CN (TSX: CNR) (NYSE: CNI) today reported its financial and
operating results for the fourth quarter and year ended December
31, 2021. CN delivered solid operating and financial performance
across the board, with adjusted diluted earnings per share (EPS)
growing 20 per cent in the fourth quarter to C$1.71, and adjusted
operating ratio improving to a fourth quarter record of 57.9 per
cent. (1) For the same period, the Company reported diluted EPS
growth of 18 per cent to C$1.69, while operating ratio improved to
58.3 per cent.
“I would like to thank our dedicated team of
railroaders for delivering once again despite extreme weather and
disruptive global supply chain issues. The last months of 2021
allowed us to tangibly demonstrate our resilience, our ability to
make significant progress against the goals of our Strategic Plan,
and what it means to build the premier railway of the 21st century.
Our previous strategic investments in safety, technology, and
capacity enabled us to continue delivering high-quality service to
customers while generating profitable growth and enhanced value to
shareholders. While I’ll be retiring, I am excited to see what CN’s
world-class team will accomplish as they continue to lead the next
transformation of the industry by delivering high-quality service
to our customers and to the communities we serve, while driving
sustainable returns to shareholders over the long-term.”
- JJ Ruest, President and Chief
Executive Officer, CN
Financial results highlights
Fourth-quarter 2021 compared to fourth-quarter
2020
- Revenues of C$3,753 million, an
increase of C$97 million or three per cent.
- Record fourth quarter operating
income of C$1,566 million, an increase of 11 per cent, and record
fourth quarter adjusted operating income of C$1,579 million, an
increase of 12 per cent. (1)
- Diluted EPS of C$1.69, an increase
of 18 per cent, and adjusted diluted EPS of C$1.71, an increase of
20 per cent. (1)
- Operating ratio, defined as
operating expenses as a percentage of revenues, of 58.3 per cent,
an improvement of 3.1 points, and record fourth quarter adjusted
operating ratio of 57.9 per cent, an improvement of 3.5 points.
(1)
Full-year 2021 compared to full-year
2020
- Revenues of C$14,477 million, an
increase of C$658 million or five per cent.
- Operating income of C$5,616
million, an increase of 18 per cent, and adjusted operating income
of C$5,622 million, an increase of seven per cent. (1)
- Diluted EPS of C$6.89, an increase
of 38 per cent, and record adjusted diluted EPS of C$5.94, an
increase of 12 per cent. (1)
- Operating ratio and adjusted
operating ratio of 61.2 per cent, an improvement of 4.2 points and
0.7 points respectively. (1)
- For the year ended December 31,
2021, after accounting for all direct and incremental expenses as
well as income generated from the merger termination fee, CN
recorded additional income of C$705 million (C$616 million
after-tax) as a result of its strategic decision to bid for
KCS.
- Record free cash flow for the year
ended December 31, 2021 of C$3,296 million compared to C$3,227
million for the same period in 2020. (1)
- Return on invested capital (ROIC)
of 16.4 per cent, an increase of 3.7 points, and adjusted ROIC of
14.1 per cent, an increase of 0.7 points. (1)
Operating
performanceFourth-quarter 2021 compared to
fourth-quarter 2020 Operating performance improved across
most measures in the fourth quarter of 2021 when compared to the
same period in 2020.
- Fuel efficiency improved by one per
cent to a fourth quarter record of 0.876 US gallons of locomotive
fuel consumed per 1,000 gross ton miles (GTMs).
- Injury frequency rate (3) improved
by two per cent and the accident rate (4) increased by 22 per
cent.
- Car velocity (car miles per day)
decreased by three per cent.
- Through network train speed (mph)
improved by six per cent.
- Through dwell (entire railroad,
hours) improved by one per cent.
- Train length (in feet) remained
flat.
Full-year 2021 compared to full-year
2020Operating performance improved across most measures in
2021 when compared to 2020, specifically through network train
speed, through dwell and car velocity, despite negative impacts
from the polar vortex in February, the forest fires in Western
Canada over the summer and the washouts in British Columbia caused
by severe rain and flooding, resulting in a network shutdown in the
region for three weeks in the fourth quarter ("B.C. washouts"). The
Company capitalized on its prior year's strategic investments in
its infrastructure and its continued focus on efficiency and
network fluidity. In addition, the Company's fuel initiatives
allowed it to achieve an all-time record fuel efficiency of
0.867.
- Fuel efficiency improved by three
per cent to a record 0.867 US gallons of locomotive fuel consumed
per 1,000 GTMs.
- Injury frequency rate (3) improved
by 19 per cent to a record 1.33 injuries per 200,00 person
hours.
- Accident rate (4) improved by three
per cent.
- Car velocity (car miles per day)
improved by five per cent.
- Through network train speed (mph)
improved by four per cent.
- Through dwell (entire railroad,
hours) improved by eight per cent.
- Train length (in feet) remained
flat.
2022 outlook and shareholder
distributions (2)CN expects to deliver approximately 20
per cent adjusted diluted EPS growth, versus 2021 adjusted diluted
EPS of C$5.94. (1) CN assumes total revenue ton miles (RTMs)
in 2022 will increase in the low single-digit range versus
2021.
In 2022, CN plans to invest approximately 17 per
cent of revenues in its capital program.
CN continues to target an operating ratio of
approximately 57 per cent for 2022 as well as approximately 15 per
cent of ROIC. (1)
CN is also targeting free cash flow of
approximately C$4.0 billion in 2022 compared to C$3.3 billion in
2021. (1)
The Company’s Board of Directors approved a 19 per cent increase
to CN’s 2022 quarterly cash dividend, effective for the first
quarter of 2022. This is the 26th consecutive year of dividend
increases, demonstrating our confidence in the long-term financial
health of the Company. In addition, the Company’s Board of
Directors also approved a new Normal course issuer bid (NCIB) that
permits CN to purchase, for cancellation, over a 12-month period up
to 42 million common shares, starting on February 1, 2022, and
ending no later than January 31, 2023.
Fourth-quarter 2021 revenues, traffic
volumes and expenses Revenues for the quarter increased by
three per cent to C$3,753 million, when compared to the same period
in 2020. The increase in revenues was mainly attributable to higher
applicable fuel surcharge rates, freight rate increases and an
increase in intermodal ancillary services; partly offset by lower
volumes of Canadian grain in terms of RTMs compared to record
volumes in the fourth quarter of 2020, the impact of the B.C.
washouts and the negative translation impact of a stronger Canadian
dollar.
RTMs, measuring the weight and distance of
freight transported by CN, declined by 11 per cent. Freight revenue
per RTM increased by 14 per cent, mainly driven by a significant
decrease in the average length of haul, higher applicable fuel
surcharge rates and freight rate increases; partly offset by the
negative translation impact of a stronger Canadian dollar.
Operating expenses for the quarter decreased by
three per cent to C$2,187 million, when compared to the same period
in 2020. The decrease was mainly due to lower average headcount due
to cost reduction initiatives and lower volumes, as well as the
positive translation impact of a stronger Canadian dollar; partly
offset by higher fuel costs.
Full-year 2021 revenues, traffic volumes
and expensesRevenues for 2021 increased by five per cent
to C$14,477 million, when compared to 2020. The increase in
revenues was mainly attributable to freight rate increases, higher
applicable fuel surcharge rates and an increase in intermodal
ancillary services; partly offset by the negative translation
impact of a stronger Canadian dollar and lower volumes of Canadian
grain in terms of RTMs compared to record volumes in 2020.
RTMs increased by one per cent despite the
unfavorable impact of the ongoing supply chain challenges, the
polar vortex in February, the forest fires and drought in Western
Canada over the summer and the B.C. washouts in the fourth quarter
of 2021. Freight revenue per RTM increased by four per cent, mainly
driven by a decrease in the average length of haul, freight rate
increases and higher applicable fuel surcharge rates; partly offset
by the negative translation impact of a stronger Canadian
dollar.
Operating expenses decreased by two per cent to
C$8,861 million, mainly due to the C$137 million recovery recorded
in the first quarter of 2021 related to the C$486 million loss on
assets held for sale recorded in the second quarter of 2020, as
well as the positive translation impact of a stronger Canadian
dollar; partly offset by higher fuel costs due to rising fuel
prices, higher incentive compensation and C$84 million of
transaction-related costs resulting from the terminated CN Merger
Agreement with KCS.
(1) Non-GAAP MeasuresCN 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, of adjusted net income, adjusted
earnings per share, adjusted operating income and adjusted
operating ratio (referred to as adjusted performance measures),
free cash flow, ROIC and adjusted ROIC. 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 diluted EPS outlook (2)
, ROIC outlook (2) and free cash flow outlook (2) excludes the
expected impact of certain income and expense items, which are
expected to be comparable adjustments to those made to the
historical adjusted diluted EPS, ROIC and free cash flow. However,
management cannot individually quantify on a forward-looking basis
the impact of these items on its adjusted diluted EPS, ROIC or free
cash flow 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 diluted EPS outlook, its ROIC
outlook or its free cash flow 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, including statements based on
management’s assessment and assumptions and publicly available
information with respect to CN. By their nature, forward-looking
statements involve risks, uncertainties and assumptions. CN
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.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause actual results, performance or achievements
of CN to be materially different from the outlook or any future
results, performance or achievements 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 duration and effects of the COVID-19 pandemic; general
economic and business conditions, particularly in the context of
the COVID-19 pandemic; 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
illegal blockades of rail networks and 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.
