CN (TSX: CNR) (NYSE: CNI) today reported its financial and
operating results for the fourth quarter and year ended December
31, 2023. For the fourth quarter, the Company delivered diluted
earnings per share (EPS) of C$3.29, an increase of 57% and adjusted
diluted EPS of C$2.02, a decrease of 4%. (1) Operating ratio
for the fourth quarter increased by 1.4-points to 59.3%. For 2023,
the Company reported diluted EPS growth of 15%, while adjusted
diluted EPS decreased by 2%. (1) Operating ratio for 2023
increased by 0.8-points, or 0.9-points on an adjusted basis. (1)
“Through 2023, our team of dedicated railroaders
leveraged our scheduled operating model to deliver exceptional
service for our customers and remained resilient in the face of
numerous external challenges. Looking forward, we are optimistic as
CN specific growth initiatives are producing volumes. While
economic uncertainty persists, we have the momentum to deliver
sustainable profitable growth in 2024."
—Tracy Robinson, President and Chief
Executive Officer, CN
Financial results highlights
Fourth-quarter 2023 compared to fourth-quarter
2022
- Revenues of C$4,471 million, a
decrease of C$71 million or 2%.
- Operating income of C$1,818
million, a decrease of C$94 million, or 5%.
- Operating ratio, defined as
operating expenses as a percentage of revenues, of 59.3%, an
increase of 1.4-points.
- Net income of C$2,130 million, an
increase of C$710 million, or 50% and adjusted net income of
C$1,305 million, a decrease of C$115 million, or 8%. (1)
- Diluted EPS of C$3.29, an increase
of 57% and adjusted diluted EPS of C$2.02, a decrease of
4%. (1)
Full-year 2023 compared to full-year
2022
- Revenues of C$16,828 million, a
decrease of C$279 million or 2%.
- Operating income of C$6,597
million, a decrease of C$243 million, or 4%.
- Operating ratio of 60.8%, an
increase of 0.8 points, or an increase of 0.9- points on an
adjusted basis. (1)
- Net income of C$5,625 million, an
increase of C$507 million, or 10% and adjusted net income of
C$4,800 million, a decrease of C$334 million, or 7%. (1)
- Diluted EPS of C$8.53, an increase
of 15% and adjusted diluted EPS of C$7.28, a decrease of 2%.
(1)
- The Company generated free cash
flow of C$3,887 million, a 9% decrease. (1)
- Return on invested capital (ROIC)
of 16.8%, an increase of 1.0-point and adjusted ROIC of 14.5%, a
decrease of 1.4-points. (1)
Operating
performanceFourth-quarter 2023 compared to
fourth-quarter 2022 Operating performance improved across
most measures in the fourth quarter of 2023 when compared to the
same period in 2022.
- Injury frequency rate at a record
low of 0.79 (per 200,000 person hours), an improvement of 14%.
(3)
- Accident rate of 1.51 (per million
train miles), an improvement of 29%. (3)
- Fuel efficiency of 0.874 (US
gallons of locomotive fuel consumed per 1,000 gross ton miles
(GTMs)), an improvement of 1%.
- Through dwell of 6.9 (entire
railroad, hours), an improvement of 4%.
- Car velocity of 215 (car miles per
day), an improvement of 4%.
- Through network train speed (mph)
of 19.6 remained flat.
- Train length of 7,951 (in feet), an
increase of 1%.
- Revenue ton miles (RTMs) of 61,136
(millions), an increase of 2%.
Full-year 2023 compared to full-year
2022The Company’s continued focus on scheduled railroading
in 2023, helped by more favorable winter operating conditions
partly offset by operational disruptions related to Canadian
wildfires and the Canadian West Coast dock workers strike, resulted
in improvements in car velocity, train speed and through dwell when
compared to 2022.
- Injury frequency rate at a record
low of 0.96 (per 200,000 person hours), an improvement of 13%.
(3)
- Accident rate of 1.74 (per million
train miles), an improvement of 17%. (3)
- Through dwell of 7.0 (entire
railroad, hours), an improvement of 8%.
- Car velocity of 213 (car miles per
day), an improvement of 9%.
- Through network train speed of 19.8
(mph), an improvement of 5%.
- Fuel efficiency of 0.874 (US
gallons of locomotive fuel consumed per 1,000 GTMs), less efficient
by 1%.
- Train length of 7,891 (in feet), a
decrease of 3%.
- Revenue ton miles (RTMs) of 232,614
(millions), a decrease of 1%.
2024 outlook and shareholder
distributions (2)In 2024, CN expects to deliver diluted
adjusted EPS growth of approximately 10% and expects to invest
approximately C$3.5 billion in its capital program, net of amounts
reimbursed by customers. The Company also expects return on
invested capital (ROIC) to be within the targeted range of
15%-17%.
CN reiterates its longer-term financial
perspective and continues to target compounded annual diluted EPS
growth in the range of 10%-15% over the 2024-2026 period driven by
growing volumes more than the economy, pricing above rail inflation
and incrementally improving efficiency, all of which assumes a
supportive economy.(2)
The Company’s Board of Directors approved a 7%
increase to CN’s 2024 quarterly cash dividend, effective for the
first quarter of 2024. This is the 28th 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 32 million common shares, starting on February 1,
2024, and ending no later than January 31, 2025.
Fourth-quarter 2023 revenues, traffic
volumes and expenses Revenues for the quarter decreased by
2% to C$4,471 million, when compared to the same period in 2022.
The decrease was mainly due to lower shipments of intermodal and
grain as well as lower container storage fees and lower fuel
surcharge revenues as a result of lower fuel prices; partly offset
by freight rate increases and higher shipments of potash, natural
gas liquids and refined petroleum products.
Operating expenses for the quarter increased by
1% to C$2,653 million, when compared to the same period in 2022.
The increase was mainly due to higher Labor and fringe benefits
expense mainly driven by general wage increases and higher average
headcount and higher personal injury and legal claim provisions;
partly offset by lower fuel prices.
Full-year 2023 revenues, traffic volumes
and expenses Revenues for 2023 decreased by 2% to C$16,828
million, when compared to 2022. The decrease in revenues was mainly
attributable to lower shipments of intermodal, crude oil, U.S.
grain and forest products as well as lower container storage fees
and lower fuel surcharge revenues as a result of lower fuel prices;
partly offset by freight rate increases, higher Canadian grain
export shipments and higher shipments of potash and the positive
translation impact of a weaker Canadian dollar.
Operating expenses were C$10,231 million.
Operating expenses remained flat mainly due to lower fuel prices;
offset by the negative translation impact of a weaker Canadian
dollar and higher labor and fringe benefits expense mainly driven
by general wage increases and higher average headcount.
(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, including adjusted net income, adjusted
diluted earnings per share (EPS), adjusted operating income and
adjusted operating ratio (referred to as adjusted performance
measures), free cash flow, return on invested capital (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 and
full-year adjusted ROIC outlook (2) exclude certain adjustments,
which are expected to be comparable to adjustments made in prior
years. However, management cannot individually quantify on a
forward-looking basis the impact of these adjustments on its
adjusted diluted EPS or its adjusted ROIC 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 or its adjusted ROIC 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.
2024 key assumptionsCN has made
a number of economic and market assumptions in preparing its 2024
outlook. The Company assumes slightly positive North American
industrial production in 2024. For the 2023/2024 crop year, the
grain crop in Canada was below its three-year average (also below
when excluding the significantly lower 2021/2022 crop year) and the
U.S. grain crop was above its three-year average. The Company
assumes that the 2024/2025 grain crop in Canada will be in line
with its three-year average (excluding the significantly lower
2021/2022 crop year) and the U.S. grain crop will also be in line
with its three-year average. CN assumes RTM growth in mid-single
digit range. CN assumes continued pricing above rail inflation upon
contract renewals. CN also assumes that in 2024, the value of the
Canadian dollar in U.S. currency will be approximately $0.75, and
assumes that in 2024 the average price of crude oil (West Texas
Intermediate) will be approximately in the US$70 - US$80 range per
barrel.
