EX-99.1 3 ex-99_2.htm CN Q4 2017 UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
Consolidated Statements of Income – unaudited
 
 
Three months ended
  
Year ended
 
December 31
  
December 31
In millions, except per share data
  
2017
    
2016
    
2017
    
2016
Revenues
$
3,285
  
$
3,217
  
$
13,041
  
$
12,037
                       
Operating expenses
                      
Labor and fringe benefits
  
589
    
565
    
2,221
    
2,119
Purchased services and material
  
473
    
428
    
1,769
    
1,592
Fuel
  
379
    
312
    
1,362
    
1,051
Depreciation and amortization
  
316
    
310
    
1,281
    
1,225
Equipment rents
  
107
    
96
    
418
    
375
Casualty and other
  
120
    
111
    
432
    
363
Total operating expenses
  
1,984
    
1,822
    
7,483
    
6,725
Operating income
  
1,301
    
1,395
    
5,558
    
5,312
Interest expense
  
(117)
    
(123)
    
(481)
    
(480)
Other income
  
4
    
91
    
12
    
95
Income before income taxes
  
1,188
    
1,363
    
5,089
    
4,927
Income tax recovery (expense) (Note 3)
  
1,423
    
(345)
    
395
    
(1,287)
Net income
$
2,611
  
$
1,018
  
$
5,484
  
$
3,640
                       
Earnings per share
                      
Basic
$
3.50
  
$
1.33
  
$
7.28
  
$
4.69
Diluted
$
3.48
  
$
1.32
  
$
7.24
  
$
4.67
                       
Weighted-average number of shares
                      
Basic
  
746.2
    
766.7
    
753.6
    
776.0
Diluted
  
750.0
    
770.1
    
757.3
    
779.2
                       
Dividends declared per share
$
0.4125
  
$
0.3750
  
$
1.6500
  
$
1.5000
                       
See accompanying notes to unaudited consolidated financial statements.



Consolidated Statements of Comprehensive Income – unaudited



         
Three months ended
    
Year ended
         
December 31
    
December 31
In millions
  
2017
    
2016
    
2017
    
2016
Net income
$
2,611
  
$
1,018
  
$
5,484
  
$
3,640
Other comprehensive income (loss)
                      
Net gain (loss) on foreign currency translation
  
(6)
    
57
    
(197)
    
(45)
Net change in pension and other postretirement benefit plans
  
(361)
    
(826)
    
(224)
    
(694)
Other comprehensive loss before income taxes
  
(367)
    
(769)
    
(421)
    
(739)
Income tax recovery (expense)
  
105
    
242
    
(5)
    
148
Other comprehensive loss
  
(262)
    
(527)
    
(426)
    
(591)
Comprehensive income
$
2,349
  
$
491
  
$
5,058
  
$
3,049
                             
See accompanying notes to unaudited consolidated financial statements.
                      
 
10     CN | 2017 – Fourth Quater
Consolidated Balance Sheets – unaudited
 
 
December 31
  
December 31
In millions
  
2017
    
2016
Assets
          
Current assets
          
Cash and cash equivalents
$
70
  
$
176
Restricted cash and cash equivalents
  
483
    
496
Accounts receivable
  
984
    
875
Material and supplies
  
424
    
363
Other current assets
  
229
    
197
Total current assets
  
2,190
    
2,107
Properties
  
34,189
    
33,755
Pension asset
  
994
    
907
Intangible and other assets
  
256
    
288
Total assets
$
37,629
  
$
37,057
Liabilities and shareholders' equity
          
           
Current liabilities
          
Accounts payable and other
$
1,903
  
$
1,519
Current portion of long-term debt
  
2,080
    
1,489
Total current liabilities
  
3,983
    
3,008
Deferred income taxes
  
6,953
    
8,473
Other liabilities and deferred credits
  
590
    
593
Pension and other postretirement benefits
  
699
    
694
Long-term debt
  
8,748
    
9,448
Shareholders' equity
          
Common shares
  
3,780
    
3,730
Common shares in Share Trusts
  
(168)
    
(137)
Additional paid-in capital
  
242
    
364
Accumulated other comprehensive loss
  
(2,784)
    
(2,358)
Retained earnings
  
15,586
    
13,242
Total shareholders' equity
  
16,656
    
14,841
Total liabilities and shareholders' equity
$
37,629
  
$
37,057
           
See accompanying notes to unaudited consolidated financial statements.
          