(3) Per 200,000 person hours,
based on Federal Railroad Administration (FRA) reporting
criteria.
(4) Per million train miles, based on FRA
reporting criteria.
2022 key assumptionsCN has made
a number of economic and market assumptions in preparing its 2022
outlook. The Company assumes that North American industrial
production for the year will increase in the mid single-digit
range, and now assumes U.S. housing starts of approximately 1.6
million units (compared to its October 19, 2021 assumption that it
would be approximately 1.57 million units) and now assumes U.S.
motor vehicle sales of approximately 15.5 million units (compared
to its October 19, 2021 assumption that it would be approximately
16.9 million units). For the 2021/2022 crop year, the grain crop in
Canada was below its three-year average and the U.S. grain crop was
in line with its three-year average. The Company assumes that the
2022/2023 grain crops in both Canada and the U.S. will be in line
with their respective three-year averages. CN assumes total RTMs in
2022 will increase in the low single-digit range versus 2021. CN
assumes continued pricing above rail inflation. CN assumes that in
2022, the value of the Canadian dollar in U.S. currency will be
approximately $0.80, and now assumes that in 2022 the average price
of crude oil (West Texas Intermediate) will be approximately in the
US$65 - US$70 range per barrel (compared to its October 19, 2021
assumption that it would be approximately US$65 per barrel). In
2022, CN plans to invest approximately 17% of revenues in its
capital program.
This earnings news release is available on the
Company's website at www.cn.ca/financial-results and on SEDAR at
www.sedar.com as well as on the U.S. Securities and Exchange
Commission's website at www.sec.gov through EDGAR.
About CNCN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. As the only railroad connecting Canada’s Eastern and
Western coasts with the U.S. South through a 19,500-mile rail
network, CN and its affiliates have been contributing to community
prosperity and sustainable trade since 1919. CN is committed to
programs supporting social responsibility and environmental
stewardship.
Contacts: |
|
Media |
Investment
Community |
Jonathan Abecassis |
Paul Butcher |
Senior Manager |
Vice-President |
Media Relations |
Investor Relations |
(438) 455-3692 |
(514) 399-0052 |
media@cn.ca |
investor.relations@cn.ca |
|
|
Selected Railroad Statistics – unaudited
|
Three months ended December 31 |
Year ended December 31 |
|
2021 |
2020 |
2021 |
2020 |
Financial
measures |
|
|
|
|
Key financial
performance indicators (1) |
|
|
|
|
Total revenues ($
millions) |
3,753 |
3,656 |
14,477 |
13,819 |
Freight revenues ($
millions) |
3,586 |
3,507 |
13,888 |
13,218 |
Operating income ($
millions) |
1,566 |
1,411 |
5,616 |
4,777 |
Adjusted operating income ($
millions) (2)(3) |
1,579 |
1,411 |
5,622 |
5,263 |
Net income ($ millions) |
1,199 |
1,021 |
4,892 |
3,562 |
Adjusted net income ($
millions) (2)(3) |
1,209 |
1,021 |
4,218 |
3,784 |
Diluted earnings per share
($) |
1.69 |
1.43 |
6.89 |
5.00 |
Adjusted diluted earnings per
share ($) (2)(3) |
1.71 |
1.43 |
5.94 |
5.31 |
Free cash flow ($ millions)
(2)(4) |
1,262 |
1,140 |
3,296 |
3,227 |
Gross property additions ($
millions) |
920 |
855 |
2,897 |
2,863 |
Share repurchases ($
millions) |
1,059 |
— |
1,582 |
379 |
Dividends per share ($) |
0.615 |
0.575 |
2.460 |
2.300 |
Financial ratio |
|
|
|
|
Operating ratio (%) (5) |
58.3 |
61.4 |
61.2 |
65.4 |
Adjusted operating ratio (%) (2)(3) |
57.9 |
61.4 |
61.2 |
61.9 |
Operational
measures (6) |
|
|
|
|
Statistical operating
data |
|
|
|
|
Gross ton miles (GTMs)
(millions) |
110,196 |
125,310 |
458,401 |
455,368 |
Revenue ton miles (RTMs)
(millions) |
56,563 |
63,207 |
233,138 |
230,390 |
Carloads (thousands) |
1,374 |
1,526 |
5,701 |
5,595 |
Route miles (includes Canada
and the U.S.) |
19,500 |
19,500 |
19,500 |
19,500 |
Employees (end of period) |
22,604 |
24,381 |
22,604 |
24,381 |
Employees (average for the period) |
23,107 |
24,272 |
24,084 |
23,786 |
Key operating
measures |
|
|
|
|
Freight revenue per RTM
(cents) |
6.34 |
5.55 |
5.96 |
5.74 |
Freight revenue per carload
($) |
2,610 |
2,298 |
2,436 |
2,362 |
GTMs per average number of
employees (thousands) |
4,769 |
5,163 |
19,033 |
19,144 |
Operating expenses per GTM
(cents) |
1.98 |
1.79 |
1.93 |
1.99 |
Labor and fringe benefits
expense per GTM (cents) |
0.61 |
0.60 |
0.63 |
0.60 |
Diesel fuel consumed (US
gallons in millions) |
96.5 |
110.9 |
397.6 |
407.2 |
Average fuel price ($/US
gallon) |
3.71 |
2.37 |
3.28 |
2.42 |
Fuel efficiency (US gallons of
locomotive fuel consumed per 1,000 GTMs) |
0.876 |
0.885 |
0.867 |
0.894 |
Train weight (tons) |
9,665 |
9,397 |
9,658 |
9,501 |
Train length (feet) |
8,491 |
8,514 |
8,559 |
8,572 |
Car velocity (car miles per
day) |
189 |
195 |
195 |
185 |
Through dwell (entire
railroad, hours) |
7.9 |
8.0 |
7.9 |
8.6 |
Through network train speed
(miles per hour) |
19.5 |
18.4 |
19.2 |
18.5 |
Locomotive utilization (trailing GTMs per total horsepower) |
194 |
202 |
198 |
196 |
Safety
indicators (7) |
|
|
|
|
Injury frequency rate (per
200,000 person hours) |
1.29 |
1.31 |
1.33 |
1.64 |
Accident rate (per million train miles) |
2.06 |
1.69 |
1.82 |
1.87 |
(1) |
Amounts expressed in Canadian dollars and prepared in accordance
with United States generally accepted accounting principles (GAAP),
unless otherwise noted. |
(2) |
These Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies. |
(3) |
See the supplementary schedule entitled Non-GAAP Measures –
Adjusted performance measures for an explanation of these non-GAAP
measures. |
(4) |
See the supplementary schedule entitled Non-GAAP Measures – Free
cash flow for an explanation of this non-GAAP measure. |
(5) |
Operating ratio is defined as operating expenses as a percentage of
revenues. |
(6) |
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. |
(7) |
Based on Federal Railroad Administration (FRA) reporting
criteria. |
|
|
Supplementary Information – unaudited
|
Three months ended December 31 |
Year ended December 31 |
|
2021 |
2020 |
% ChangeFav (Unfav) |
|
% Change at constantcurrencyFav (Unfav) (1) |
|
2021 |
2020 |
% ChangeFav (Unfav) |
|
% Change at constant currency Fav (Unfav) (1) |
|
Revenues ($
millions) (2) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
755 |
664 |
14 |
% |
16 |
% |
2,816 |
2,631 |
7 |
% |
12 |
% |
Metals and minerals |
393 |
354 |
11 |
% |
14 |
% |
1,548 |
1,409 |
10 |
% |
16 |
% |
Forest products |
435 |
433 |
— |
% |
3 |
% |
1,740 |
1,700 |
2 |
% |
8 |
% |
Coal |
165 |
126 |
31 |
% |
33 |
% |
618 |
527 |
17 |
% |
20 |
% |
Grain and fertilizers |
643 |
742 |
(13 |
%) |
(12 |
%) |
2,475 |
2,609 |
(5 |
%) |
(2 |
%) |
Intermodal |
1,049 |
1,036 |
1 |
% |
3 |
% |
4,115 |
3,751 |
10 |
% |
12 |
% |
Automotive |
146 |
152 |
(4 |
%) |
(1 |
%) |
576 |
591 |
(3 |
%) |
3 |
% |
Total freight revenues |
3,586 |
3,507 |
2 |
% |
4 |
% |
13,888 |
13,218 |
5 |
% |
9 |
% |
Other
revenues |
167 |
149 |
12 |
% |
15 |
% |
589 |
601 |
(2 |
%) |
3 |
% |
Total
revenues |
3,753 |
3,656 |
3 |
% |
5 |
% |
14,477 |
13,819 |
5 |
% |
9 |
% |
Revenue ton miles
(RTMs) (millions) (3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
10,955 |
11,638 |
(6 |
%) |
(6 |
%) |
42,436 |
43,556 |
(3 |