2024-2026 key assumptionsCN has
made a number of economic and market assumptions in preparing its
three-year financial perspective. CN assumes North American
industrial production growth of at least two percent CAGR for
2024-2026. CN assumes continued pricing above rail inflation. CN
assumes that the value of the Canadian dollar in U.S. currency will
be approximately $0.75 and that the average price of crude oil
(West Texas Intermediate) will be approximately US$80 per barrel
during this period.
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, general economic and business conditions, including factors
impacting global supply chains such as pandemics and geopolitical
conflicts and tensions; 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 and other types of
claims and litigation; risks and liabilities arising from
derailments; timing and completion of capital programs; the
availability of and cost competitiveness of renewable fuels and the
development of new locomotive propulsion technology; reputational
risks; supplier concentration; pension funding requirements and
volatility; and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should also be made to Management’s Discussion
and Analysis (MD&A) 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 relating to CN.
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.
Information contained on, or accessible through, our website is not
incorporated by reference into this news release.
(3) Based on Federal Railroad
Administration (FRA) reporting criteria.
This earnings news release is available on the
Company's website at www.cn.ca/financial-results and on SEDAR+
at www.sedarplus.ca 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. CN's network connects Canada’s Eastern and Western
coasts with the U.S. South through an 18,800 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 |
Stacy Alderson |
Director |
Assistant Vice-President |
Public Affairs and 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 |
|
2023 |
2022 |
2023 |
2022 |
Financial measures |
|
|
|
|
Key financial
performance indicators (1) |
|
|
|
|
Total revenues ($
millions) |
4,471 |
4,542 |
16,828 |
17,107 |
Freight revenues ($
millions) |
4,303 |
4,400 |
16,236 |
16,569 |
Operating income ($
millions) |
1,818 |
1,912 |
6,597 |
6,840 |
Adjusted operating income ($
millions) (2)(3) |
1,818 |
1,912 |
6,597 |
6,862 |
Net income ($ millions) |
2,130 |
1,420 |
5,625 |
5,118 |
Adjusted net income ($
millions) (2)(3) |
1,305 |
1,420 |
4,800 |
5,134 |
Diluted earnings per share
($) |
3.29 |
2.10 |
8.53 |
7.44 |
Adjusted diluted earnings per
share ($) (2)(3) |
2.02 |
2.10 |
7.28 |
7.46 |
Free cash flow ($ millions)
(2)(4) |
1,613 |
1,335 |
3,887 |
4,259 |
Gross property additions ($
millions) |
947 |
927 |
3,217 |
2,757 |
Share repurchases ($
millions) |
1,113 |
1,065 |
4,551 |
4,709 |
Dividends per share ($) |
0.7900 |
0.7325 |
3.1600 |
2.9300 |
Financial ratio |
|
|
|
|
Operating ratio (%) (5) |
59.3 |
57.9 |
60.8 |
60.0 |
Adjusted operating ratio (%) (2)(3) |
59.3 |
57.9 |
60.8 |
59.9 |
Operational measures (6) |
|
|
|
|
Statistical operating
data |
|
|
|
|
Gross ton miles (GTMs)
(millions) |
118,687 |
116,317 |
452,043 |
463,710 |
Revenue ton miles (RTMs)
(millions) |
61,136 |
60,143 |
232,614 |
235,788 |
Carloads (thousands) |
1,388 |
1,408 |
5,436 |
5,697 |
Route miles (includes Canada
and the U.S., end of year) |
18,800 |
18,600 |
18,800 |
18,600 |
Employees (end of period) |
24,987 |
23,971 |
24,987 |
23,971 |
Employees (average for the period) |
25,102 |
23,998 |
24,920 |
23,396 |
Key operating measures |
|
|
|
|
Freight revenue per RTM
(cents) |
7.04 |
7.32 |
6.98 |
7.03 |
Freight revenue per carload
($) |
3,100 |
3,125 |
2,987 |
2,908 |
GTMs per average number of
employees (thousands) |
4,728 |
4,847 |
18,140 |
19,820 |
Operating expenses per GTM
(cents) |
2.24 |
2.26 |
2.26 |
2.21 |
Labor and fringe benefits
expense per GTM (cents) |
0.69 |
0.63 |
0.70 |
0.63 |
Diesel fuel consumed (US
gallons in millions) |
103.7 |
103.0 |
395.2 |
402.2 |
Average fuel price ($ per US
gallon) |
4.76 |
5.73 |
4.62 |
5.42 |
Fuel efficiency (US gallons of
locomotive fuel consumed per 1,000 GTMs) |
0.874 |
0.886 |
0.874 |
0.867 |
Train weight (tons) |
9,299 |
9,148 |
9,186 |
9,324 |
Train length (feet) |
7,951 |
7,870 |
7,891 |
8,160 |
Car velocity (car miles per
day) |
215 |
207 |
213 |
196 |
Through dwell (entire
railroad, hours) |
6.9 |
7.2 |
7.0 |
7.6 |
Through network train speed
(miles per hour) |
19.6 |
19.6 |
19.8 |
18.9 |
Locomotive utilization (trailing GTMs per total horsepower) |
193 |
196 |
191 |
197 |
Safety indicators (7) |
|
|
|
|
Injury frequency rate (per
200,000 person hours) |
0.79 |
0.92 |
0.96 |
1.10 |
Accident rate (per million train miles) |
1.51 |
2.12 |
1.74 |
2.10 |
(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 gross
ton miles, revenue ton miles, freight revenue per RTM, fuel
efficiency, train weight, train length, car velocity, through dwell
and through network train speed are included within the Company’s
Management’s Discussion and Analysis. Definitions of all other
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 |
|
2023 |
2022 |
% ChangeFav (Unfav) |
% Change atconstantcurrency (1)Fav (Unfav) |
2023 |
2022 |
% ChangeFav (Unfav) |
% Change atconstantcurrency (1)Fav (Unfav) |
Revenues ($ millions) (2) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
861 |
794 |
8 |
% |
8 |
% |
3,195 |
3,229 |
(1 |
%) |
(3 |
%) |
Metals and minerals |
507 |
500 |
1 |
% |
1 |
% |
2,048 |
1,911 |
7 |
% |
4 |
% |
Forest products |
486 |
517 |
(6 |
%) |
(6 |
%) |
1,943 |
2,006 |
(3 |
