Market Overview

CN reports record Q4-2016 net income of C$1,018 million, with diluted earnings per share (EPS) up 12 per cent to C$1.32 and up four per cent to C$1.23 on an adjusted basis (1)

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Quarter caps solid full-year financial and operating performance, including significant improvements in safety

MONTREAL, Jan. 24, 2017 /PRNewswire/ - CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2016.

Fourth-quarter 2016 financial highlights

  • Net income increased eight per cent to C$1,018 million, while diluted EPS increased 12 per cent to C$1.32, compared with the fourth quarter of 2015. 
  • Adjusted net income increased one per cent to $952 million, with adjusted diluted EPS increasing four per cent to C$1.23. (1)
  • Operating income increased three per cent to C$1,395 million.
  • Revenues increased by two per cent to C$3,217 million. Carloadings increased three per cent, and revenue ton-miles increased four per cent.
  • The operating ratio improved by 0.6 points to 56.6 per cent.

Full-year 2016 financial highlights

  • Net income increased three per cent to C$3,640 million, with diluted EPS rising six per cent to C$4.67.
  • Adjusted net income remained essentially flat at C$3,581 million, while adjusted diluted EPS increased three per cent to C$4.59. (1)
  • Operating income rose one per cent to C$5,312 million.
  • Revenues decreased by five per cent to C$12,037 million. Carloadings and revenue ton-miles both declined by five per cent in 2016.
  • The operating ratio for 2016 improved by 2.3 points to 55.9 per cent.
  • Free cash flow (1) was a record C$2,520 million, compared with C$2,373 million for 2015.

Luc Jobin, president and chief executive officer, said: "Despite facing difficult winter conditions in December, CN delivered very strong fourth-quarter results and throughout 2016 demonstrated once again its ability to perform well in a mixed economic environment.

"We saw weaker volumes during the year, but quickly adjusted as our dedicated team of railroaders maintained its focus on operational efficiency, while continuing to provide quality service to our customers and improve our safety performance."

2017 outlook, increased dividend (2)
Jobin said: "Overall, the economy remains challenging, but we remain optimistic and expect to see moderate volume growth in 2017."

CN expects to deliver EPS growth in the mid-single-digit range in 2017 over adjusted diluted EPS of C$4.59 in 2016. (1) CN will continue to invest in the safety and efficiency of its network, with a 2017 capital investment program of approximately C$2.5 billion, which includes increased spending for Positive Train Control technology in the United States. 

The Company's Board of Directors today approved a 10 per cent increase to CN's 2017 quarterly cash dividend.

Fourth-quarter 2016 revenues, traffic volumes and expenses
Revenues for the quarter increased by two per cent to C$3,217 million. Revenues increased for grain and fertilizers (14 per cent), automotive (four per cent), and intermodal (one per cent). Revenues declined for metals and minerals (six per cent), coal (six per cent), petroleum and chemicals (five per cent), while revenues for forest products remained flat.

The revenue increase was mainly attributable to higher volumes of Canadian grains and U.S. soybeans, refined petroleum products, finished vehicles, and petroleum coke; as well as freight rate increases. These factors were partly offset by lower volumes of crude oil, U.S. thermal coal, and drilling pipe; and lower applicable fuel surcharge rates.

Carloadings for the quarter increased three per cent to 1,369 thousand.

Revenue ton-miles (RTMs), measuring the relative weight and distance of rail freight transported by CN, increased by four per cent, while rail freight revenue per RTM, a measurement of yield defined as revenue earned on the movement of a ton of freight over one mile, decreased by three per cent.

Operating expenses for the quarter increased by one per cent to C$1,822 million. The increase was primarily due to higher casualty and other expenses, and higher depreciation and amortization expense, partly offset by lower pension expense and lower costs resulting from operating productivity gains, including cost-management initiatives.

Full-year 2016 revenues, traffic volumes and expenses
Revenues for 2016 decreased by five per cent to C$12,037 million. Revenues increased for automotive (six per cent), forest products (four per cent), and grain and fertilizers (one per cent), but were more than offset by revenue declines for coal (29 per cent), metals and minerals (15 per cent), petroleum and chemicals (11 per cent), and intermodal (two per cent).