%) |
(3 |
%) |
Metals and minerals |
6,617 |
5,785 |
14 |
% |
14 |
% |
26,743 |
21,561 |
24 |
% |
24 |
% |
Forest products |
6,087 |
6,699 |
(9 |
%) |
(9 |
%) |
25,948 |
25,602 |
1 |
% |
1 |
% |
Coal |
4,608 |
4,186 |
10 |
% |
10 |
% |
18,471 |
16,173 |
14 |
% |
14 |
% |
Grain and fertilizers |
14,196 |
17,910 |
(21 |
%) |
(21 |
%) |
58,733 |
61,736 |
(5 |
%) |
(5 |
%) |
Intermodal |
13,529 |
16,330 |
(17 |
%) |
(17 |
%) |
58,412 |
59,165 |
(1 |
%) |
(1 |
%) |
Automotive |
571 |
659 |
(13 |
%) |
(13 |
%) |
2,395 |
2,597 |
(8 |
%) |
(8 |
%) |
Total
RTMs |
56,563 |
63,207 |
(11 |
%) |
(11 |
%) |
233,138 |
230,390 |
1 |
% |
1 |
% |
Freight revenue / RTM
(cents) (2) (3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
6.89 |
5.71 |
21 |
% |
23 |
% |
6.64 |
6.04 |
10 |
% |
15 |
% |
Metals and minerals |
5.94 |
6.12 |
(3 |
%) |
— |
% |
5.79 |
6.53 |
(11 |
%) |
(7 |
%) |
Forest products |
7.15 |
6.46 |
11 |
% |
14 |
% |
6.71 |
6.64 |
1 |
% |
6 |
% |
Coal |
3.58 |
3.01 |
19 |
% |
20 |
% |
3.35 |
3.26 |
3 |
% |
6 |
% |
Grain and fertilizers |
4.53 |
4.14 |
9 |
% |
11 |
% |
4.21 |
4.23 |
— |
% |
3 |
% |
Intermodal |
7.75 |
6.34 |
22 |
% |
24 |
% |
7.04 |
6.34 |
11 |
% |
14 |
% |
Automotive |
25.57 |
23.07 |
11 |
% |
15 |
% |
24.05 |
22.76 |
6 |
% |
12 |
% |
Total
freight revenue / RTM |
6.34 |
5.55 |
14 |
% |
17 |
% |
5.96 |
5.74 |
4 |
% |
8 |
% |
Carloads
(thousands) (3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
153 |
155 |
(1 |
%) |
(1 |
%) |
596 |
597 |
— |
% |
— |
% |
Metals and minerals |
239 |
241 |
(1 |
%) |
(1 |
%) |
969 |
935 |
4 |
% |
4 |
% |
Forest products |
81 |
87 |
(7 |
%) |
(7 |
%) |
339 |
342 |
(1 |
%) |
(1 |
%) |
Coal |
101 |
73 |
38 |
% |
38 |
% |
379 |
289 |
31 |
% |
31 |
% |
Grain and fertilizers |
159 |
189 |
(16 |
%) |
(16 |
%) |
628 |
663 |
(5 |
%) |
(5 |
%) |
Intermodal |
595 |
731 |
(19 |
%) |
(19 |
%) |
2,611 |
2,582 |
1 |
% |
1 |
% |
Automotive |
46 |
50 |
(8 |
%) |
(8 |
%) |
179 |
187 |
(4 |
%) |
(4 |
%) |
Total
carloads |
1,374 |
1,526 |
(10 |
%) |
(10 |
%) |
5,701 |
5,595 |
2 |
% |
2 |
% |
Freight revenue /
carload ($) (2) (3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
4,935 |
4,284 |
15 |
% |
18 |
% |
4,725 |
4,407 |
7 |
% |
12 |
% |
Metals and minerals |
1,644 |
1,469 |
12 |
% |
15 |
% |
1,598 |
1,507 |
6 |
% |
12 |
% |
Forest products |
5,370 |
4,977 |
8 |
% |
11 |
% |
5,133 |
4,971 |
3 |
% |
9 |
% |
Coal |
1,634 |
1,726 |
(5 |
%) |
(4 |
%) |
1,631 |
1,824 |
(11 |
%) |
(8 |
%) |
Grain and fertilizers |
4,044 |
3,926 |
3 |
% |
5 |
% |
3,941 |
3,935 |
— |
% |
3 |
% |
Intermodal |
1,763 |
1,417 |
24 |
% |
26 |
% |
1,576 |
1,453 |
8 |
% |
11 |
% |
Automotive |
3,174 |
3,040 |
4 |
% |
8 |
% |
3,218 |
3,160 |
2 |
% |
8 |
% |
Total
freight revenue / carload |
2,610 |
2,298 |
14 |
% |
16 |
% |
2,436 |
2,362 |
3 |
% |
7 |
% |
(1) |
This Non-GAAP measure does not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies. See the supplementary
schedule entitled Non-GAAP Measures – Constant currency 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 “Company” or “CN” refers to
Canadian National Railway Company, together with 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, adjusted
debt-to-adjusted earnings before interest, income taxes,
depreciation and amortization (EBITDA) multiple, return on invested
capital (ROIC) and adjusted ROIC. 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
Adjusted net income, adjusted earnings per share, adjusted
operating income, adjusted operating expenses and adjusted
operating ratio are non-GAAP measures that are used to set
performance goals and to measure CN's performance. Management
believes that these adjusted performance measures provide
additional insight to management and investors into the Company's
operations and underlying business trends as well as facilitate
period-to-period comparisons, as they exclude certain significant
items that are not reflective of CN's underlying business
operations and could distort the analysis of trends in business
performance. These items may include:
- operating expense adjustments: workforce reduction program,
depreciation expense on the deployment of replacement system,
advisory fees related to shareholder matters, losses and recoveries
from assets held for sale, business acquisition-related costs;
- non-operating expense adjustments: business acquisition-related
financing fees, merger termination income, gains and losses on
disposal of property; and
- the effect of tax law changes and rate enactments.
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, 2021, the
Company's adjusted net income was $1,209 million, or $1.71 per
diluted share, and $4,218 million, or $5.94 per diluted share,
respectively. The adjusted figures exclude:
- employee termination benefits and severance costs related to a
workforce reduction program of $39 million, or $29 million
after-tax ($0.04 per diluted share) recorded in the third quarter
in Labor and fringe benefits within the Consolidated Statements of
Income;
- advisory fees related to shareholder matters of $20 million, or
$15 million after-tax ($0.02 per diluted share) of which $13
million, or $10 million after-tax ($0.02 per diluted share) was
recorded in the fourth quarter and $7 million, or $5 million
after-tax ($0.01 per diluted share) was recorded in the third
quarter in Casualty and other within the Consolidated Statements of
Income;
- the recovery of $137 million, or $102 million after-tax ($0.14
per diluted share) recorded in the first quarter related to the
loss on assets held for sale in the second quarter of 2020, to
reflect an agreement for the sale for on-going rail operations,
certain non-core rail lines in Wisconsin, Michigan and Ontario to a
short line operator;
- transaction-related costs, consisting of an advance to Kansas
City Southern (KCS) and a related refund, net of transaction costs,
of $84 million, or $70 million after-tax ($0.10 per diluted share),
recorded in the third quarter resulting from the terminated CN
Merger Agreement with KCS;
- amortization of bridge financing and other fees of $65 million,
or $60 million after-tax ($0.08 per diluted share) recorded in the
third quarter and $32 million, or $24 million after-tax ($0.03 per
diluted share) recorded in the second quarter, resulting from the
KCS transaction, recorded in Interest expense within the
Consolidated Statements of Income; and
- merger termination fee paid by KCS to CN of $886 million, or
$770 million after-tax ($1.08 per diluted share), recorded in the
third quarter resulting from KCS' notice of termination of the CN
Merger Agreement with KCS.
For the year ended December 31, 2020, the Company reported
adjusted net income of $3,784 million, or $5.31 per diluted share,
which excludes a loss of $486 million, or $363 million after-tax
($0.51 per diluted share) in the second quarter, resulting from the
Company's decision to market for sale for on-going rail operations,
certain non-core lines in Wisconsin, Michigan and Ontario, and a
current income tax recovery of $141 million ($0.20 per diluted
share) in the first quarter resulting from the enactment of the
Coronavirus Aid, Relief, and Economic Security (CARES) Act, a U.S.
tax-and-spending package aimed at providing additional stimulus to
address the economic impact of the COVID-19 pandemic.