%) |
(6 |
%) |
Coal |
249 |
235 |
6 |
% |
6 |
% |
1,017 |
937 |
9 |
% |
7 |
% |
Grain and fertilizers |
994 |
954 |
4 |
% |
4 |
% |
3,265 |
2,783 |
17 |
% |
15 |
% |
Intermodal |
948 |
1,184 |
(20 |
%) |
(20 |
%) |
3,823 |
4,906 |
(22 |
%) |
(23 |
%) |
Automotive |
258 |
216 |
19 |
% |
19 |
% |
945 |
797 |
19 |
% |
15 |
% |
Total freight revenues |
4,303 |
4,400 |
(2 |
%) |
(2 |
%) |
16,236 |
16,569 |
(2 |
%) |
(4 |
%) |
Other
revenues |
168 |
142 |
18 |
% |
18 |
% |
592 |
538 |
10 |
% |
8 |
% |
Total revenues |
4,471 |
4,542 |
(2 |
%) |
(2 |
%) |
16,828 |
17,107 |
(2 |
%) |
(4 |
%) |
Revenue ton miles (RTMs) (millions) (3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
11,931 |
10,669 |
12 |
% |
12 |
% |
43,846 |
46,273 |
(5 |
%) |
(5 |
%) |
Metals and minerals |
6,986 |
6,753 |
3 |
% |
3 |
% |
28,444 |
27,606 |
3 |
% |
3 |
% |
Forest products |
5,612 |
5,937 |
(5 |
%) |
(5 |
%) |
23,141 |
25,020 |
(8 |
%) |
(8 |
%) |
Coal |
5,448 |
5,415 |
1 |
% |
1 |
% |
22,682 |
22,679 |
— |
% |
— |
% |
Grain and fertilizers |
18,341 |
17,611 |
4 |
% |
4 |
% |
63,479 |
55,359 |
15 |
% |
15 |
% |
Intermodal |
11,968 |
13,063 |
(8 |
%) |
(8 |
%) |
47,886 |
56,029 |
(15 |
%) |
(15 |
%) |
Automotive |
850 |
695 |
22 |
% |
22 |
% |
3,136 |
2,822 |
11 |
% |
11 |
% |
Total RTMs |
61,136 |
60,143 |
2 |
% |
2 |
% |
232,614 |
235,788 |
(1 |
%) |
(1 |
%) |
Freight revenue / RTM (cents) (2)(3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
7.22 |
7.44 |
(3 |
%) |
(3 |
%) |
7.29 |
6.98 |
4 |
% |
2 |
% |
Metals and minerals |
7.26 |
7.40 |
(2 |
%) |
(2 |
%) |
7.20 |
6.92 |
4 |
% |
1 |
% |
Forest products |
8.66 |
8.71 |
(1 |
%) |
(1 |
%) |
8.40 |
8.02 |
5 |
% |
2 |
% |
Coal |
4.57 |
4.34 |
5 |
% |
5 |
% |
4.48 |
4.13 |
8 |
% |
7 |
% |
Grain and fertilizers |
5.42 |
5.42 |
— |
% |
— |
% |
5.14 |
5.03 |
2 |
% |
— |
% |
Intermodal |
7.92 |
9.06 |
(13 |
%) |
(13 |
%) |
7.98 |
8.76 |
(9 |
%) |
(10 |
%) |
Automotive |
30.35 |
31.08 |
(2 |
%) |
(3 |
%) |
30.13 |
28.24 |
7 |
% |
4 |
% |
Total freight revenue / RTM |
7.04 |
7.32 |
(4 |
%) |
(4 |
%) |
6.98 |
7.03 |
(1 |
%) |
(3 |
%) |
Carloads (thousands) (3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
166 |
154 |
8 |
% |
8 |
% |
634 |
636 |
— |
% |
— |
% |
Metals and minerals |
253 |
247 |
2 |
% |
2 |
% |
1,002 |
956 |
5 |
% |
5 |
% |
Forest products |
75 |
80 |
(6 |
%) |
(6 |
%) |
309 |
330 |
(6 |
%) |
(6 |
%) |
Coal |
125 |
126 |
(1 |
%) |
(1 |
%) |
511 |
503 |
2 |
% |
2 |
% |
Grain and fertilizers |
187 |
192 |
(3 |
%) |
(3 |
%) |
670 |
614 |
9 |
% |
9 |
% |
Intermodal |
522 |
556 |
(6 |
%) |
(6 |
%) |
2,078 |
2,450 |
(15 |
%) |
(15 |
%) |
Automotive |
60 |
53 |
13 |
% |
13 |
% |
232 |
208 |
12 |
% |
12 |
% |
Total carloads |
1,388 |
1,408 |
(1 |
%) |
(1 |
%) |
5,436 |
5,697 |
(5 |
%) |
(5 |
%) |
Freight revenue / carload ($) (2)(3) |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
5,187 |
5,156 |
1 |
% |
— |
% |
5,039 |
5,077 |
(1 |
%) |
(3 |
%) |
Metals and minerals |
2,004 |
2,024 |
(1 |
%) |
(1 |
%) |
2,044 |
1,999 |
2 |
% |
(1 |
%) |
Forest products |
6,480 |
6,463 |
— |
% |
— |
% |
6,288 |
6,079 |
3 |
% |
1 |
% |
Coal |
1,992 |
1,865 |
7 |
% |
6 |
% |
1,990 |
1,863 |
7 |
% |
5 |
% |
Grain and fertilizers |
5,316 |
4,969 |
7 |
% |
7 |
% |
4,873 |
4,533 |
8 |
% |
6 |
% |
Intermodal |
1,816 |
2,129 |
(15 |
%) |
(15 |
%) |
1,840 |
2,002 |
(8 |
%) |
(9 |
%) |
Automotive |
4,300 |
4,075 |
6 |
% |
5 |
% |
4,073 |
3,832 |
6 |
% |
3 |
% |
Total freight revenue / carload |
3,100 |
3,125 |
(1 |
%) |
(1 |
%) |
2,987 |
2,908 |
3 |
% |
1 |
% |
(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 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 diluted 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:
i. 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;
ii. non-operating expense adjustments:
business acquisition-related financing fees, merger termination
income, gains and losses on disposal of property; and
iii. the effect of changes in tax laws
including rate enactments, and changes in tax positions affecting
prior years.
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.
For the three months and year ended December 31,
2023, the Company's adjusted net income was $1,305 million, or
$2.02 per diluted share, and $4,800 million, or $7.28 per diluted
share, respectively. The adjusted figures for the three months and
year ended December 31, 2023 exclude:
- a gain on disposal of property
within the Bala Subdivision located in Markham and Richmond Hill,
Ontario, Canada of $129 million, or $112 million after-tax ($0.17
per diluted share) recorded in the fourth quarter in Other income
within the Consolidated Statements of Income; and
- a net deferred income tax recovery
of $713 million ($1.10 per diluted share for the quarter and $1.08
per diluted share for the year) recorded in the fourth quarter
resulting from tax filings consistent with a ruling that the
Company received in a non-U.S. foreign jurisdiction in connection
with prior taxation years.
For the three months and year ended December 31,
2022, the Company's adjusted net income was $1,420 million, or
$2.10 per diluted share, and $5,134 million, or $7.46 per diluted
share, respectively. The adjusted figures for the year ended
December 31, 2022 exclude advisory fees related to shareholder
matters of $22 million, or $16 million after-tax ($0.02 per diluted
share) of which $12 million, or $9 million after-tax
($0.01 per diluted share) was recorded in the second quarter
and $10 million, or $7 million after-tax ($0.01 per diluted
share) was recorded in the first quarter in Other expense
within the Consolidated Statements of Income.