The decrease in total revenues was mainly attributable to lower volumes of crude oil, coal and frac sand; as well as lower applicable fuel surcharge rates. These factors were partly offset by the positive translation impact of the weaker Canadian dollar and freight rate increases.

Carloadings declined five per cent to 5,205 thousand.

RTMs decreased by five per cent. Rail freight revenue per RTM remained flat compared to 2015, driven by lower applicable fuel surcharge rates and an increase in the average length of haul; offset by the positive translation impact of a weaker Canadian dollar and freight rate increases.

Operating expenses for 2016 decreased by eight per cent to C$6,725 million. The decrease was mainly due to lower costs resulting from operating productivity gains, including cost-management initiatives and decreased volumes of traffic; lower pension expense; and lower fuel prices, partly offset by the negative translation impact of a weaker Canadian dollar on U.S.-dollar-denominated expenses.

The operating ratio was 55.9 per cent in 2016, an improvement of 2.3 points over the 2015 operating ratio of 58.2 per cent.

Foreign currency impact on results
Although CN reports its earnings in Canadian dollars, a large portion of its revenues and expenses is denominated in U.S. dollars. As such, the Company's results are affected by exchange-rate fluctuations. On a constant currency basis (1) that excludes the impact of fluctuations in foreign currency exchange rates, CN's net income for the three months and year ended December 31, 2016 would have been lower by C$3 million (unchanged per diluted share) and C$85 million (C$0.11 per diluted share), respectively.

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

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

(2) Forward-Looking Statements
Certain statements included in this news release constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. By their nature, forward-looking statements involve risks, uncertainties and assumptions. The Company cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Forward-looking statements may be identified by the use of terminology such as "believes," "expects," "anticipates," "assumes," "outlook," "plans," "targets," or other similar words.

2017 key assumptions
CN has made a number of economic and market assumptions in preparing its 2017 outlook. The Company is assuming that North American industrial production for the year will increase in the range of one to two per cent and assumes U.S. housing starts in the range of 1.25 million units and U.S. motor vehicle sales of approximately 17.5 million units. For the 2016/2017 crop year, the grain crops in both the United States and Canada were above their respective five-year averages. The Company assumes that the 2017/2018 grain crops in both Canada and the United States will be in line with their respective five-year averages. With these assumptions, CN assumes total RTMs for all freight categories in 2017 will increase in the range of three to four per cent versus 2016. CN expects continued pricing improvement above inflation. CN assumes that in 2017 the value of the Canadian dollar in U.S. currency will be in the range of $0.75, and that the average price of crude oil (West Texas Intermediate) will be in the range of US$50 to US$60 per barrel. In 2017, CN plans to invest approximately C$2.5 billion in its capital program, of which C$1.6 billion is targeted toward track infrastructure.

Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company to be materially different from the outlook or any future results or performance implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. Important risk factors that could affect the forward-looking statements include, but are not limited to, the effects of general economic and business conditions; industry competition; inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; security threats; reliance on technology; trade restrictions; transportation of hazardous materials; various events which could disrupt operations, including natural events such as severe weather, droughts, 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; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should be made to Management's Discussion and Analysis in CN's annual and interim reports, Annual Information Form and Form 40-F, filed with Canadian and U.S. securities regulators and available on CN's website, for a description of major risk factors.

Forward-looking statements reflect information as of the date on which they are made. CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement.

This earnings news release is available on the Company's website at www.cn.ca/quarterly-releases and on SEDAR at www.sedar.com as well as on EDGAR at www.sec.gov

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

Selected Railroad Statistics – unaudited


Three months ended December 31


Year ended December 31


2016

2015


2016

2015







Financial measures












Key financial performance indicators (1)






Total revenues ($ millions)

3,217

3,166


12,037

12,611

Rail freight revenues ($ millions)

3,022

2,987


11,326

11,905

Operating income ($ millions)

1,395

1,354


5,312

5,266

Net income ($ millions)

1,018

941


3,640

3,538

Diluted earnings per share ($)

1.32

1.18


4.67

4.39

Adjusted diluted earnings per share ($) (2)

1.23

1.18


4.59

4.44

Free cash flow ($ millions) (2)

777

632


2,520

2,373

Gross property additions ($ millions)

723

642


2,752

2,706

Share repurchases ($ millions)

446

500


2,000

1,750

Dividends per share ($)

