
Number at end of period 22,114 22,868 22,114 22,868
Average number during period 22,712 23,839 23,190 22,668
Labor and fringe benefits expense per RTM (cents)(d) 1.05 1.09 1.07 1.00
Injury frequency rate per 200,000 person hours 2.5 4.2 3.0 4.4
Accident rate per million train miles 1.6 2.5 2.0 2.0
====================================================================================================================
Financial
Debt to total capitalization ratio (% at end of period) 40.0 45.7 40.0 45.7
Return on assets (% at end of period)(e)(f) 1.5 1.7 5.9 6.0
====================================================================================================================
(a) Includes Wisconsin Central Transportation Corporation from October 9, 2001.
(b) Excludes a fourth quarter 2002 charge of $281 million to increase the Company's U.S. personal injury and other
claims liability and workforce reduction charges of $120 million and $98 million in 2002 and 2001, respectively.
(c) In 2002, the Company expanded its measure of bad order locomotives to include all those not available for
service, including on-line failures. The 2001 figures have been restated accordingly.
(d) Excludes workforce reduction charges recorded in 2002 and 2001.
(e) Based on 2002 and 2001 adjusted net income, as presented in Note 11 to the consolidated financial statements.
(f) 2001 calculated on a pro forma basis.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY INFORMATION (U.S. GAAP)
-------------------------------------------------------------------------------------------------------------------------------
Three months ended December 31 Year ended December 31
---------------------------------- ----------------------------------
Variance Variance
2002 2001(a) Fav (Unfav) 2002 2001(a) Fav (Unfav)
-------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Revenue ton miles (millions)
Petroleum and chemicals 7,784 6,944 12% 30,006 25,243 19%
Metals and minerals 3,493 3,065 14% 13,505 10,777 25%
Forest products 8,351 7,940 5% 33,551 29,639 13%
Coal 3,717 3,777 (2%) 14,503 15,566 (7%)
Grain and fertilizers 8,860 10,795 (18%) 35,773 42,728 (16%)
Intermodal 7,757 6,571 18% 29,257 26,257 11%
Automotive 833 736 13% 3,281 2,885 14%
--------------------------------------------------------------------- -------------------------
40,795 39,828 2% 159,876 153,095 4%
Freight revenue / RTM (cents)
Total freight revenue per RTM 3.66 3.72 (2%) 3.69 3.56 4%
Business units:
Petroleum and chemicals 3.64 3.67 (1%) 3.67 3.66 -
Metals and minerals 3.52 4.11 (14%) 3.86 4.25 (9%)
Forest products 3.92 3.95 (1%) 3.94 3.67 7%
Coal 2.23 2.25 (1%) 2.25 2.17 4%
Grain and fertilizers 2.77 2.88 (4%) 2.76 2.72 1%
Intermodal 3.65 3.73 (2%) 3.60 3.69 (2%)
Automotive 18.13 19.84 (9%) 18.01 18.02 -
--------------------------------------------------------------------- -------------------------
Carloads (thousands)
Petroleum and chemicals 149 136 10% 587 519 13%
Metals and minerals 94 92 2% 388 287 35%
Forest products 148 142 4% 600 501 20%
Coal 125 126 (1%) 499 517 (3%)
Grain and fertilizers 135 156 (13%) 535 590 (9%)
Intermodal 333 275 21% 1,237 1,103 12%
Automotive 79 80 (1%) 318 304 5%
--------------------------------------------------------------------- -------------------------
1,063 1,007 6% 4,164 3,821 9%
Freight revenue / carload (dollars)
Total freight revenue per carload 1,406 1,472 (4%) 1,417 1,428 (1%)
Business units:
Petroleum and chemicals 1,899 1,875 1% 1,877 1,778 6%
Metals and minerals 1,309 1,370 (4%) 1,343 1,596 (16%)
Forest products 2,209 2,211 - 2,205 2,172 2%
Coal 664 675 (2%) 653 654 -
Grain and fertilizers 1,815 1,994 (9%) 1,843 1,968 (6%)
Intermodal 850 891 (5%) 850 879 (3%)
Automotive 1,911 1,825 5% 1,858 1,711 9%
==============================================================================================================================
(a) Includes Wisconsin Central Transportation Corporation from October 9, 2001.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY PRO FORMA INFORMATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP)
------------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share data)
------------------------------------------------------------------------------------------------------------------------------
Three months ended December 31 Year ended December 31
---------------------------------- ---------------------------------
2001 Variance 2001 Variance
2002 pro forma(a) Fav (Unfav) 2002 pro forma(a) Fav (Unfav)
------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Revenues
Petroleum and chemicals $ 283 $ 258 10% $ 1,102 $ 994 11%
Metals and minerals 123 129 (5%) 521 542 (4%)
Forest products 327 319 3% 1,323 1,273 4%
Coal 83 86 (3%) 326 361 (10%)
Grain and fertilizers 245 312 (21%) 986 1,205 (18%)
Intermodal 283 246 15% 1,052 993 6%
Automotive 151 146 3% 591 520 14%
Other items 52 55 (5%) 209 202 3%
--------------------------------------------------------------------- --------------------
1,547 1,551 - 6,110 6,090 -
Operating expenses
Labor and fringe benefits 547 441 (24%) 1,837 1,765 (4%)
Purchased services and material 184 151 (22%) 778 745 (4%)
Depreciation and amortization 150 139 (8%) 584 565 (3%)
Fuel 124 110 (13%) 459 519 12%
Equipment rents 82 89 8% 346 332 (4%)
Casualty and other 371 97 (282%) 637 347 (84%)
--------------------------------------------------------------------- --------------------
1,458 1,027 (42%) 4,641 4,273 (9%)
Operating income 89 524 (83%) 1,469 1,817 (19%)
Interest expense (85) (97) (361) (407)
Other income 7 32 76 89
--------------------------------------------------------------------- --------------------
Income before income taxes 11 459 1,184 1,499
Income tax (expense) recovery 11 (162) (384) (409)
===================================================================== =====================
Net income $ 22 $ 297 $ 800 $ 1,090
=============================================================================================================================
Operating ratio (b) 68.3% 66.2% (2.1) 69.4% 68.6% (0.8)
=============================================================================================================================
Diluted earnings per share $ 0.11 $ 1.49 $ 3.97 $ 5.48
Adjusted diluted earnings per share (c) $ 1.36 $ 1.49 $ 5.22 $ 5.17
Diluted weighted-average number of shares 202.0 201.7 202.8 201.0
=============================================================================================================================
(a) The pro forma figures reflect the Company's results of operations as if the Company had acquired WC on January 1, 2001.