Adjusted net income is defined as Net income in accordance with
GAAP adjusted for certain significant items. Adjusted diluted
earnings per share is defined as adjusted net income divided by the
weighted-average diluted shares outstanding. The following table
provides a reconciliation of Net income and Earnings per share in
accordance with GAAP, as reported for the three months and years
ended December 31, 2021 and 2020, to the non-GAAP adjusted
performance measures presented herein:
|
Three months ended December 31 |
Year ended December 31 |
In millions, except per share data |
|
2021 |
|
|
2020 |
|
2021 |
|
|
2020 |
|
Net income |
$ |
1,199 |
|
$ |
1,021 |
$ |
4,892 |
|
$ |
3,562 |
|
Adjustments: |
|
|
|
|
Operating expense
adjustments: |
|
|
|
|
Workforce reduction program |
|
— |
|
|
— |
|
39 |
|
|
— |
|
Advisory fees related to shareholder matters |
|
13 |
|
|
— |
|
20 |
|
|
— |
|
Loss (recovery) on assets held for sale |
|
— |
|
|
— |
|
(137 |
) |
|
486 |
|
Transaction-related costs |
|
— |
|
|
— |
|
84 |
|
|
— |
|
Non-operating expense
adjustments: |
|
|
|
|
Amortization of bridge financing and other fees |
|
— |
|
|
— |
|
97 |
|
|
— |
|
Merger termination fee |
|
— |
|
|
— |
|
(886 |
) |
|
— |
|
Tax adjustments: |
|
|
|
|
Tax effect of adjustments (1) |
|
(3 |
) |
|
— |
|
109 |
|
|
(123 |
) |
Tax law changes and rate enactments |
|
— |
|
|
— |
|
— |
|
|
(141 |
) |
Total
adjustments |
|
10 |
|
|
— |
|
(674 |
) |
|
222 |
|
Adjusted net income |
$ |
1,209 |
|
$ |
1,021 |
$ |
4,218 |
|
$ |
3,784 |
|
Diluted earnings per
share |
$ |
1.69 |
|
$ |
1.43 |
$ |
6.89 |
|
$ |
5.00 |
|
Impact of adjustments, per
share |
|
0.02 |
|
|
— |
|
(0.95 |
) |
|
0.31 |
|
Adjusted diluted earnings per share |
$ |
1.71 |
|
$ |
1.43 |
$ |
5.94 |
|
$ |
5.31 |
|
(1) |
The tax impact of adjustments is based on the nature of the item
for tax purposes and related tax rates in the applicable
jurisdiction. |
|
|
Adjusted operating income is defined as Operating income in
accordance with GAAP adjusted for certain significant operating
expense items. Adjusted operating expenses is defined as Operating
expenses in accordance with GAAP adjusted for certain significant
operating expense items. Adjusted operating ratio is defined as
adjusted operating expenses as a percentage of revenues. The
following table provides a reconciliation of Operating income,
Operating expenses and operating ratio, as reported for the three
months and years ended December 31, 2021 and 2020, to the non-GAAP
adjusted performance measures presented herein:
|
Three months ended December 31 |
Year ended December 31 |
In millions, except percentages |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Operating income |
$ |
1,566 |
|
$ |
1,411 |
|
$ |
5,616 |
|
$ |
4,777 |
|
Operating expense
adjustments: |
|
|
|
|
Workforce reduction program |
|
— |
|
|
— |
|
|
39 |
|
|
— |
|
Advisory fees related to shareholder matters |
|
13 |
|
|
— |
|
|
20 |
|
|
— |
|
Loss (recovery) on assets held for sale |
|
— |
|
|
— |
|
|
(137 |
) |
|
486 |
|
Transaction-related costs |
|
— |
|
|
— |
|
|
84 |
|
|
— |
|
Total
operating expense adjustments |
|
13 |
|
|
— |
|
|
6 |
|
|
486 |
|
Adjusted operating income |
$ |
1,579 |
|
$ |
1,411 |
|
$ |
5,622 |
|
$ |
5,263 |
|
Operating expenses |
$ |
2,187 |
|
$ |
2,245 |
|
$ |
8,861 |
|
$ |
9,042 |
|
Total
operating expense adjustments |
|
(13 |
) |
|
— |
|
|
(6 |
) |
|
(486 |
) |
Adjusted operating expenses |
$ |
2,174 |
|
$ |
2,245 |
|
$ |
8,855 |
|
$ |
8,556 |
|
Operating ratio |
|
58.3 |
% |
|
61.4 |
% |
|
61.2 |
% |
|
65.4 |
% |
Impact
of adjustments |
|
(0.4 |
)% |
|
— |
% |
|
— |
% |
|
(3.5 |
)% |
Adjusted operating ratio |
|
57.9 |
% |
|
61.4 |
% |
|
61.2 |
% |
|
61.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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
weighted average foreign exchange rates used to translate
transactions denominated in US dollars of the comparable period of
the prior year.
The average foreign exchange rates were $1.26 and $1.25 per
US$1.00 for the three months and year ended December 31, 2021,
respectively, and $1.30 and $1.34 per US$1.00 for the three months
and year ended December 31, 2020, respectively.
On a constant currency basis, the Company’s Net income for the
three months and year ended December 31, 2021 would have been
higher by $27 million ($0.04 per diluted share) and higher by $166
million ($0.23 per diluted share), respectively.
The following table provides a reconciliation of the impact of
constant currency and related percentage change at constant
currency on the financial results, as reported for the three months
and year ended December 31, 2021:
|
Three months ended December 31 |
Year ended December 31 |
In millions, except per share data |
|
2021 |
|
|
Constant currency impact |
|
|
2020 |
|
% Change at constant currency Fav (Unfav) |
|
|
2021 |
|
|
Constant currency impact |
|
|
2020 |
|
% Change at constant currency Fav (Unfav) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
$ |
755 |
|
$ |
16 |
|
$ |
664 |
|
16 |
% |
$ |
2,816 |
|
$ |
128 |
|
$ |
2,631 |
|
12 |
% |
Metals and minerals |
|
393 |
|
|
11 |
|
|
354 |
|
14 |
% |
|
1,548 |
|
|
83 |
|
|
1,409 |
|
16 |
% |
Forest products |
|
435 |
|
|
12 |
|
|
433 |
|
3 |
% |
|
1,740 |
|
|
93 |
|
|
1,700 |
|
8 |
% |
Coal |
|
165 |
|
|
2 |
|
|
126 |
|
33 |
% |
|
618 |
|
|
17 |
|
|
527 |
|
20 |
% |
Grain and fertilizers |
|
643 |
|
|
12 |
|
|
742 |
|
(12 |
%) |
|
2,475 |
|
|
80 |
|
|
2,609 |
|
(2 |
%) |
Intermodal |
|
1,049 |
|
|
14 |
|
|
1,036 |
|
3 |
% |
|
4,115 |
|
|
95 |
|
|
3,751 |
|
12 |
% |
Automotive |
|
146 |
|
|
5 |
|
|
152 |
|
(1 |
%) |
|
576 |
|
|
32 |
|
|
591 |
|
3 |
% |
Total freight revenues |
|
3,586 |
|
|
72 |
|
|
3,507 |
|
4 |
% |
|
13,888 |
|
|
528 |
|
|
13,218 |
|
9 |
% |
Other
revenues |
|
167 |
|
|
5 |
|
|
149 |
|
15 |
% |
|
589 |
|
|
29 |
|
|
601 |
|
3 |
% |
Total
revenues |
|
3,753 |
|
|
77 |
|
|
3,656 |
|
5 |
% |
|
14,477 |
|
|
557 |
|
|
13,819 |
|
9 |
% |
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and fringe
benefits |
|
674 |
|
|
8 |
|
|
755 |
|
10 |
% |
|
2,879 |
|
|
65 |
|
|
2,723 |
|
(8 |
%) |
Purchased services
and material |
|
504 |
|
|
7 |
|
|
565 |
|
10 |
% |
|
2,082 |
|
|
60 |
|
|
2,152 |
|
— |
% |
Fuel |
|
419 |
|
|
13 |
|
|
303 |
|
(43 |
%) |
|
1,513 |
|
|
94 |
|
|
1,152 |
|
(39 |
%) |
Depreciation and
amortization |
|
383 |
|
|
5 |
|
|
402 |
|
3 |
% |
|
1,598 |
|
|
44 |
|
|
1,589 |
|
(3 |
%) |
Equipment
rents |
|
82 |
|
|
2 |
|
|
97 |
|
13 |
% |
|
336 |
|
|
19 |
|
|
432 |
|
18 |
% |
Casualty and
other |
|
125 |
|
|
3 |
|
|
123 |
|
(4 |
%) |
|
506 |
|
|
27 |
|
|
508 |
|
(5 |
%) |
Loss (recovery) on assets held
for sale |
|
— |
|
|
— |
|
|
— |
|
N/A |
|
|
(137 |
) |
|
(12 |
) |
|
486 |
|
131 |
% |
Transaction-related costs |
|
— |
|
|
— |
|
|
— |
|
N/A |
|
|
84 |
|
|
47 |
|
|
— |
|
N/A |
|
Total
operating expenses |
|
2,187 |
|
|
38 |
|
|
2,245 |
|
1 |
% |
|
8,861 |
|
|
344 |
|
|
9,042 |
|
(2 |
%) |
Operating
income |
|
1,566 |
|
|
39 |
|
|
1,411 |
|
14 |
% |
|
5,616 |
|
|
213 |
|
|
4,777 |
|
22 |
% |
Interest
expense |
|
(125 |
) |
|
(3 |
) |
|
(134 |
) |
4 |
% |
|
(610 |
) |
|
(35 |
) |
|
(554 |
) |
(16 |
%) |
Other components
of net periodic benefit income |
|
110 |
|
|
— |
|
|
78 |
|
41 |
% |
|
398 |
|
|
— |
|
|
315 |
|
26 |
% |
Merger termination fee |
|
— |
|
|
— |
|
|
— |
|
N/A |
|
|
886 |
|
|
39 |
|
|
— |
|
N/A |
|
Other
income |
|
21 |
|
|
— |
|
|
— |
|
N/A |
|
|
43 |
|
|
4 |
|
|
6 |
|
683 |
% |
Income before
income taxes |
|
1,572 |
|
|
36 |
|
|
1,355 |
|
19 |
% |
|
6,333 |
|
|
221 |
|
|
4,544 |
|
44 |
% |
Income
tax expense |
|
(373 |
) |
|
(9 |
) |
|
(334 |
) |
(14 |
%) |
|
(1,441 |
) |
|
(55 |
) |
|
(982 |
) |
(52 |
%) |
Net income |
$ |
1,199 |
|
$ |
27 |
|
$ |
1,021 |
|
20 |
% |
$ |
4,892 |
|
$ |
166 |
|
$ |
3,562 |
|
42 |
% |
Diluted earnings per share |
$ |
1.69 |
|
$ |
0.04 |
|
$ |
1.43 |
|
21 |
% |
$ |
6.89 |
|
$ |
0.23 |
|
$ |
5.00 |
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
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 business
acquisitions and merger transaction-related payments and cash
receipts, which are items that are not indicative of operating