 
 
 
11     CN | 2017 – Fourth Quater
Consolidated Statements of Changes in Shareholders' Equity – unaudited
 
 
Number of
  
Common
  
Accumulated
        
 
common shares
    
shares
Additional
  
other
      
Total
   
Share
Common
  
in Share
  
paid-in
comprehensive
Retained
shareholders'
In millions
Outstanding
Trusts
shares
  
Trusts
  
capital
loss
earnings
  
equity
Balance at December 31, 2015
787.2
1.4
$
3,705
$
(100)
$
475
$
(1,767)
$
12,637
$
14,950
                             
Net income
                      
3,640
  
3,640
Stock options exercised
1.6
    
73
      
(12)
          
61
Settlement of equity settled awards
      
79
      
(138)
          
(59)
Stock-based compensation expense
                            
     and other
              
62
      
(3)
  
59
Repurchase of common shares
(26.4)
    
(127)
              
(1,873)
  
(2,000)
Share purchases by Share Trusts
(0.7)
0.7
      
(60)
              
(60)
Share settlements by Share Trusts
0.3
(0.3)
      
23
  
(23)
          
-
Other comprehensive loss
                  
(591)
      
(591)
Dividends ($1.50 per share)
                      
(1,159)
  
(1,159)
Balance at December 31, 2016
762.0
1.8
  
3,730
  
(137)
  
364
  
(2,358)
  
13,242
  
14,841
                             
Net income
                      
5,484
  
5,484
Stock options exercised
1.2
    
68
      
(10)
          
58
Settlement of equity settled awards
      
84
      
(166)
          
(82)
Stock-based compensation expense
                            
     and other
              
78
      
(3)
  
75
Repurchase of common shares
(20.4)
    
(102)
              
(1,898)
  
(2,000)
Share purchases by Share Trusts
(0.5)
0.5
      
(55)
              
(55)
Share settlements by Share Trusts
0.3
(0.3)
      
24
  
(24)
          
-
Other comprehensive loss
                  
(426)
      
(426)
Dividends ($1.65 per share)
                      
(1,239)
  
(1,239)
Balance at December 31, 2017
742.6
2.0
$
3,780
$
(168)
$
242
$
(2,784)
$
15,586
$
16,656
                             
See accompanying notes to unaudited consolidated financial statements.
 
 
12     CN | 2017 – Fourth Quater
Consolidated Statements of Cash Flows – unaudited
 
   
Three months ended
  
Year ended
   
December 31
  
December 31
In millions
  
2017
    
2016
    
2017
    
2016
Operating activities
                      
Net income
$
2,611
  
$
1,018
  
$
5,484
  
$
3,640
Adjustments to reconcile net income to net cash
                      
  provided by operating activities:
                      
     Depreciation and amortization
  
316
    
310
    
1,281
    
1,225
     Deferred income taxes
  
(1,603)
    
240
    
(1,195)
    
704
     Gain on disposal of property
  
-
    
(76)
    
-
    
(76)
Changes in operating assets and liabilities:
                      
     Accounts receivable
  
3
    
5
    
(125)
    
(3)
     Material and supplies
  
(2)
    
44
    
(70)
    
(2)
     Accounts payable and other
  
118
    
(76)
    
418
    
(51)
     Other current assets
  
(61)
    
(20)
    
(80)
    
21
Pensions and other, net
  
(33)
    
(67)
    
(197)
    
(256)
Net cash provided by operating activities
  
1,349
    
1,378
    
5,516
    
5,202
Investing activities
                      
Property additions
  
(878)
    
(666)
    
(2,673)
    
(2,695)
Disposal of property
  
-
    
85
    
-
    
85
Other, net
  
(14)
    
(20)
    
(65)
    
(72)
Net cash used in investing activities (1)
  
(892)
    
(601)
    
(2,738)
    
(2,682)
Financing activities
                      
Issuance of debt
  
423
    
-
    
916
    
1,509
Repayment of debt
  
(777)
    
(439)
    
(841)
    
(955)
Net issuance of commercial paper
  
662
    
401
    
379
    
137
Settlement of foreign exchange forward contracts on long-term debt
  
15
    
(6)
    