(b) Excludes a fourth quarter 2002 charge of $281 million to increase the Company's U.S. personal injury and other claims
liability and workforce reduction charges of $120 million and $98 million in 2002 and 2001, respectively.
(c) 2002 excludes a fourth quarter charge to increase the Company's U.S. personal injury and other claims liability and the
workforce reduction charge. 2001 excludes the gain on sale of DRT, the workforce reduction charge, the charge to write
down the net investment in 360networks Inc., and the deferred income tax recovery resulting from the enactment of lower
corporate tax rates in Canada.
CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY PRO FORMA INFORMATION (U.S. GAAP)
------------------------------------------------------------------------------------------------------------------
(In millions, except per share data)
------------------------------------------------------------------------------------------------------------------------------
Three months ended December 31 Year ended December 31
---------------------------------- ---------------------------------
2001 Variance 2001 Variance
2002 pro forma(a) Fav (Unfav) 2002 pro forma(a) Fav (Unfav)
------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Revenue ton miles (millions)
Petroleum and chemicals 7,784 6,984 11% 30,006 26,206 15%
Metals and minerals 3,493 3,141 11% 13,505 13,330 1%
Forest products 8,351 8,038 4% 33,551 32,369 4%
Coal 3,717 3,819 (3%) 14,503 16,616 (13%)
Grain and fertilizers 8,860 10,821 (18%) 35,773 43,448 (18%)
Intermodal 7,757 6,579 18% 29,257 26,419 11%
Automotive 833 737 13% 3,281 2,890 14%
--------------------------------------------------------------------- --------------------
40,795 40,119 2% 159,876 161,278 (1%)
Freight revenue / RTM (cents)
Total freight revenue per RTM 3.66 3.73 (2%) 3.69 3.65 1%
Business units:
Petroleum and chemicals 3.64 3.69 (1%) 3.67 3.79 (3%)
Metals and minerals 3.52 4.11 (14%) 3.86 4.07 (5%)
Forest products 3.92 3.97 (1%) 3.94 3.93 -
Coal 2.23 2.25 (1%) 2.25 2.17 4%
Grain and fertilizers 2.77 2.88 (4%) 2.76 2.77 -
Intermodal 3.65 3.74 (2%) 3.60 3.76 (4%)
Automotive 18.13 19.81 (8%) 18.01 17.99 -
--------------------------------------------------------------------- --------------------
Carloads (thousands)
Petroleum and chemicals 149 138 8% 587 548 7%
Metals and minerals 94 96 (2%) 388 424 (8%)
Forest products 148 146 1% 600 602 -
Coal 125 127 (2%) 499 547 (9%)
Grain and fertilizers 135 156 (13%) 535 611 (12%)
Intermodal 333 276 21% 1,237 1,147 8%
Automotive 79 81 (2%) 318 305 4%
===================================================================== ====================
1,063 1,020 4% 4,164 4,184 -
Freight revenue / carload (dollars)
Total freight revenue per carload 1,406 1,467 (4%) 1,417 1,407 1%
Business units:
Petroleum and chemicals 1,899 1,870 2% 1,877 1,814 3%
Metals and minerals 1,309 1,344 (3%) 1,343 1,278 5%
Forest products 2,209 2,185 1% 2,205 2,115 4%
Coal 664 677 (2%) 653 660 (1%)
Grain and fertilizers 1,815 2,000 (9%) 1,843 1,972 (7%)
Intermodal 850 891 (5%) 850 866 (2%)
Automotive 1,911 1,802 6% 1,858 1,705 9%
=============================================================================================================================
(a) The pro forma data has been prepared assuming the Company had acquired WC on January 1, 2001.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Canadian National Railway Company
----------------------------------
(Registrant)
Date: January 21, 2002 By: /s/ Sean Finn
---------------- ------------------------------
Sean Finn
Senior Vice-President,
Chief Legal Officer
Corporate Secretary