trends. 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 in accordance with GAAP, as
reported for the three months and years ended December 31, 2021 and
2020, to the non-GAAP free cash flow presented herein:
|
Three months ended December 31 |
Year ended December 31 |
In millions |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Net cash provided by operating activities |
$ |
2,086 |
|
$ |
2,008 |
|
$ |
6,971 |
|
$ |
6,165 |
|
Net
cash used in investing activities |
|
(860 |
) |
|
(868 |
) |
|
(2,873 |
) |
|
(2,946 |
) |
Net cash provided before
financing activities |
|
1,226 |
|
|
1,140 |
|
|
4,098 |
|
|
3,219 |
|
Adjustments: |
|
|
|
|
Transaction-related costs (1) |
|
36 |
|
|
— |
|
|
125 |
|
|
— |
|
Advance for acquisition (2) |
|
— |
|
|
— |
|
|
845 |
|
|
— |
|
Refund of advance for acquisition |
|
— |
|
|
— |
|
|
(886 |
) |
|
— |
|
Merger termination fee |
|
— |
|
|
— |
|
|
(886 |
) |
|
— |
|
Acquisitions, net of cash acquired (3) |
|
— |
|
|
— |
|
|
— |
|
|
8 |
|
Total
adjustments |
|
36 |
|
|
— |
|
|
(802 |
) |
|
8 |
|
Free
cash flow |
$ |
1,262 |
|
$ |
1,140 |
|
$ |
3,296 |
|
$ |
3,227 |
|
(1) |
Relates to transaction-related costs of $125 million paid. See Note
3 - Acquisitions, Terminated CN KCS merger agreement, to CN's
unaudited Interim Consolidated Financial Statements for additional
information. |
(2) |
Relates to the advance paid to KCS of US$700 million ($845
million). See Note 3 - Acquisitions, Terminated CN KCS merger
agreement, to CN's unaudited Interim Consolidated Financial
Statements for additional information. |
(3) |
Relates to the acquisition of H&R Transport Limited
("H&R"). See Note 3 - Business combinations to the Company's
2020 Annual Consolidated Financial Statements for additional
information. |
|
|
Adjusted debt-to-adjusted EBITDA multiple
Management believes that the adjusted debt-to-adjusted 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 the last twelve months
of adjusted EBITDA. Adjusted debt is defined as the sum of
Long-term debt and Current portion of long-term debt as reported on
the Company’s Consolidated Balance Sheets as well as Operating
lease liabilities, including current portion and pension plans in
deficiency recognized on the Company's Consolidated Balance Sheets
due to the debt-like nature of their contractual and financial
obligations. Adjusted EBITDA is calculated as Net income excluding
Interest expense, Income tax expense, Depreciation and
amortization, operating lease cost, Other components of net
periodic benefit income, Other income, and other significant items
that are not reflective of CN's underlying business operations and
which could distort the analysis of trends in business performance.
Adjusted debt and adjusted EBITDA are non-GAAP measures used to
compute the Adjusted debt-to-adjusted EBITDA multiple. 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 in accordance with GAAP, reported as at and for the years
ended December 31, 2021 and 2020, respectively, to the
adjusted measures presented herein, which have been used to
calculate the non-GAAP adjusted debt-to-adjusted EBITDA
multiple:
In millions, unless otherwise indicated |
As at and for the year ended December 31, |
|
2021 |
|
|
2020 |
|
Debt |
$ |
12,485 |
|
$ |
12,906 |
|
Adjustments: |
|
|
Operating lease liabilities, including current portion
(1) |
|
430 |
|
|
418 |
|
Pension plans in deficiency (2) |
|
447 |
|
|
553 |
|
Adjusted debt |
$ |
13,362 |
|
$ |
13,877 |
|
Net income |
$ |
4,892 |
|
$ |
3,562 |
|
Interest
expense |
|
610 |
|
|
554 |
|
Income tax
expense |
|
1,441 |
|
|
982 |
|
Depreciation and
amortization |
|
1,598 |
|
|
1,589 |
|
Operating lease
cost (3) |
|
131 |
|
|
143 |
|
Other components
of net periodic benefit income |
|
(398 |
) |
|
(315 |
) |
Other income |
|
(43 |
) |
|
(6 |
) |
Adjustments: |
|
|
Workforce reduction program (4) |
|
|
39 |
|
|
— |
|
Advisory fees related to shareholder matters (5) |
|
20 |
|
|
— |
|
Loss (recovery) on assets held for sale |
|
(137 |
) |
|
486 |
|
Transaction-related costs |
|
|
84 |
|
|
— |
|
Merger termination fee |
|
(886 |
) |
|
— |
|
Adjusted EBITDA |
$ |
7,351 |
|
$ |
6,995 |
|
Adjusted debt-to-adjusted EBITDA multiple (times) |
|
1.82 |
|
|
1.98 |
|
(1) |
Represents the present value of operating lease payments. |
(2) |
Represents the total funded deficit of all defined benefit pension
plans with a projected benefit obligation in excess of plan
assets. |
(3) |
Represents the operating lease costs recorded in Purchased services
and material and Equipment rents within the Consolidated Statements
of Income. |
(4) |
Relates to employee termination benefits and severance costs
related to a workforce reduction program, recorded in Labor and
fringe benefits within the Consolidated Statements of Income. |
(5) |
Relates to advisory fees related to shareholder matters recorded in
Casualty and other within the Consolidated Statements of
Income. |
|
|
ROIC and adjusted ROIC
ROIC and adjusted ROIC are useful measures for management and
investors to evaluate the efficiency of the Company's use of
capital funds and allow investors to assess the operating and
investment decisions made by management. The Company calculates
ROIC as return divided by average invested capital, both of which
are non-GAAP measures. Return is defined as Net income plus
interest expense after-tax, calculated using the Company's
effective tax rate. Average invested capital is defined as the sum
of Total shareholders' equity, Long-term debt and Current portion
of long-term debt less Cash and cash equivalents, and Restricted
cash and cash equivalents, averaged between the beginning and
ending balance over the last twelve-month period. The Company
calculates adjusted ROIC as adjusted return divided by average
invested capital, both of which are non-GAAP measures. Adjusted
return is defined as adjusted net income plus interest expense
after-tax, calculated using the Company's adjusted effective tax
rate. Return, average invested capital, ROIC, adjusted return and
adjusted ROIC 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 Net income and
adjusted net income to return and adjusted return, respectively, as
well as the calculation of average invested capital, which have
been used to calculate ROIC and adjusted ROIC:
In millions, except percentage |
As at and for the year ended December 31, |
|
2021 |
|
|
2020 |
|
Net income |
$ |
4,892 |
|
$ |
3,562 |
|
Interest
expense |
|
610 |
|
|
554 |
|
Tax on interest
expense (1) |
|
(139 |
) |
|
(120 |
) |
Return |
$ |
5,363 |
|
$ |
3,996 |
|
Average
total shareholders' equity |
$ |
21,198 |
|
$ |
18,846 |
|
Average long-term
debt |
|
11,987 |
|
|
11,931 |
|
Average current
portion of long-term debt |
|
709 |
|
|
1,420 |
|
Less: Average
cash, cash equivalents, restricted cash and restricted cash
equivalents |
|
(1,221 |
) |
|
(844 |
) |
Average
invested capital |
$ |
32,673 |
|
$ |
31,353 |
|
ROIC |
|
16.4 |
% |
|
12.7 |
% |
Adjusted
net income (2) |
$ |
4,218 |
|
$ |
3,784 |
|
Interest
expense |
|
610 |
|
|
554 |
|
Less: Amortization of bridge
financing and other fees (3) |
|
|
(97 |
) |
|
— |
|
Tax on interest
expense less amortization of bridge financing and other fees
(4) |
|
(123 |
) |
|
(137 |
) |
Adjusted
return |
$ |
4,608 |
|
$ |
4,201 |
|
Average invested
capital |
$ |
32,673 |
|
$ |
31,353 |
|
Adjusted ROIC |
|
14.1 |
% |
|
13.4 |
% |
(1) |
The effective tax rate, defined as income tax expense as a
percentage of income before income taxes, used to calculate the tax
on interest expense for 2021 was 22.8% (2020 - 21.6%). |
(2) |
This Non-GAAP measure does not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies. See the supplementary
schedule entitled Non-GAAP Measures – Adjusted performance measures
for an explanation of this non-GAAP measure. |
(3) |
Relates to amortization of bridge financing and other fees
resulting from the KCS transaction, recorded in Interest expense
within the Consolidated Statements of Income. |
(4) |
The adjusted effective tax rate is a Non-GAAP measure, defined as
Income tax expense, net of tax adjustments as presented in Adjusted
performance measures as a percentage of Income before taxes, net of
pre-tax adjustments as presented in Adjusted performance measures.