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, 2023 and 2022, to the
non-GAAP adjusted performance measures presented herein:
|
Three months ended December 31 |
Year ended December 31 |
In millions, except per share data |
|
2023 |
|
|
2022 |
|
2023 |
|
|
2022 |
|
Net income |
$ |
2,130 |
|
$ |
1,420 |
$ |
5,625 |
|
$ |
5,118 |
|
Adjustments: |
|
|
|
|
Operating expense
adjustments: |
|
|
|
|
Advisory fees related to shareholder matters |
|
— |
|
|
— |
|
— |
|
|
22 |
|
Non-operating expense
adjustments: |
|
|
|
|
Gain on disposal of property |
|
(129 |
) |
|
— |
|
(129 |
) |
|
— |
|
Tax adjustments: |
|
|
|
|
Tax effect of adjustments (1) |
|
17 |
|
|
— |
|
17 |
|
|
(6 |
) |
Tax-deductible goodwill and related impacts (2) |
|
(713 |
) |
|
— |
|
(713 |
) |
|
— |
|
Total adjustments |
|
(825 |
) |
|
— |
|
(825 |
) |
|
16 |
|
Adjusted net income |
$ |
1,305 |
|
$ |
1,420 |
$ |
4,800 |
|
$ |
5,134 |
|
Diluted earnings per share |
$ |
3.29 |
|
$ |
2.10 |
$ |
8.53 |
|
$ |
7.44 |
|
Impact
of adjustments, per share |
|
(1.27 |
) |
|
— |
|
(1.25 |
) |
|
0.02 |
|
Adjusted diluted earnings per share |
$ |
2.02 |
|
$ |
2.10 |
$ |
7.28 |
|
$ |
7.46 |
|
(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. |
(2) |
Relates to the impacts of
recognizing the $767 million deferred income tax recovery party
offset by a $54 million income tax expense on the foregone tax
deductions for the 2021 and 2022 taxation years. |
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, 2023 and
2022, to the non-GAAP adjusted performance measures presented
herein:
|
Three months ended December 31 |
Year ended December 31 |
In millions, except percentages |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Operating income |
$ |
1,818 |
|
$ |
1,912 |
|
$ |
6,597 |
|
$ |
6,840 |
|
Adjustment: |
|
|
|
|
Advisory fees related to shareholder matters |
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
Total adjustment |
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
Adjusted operating income |
$ |
1,818 |
|
$ |
1,912 |
|
$ |
6,597 |
|
$ |
6,862 |
|
|
|
|
|
|
Operating expenses |
$ |
2,653 |
|
$ |
2,630 |
|
$ |
10,231 |
|
$ |
10,267 |
|
Total
adjustment |
|
— |
|
|
— |
|
|
— |
|
|
(22 |
) |
Adjusted operating expenses |
$ |
2,653 |
|
$ |
2,630 |
|
$ |
10,231 |
|
$ |
10,245 |
|
|
|
|
|
|
Operating ratio |
|
59.3 |
% |
|
57.9 |
% |
|
60.8 |
% |
|
60.0 |
% |
Impact
of adjustment |
|
— |
% |
|
— |
% |
|
— |
% |
(0.1)% |
Adjusted operating ratio |
|
59.3 |
% |
|
57.9 |
% |
|
60.8 |
% |
|
59.9 |
% |
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 $1.362
and $1.350 per US$1.00 for the three months and year ended December
31, 2023, respectively, and $1.358 and $1.301 per US$1.00 for the
three months and year ended December 31, 2022, respectively. On a
constant currency basis, the Company’s Net income for the three
months and year ended December 31, 2023 would have been lower by $2
million ($nil per diluted share) and lower by $96 million ($0.15
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, 2023:
|
Three months ended December 31 |
Year ended December 31 |
In
millions, except per share data |
|
2023 |
|
Constant currency impact |
|
2022 |
|
% Change at constant currency Fav (Unfav) |
|
2023 |
|
Constant currency impact |
|
2022 |
|
% Change at constant currency Fav (Unfav) |
Revenues |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
$ |
861 |
|
$ |
(1 |
) |
$ |
794 |
|
8 |
% |
$ |
3,195 |
|
$ |
(71 |
) |
$ |
3,229 |
|
(3 |
%) |
Metals and minerals |
|
507 |
|
|
(1 |
) |
|
500 |
|
1 |
% |
|
2,048 |
|
|
(59 |
) |
|
1,911 |
|
4 |
% |
Forest products |
|
486 |
|
|
(2 |
) |
|
517 |
|
(6 |
%) |
|
1,943 |
|
|
(55 |
) |
|
2,006 |
|
(6 |
%) |
Coal |
|
249 |
|
|
(1 |
) |
|
235 |
|
6 |
% |
|
1,017 |
|
|
(14 |
) |
|
937 |
|
7 |
% |
Grain and fertilizers |
|
994 |
|
|
(2 |
) |
|
954 |
|
4 |
% |
|
3,265 |
|
|
(57 |
) |
|
2,783 |
|
15 |
% |
Intermodal |
|
948 |
|
|
— |
|
|
1,184 |
|
(20 |
%) |
|
3,823 |
|
|
(45 |
) |
|
4,906 |
|
(23 |
%) |
Automotive |
|
258 |
|
|
(1 |
) |
|
216 |
|
19 |
% |
|
945 |
|
|
(25 |
) |
|
797 |
|
15 |
% |
Total freight revenues |
|
4,303 |
|
|
(8 |
) |
|
4,400 |
|
(2 |
%) |
|
16,236 |
|
|
(326 |
) |
|
16,569 |
|
(4 |
%) |
Other
revenues |
|
168 |
|
|
— |
|
|
142 |
|
18 |
% |
|
592 |
|
|
(12 |
) |
|
538 |
|
8 |
% |
Total revenues |
|
4,471 |
|
|
(8 |
) |
|
4,542 |
|
(2 |
%) |
|
16,828 |
|
|
(338 |
) |
|
17,107 |
|
(4 |
%) |
Operating expenses |
|
|
|
|
|
|
|
|
Labor and fringe benefits |
|
818 |
|
|
(2 |
) |
|
731 |
|
(12 |
%) |
|
3,150 |
|
|
(41 |
) |
|
2,935 |
|
(6 |
%) |
Purchased services and material |
|
556 |
|
|
(1 |
) |
|
576 |
|
4 |
% |
|
2,254 |
|
|
(29 |
) |
|
2,191 |
|
(2 |
%) |
Fuel |
|
569 |
|
|
(1 |
) |
|
672 |
|
15 |
% |
|
2,097 |
|
|
(69 |
) |
|
2,518 |
|
19 |
% |
Depreciation and amortization |
|
463 |
|
|
— |
|
|
451 |
|
(3 |
%) |
|
1,817 |
|
|
(25 |
) |
|
1,729 |
|
(4 |
%) |
Equipment rents |
|
97 |
|
|
— |
|
|
84 |
|
(15 |
%) |
|
359 |
|
|
(10 |
) |
|
338 |
|
(3 |
%) |
Other |
|
150 |
|
|
— |
|
|
116 |
|
(29 |
%) |
|
554 |
|
|
(13 |
) |
|
556 |
|
3 |
% |
Total operating expenses |
|
2,653 |
|
|
(4 |
) |
|
2,630 |
|
(1 |
%) |
|
10,231 |
|
|
(187 |
) |
|
10,267 |
|
2 |
% |
Operating income |
|
1,818 |
|
|
(4 |
) |
|
1,912 |
|
(5 |
%) |
|
6,597 |
|
|
(151 |
) |
|
6,840 |
|
(6 |
%) |
Interest expense |
|
(199 |
) |
|
1 |
|
|
(153 |
) |
(29 |
%) |
|
(722 |
) |
|
23 |
|
|
(548 |
) |
(28 |
%) |
Other components of net
periodic benefit income |
|
119 |
|
|
— |
|
|
124 |
|
(4 |
%) |
|
479 |
|
|
— |
|
|
498 |
|
(4 |
%) |
Other
income (loss) |
|
134 |
|
|
— |
|
|
(2 |
) |
6800 |
% |
|
134 |
|
|
— |
|
|
(27 |
) |
596 |
% |
Income before income taxes |
|
1,872 |
|
|
(3 |
) |
|
1,881 |
|
(1 |
%) |
|
6,488 |
|
|
(128 |
) |
|
6,763 |
|
(6 |
%) |
Income
tax recovery (expense) |
|
258 |
|
|
1 |
|
|
(461 |
) |
156 |
% |
|
(863 |
) |
|
32 |
|
|
(1,645 |
) |
49 |
% |
Net income |
$ |
2,130 |
|
$ |
(2 |
) |
$ |
1,420 |
|
50 |
% |
$ |
5,625 |
|
$ |
(96 |
) |
$ |
5,118 |
|
8 |
% |
Diluted earnings per share |
$ |
3.29 |
|
$ |
— |
|
$ |
2.10 |
|
57 |
% |
$ |
8.53 |
|
$ |
(0.15 |
) |
$ |
7.44 |
|
13 |
% |
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 (i) business
acquisitions and combinations and (ii) merger transaction-related
payments, cash receipts and cash income taxes, 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, 2023
and 2022, to the non-GAAP free cash flow presented herein:
|
Three months ended December 31 |
Year ended December 31 |