0.3750

0.3125


1.5000

1.2500







Financial position (1)






Total assets ($ millions)

37,057

36,402


37,057

36,402

Total liabilities ($ millions)

22,216

21,452


22,216

21,452

Shareholders' equity ($ millions)

14,841

14,950


14,841

14,950







Financial ratio






Operating ratio (%)

56.6

57.2


55.9

58.2







Operational measures (3)












Statistical operating data






Gross ton miles (GTMs) (millions)

114,424

110,245


423,426

442,084

Revenue ton miles (RTMs) (millions)

58,906

56,534


214,327

224,710

Carloads (thousands)

1,369

1,325


5,205

5,485

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

19,600

19,600


19,600

19,600

Employees (end of period)

22,249

23,066


22,249

23,066

Employees (average for the period)

22,231

23,490


22,322

24,406







Key operating measures






Rail freight revenue per RTM (cents)

5.13

5.28


5.28

5.30

Rail freight revenue per carload ($)

2,207

2,254


2,176

2,170

GTMs per average number of employees (thousands)

5,147

4,693


18,969

18,114

Operating expenses per GTM (cents)

1.59

1.64


1.59

1.66

Labor and fringe benefits expense per GTM (cents)

0.49

0.55


0.50

0.54

Diesel fuel consumed (US gallons in millions)

107.3

105.9


398.9

425.0

Average fuel price ($/US gallon)

2.58

2.54


2.34

2.68

GTMs per US gallon of fuel consumed

1,066

1,041


1,061

1,040

Terminal dwell (hours)

14.5

14.3


14.0

15.0

Train velocity (miles per hour)

26.6

27.4


27.3

26.3







Safety indicators (4)






Injury frequency rate (per 200,000 person hours)

1.75

1.55


1.70

1.63

Accident rate (per million train miles)

1.71

1.48


1.42

2.06







(1)

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

(2)

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

(3)

Statistical operating data, key operating measures and safety indicators are based on estimated data available at such time and are
subject to change as more complete information becomes available, as such, certain of the comparative data have been restated.
Definitions of these indicators are provided on our website, www.cn.ca/glossary.

(4)

Based on Federal Railroad Administration (FRA) reporting criteria.

Supplementary Information – unaudited



Three months ended December 31


Year ended December 31














2016

2015

% Change
Fav (Unfav)


% Change at
constant
currency

Fav (Unfav) (1)


2016

2015

% Change
Fav (Unfav)


% Change at
constant
currency

Fav (Unfav) (1)

Revenues ($ millions) (2)












Petroleum and chemicals

572

604

(5%)


(5%)


2,174

2,442

(11%)


(13%)

Metals and minerals

313

332

(6%)


(6%)


1,218

1,437

(15%)


(17%)

Forest products

447

445

-


-


1,797

1,728

4%


1%

Coal

136

144

(6%)


(5%)


434

612

(29%)


(30%)

Grain and fertilizers

647

568

14%


14%


2,098

2,071

1%


-

Intermodal

720

715

1%


1%


2,846

2,896

(2%)


(3%)

Automotive

187

179

4%


4%


759

719

6%


3%

Total rail freight revenues

3,022

2,987

1%


1%


11,326

11,905

(5%)


(7%)

Other revenues

195

179

9%


8%


711

706

1%


(1%)

Total revenues

3,217

3,166

2%


2%


12,037

12,611

(5%)


(7%)

Revenue ton miles (RTMs) (millions)












Petroleum and chemicals

11,803

12,616

(6%)


(6%)


43,395

51,103

(15%)


(15%)

Metals and minerals

5,593

5,061

11%


11%


20,233

21,828

(7%)


(7%)

Forest products

7,751

7,603

2%


2%


31,401

30,097

4%


4%

Coal

3,446

3,708

(7%)


(7%)


11,032

15,956

(31%)


(31%)

Grain and fertilizers

16,203

13,875

17%


17%


51,485

50,001

3%


3%

Intermodal

13,194

12,837

3%


3%


53,056

52,144

2%


2%

Automotive

916

834

10%


10%


3,725

3,581

4%


4%

Total RTMs

58,906

56,534

4%


4%


214,327

224,710

(5%)


(5%)

Rail freight revenue / RTM (cents) (2)