This measure does not have any standardized meaning prescribed by
GAAP and therefore, may not be comparable to a similar measure
presented by other companies. The adjusted effective tax rate used
to calculate the adjusted tax on interest expense less amortization
of bridge financing and other fees for 2021 was 24.0% (2020 -
24.8%). |
|
|
Consolidated Statements of
Income – unaudited
|
Three months ended December 31 |
Year ended December 31 |
In millions, except per share data |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Revenues |
$ |
3,753 |
|
$ |
3,656 |
|
$ |
14,477 |
|
$ |
13,819 |
|
Operating
expenses |
|
|
|
|
Labor and fringe benefits |
|
674 |
|
|
755 |
|
|
2,879 |
|
|
2,723 |
|
Purchased services and
material |
|
504 |
|
|
565 |
|
|
2,082 |
|
|
2,152 |
|
Fuel |
|
419 |
|
|
303 |
|
|
1,513 |
|
|
1,152 |
|
Depreciation and
amortization |
|
383 |
|
|
402 |
|
|
1,598 |
|
|
1,589 |
|
Equipment rents |
|
82 |
|
|
97 |
|
|
336 |
|
|
432 |
|
Casualty and other |
|
125 |
|
|
123 |
|
|
506 |
|
|
508 |
|
Loss (recovery) on assets held
for sale (Note 4) |
|
— |
|
|
— |
|
|
(137 |
) |
|
486 |
|
Transaction-related costs (Note 3) |
|
— |
|
|
— |
|
|
84 |
|
|
— |
|
Total
operating expenses |
|
2,187 |
|
|
2,245 |
|
|
8,861 |
|
|
9,042 |
|
Operating income |
|
1,566 |
|
|
1,411 |
|
|
5,616 |
|
|
4,777 |
|
Interest expense |
|
(125 |
) |
|
(134 |
) |
|
(610 |
) |
|
(554 |
) |
Other components of net
periodic benefit income |
|
110 |
|
|
78 |
|
|
398 |
|
|
315 |
|
Merger termination fee (Note
3) |
|
— |
|
|
— |
|
|
886 |
|
|
— |
|
Other
income |
|
21 |
|
|
— |
|
|
43 |
|
|
6 |
|
Income before income
taxes |
|
1,572 |
|
|
1,355 |
|
|
6,333 |
|
|
4,544 |
|
Income
tax expense |
|
(373 |
) |
|
(334 |
) |
|
(1,441 |
) |
|
(982 |
) |
Net income |
$ |
1,199 |
|
$ |
1,021 |
|
$ |
4,892 |
|
$ |
3,562 |
|
Earnings per
share |
|
|
|
|
Basic |
$ |
1.70 |
|
$ |
1.44 |
|
$ |
6.90 |
|
$ |
5.01 |
|
Diluted |
$ |
1.69 |
|
$ |
1.43 |
|
$ |
6.89 |
|
$ |
5.00 |
|
Weighted-average
number of shares |
|
|
|
|
Basic |
|
705.3 |
|
|
711.2 |
|
|
708.5 |
|
|
711.3 |
|
Diluted |
|
707.4 |
|
|
713.2 |
|
|
710.3 |
|
|
713.0 |
|
Dividends declared per share |
$ |
0.615 |
|
$ |
0.575 |
|
$ |
2.460 |
|
$ |
2.300 |
|
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Statements of Comprehensive
Income – unaudited
|
Three months ended December 31 |
Year endedDecember 31 |
In millions |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Net income |
$ |
1,199 |
|
$ |
1,021 |
|
$ |
4,892 |
|
$ |
3,562 |
|
Other comprehensive
income (loss) |
|
|
|
|
Net loss on foreign currency
translation |
|
(18 |
) |
|
(228 |
) |
|
(52 |
) |
|
(82 |
) |
Net
change in pension and other postretirement benefit plans |
|
1,858 |
|
|
(20 |
) |
|
2,075 |
|
|
160 |
|
Other comprehensive income
(loss) before income taxes |
|
1,840 |
|
|
(248 |
) |
|
2,023 |
|
|
78 |
|
Income
tax expense |
|
(489 |
) |
|
(44 |
) |
|
(546 |
) |
|
(67 |
) |
Other
comprehensive income (loss) |
|
1,351 |
|
|
(292 |
) |
|
1,477 |
|
|
11 |
|
Comprehensive income |
$ |
2,550 |
|
$ |
729 |
|
$ |
6,369 |
|
$ |
3,573 |
|
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Balance
Sheets – unaudited
|
December 31 |
|
December 31 |
|
In millions |
|
2021 |
|
|
2020 |
|
Assets |
|
|
Current
assets |
|
|
Cash and cash equivalents |
$ |
838 |
|
$ |
569 |
|
Restricted cash and cash
equivalents |
|
503 |
|
|
531 |
|
Accounts receivable |
|
1,074 |
|
|
1,054 |
|
Material and supplies |
|
589 |
|
|
583 |
|
Other
current assets (Note 4) |
|
422 |
|
|
365 |
|
Total current assets |
|
3,426 |
|
|
3,102 |
|
Properties |
|
41,178 |
|
|
40,069 |
|
Operating lease right-of-use
assets |
|
445 |
|
|
435 |
|
Pension asset |
|
3,050 |
|
|
777 |
|
Intangible assets, goodwill
and other |
|
439 |
|
|
421 |
|
Total assets |
$ |
48,538 |
|
$ |
44,804 |
|
Liabilities and
shareholders' equity |
|
|
Current
liabilities |
|
|
Accounts payable and
other |
$ |
2,612 |
|
$ |
2,364 |
|
Current
portion of long-term debt |
|
508 |
|
|
910 |
|
Total current liabilities |
|
3,120 |
|
|
3,274 |
|
Deferred income taxes |
|
9,303 |
|
|
8,271 |
|
Other liabilities and deferred
credits |
|
427 |
|
|
534 |
|
Pension and other
postretirement benefits |
|
645 |
|
|
767 |
|
Long-term debt |
|
11,977 |
|
|
11,996 |
|
Operating lease
liabilities |
|
322 |
|
|
311 |
|
Shareholders'
equity |
|
|
Common shares |
|
3,704 |
|
|
3,698 |
|
Common shares in Share
Trusts |
|
(103 |
) |
|
(115 |
) |
Additional paid-in
capital |
|
397 |
|
|
379 |
|
Accumulated other
comprehensive loss |
|
(1,995 |
) |
|
(3,472 |
) |
Retained earnings |
|
20,741 |
|
|
19,161 |
|
Total shareholders'
equity |
|
22,744 |
|
|
19,651 |
|
Total liabilities and shareholders' equity |
$ |
48,538 |
|
$ |
44,804 |
|
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Statements of Changes in Shareholders'
Equity – unaudited
|
Number ofcommon shares |
|
Commonshares |
|
|
Commonsharesin
ShareTrusts |
|
|
Additionalpaid-incapital |
|
|
Accumulatedothercomprehensiveloss |
|
|
Retainedearnings |
|
|
Totalshareholders' equity |
|
In
millions |
Outstanding |
|
ShareTrusts |
|
Balance at September 30, 2021 |
707.3 |
|
1.1 |
|
$ |
3,727 |
|
$ |
(104 |
) |
$ |
381 |
|
$ |
(3,346 |
) |
$ |
21,002 |
|
$ |
21,660 |
|
Net income |
|
|
|
|
|
|
|
1,199 |
|
|
1,199 |
|
Stock options exercised |
0.2 |
|
|
|
12 |
|
|
|
(1 |
) |
|
|
|
11 |
|
Settlement of equity settled
awards |
0.1 |
|
(0.1 |
) |
|
|
6 |
|
|
(9 |
) |
|
|
(3 |
) |
|
(6 |
) |
Stock-based compensation
expense and other |
|
|
|
|
|
26 |
|
|
|
— |
|
|
26 |
|
Repurchase of common
shares |
(6.6 |
) |
|
|
(35 |
) |
|
|
|
|
(1,024 |
) |
|
(1,059 |
) |
Share purchases by Share
Trusts |
(0.1 |
) |
0.1 |
|
|
|
(5 |
) |
|
|
|
|
(5 |
) |
Other comprehensive
income |
|
|
|
|
|
|
1,351 |
|
|
|
1,351 |
|
Dividends ($0.615 per share) |
|
|
|
|
|
|
|
(433 |
) |
|
(433 |
) |
Balance at December 31, 2021 |
700.9 |
|
1.1 |
|
$ |
3,704 |
|
$ |
(103 |
) |
$ |
397 |
|
$ |
(1,995 |
) |
$ |
20,741 |
|
$ |
22,744 |
|
|
Number ofcommon shares |
|
Commonshares |
|
|
Commonsharesin
ShareTrusts |
|
|
Additionalpaid-incapital |
|
|
Accumulatedothercomprehensiveloss |
|
|
Retainedearnings |
|
|
Totalshareholders' equity |
|
In
millions |
Outstanding |
|
ShareTrusts |
|
Balance at December 31, 2020 |
710.3 |
|
1.3 |
|
$ |
3,698 |
|
$ |
(115 |
) |
$ |
379 |
|
$ |
(3,472 |
) |
$ |
19,161 |
|
$ |
19,651 |
|
Net income |
|
|
|
|
|
|
|
4,892 |
|
|
4,892 |
|
Stock options exercised |
0.7 |
|
|
|
60 |
|
|
|
(8 |
) |
|
|
|
52 |
|
Settlement of equity settled
awards |
0.4 |
|
(0.4 |
) |
|
|
38 |
|
|
(60 |
) |
|
|
(42 |
) |
|
(64 |
) |
Stock-based compensation
expense and other |
|
|
|
|
|
86 |
|
|
|
(2 |
) |
|
84 |
|
Repurchase of common
shares |
(10.3 |
) |
|
|
(54 |
) |
|
|
|
|
(1,528 |
) |
|
(1,582 |
) |
Share purchases by Share
Trusts |
(0.2 |
) |
0.2 |
|
|
|
(26 |
) |
|
|
|
|
(26 |
) |
Other comprehensive
income |
|
|
|
|
|
|
1,477 |
|
|
|
1,477 |
|
Dividends ($2.460 per share) |
|
|
|
|
|
|
|
(1,740 |
) |
|
(1,740 |
) |
Balance at December 31, 2021 |
700.9 |
|
1.1 |
|
$ |
3,704 |
|
$ |
(103 |
) |
$ |
397 |
|
$ |
(1,995 |
) |
$ |
20,741 |
|
$ |
22,744 |
|
See accompanying notes to unaudited consolidated financial
statements.