In millions |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Net cash provided by operating activities |
$ |
2,413 |
|
$ |
2,272 |
|
$ |
6,965 |
|
$ |
6,667 |
|
Net
cash used in investing activities |
|
(1,190 |
) |
|
(937 |
) |
|
(3,468 |
) |
|
(2,510 |
) |
Net cash provided before financing activities |
|
1,223 |
|
|
1,335 |
|
|
3,497 |
|
|
4,157 |
|
Adjustments: |
|
|
|
|
Business acquisitions and combinations (1) |
|
390 |
|
|
— |
|
|
390 |
|
|
— |
|
Cash income taxes for merger transaction-related payments and cash
receipts (2) |
|
— |
|
|
— |
|
|
— |
|
|
102 |
|
Total adjustments |
|
390 |
|
|
— |
|
|
390 |
|
|
102 |
|
Free cash flow |
$ |
1,613 |
|
$ |
1,335 |
|
$ |
3,887 |
|
$ |
4,259 |
|
(1) |
Relates to the acquisition of the shares of Iowa Northern Railway
Company for $312 million and the business combination of Cape
Breton & Central Nova Scotia Railway for $78 million. See Note
3 – Business acquisitions and combinations to the Company's
unaudited Interim Consolidated Financial Statements for additional
information. |
(2) |
Relates to income tax payments of
$102 million for KCS merger transaction-related payments and cash
receipts. |
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 (loss), 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, 2023 and 2022, respectively, to
adjusted debt and adjusted EBITDA, 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, |
|
2023 |
|
|
2022 |
|
Debt |
|
$ |
18,473 |
|
$ |
15,429 |
|
Adjustments: |
|
|
|
Operating lease liabilities, including current portion (1) |
|
|
415 |
|
|
466 |
|
Pension plans in deficiency (2) |
|
|
362 |
|
|
353 |
|
Adjusted debt |
|
$ |
19,250 |
|
$ |
16,248 |
|
Net income |
|
$ |
5,625 |
|
$ |
5,118 |
|
Interest expense |
|
|
722 |
|
|
548 |
|
Income tax expense |
|
|
863 |
|
|
1,645 |
|
Depreciation and
amortization |
|
|
1,817 |
|
|
1,729 |
|
Operating lease cost (3) |
|
|
149 |
|
|
142 |
|
Other components of net
periodic benefit income |
|
|
(479 |
) |
|
(498 |
) |
Other loss (income) |
|
|
(134 |
) |
|
27 |
|
Adjustment: |
|
|
|
Advisory fees related to shareholder matters (4) |
|
|
— |
|
|
22 |
|
Adjusted EBITDA |
|
$ |
8,563 |
|
$ |
8,733 |
|
Adjusted debt-to-adjusted EBITDA multiple
(times) |
|
|
2.25 |
|
|
1.86 |
|
(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 advisory fees related
to shareholder matters recorded in Other expense 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, |
|
2023 |
|
|
2022 |
|
Net
income |
$ |
5,625 |
|
$ |
5,118 |
|
Interest
expense |
|
722 |
|
|
548 |
|
Tax on
interest expense (1) |
|
(177 |
) |
|
(133 |
) |
Return |
|
$ |
6,170 |
|
$ |
5,533 |
|
Average total
shareholders' equity |
$ |
20,751 |
|
$ |
22,064 |
|
Average long-term
debt |
|
15,253 |
|
|
13,175 |
|
Average current
portion of long-term debt |
|
1,699 |
|
|
783 |
|
Less:
Average cash, cash equivalents, restricted cash and restricted cash
equivalents |
|
(879 |
) |
|
(1,088 |
) |
Average invested capital |
$ |
36,824 |
|
$ |
34,934 |
|
ROIC |
|
|
16.8% |
|
|
15.8% |
|
Adjusted
net income (2) |
$ |
4,800 |
|
$ |
5,134 |
|
Interest
expense |
|
722 |
|
|
548 |
|
Tax on
interest expense (3) |
|
(177 |
) |
|
(133 |
) |
Adjusted
return |
$ |
5,345 |
|
$ |
5,549 |
|
Average
invested capital |
$ |
36,824 |
|
$ |
34,934 |
|
Adjusted ROIC |
|
14.5% |
|
|
15.9% |
|
(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 2023 was 24.5% (2022 - 24.3%). Due to the
significantly lower effective tax rate reported by the Company in
2023, tax on interest expense for 2023 was calculated using an
adjusted effective tax rate. |
(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) |
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 for 2023 was 24.5% (2022 -
24.3%). |
INTERIM CONSOLIDATED FINANCIAL
STATEMENTS - UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME –
UNAUDITED
|
Three months ended December 31 |
Year ended December 31 |
In millions, except per share data |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Revenues |
$ |
4,471 |
|
$ |
4,542 |
|
$ |
16,828 |
|
$ |
17,107 |
|
Operating expenses |
|
|
|
|
Labor and fringe benefits |
|
818 |
|
|
731 |
|
|
3,150 |
|
|
2,935 |
|
Purchased services and material |
|
556 |
|
|
576 |
|
|
2,254 |
|
|
2,191 |
|
Fuel |
|
569 |
|
|
672 |
|
|
2,097 |
|
|
2,518 |
|
Depreciation and amortization |
|
463 |
|
|
451 |
|
|
1,817 |
|
|
1,729 |
|
Equipment rents |
|
97 |
|
|
84 |
|
|
359 |
|
|
338 |
|
Other |
|
150 |
|
|
116 |
|
|
554 |
|
|
556 |
|
Total operating expenses |
|
2,653 |
|
|
2,630 |
|
|
10,231 |
|
|
10,267 |
|
Operating income |
|
1,818 |
|
|
1,912 |
|
|
6,597 |
|
|
6,840 |
|
Interest expense |
|
(199 |
) |
|
(153 |
) |
|
(722 |
) |
|
(548 |
) |
Other components of net
periodic benefit income |
|
119 |
|
|
124 |
|
|
479 |
|
|
498 |
|
Other
income (loss) (Note 4) |
|
134 |
|
|
(2 |
) |
|
134 |
|
|
(27 |
) |
Income before income taxes |
|
1,872 |
|
|
1,881 |
|
|
6,488 |
|
|
6,763 |
|
Income
tax recovery (expense) (Note 5) |
|
258 |
|
|
(461 |
) |
|
(863 |
) |
|
(1,645 |
) |
Net income |
$ |
2,130 |
|
$ |
1,420 |
|
$ |
5,625 |
|
$ |
5,118 |
|
Earnings per share |
|
|
|
|
Basic |
$ |
3.30 |
|
$ |
2.10 |
|
$ |
8.55 |
|
$ |
7.46 |
|
Diluted |
$ |
3.29 |
|
$ |
2.10 |
|
$ |
8.53 |
|
$ |
7.44 |
|
Weighted-average number of
shares |
|
|
|
|
Basic |
|
646.4 |
|
|
674.9 |
|
|
657.7 |
|
|
686.4 |
|
Diluted |
|
647.6 |
|
|
676.9 |
|
|
659.1 |
|
|
688.3 |
|
Dividends declared per share |
$ |
0.7900 |
|
$ |
0.7325 |
|
$ |
3.1600 |
|
$ |
2.9300 |
|
See accompanying Notes to Interim Consolidated
Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME –
UNAUDITED
|
Three months ended December 31 |
Year ended December 31 |
In millions |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Net income |
$ |
2,130 |
|
$ |
1,420 |
|
$ |
5,625 |
|
$ |
5,118 |
|
Other comprehensive income
(loss) |
|
|
|
|
Net gain (loss) on foreign currency translation |
|
(103 |
) |
|
(101 |
) |
|
(101 |
) |
|
366 |
|
Net change in pension and other postretirement benefit plans |
|
(332 |
) |
|
(399 |
) |
|
(334 |
) |
|
(250 |
) |
Derivative instruments |
|
19 |
|
|
— |
|
|
96 |
|
|
(2 |
) |
Other comprehensive
income (loss) before income taxes |
|
(416 |
) |
|
(500 |
) |
|
(339 |
) |
|
114 |
|
Income
tax recovery |
|
47 |
|
|
77 |
|
|
29 |
|
|
158 |
|
Other comprehensive income (loss) |
|
(369 |
) |
|
(423 |
) |
|
(310 |
) |
|
272 |
|
Comprehensive income |
$ |
1,761 |
|
$ |
997 |
|
$ |
5,315 |
|
$ |
5,390 |
|
See accompanying Notes to Interim Consolidated
Financial Statements.