Petroleum and chemicals

4.85

4.79

1%


1%


5.01

4.78

5%


2%

Metals and minerals

5.60

6.56

(15%)


(15%)


6.02

6.58

(9%)


(11%)

Forest products

5.77

5.85

(1%)


(2%)


5.72

5.74

-


(3%)

Coal

3.95

3.88

2%


3%


3.93

3.84

2%


1%

Grain and fertilizers

3.99

4.09

(2%)


(2%)


4.07

4.14

(2%)


(3%)

Intermodal

5.46

5.57

(2%)


(2%)


5.36

5.55

(3%)


(5%)

Automotive

20.41

21.46

(5%)


(5%)


20.38

20.08

1%


(1%)

Total rail freight revenue / RTM

5.13

5.28

(3%)


(3%)


5.28

5.30

-


(2%)

Carloads (thousands)












Petroleum and chemicals

156

157

(1%)


(1%)


599

640

(6%)


(6%)

Metals and minerals

230

185

24%


24%


807

886

(9%)


(9%)

Forest products

108

109

(1%)


(1%)


440

441

-


-

Coal

92

105

(12%)


(12%)


333

438

(24%)


(24%)

Grain and fertilizers

177

163

9%


9%


602

607

(1%)


(1%)

Intermodal

541

545

(1%)


(1%)


2,163

2,232

(3%)


(3%)

Automotive

65

61

7%


7%


261

241

8%


8%

Total carloads

1,369

1,325

3%


3%


5,205

5,485

(5%)


(5%)

Rail freight revenue / carload ($) (2)












Petroleum and chemicals

3,667

3,847

(5%)


(5%)


3,629

3,816

(5%)


(7%)

Metals and minerals

1,361

1,795

(24%)


(24%)


1,509

1,622

(7%)


(9%)

Forest products

4,139

4,083

1%


1%


4,084

3,918

4%


1%

Coal

1,478

1,371

8%


9%


1,303

1,397

(7%)


(8%)

Grain and fertilizers

3,655

3,485

5%


5%


3,485

3,412

2%


-

Intermodal

1,331

1,312

1%


1%


1,316

1,297

1%


-

Automotive

2,877

2,934

(2%)


(2%)


2,908

2,983

(3%)


(5%)

Total rail freight revenue / carload

2,207

2,254

(2%)


(2%)


2,176

2,170

-


(2%)













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

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

(2)  Amounts expressed in Canadian dollars.

Non-GAAP Measures – unaudited

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

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

Adjusted performance measures

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

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

For the three months and year ended December 31, 2015, the Company reported adjusted net income of $941 million, or $1.18 per diluted share and $3,580 million, or $4.44 per diluted share, respectively. The adjusted figures for the year ended December 31, 2015 exclude a deferred income tax expense of $42 million ($0.05 per diluted share) resulting from the enactment of a higher provincial corporate income tax rate that was recorded in the second quarter.

The following table provides a reconciliation of net income and earnings per share, as reported for the three months and years ended December 31, 2016 and 2015, to the adjusted performance measures presented herein:




Three months ended December 31


Year ended December 31

In millions, except per share data


2016


2015



2016


2015

Net income as reported

$

1,018

$

941


$

3,640

$

3,538

Adjustments:











Other income


(76)


-



(76)


-


Income tax expense


10


-



17


42

Adjusted net income

$

952

$

941


$

3,581

$

3,580

Basic earnings per share as reported

$

1.33

$

1.19


$

4.69

$

4.42

Impact of adjustments, per share


(0.09)


-



(0.08)


0.05

Adjusted basic earnings per share

$

1.24

$

1.19


$

4.61

$

4.47

Diluted earnings per share as reported

$

1.32

$

1.18


$

4.67

$

4.39

Impact of adjustments, per share


(0.09)


-



(0.08)


0.05

Adjusted diluted earnings per share

$

1.23

$

1.18


$

4.59

$

4.44

Constant currency

Financial results at constant currency allow results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Measures at constant currency are considered non-GAAP measures and do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. Financial results at constant currency are obtained by translating the current period results denominated in US dollars at the foreign exchange rates of the comparable period of the prior year. The average foreign exchange rate was $1.33 per US$1.00 for both the three months and year ended December 31, 2016, and $1.33 and $1.28 per US$1.00 respectively, for the three months and year ended December 31, 2015.