|
Number ofcommon shares |
|
Commonshares |
|
Commonsharesin
ShareTrusts |
|
|
Additionalpaid-incapital |
|
|
Accumulatedothercomprehensiveloss |
|
|
Retainedearnings |
|
|
Totalshareholders' equity |
|
In millions |
Outstanding |
ShareTrusts |
Balance at September 30, 2020 |
710.2 |
1.3 |
$ |
3,692 |
$ |
(115 |
) |
$ |
367 |
|
$ |
(3,180 |
) |
$ |
18,549 |
|
$ |
19,313 |
|
Net income |
|
|
|
|
|
|
|
1,021 |
|
|
1,021 |
|
Stock options exercised |
0.1 |
|
|
6 |
|
|
(1 |
) |
|
|
|
5 |
|
Settlement of equity settled
awards |
— |
— |
|
|
6 |
|
|
(6 |
) |
|
|
— |
|
|
— |
|
Stock-based compensation
expense and other |
|
|
|
|
|
19 |
|
|
|
— |
|
|
19 |
|
Share purchases by Share
Trusts |
— |
— |
|
|
(6 |
) |
|
|
|
|
(6 |
) |
Other comprehensive loss |
|
|
|
|
|
|
(292 |
) |
|
|
(292 |
) |
Dividends ($0.575 per share) |
|
|
|
|
|
|
|
(409 |
) |
|
(409 |
) |
Balance
at December 31, 2020 |
710.3 |
1.3 |
$ |
3,698 |
$ |
(115 |
) |
$ |
379 |
|
$ |
(3,472 |
) |
$ |
19,161 |
|
$ |
19,651 |
|
|
Number ofcommon shares |
|
Commonshares |
|
|
Commonsharesin
ShareTrusts |
|
|
Additionalpaid-incapital |
|
|
Accumulatedothercomprehensiveloss |
|
|
Retainedearnings |
|
|
Totalshareholders' equity |
|
In
millions |
Outstanding |
ShareTrusts |
Balance at December 31, 2019 |
712.3 |
|
1.8 |
|
$ |
3,650 |
|
$ |
(163 |
) |
$ |
403 |
|
$ |
(3,483 |
) |
$ |
17,634 |
|
$ |
18,041 |
|
Net income |
|
|
|
|
|
|
|
3,562 |
|
|
3,562 |
|
Stock options exercised |
0.8 |
|
|
|
65 |
|
|
|
(9 |
) |
|
|
|
56 |
|
Settlement of equity settled
awards |
0.6 |
|
(0.6 |
) |
|
|
62 |
|
|
(82 |
) |
|
|
(37 |
) |
|
(57 |
) |
Stock-based compensation
expense and other |
|
|
|
|
|
67 |
|
|
|
(2 |
) |
|
65 |
|
Repurchase of common
shares |
(3.3 |
) |
|
|
(17 |
) |
|
|
|
|
(362 |
) |
|
(379 |
) |
Share purchases by Share
Trusts |
(0.1 |
) |
0.1 |
|
|
|
(14 |
) |
|
|
|
|
(14 |
) |
Other comprehensive
income |
|
|
|
|
|
|
11 |
|
|
|
11 |
|
Dividends ($2.300 per share) |
|
|
|
|
|
|
|
(1,634 |
) |
|
(1,634 |
) |
Balance
at December 31, 2020 |
710.3 |
|
1.3 |
|
$ |
3,698 |
|
$ |
(115 |
) |
$ |
379 |
|
$ |
(3,472 |
) |
$ |
19,161 |
|
$ |
19,651 |
|
See accompanying notes to unaudited consolidated financial
statements.
Consolidated Statements of Cash
Flows – unaudited
|
Three months ended December 31 |
Year endedDecember 31 |
In millions |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Operating activities |
|
|
|
|
Net income |
$ |
1,199 |
|
$ |
1,021 |
|
$ |
4,892 |
|
$ |
3,562 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
383 |
|
|
402 |
|
|
1,598 |
|
|
1,589 |
|
Pension income and funding |
|
(97 |
) |
|
(56 |
) |
|
(305 |
) |
|
(234 |
) |
Amortization of bridge financing and other fees (Note 3) |
|
— |
|
|
— |
|
|
97 |
|
|
— |
|
Deferred income taxes |
|
154 |
|
|
115 |
|
|
511 |
|
|
487 |
|
Loss (recovery) on assets held for sale (Note 4) |
|
— |
|
|
— |
|
|
(137 |
) |
|
486 |
|
Changes in operating assets
and liabilities: |
|
|
|
|
Accounts receivable |
|
135 |
|
|
68 |
|
|
(22 |
) |
|
158 |
|
Material and supplies |
|
30 |
|
|
20 |
|
|
(7 |
) |
|
20 |
|
Accounts payable and other |
|
281 |
|
|
451 |
|
|
141 |
|
|
(49 |
) |
Other current assets |
|
(24 |
) |
|
(25 |
) |
|
35 |
|
|
— |
|
Other operating activities,
net |
|
25 |
|
|
12 |
|
|
168 |
|
|
146 |
|
Net cash provided by operating activities |
|
2,086 |
|
|
2,008 |
|
|
6,971 |
|
|
6,165 |
|
Investing activities |
|
|
|
|
Property additions |
|
(914 |
) |
|
(855 |
) |
|
(2,891 |
) |
|
(2,863 |
) |
Advance for acquisition and
other transaction-related costs (Note 3) |
|
— |
|
|
— |
|
|
(908 |
) |
|
— |
|
Refund of advance for
acquisition (Note 3) |
|
— |
|
|
— |
|
|
886 |
|
|
— |
|
Acquisitions, net of cash
acquired (Note 3) |
|
— |
|
|
— |
|
|
— |
|
|
(8 |
) |
Other investing activities,
net |
|
54 |
|
|
(13 |
) |
|
40 |
|
|
(75 |
) |
Net cash used in investing activities |
|
(860 |
) |
|
(868 |
) |
|
(2,873 |
) |
|
(2,946 |
) |
Financing activities |
|
|
|
|
Issuance of debt |
|
— |
|
|
32 |
|
|
403 |
|
|
1,789 |
|
Repayment of debt |
|
(19 |
) |
|
(30 |
) |
|
(861 |
) |
|
(1,221 |
) |
Change in commercial paper,
net |
|
(1,014 |
) |
|
(434 |
) |
|
66 |
|
|
(1,273 |
) |
Bridge financing and other
fees (Note 3) |
|
— |
|
|
— |
|
|
(97 |
) |
|
— |
|
Settlement of foreign exchange
forward contracts on debt |
|
(9 |
) |
|
(13 |
) |
|
(8 |
) |
|
26 |
|
Issuance of common shares for
stock options exercised |
|
11 |
|
|
5 |
|
|
52 |
|
|
56 |
|
Withholding taxes remitted on
the net settlement of equity settled awards |
|
(5 |
) |
|
— |
|
|
(37 |
) |
|
(48 |
) |
Repurchase of common
shares |
|
(1,096 |
) |
|
— |
|
|
(1,582 |
) |
|
(379 |
) |
Purchase of common shares for
settlement of equity settled awards |
|
(2 |
) |
|
— |
|
|
(27 |
) |
|
(9 |
) |
Purchase of common shares by
Share Trusts |
|
(5 |
) |
|
(6 |
) |
|
(26 |
) |
|
(14 |
) |
Dividends paid |
|
(433 |
) |
|
(409 |
) |
|
(1,740 |
) |
|
(1,634 |
) |
Net cash used in financing
activities |
|
(2,572 |
) |
|
(855 |
) |
|
(3,857 |
) |
|
(2,707 |
) |
Effect of foreign exchange fluctuations on cash, cash equivalents,
restricted cash and restricted cash equivalents |
|
— |
|
|
(1 |
) |
|
— |
|
|
— |
|
Net increase (decrease) in cash, cash equivalents, restricted cash,
and restricted cash equivalents |
|
(1,346 |
) |
|
284 |
|
|
241 |
|
|
512 |
|
Cash,
cash equivalents, restricted cash, and restricted cash equivalents,
beginning of period |
|
2,687 |
|
|
816 |
|
|
1,100 |
|
|
588 |
|
Cash, cash
equivalents, restricted cash, and restricted cash equivalents, end
of period |
$ |
1,341 |
|
$ |
1,100 |
|
$ |
1,341 |
|
$ |
1,100 |
|
Cash and cash equivalents, end of period |
$ |
838 |
|
$ |
569 |
|
$ |
838 |
|
$ |
569 |
|
Restricted cash and cash
equivalents, end of period |
|
503 |
|
|
531 |
|
|
503 |
|
|
531 |
|
Cash, cash equivalents, restricted cash, and restricted
cash equivalents, end of period |
$ |
1,341 |
|
$ |
1,100 |
|
$ |
1,341 |
|
$ |
1,100 |
|
Supplemental cash flow information |
|
|
|
|
Interest paid |
$ |
(79 |
) |
$ |
(90 |
) |
$ |
(512 |
) |
$ |
(551 |
) |
Income
taxes refunded (paid) |
$ |
(177 |
) |
$ |
7 |
|
$ |
(759 |
) |
$ |
(353 |
) |
See accompanying notes to unaudited consolidated financial
statements.