CONSOLIDATED BALANCE SHEETS – UNAUDITED
|
|
December 31 |
|
December 31 |
|
In millions |
As at |
|
2023 |
|
|
2022 |
|
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
|
$ |
475 |
|
$ |
328 |
|
Restricted cash and cash equivalents |
|
|
449 |
|
|
506 |
|
Accounts receivable |
|
|
1,300 |
|
|
1,371 |
|
Material and supplies |
|
|
699 |
|
|
692 |
|
Other current assets |
|
|
166 |
|
|
320 |
|
Total current assets |
|
|
3,089 |
|
|
3,217 |
|
Properties |
|
|
44,617 |
|
|
43,537 |
|
Operating lease right-of-use
assets |
|
|
424 |
|
|
470 |
|
Pension asset |
|
|
3,140 |
|
|
3,033 |
|
Deferred income tax assets
(Note 5) |
|
|
682 |
|
|
— |
|
Intangible assets, goodwill and other |
|
|
714 |
|
|
405 |
|
Total assets |
|
$ |
52,666 |
|
$ |
50,662 |
|
|
|
|
|
Liabilities and
shareholders' equity |
|
|
|
Current liabilities |
|
|
|
Accounts payable and other |
|
$ |
2,695 |
|
$ |
2,785 |
|
Current portion of long-term debt |
|
|
2,340 |
|
|
1,057 |
|
Total current liabilities |
|
|
5,035 |
|
|
3,842 |
|
Deferred income tax
liabilities |
|
|
10,066 |
|
|
9,796 |
|
Other liabilities and deferred
credits |
|
|
522 |
|
|
441 |
|
Pension and other
postretirement benefits |
|
|
495 |
|
|
486 |
|
Long-term debt |
|
|
16,133 |
|
|
14,372 |
|
Operating lease liabilities |
|
|
298 |
|
|
341 |
|
Total liabilities |
|
|
32,549 |
|
|
29,278 |
|
Shareholders' equity |
|
|
|
Common shares |
|
|
3,512 |
|
|
3,613 |
|
Common shares in Share Trusts |
|
|
(144 |
) |
|
(170 |
) |
Additional paid-in capital |
|
|
373 |
|
|
381 |
|
Accumulated other comprehensive loss |
|
|
(2,279 |
) |
|
(1,969 |
) |
Retained earnings |
|
|
18,655 |
|
|
19,529 |
|
Total shareholders' equity |
|
|
20,117 |
|
|
21,384 |
|
Total liabilities and shareholders' equity |
|
$ |
52,666 |
|
$ |
50,662 |
|
See accompanying Notes to Interim Consolidated
Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY – UNAUDITED
|
Number ofcommon shares |
Common Shares |
Common shares in Share Trusts |
Additional paid-in capital |
Accumulated other comprehensive loss |
Retained earnings |
Total shareholders' equity |
In
millions |
Outstanding |
ShareTrusts |
Balance at September 30, 2023 |
649.8 |
|
1.1 |
|
$ |
3,533 |
|
$ |
(143 |
) |
$ |
375 |
|
$ |
(1,910 |
) |
$ |
18,116 |
|
$ |
19,971 |
|
Net income |
|
|
|
|
|
|
|
2,130 |
|
|
2,130 |
|
Stock options exercised |
0.2 |
|
|
|
18 |
|
|
|
(2 |
) |
|
|
|
16 |
|
Settlement of equity settled
awards |
0.1 |
|
(0.1 |
) |
|
|
6 |
|
|
(12 |
) |
|
|
(7 |
) |
|
(13 |
) |
Stock-based compensation and
other |
|
|
|
|
|
12 |
|
|
|
(1 |
) |
|
11 |
|
Repurchase of common
shares |
(7.3 |
) |
|
|
(39 |
) |
|
|
|
|
(1,074 |
) |
|
(1,113 |
) |
Share purchases by Share
Trusts |
(0.1 |
) |
0.1 |
|
|
|
(7 |
) |
|
|
|
|
(7 |
) |
Other comprehensive loss |
|
|
|
|
|
|
(369 |
) |
|
|
(369 |
) |
Dividends |
|
|
|
|
|
|
|
(509 |
) |
|
(509 |
) |
Balance at December 31, 2023 |
642.7 |
|
1.1 |
|
$ |
3,512 |
|
$ |
(144 |
) |
$ |
373 |
|
$ |
(2,279 |
) |
$ |
18,655 |
|
$ |
20,117 |
|
|
Number ofcommon shares |
Common Shares |
Common shares in Share Trusts |
Additional paid-in capital |
Accumulated other comprehensive loss |
Retained earnings |
Total shareholders' equity |
In
millions |
Outstanding |
ShareTrusts |
Balance at December 31, 2022 |
671.0 |
|
1.4 |
|
$ |
3,613 |
|
$ |
(170 |
) |
$ |
381 |
|
$ |
(1,969 |
) |
$ |
19,529 |
|
$ |
21,384 |
|
Net income |
|
|
|
|
|
|
|
5,625 |
|
|
5,625 |
|
Stock options exercised |
0.5 |
|
|
|
56 |
|
|
|
(7 |
) |
|
|
|
49 |
|
Settlement of equity settled
awards |
0.5 |
|
(0.5 |
) |
|
|
54 |
|
|
(77 |
) |
|
|
(32 |
) |
|
(55 |
) |
Stock-based compensation and
other |
|
|
|
|
|
76 |
|
|
|
(2 |
) |
|
74 |
|
Repurchase of common
shares |
(29.1 |
) |
|
|
(157 |
) |
|
|
|
|
(4,394 |
) |
|
(4,551 |
) |
Share purchases by Share
Trusts |
(0.2 |
) |
0.2 |
|
|
|
(28 |
) |
|
|
|
|
(28 |
) |
Other comprehensive loss |
|
|
|
|
|
|
(310 |
) |
|
|
(310 |
) |
Dividends |
|
|
|
|
|
|
|
(2,071 |
) |
|
(2,071 |
) |
Balance at December 31, 2023 |
642.7 |
|
1.1 |
|
$ |
3,512 |
|
$ |
(144 |
) |
$ |
373 |
|
$ |
(2,279 |
) |
$ |
18,655 |
|
$ |
20,117 |
|
See accompanying Notes to Interim Consolidated Financial
Statements.