On a constant currency basis, the Company's net income for the three months and year ended December 31, 2016 would have been lower by $3 million (unchanged per diluted share) and $85 million ($0.11 per diluted share), respectively.

Free cash flow

Management believes that free cash flow is a useful measure of liquidity as it demonstrates the Company's ability to generate cash for debt obligations and for discretionary uses such as payment of dividends, share repurchases, and strategic opportunities. The Company defines its free cash flow measure as the difference between net cash provided by operating activities and net cash used in investing activities; adjusted for changes in restricted cash and cash equivalents and the impact of major acquisitions, if any. Free cash flow does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

The following table provides a reconciliation of net cash provided by operating activities as reported for the years ended December 31, 2016 and 2015, to free cash flow:


Three months ended December 31


Year ended December 31

In millions


2016


2015



2016


2015

Net cash provided by operating activities

$

1,378

$

1,293


$

5,202

$

5,140

Net cash used in investing activities


(597)


(661)



(2,655)


(2,827)

Net cash provided before financing activities


781


632



2,547


2,313

Adjustment: Change in restricted cash and cash equivalents


(4)


-



(27)


60

Free cash flow

$

777

$

632


$

2,520

$

2,373

Adjusted debt-to-adjusted EBITDA multiple

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

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


In millions, unless otherwise indicated

As at and for the year ended December 31,


2016


2015

Debt



$

10,937

$

10,427

Adjustment: Present value of operating lease commitments (1)



533


607

Adjusted debt



$

11,470

$

11,034









Net income



$

3,640

$

3,538

Interest expense




480


439

Income tax expense




1,287


1,336

Depreciation and amortization




1,225


1,158

EBITDA




6,632


6,471

Adjustments:








Other income




(95)


(47)


Deemed interest on operating leases




24


29

Adjusted EBITDA



$

6,561

$

6,453

Adjusted debt-to-adjusted EBITDA multiple (times)




1.75


1.71








(1)

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

Consolidated Statements of Income – unaudited


Three months ended


Year ended


December 31


December 31

In millions, except per share data


2016



2015



2016



2015

Revenues

$

3,217


$

3,166


$

12,037


$

12,611













Operating expenses












Labor and fringe benefits


565



608



2,119



2,406

Purchased services and material


428



437



1,592



1,729

Fuel


312



304



1,051



1,285

Depreciation and amortization 


310



290



1,225



1,158

Equipment rents


96



103



375



373

Casualty and other


111



70



363



394

Total operating expenses


1,822



1,812



6,725



7,345

Operating income


1,395



1,354



5,312



5,266

Interest expense


(123)



(119)



(480)



(439)

Other income


91



16



95



47

Income before income taxes


1,363



1,251



4,927



4,874

Income tax expense


(345)



(310)



(1,287)



(1,336)

Net income

$

1,018


$

941


$

3,640


$

3,538













Earnings per share












Basic

$

1.33


$

1.19


$

4.69


$

4.42

Diluted

$

1.32


$

1.18


$

4.67


$

4.39













Weighted-average number of shares












Basic


766.7



792.4



776.0



800.7

Diluted


770.1



796.3



779.2



805.1













Dividends declared per share

$

0.3750


$

0.3125


$

1.5000


$

1.2500













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


2016



2015



2016



2015

Net income

$

1,018


$

941


$

3,640


$

3,538

Other comprehensive income (loss)












Net gain (loss) on foreign currency translation


57



73



(45)



249

Net change in pension and other postretirement benefit plans


(826)



134



(694)



306

Other comprehensive income (loss) before income taxes


(769)



207



(739)



555

Income tax recovery


242



9



148



105

Other comprehensive income (loss)


(527)



216



(591)



660

Comprehensive income

$

491


$

1,157


$

3,049


$

4,198
















See accompanying notes to unaudited consolidated financial statements.