Notes to Unaudited Consolidated Financial
Statements
1 – Basis of presentation
In these notes, the "Company" or "CN" refers to, Canadian
National Railway Company, together with 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 2020 Annual Consolidated Financial Statements 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 (FASB) came into effect in
2020, was amended in 2021 and has not been adopted by the
Company:
ASU 2020-04 Reference rate reform (Topic 848):
Facilitation of the effects of reference rate reform on financial
reporting and related amendments
London Interbank Offered Rate (LIBOR) is a benchmark interest
rate referenced in a variety of agreements that are used by all
types of entities. The administrator of LIBOR has ceased the
publication of one week and two month USD LIBOR rates on January 1,
2022 and intends to discontinue the remaining USD LIBOR rates
immediately following the LIBOR publication on June 30,
2023.
The ASU provides optional expedients and exceptions for applying
generally accepted accounting principles to transactions affected
by reference rate reform if certain criteria are met. These
transactions include contract modifications, hedging relationships,
and sale or transfer of debt securities classified as
held-to-maturity.
The ASU was effective starting on March 12, 2020, and is
available to be adopted on a prospective basis no later than
December 31, 2022, when the reference rate replacement activity is
expected to be completed. The Company currently has outstanding
loans referencing LIBOR, that were not impacted by the
administrator of LIBOR ceasing publication of one week and two
month USD LIBOR rates, totaling US$572 million that would be
affected by the provisions of this ASU. The Company also has a
revolving credit facility and an accounts receivable securitization
program that reference LIBOR. The Company had no outstanding
borrowing under these credit facilities as at December 31, 2021.
The Company has fallback language to allow for the succession of a
clearly defined alternative reference rate within the contracts
that reference LIBOR. The Company is evaluating the effects that
the adoption of the ASU will have on its Consolidated Financial
Statements and related disclosures, and whether it will elect to
apply any of the optional expedients and exceptions provided in the
ASU.
Other recently issued ASUs required to be applied on or after
December 31, 2021 have been evaluated by the Company and are not
expected to have a significant impact on the Company's Consolidated
Financial Statements.
3 – Acquisitions
Terminated CN KCS merger agreement
On September 15, 2021, Kansas City Southern (“KCS”) notified CN
that it terminated the previously announced May 21, 2021 definitive
merger agreement (the “CN Merger Agreement") under which CN would
have acquired KCS for an implied total transaction value of US$33.6
billion, including the assumption of US$3.8 billion of debt.
On August 31, 2021, the Surface Transportation Board ("STB")
rejected the joint motion by CN and KCS to approve a proposed
voting trust agreement. On September 15, 2021, KCS and its Board of
Directors announced that the revised acquisition proposal of
September 12, 2021 from Canadian Pacific Railway Limited (“CP”)
constituted a "Company Superior Proposal" as defined in the CN
Merger Agreement. Consequently, KCS entered into a waiver letter
agreement with CN under which KCS agreed to terminate the CN Merger
Agreement in order to enter into a merger agreement with CP. As a
result, CN received from KCS a merger termination fee of US$700
million ($886 million), recorded in Merger termination fee within
the Company’s Consolidated Statements of Income and reflected in
Operating activities within the Consolidated Statements of Cash
Flows. In addition, KCS also refunded Brooklyn US Holdings, Inc.
("Holdco"), a wholly owned subsidiary of the Company, US$700
million ($886 million) that CN had previously paid as an advance to
KCS of US$700 million ($845 million) in connection with KCS’s
payment of the termination fee to CP under KCS’s original merger
agreement with CP that was terminated on May 21, 2021. The refund
received in the third quarter was recorded in Transaction-related
costs within the Consolidated Statements of Income and reflected in
Investing activities within the Consolidated Statements of Cash
flows. The US$700 million ($845 million) advance had been recorded
in Advance to KCS and other transaction costs within the
Consolidated Balance Sheets in the second quarter of 2021 and has
been expensed to Transaction-related costs within the Consolidated
Statements of Income in the third quarter. This advance, along with
$63 million of transaction-related costs paid in the second
quarter, have been reflected in Investing activities within the
Consolidated Statements of Cash flows.
The Company incurred $84 million of transaction-related costs
for the year ended December 31, 2021 recorded in
Transaction-related costs within the Consolidated Statements of
Income. This included $125 million of transaction-related costs,
consisting of a $76 million expense for costs previously
capitalized to Advance to KCS and other transaction costs within
the Consolidated Balance Sheets in the second quarter of 2021 in
accordance with the expected application of equity method
accounting and $49 million of additional transaction-related costs
incurred in the third quarter of 2021; partially offset by $41
million of income generated as a result of the applicable foreign
exchange rates prevailing at the time of payment of the US dollar
denominated advance to KCS and receipt of the related refund.
The Company also paid $97 million of bridge financing and other
fees which were recorded in Interest expense within the
Consolidated Statements of Income for the year ended December 31,
2021.
For the year ended December 31, 2021, after accounting for all
direct and incremental expenses as well as income generated from
the merger termination fee, CN recorded additional income of $705
million ($616 million after-tax), as a result of its strategic
decision to bid for KCS.
4 – Assets held for sale
In the second quarter of 2020, the Company committed to a plan
and was actively marketing for sale for on-going rail operations,
certain non-core lines in Wisconsin, Michigan and Ontario
representing approximately 850 miles and has met the criteria for
classification of the related assets as assets held for sale.
Accordingly, a $486 million loss ($363 million after-tax) was
recorded to adjust the carrying amount of these track and roadway
assets to their estimated net selling price.
On March 31, 2021, CN entered into an agreement with a short
line operator, for the sale of the non-core lines plus an
additional 50 miles of track and roadway assets not originally
included within assets held for sale, subject to various conditions
including regulatory authorization by the STB. The carrying amount
of assets held for sale was adjusted in the first quarter of 2021
to $260 million ($90 million as at December 31, 2020), to reflect
the contractual selling price net of estimated transaction costs
and the additional track and roadway assets included as part of the
agreement. The increase of $170 million included a $137 million
recovery of the loss ($102 million after-tax) on the non-core lines
and $33 million for the additional track and roadway assets.
The carrying amount of assets held for sale was included in Other
current assets in the Consolidated Balance Sheets. As at December
31, 2021, the criteria for the classification of assets held for
sale continued to be met and there was no change to the carrying
amount of assets held for sale.
In the fourth quarter of 2021, the STB approved the Company's
agreement with the short line operator without condition and the
transaction is expected to close on January 28, 2022 and January
31, 2022 for the U.S. and Canadian assets, respectively.
5 – Subsequent events
Normal course issuer bid (NCIB)
On January 25, 2022, the Board of Directors of the Company
approved a new NCIB, which allows for the repurchase of up to 42.0
million common shares between February 1, 2022 and
January 31, 2023.
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