|
Number ofcommon shares |
Common shares |
Common shares in Share Trusts |
Additional paid-in capital |
Accumulated other comprehensive loss |
Retained earnings |
Totals shareholders' equity |
In
millions |
Outstanding |
ShareTrusts |
Balance at September 30, 2022 |
677.9 |
|
0.9 |
|
$ |
3,625 |
|
$ |
(88 |
) |
$ |
378 |
|
$ |
(1,546 |
) |
$ |
19,631 |
|
$ |
22,000 |
|
Net income |
|
|
|
|
|
|
|
1,420 |
|
|
1,420 |
|
Stock options exercised |
0.2 |
|
|
|
23 |
|
|
|
(2 |
) |
|
|
|
21 |
|
Settlement of equity settled
awards |
0.1 |
|
(0.1 |
) |
|
|
5 |
|
|
(7 |
) |
|
|
1 |
|
|
(1 |
) |
Stock-based compensation and
other |
|
|
|
|
|
12 |
|
|
|
— |
|
|
12 |
|
Repurchase of common
shares |
(6.6 |
) |
|
|
(35 |
) |
|
|
|
|
(1,030 |
) |
|
(1,065 |
) |
Share purchases by Share
Trusts |
(0.6 |
) |
0.6 |
|
|
|
(87 |
) |
|
|
|
|
(87 |
) |
Other comprehensive loss |
|
|
|
|
|
|
(423 |
) |
|
|
(423 |
) |
Dividends |
|
|
|
|
|
|
|
(493 |
) |
|
(493 |
) |
Balance at December 31, 2022 |
671.0 |
|
1.4 |
|
$ |
3,613 |
|
$ |
(170 |
) |
$ |
381 |
|
$ |
(1,969 |
) |
$ |
19,529 |
|
$ |
21,384 |
|
|
Number ofcommon shares |
Common shares |
Common shares in Share Trusts |
Additional paid-in capital |
Accumulated other comprehensive loss |
Retained earnings |
Totals shareholders' equity |
In
millions |
Outstanding |
ShareTrusts |
Balance at December 31, 2021 |
700.9 |
|
1.1 |
|
$ |
3,704 |
|
$ |
(103 |
) |
$ |
397 |
|
$ |
(2,241 |
) |
$ |
20,987 |
|
$ |
22,744 |
|
Net income |
|
|
|
|
|
|
|
5,118 |
|
|
5,118 |
|
Stock options exercised |
0.6 |
|
|
|
70 |
|
|
|
(9 |
) |
|
|
|
61 |
|
Settlement of equity settled
awards |
0.4 |
|
(0.4 |
) |
|
|
38 |
|
|
(84 |
) |
|
|
(22 |
) |
|
(68 |
) |
Stock-based compensation and
other |
|
|
|
|
|
77 |
|
|
|
(2 |
) |
|
75 |
|
Repurchase of common
shares |
(30.2 |
) |
|
|
(161 |
) |
|
|
|
|
(4,548 |
) |
|
(4,709 |
) |
Share purchases by Share
Trusts |
(0.7 |
) |
0.7 |
|
|
|
(105 |
) |
|
|
|
|
(105 |
) |
Other comprehensive
income |
|
|
|
|
|
|
272 |
|
|
|
272 |
|
Dividends |
|
|
|
|
|
|
|
(2,004 |
) |
|
(2,004 |
) |
Balance at December 31, 2022 |
671.0 |
|
1.4 |
|
$ |
3,613 |
|
$ |
(170 |
) |
$ |
381 |
|
$ |
(1,969 |
) |
$ |
19,529 |
|
$ |
21,384 |
|
See accompanying Notes to Interim Consolidated
Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS –
UNAUDITED
|
Three months ended December 31 |
Year ended December 31 |
In millions |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Operating
activities |
|
|
|
|
Net income |
$ |
2,130 |
|
$ |
1,420 |
|
$ |
5,625 |
|
$ |
5,118 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
463 |
|
|
451 |
|
|
1,817 |
|
|
1,729 |
|
Pension income and funding |
|
(104 |
) |
|
(92 |
) |
|
(418 |
) |
|
(387 |
) |
Gain on disposal of property (Note 4) |
|
(129 |
) |
|
— |
|
|
(129 |
) |
|
— |
|
Deferred income taxes (Note 5) |
|
(591 |
) |
|
188 |
|
|
(288 |
) |
|
404 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
|
(18 |
) |
|
126 |
|
|
71 |
|
|
(290 |
) |
Material and supplies |
|
44 |
|
|
11 |
|
|
(18 |
) |
|
(82 |
) |
Accounts payable and other |
|
342 |
|
|
272 |
|
|
(191 |
) |
|
(9 |
) |
Other current assets |
|
70 |
|
|
(70 |
) |
|
85 |
|
|
(30 |
) |
Other operating activities, net |
|
206 |
|
|
(34 |
) |
|
411 |
|
|
214 |
|
Net cash provided by operating activities |
|
2,413 |
|
|
2,272 |
|
|
6,965 |
|
|
6,667 |
|
Investing
activities |
|
|
|
|
Property additions |
|
(934 |
) |
|
(920 |
) |
|
(3,187 |
) |
|
(2,750 |
) |
Business acquisitions and
combinations (Note 3) |
|
(390 |
) |
|
— |
|
|
(390 |
) |
|
— |
|
Proceeds from assets held for
sale |
|
— |
|
|
— |
|
|
— |
|
|
273 |
|
Proceeds from disposal of
property (Note 4) |
|
129 |
|
|
— |
|
|
129 |
|
|
— |
|
Other
investing activities, net |
|
5 |
|
|
(17 |
) |
|
(20 |
) |
|
(33 |
) |
Net cash used in investing activities |
|
(1,190 |
) |
|
(937 |
) |
|
(3,468 |
) |
|
(2,510 |
) |
Financing
activities |
|
|
|
|
Issuance of debt |
|
824 |
|
|
— |
|
|
2,554 |
|
|
1,899 |
|
Repayment of debt |
|
(12 |
) |
|
(344 |
) |
|
(250 |
) |
|
(383 |
) |
Change in commercial paper,
net |
|
(404 |
) |
|
602 |
|
|
908 |
|
|
563 |
|
Settlement of foreign exchange
forward contracts on debt |
|
17 |
|
|
18 |
|
|
38 |
|
|
79 |
|
Issuance of common shares for
stock options exercised |
|
16 |
|
|
21 |
|
|
49 |
|
|
61 |
|
Withholding taxes remitted on
the net settlement of equity settled awards |
|
(13 |
) |
|
— |
|
|
(51 |
) |
|
(44 |
) |
Repurchase of common
shares |
|
(1,152 |
) |
|
(1,122 |
) |
|
(4,551 |
) |
|
(4,709 |
) |
Purchase of common shares for
settlement of equity settled awards |
|
— |
|
|
(1 |
) |
|
(4 |
) |
|
(24 |
) |
Purchase of common shares by
Share Trusts |
|
(7 |
) |
|
(87 |
) |
|
(28 |
) |
|
(105 |
) |
Dividends paid |
|
(509 |
) |
|
(493 |
) |
|
(2,071 |
) |
|
(2,004 |
) |
Net cash used in financing activities |
|
(1,240 |
) |
|
(1,406 |
) |
|
(3,406 |
) |
|
(4,667 |
) |
Effect
of foreign exchange fluctuations on cash, cash equivalents,
restricted cash and restricted cash equivalents |
|
(1 |
) |
|
(1 |
) |
|
(1 |
) |
|
3 |
|
Net increase
(decrease) in cash, cash equivalents, restricted cash, and
restricted cash equivalents |
|
(18 |
) |
|
(72 |
) |
|
90 |
|
|
(507 |
) |
Cash, cash equivalents,
restricted cash, and restricted cash equivalents, beginning of
period |
|
942 |
|
|
906 |
|
|
834 |
|
|
1,341 |
|
Cash, cash equivalents, restricted cash, and restricted
cash equivalents, end of period |
$ |
924 |
|
$ |
834 |
|
$ |
924 |
|
$ |
834 |
|
Cash and cash equivalents, end
of period |
$ |
475 |
|
$ |
328 |
|
$ |
475 |
|
$ |
328 |
|
Restricted cash and cash equivalents, end of period |
|
449 |
|
|
506 |
|
|
449 |
|
|
506 |
|
Cash, cash equivalents, restricted cash, and restricted
cash equivalents, end of period |
$ |
924 |
|
$ |
834 |
|
$ |
924 |
|
$ |
834 |
|
Supplemental cash flow
information |
|
|
|
|
Interest paid |
$ |
(154 |
) |
$ |
(103 |
) |
$ |
(776 |
) |
$ |
(542 |
) |
Income taxes paid |
$ |
(210 |
) |
$ |
(334 |
) |
$ |
(1,197 |
) |
$ |
(1,288 |
) |
See accompanying Notes to Interim Consolidated Financial
Statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -
UNAUDITED
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 ("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 Interim Consolidated Financial Statements
have been prepared using accounting policies consistent with those
used in preparing CN's 2022 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 Updates (ASU) issued
by the Financial Accounting Standards Board (FASB) has an effective
date after December 31, 2023 and has not been adopted by the
Company:
ASU 2023-07 Segment reporting (Topic
280): Improvements to reportable segment disclosuresThe
ASU will improve financial disclosures about a public entity's
reportable segments and address requests from investors for
additional and more detailed information regarding reportable
segment expenses. The main amendments in the ASU require public
entities, including those that have a single reportable segment, to
disclose on an annual and interim basis the significant segment
expenses provided to the chief operating decision maker (CODM),
disclose the title/position of the CODM and how the segment
expenses information is used in the decision making process.