(15)
    
(21)
Issuance of common shares for stock options exercised
  
20
    
15
    
58
    
61
Withholding taxes remitted on the net settlement of equity settled awards
(2)
    
(4)
    
(57)
    
(44)
Repurchase of common shares
  
(473)
    
(446)
    
(2,016)
    
(1,992)
Purchase of common shares for settlement of equity settled awards
  
(3)
    
(1)
    
(25)
    
(15)
Purchase of common shares by Share Trusts
  
(55)
    
(60)
    
(55)
    
(60)
Dividends paid
  
(307)
    
(287)
    
(1,239)
    
(1,159)
Net cash used in financing activities
  
(497)
    
(827)
    
(2,895)
    
(2,539)
Effect of foreign exchange fluctuations on US dollar-denominated
                      
   cash, cash equivalents, restricted cash, and restricted cash equivalents
2
    
7
    
(2)
    
15
Net decrease in cash, cash equivalents, restricted cash,
                      
   and restricted cash equivalents (1)
  
(38)
    
(43)
    
(119)
    
(4)
Cash, cash equivalents, restricted cash, and restricted cash
                      
   equivalents, beginning of period (1)
  
591
    
715
    
672
    
676
Cash, cash equivalents, restricted cash, and restricted cash
                      
   equivalents, end of period (1)
$
553
  
$
672
  
$
553
  
$
672
Cash and cash equivalents, end of period
 $
70
  
 $
176
  
 $
70
  
 $
176
Restricted cash and cash equivalents, end of period
  
483
    
496
    
483
    
496
Cash, cash equivalents, restricted cash, and restricted cash
                      
   equivalents, end of period (1)
$
553
  
$
672
  
$
553
  
$
672
Supplemental cash flow information
                      
Interest paid
$
(104)
  
$
(113)
  
$
(477)
  
$
(470)
Income taxes paid
$
(214)
  
$
(87)
  
$
(712)
  
$
(653)
                         
(1)
The Company adopted Accounting Standards Update 2016-18 in the first quarter of 2017 on a retrospective basis. Comparative balances have been reclassified to conform to the current presentation. See Note 2 – Recent accounting pronouncements for additional information.
                       
See accompanying notes to unaudited consolidated financial statements.
                      
 
 
13     CN | 2017 – Fourth Quater
Notes to Unaudited Consolidated Financial Statements
 
 
1 – Basis of presentation

In these notes, the word "Company" or "CN" means, Canadian National Railway Company and, as the context requires, its wholly-owned subsidiaries.
The accompanying unaudited Interim Consolidated Financial Statements, expressed in Canadian dollars, have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial statements. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In management's opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim operating results are not necessarily indicative of the results that may be expected for the full year.
These unaudited Interim Consolidated Financial Statements have been prepared using accounting policies consistent with those used in preparing CN's 2016 Annual Consolidated Financial Statements, except as disclosed in Note 2 – Recent accounting pronouncements, and should be read in conjunction with such statements and Notes thereto.


2 – Recent accounting pronouncements

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

Standard
Description
Impact
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
Requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
The Company elected to early adopt the amendments of this ASU in the first quarter of 2017 on a retrospective basis. As a result of the adoption of this ASU, changes in restricted cash and cash equivalents are no longer classified as investing activities, and the Company's Consolidated Statements of Cash Flows now explain the change during the period in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents.


3 – Income taxes

U.S. Tax Cuts and Job Act
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act ("U.S. Tax Reform"). The U.S. Tax Reform reduces the U.S. federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The U.S. Tax Reform also allows for immediate capital expensing of new investments in certain qualified depreciable assets made after September 27, 2017, which will be phased down starting in year 2023. As a result of the U.S. Tax Reform, the Company's net deferred income tax liability decreased by $1,764 million.
  The U.S. Tax Reform introduces other important changes to U.S. corporate income tax laws that may significantly affect CN in future years including, the creation of a new Base Erosion Anti-abuse Tax (BEAT) that subjects certain payments from U.S. corporations to foreign related parties to additional taxes, and limitations to the deduction for net interest expense incurred by U.S. corporations. Future regulations and interpretations to be issued by U.S. authorities may also impact the Company's estimates and assumptions used in calculating its income tax provisions.
 

14     CN | 2017 – Fourth Quater