Consolidated Balance Sheets – unaudited


December 31


December 31

In millions


2016



2015

Assets






Current assets






Cash and cash equivalents

$

176


$

153

Restricted cash and cash equivalents


496



523

Accounts receivable


875



878

Material and supplies


363



355

Other current assets


197



244

Total current assets


2,107



2,153

Properties 


33,755



32,624

Pension asset


907



1,305

Intangible and other assets


288



320

Total assets

$

37,057


$

36,402

Liabilities and shareholders' equity






Current liabilities






Accounts payable and other

$

1,519


$

1,556

Current portion of long-term debt


1,489



1,442

Total current liabilities


3,008



2,998

Deferred income taxes 


8,473



8,105

Other liabilities and deferred credits


593



644

Pension and other postretirement benefits


694



720

Long-term debt


9,448



8,985

Shareholders' equity






Common shares


3,730



3,705

Common shares in Share Trusts


(137)



(100)

Additional paid-in capital


364



475

Accumulated other comprehensive loss


(2,358)



(1,767)

Retained earnings


13,242



12,637

Total shareholders' equity


14,841



14,950

Total liabilities and shareholders' equity

$

37,057


$

36,402







See accompanying notes to unaudited consolidated financial statements.






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, 2014

809.4

-

$

3,718


$

-


$

439


$

(2,427)

$


11,740


$

13,470





















Net income
















3,538



3,538

Stock options exercised

2.5



91






(17)









74

Settlement of equity settled awards




4






(8)









(4)

Stock-based compensation expense










61






(3)



58

Share repurchase programs

(23.3)



(108)












(1,642)



(1,750)

Share purchases by Share Trusts

(1.4)

1.4





(100)












(100)

Other comprehensive income













660






660

Dividends ($1.25 per share)
















(996)



(996)

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










62






(3)



59

Share repurchase programs

(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





















See accompanying notes to unaudited consolidated financial statements.

Consolidated Statements of Cash Flows – unaudited



Three months ended


Year ended


December 31


December 31

In millions


2016



2015



2016



2015

Operating activities












Net income

$

1,018


$

941


$

3,640


$

3,538

Adjustments to reconcile net income to net cash













provided by operating activities:














Depreciation and amortization


310



290



1,225



1,158



Deferred income taxes


240



237



704



600



Gain on disposal of property


(76)



-



(76)



-

Changes in operating assets and liabilities:













Accounts receivable


5



93



(3)



188


Material and supplies


44



77



(2)



4


Accounts payable and other


(76)



(348)



(51)



(282)


Other current assets


(20)



45



21



46

Pensions and other, net


(67)



(42)



(256)



(112)

Net cash provided by operating activities


1,378



1,293



5,202



5,140

Investing activities












Property additions


(666)



(642)



(2,695)



(2,706)

Disposal of property


85



-



85



-

Change in restricted cash and cash equivalents


4



-



27



(60)

Other, net


(20)



(19)



(72)



(61)

Net cash used in investing activities


(597)



(661)



(2,655)



(2,827)

Financing activities












Issuance of debt


-



-



1,509



841

Repayment of debt


(439)



(636)



(955)



(752)

Net issuance of commercial paper


401



306



137



451

Settlement of foreign exchange forward contracts













on long-term debt


(6)



-



(21)



-

Issuance of common shares for stock options exercised


15



57



61



79

Withholding taxes remitted on the net settlement of













equity settled awards


(4)



(1)



(44)



(2)

Repurchase of common shares


(446)



(498)



(1,992)



(1,742)

Purchase of common shares for settlement













of equity settled awards


(1)



-



(15)



(2)

Purchase of common shares by Share Trusts


(60)



-



(60)



(100)

Dividends paid


(287)



(246)



(1,159)



(996)

Net cash used in financing activities


(827)



(1,018)



(2,539)



(2,223)

Effect of foreign exchange fluctuations on US













dollar-denominated cash and cash equivalents


7



2



15



11

Net increase (decrease) in cash and cash equivalents


(39)



(384)



23



101

Cash and cash equivalents, beginning of period


215



537



153



52

Cash and cash equivalents, end of period

$

176


$

153


$

176


$

153

Supplemental cash flow information













Interest paid

$

(113)


$

(133)


$

(470)


$

(432)


Income taxes paid

$

(87)


$

(144)


$

(653)


$

(725)













See accompanying notes to unaudited consolidated financial statements.

Notes to Unaudited Consolidated Financial Statements

1 – Basis of presentation

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 expected results for the full year.

These unaudited Interim Consolidated Financial Statements have been prepared using accounting policies consistent with those used in preparing Canadian National Railway's 2015 Annual Consolidated Financial Statements and should be read in conjunction with such statements and Notes thereto.

SOURCE CN

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