The ASU is effective for annual periods
beginning after December 15, 2023. Early adoption is permitted.
The adoption of the ASU will have an impact on
the Company’s Consolidated Financial Statements disclosures. The
Company will include the relevant disclosure within the 2024 Annual
Consolidated Financial Statements and 2025 Interim Financial
Statements.
ASU 2023-09 – Income Taxes (Topic 740):
Improvements to income tax disclosuresThe ASU amends the
rules on income tax disclosures by modifying or eliminating certain
existing income tax disclosure requirements in addition to
establishing new requirements. The amendments address investor
requests for more transparency about income taxes, including
jurisdictional information, by requiring consistent categories and
greater disaggregation of information. The ASU’s two primary
amendments relate to the rate reconciliation and income taxes paid
annual disclosures.
Reconciling items presented in the rate
reconciliation will be in dollar amounts and percentages, and will
be disaggregated into specified categories with certain reconciling
items further broken out by nature and/or jurisdiction using a 5%
threshold of domestic federal taxes. Income taxes paid will be
disaggregated between federal, provincial/territorial, and foreign
taxing jurisdictions using a 5% threshold of total income taxes
paid net of refunds received.
The ASU is effective for annual periods
beginning after December 15, 2024. Early adoption is permitted for
annual financial statements that have not yet been issued or made
available for issuance. The ASU should be applied prospectively.
Retrospective application is permitted.
The adoption of the ASU will have an impact on
the Company’s Consolidated Financial Statements disclosures. The
required disclosure changes will be reflected in the Company’s
Consolidated Financial Statements when the ASU is adopted.
The following Accounting Standards Updates (ASU)
issued by the Financial Accounting Standards Board (FASB) have been
adopted by the Company:
ASU 2020-04 and ASU 2022-06 Reference
rate reform (Topic 848): Facilitation of the effects of reference
rate reform on financial reporting and related amendments
On March 31, 2023, the Company amended the non-revolving credit
facility to transition to Secured Overnight Financing Rates (SOFR)
succeeding London Interbank Offered Rates (LIBOR). The Company was
eligible and has elected to use the optional expedient provided by
the ASU which allowed the amendment to be accounted for as a non
substantial modification of an existing debt. As a result, the
amendment did not have a significant impact to the Company's
Interim Consolidated Financial Statements and related
disclosures.
Additional information relating to the
facilitation of the effects of reference rate reform on financial
reporting and related amendments is provided in Note 3 – Recent
accounting pronouncements to the Company's 2022 Annual Consolidated
Financial Statements and the section entitled Recent accounting
pronouncements of the Company's 2022 Annual MD&A.
Other recently issued ASUs required to be
applied on or after December 31, 2023 have been evaluated by the
Company and are not expected to have a significant impact on the
Company's Consolidated Financial Statements.
3 – Business acquisitions and combinations
Iowa Northern Railway CompanyOn
December 6, 2023, the Company acquired the shares of the Iowa
Northern Railway Company (IANR), a Class III short-line railroad
that owns and leases approximately 175 route miles in northeast
Iowa that are connected to CN’s U.S. rail network. CN paid US$230
million ($312 million), including transaction costs to date. IANR
serves upper Midwest agricultural and industrial markets covering
many goods, including biofuels and grain. This transaction
represents a meaningful opportunity to support the growth of local
business by creating single-line service to North American
destinations, while preserving access to existing carrier
options.
The shares of IANR were deposited into an
independent voting trust while the U.S Surface Transportation Board
(STB) considers the Company's application to acquire control of
IANR. During the trust period, IANR will continue to be operated
under its current management and the Company cannot exercise
day-to-day control. As a result, the Company recorded its
investment in IANR at its acquisition cost under the equity method
of accounting. Subject to final approval by the STB, the Company
would obtain control of IANR and would account for the acquisition
as a business combination under the acquisition method of
accounting.
On the acquisition date of December 6,
2023, immediately prior to the acquisition, there was a basis
difference of $236 million between the consideration paid to
acquire IANR and the underlying carrying value of the net assets of
IANR. The basis difference related to depreciable properties and if
any, intangible assets with definite lives will be amortized over
the related assets' remaining useful lives. The remainder of the
basis difference, relating to land, intangible assets with
indefinite lives if any, and equity method goodwill, would not be
amortized and would be carried at cost subject to an assessment for
impairment. The estimated fair value of IANR’s underlying net
assets is preliminary based on information available to the Company
to date and subject to change over the measurement period, which
may be up to twelve months from the acquisition date.
The Company has not provided summarized
financial information for IANR, on its historical cost basis, for
the period December 6 to December 31, 2023, and as at
December 31, 2023 as it was not material.
Cape Breton & Central Nova Scotia
RailwayOn November 1, 2023, the Company acquired from
Genesee & Wyoming Inc, a stake in the Cape Breton & Central
Nova Scotia Railway (CBNS), a Class III short-line railroad that
owns approximately 150 route miles. CN paid $78 million in cash,
net of cash acquired and including working capital adjustments. The
acquisition was accounted for as a business combination. As a
result, the Company’s Consolidated Balance Sheet includes the net
assets of CBNS as of November 1, 2023, which were comprised of $101
million in fair value of properties mostly track and roadway
assets, partly offset by $18 million in deferred tax liabilities.
The remaining net assets were comprised of current assets and
liabilities which were individually insignificant and there were no
identifiable intangible assets. No goodwill was recognized. The
fair value of CBNS's underlying net assets has been estimated on a
preliminary basis and may be subject to change as additional
information becomes available over the next twelve months. The
Company has not provided pro forma information related to prior
periods as it was not material.
4 – Other income
2023Disposal of propertyOn
December 13, 2023, the Company completed the sale of a portion of
land within the Bala Subdivision located in Markham and Richmond
Hill, Ontario, Canada for cash proceeds of $129 million which
resulted in a gain of $129 million ($112 million after tax) as the
carrying amount of the land was nominal.
5 – Income taxes
In the fourth quarter of 2023, the Company
received a ruling from taxation authorities in a non-U.S. foreign
jurisdiction in connection with prior taxation years. Consistent
with the ruling, and effective as of January 1, 2021, the Company
has foregone favorable tax deductions of a permanent nature on
certain income generated from intercompany arrangements. This
resulted in the Company generating tax-deductible goodwill
approximating the value of the foregone tax deductions, which is
available to be amortized over a period of up to ten years.
As a result, the Company recorded a net deferred
income tax recovery of $682 million, comprised of a $767 million
deferred income tax recovery related to the tax-deductible goodwill
initially generated as of January 1, 2021, partly offset by a $85
million income tax expense related to the foregone tax deduction
($31 million for 2023 and $54 million for prior years) which was
initially recorded in current taxes and was then reclassified to
deferred taxes following the amortization of the tax-deductible
goodwill for those years. As a result, the remaining deferred
income tax asset as at December 31, 2023 was $682 million,
representing the tax impact of unamortized tax-deductible goodwill
of $5.8 billion.
6 – Subsequent event
Normal course issuer bid
(NCIB)On January 23, 2024, the Board of Directors of
the Company approved a new NCIB, which allows for the repurchase of
up to 32.0 million common shares between February 1, 2024 and
January 31, 2025.
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