(Canadian National issued the following press release on January 22.)
MONTREAL — Canadian National today reported 2002 net income of $800 million, or $3.97 per diluted share, compared with net income of $1,040 million, or $5.23 per diluted share, for 2001.
Operating income for the year ended Dec. 31, 2002, was $1,469 million, compared with $1,682 million for 2001. Revenues for 2002 were $6,110 million, compared with $5,652 million for 2001, while operating expenses for 2002 were $4,641 million, compared with $3,970 million for 2001.
CN’s 2002 and 2001 results include certain items affecting the comparability of the Company’s financial performance. Excluding these items, 2002 adjusted net income (1) was $1,052 million, an eight per cent increase over comparable net income of $978 million for 2001, while the related diluted earnings per share rose six per cent to $5.22 from $4.92 for 2001.
On an adjusted basis, 2002 operating income increased five per cent to $1,870 million. Operating expenses rose 10 per cent to $4,240 million, owing primarily to the inclusion of a full year of expenses attributable to the operations of WC and higher expenses associated with the movement of merchandise traffic. As adjusted, CN’s operating ratio for 2002 was 69.4 per cent, compared with 68.5 per cent for 2001.
CN’s 2002 revenues increased by eight per cent, reflecting the acquisition of Wisconsin Central (WC) and a strong performance by the majority of the company’s business units – petroleum and chemicals, automotive, intermodal and forest products. Gains by these businesses were partially offset by continued weakness in Canadian grain and coal revenues.
CN President and Chief Executive Officer E. Hunter Harrison said: “Thanks in large part to the discipline of our operating plan, CN turned in a solid 2002 financial performance in an extremely challenging environment for bulk commodities.
“Our business model focuses on service quality, which drove the strong revenue performance of our service-sensitive merchandise and intermodal units. This enabled us to offset the sharp downturn in grain revenues. Scheduled railroading also permitted us to control some of the cost increases associated with moving a higher proportion of merchandise traffic on our trains, and to boost asset utilization. As a result, we generated record free cash flow of $513 million in 2002. All CN employees deserve credit for meeting the challenge.
“For 2003, we remain cautious about CN’s prospects given uneven North American economic growth, uncertain precipitation levels in Western Canada, and potentially volatile international energy prices. Based on our superior service levels, we are optimistic that our merchandise and intermodal revenues will outpace overall economic growth.”
Five of CN’s seven business units registered revenue gains in 2002: forest products (22 per cent); petroleum and chemicals (19 per cent); automotive (14 per cent); metals and minerals (14 per cent); and intermodal (nine per cent). Grain and fertilizers revenues declined 15 per cent and coal by four per cent.
Carloadings for the year increased nine per cent to 4,164 thousand.
Fourth-quarter 2002 results
Net income for the fourth quarter of 2002 was $22 million, or 11 cents per diluted share, compared with net income of $296 million, or $1.48 per diluted share, for the same quarter of 2001. Operating income for the 2002 fourth-quarter was $89 million, compared with $521 million for the same quarter of 2001.
Revenues for fourth-quarter 2002 increased one per cent to $1,547 million, while expenses increased to $1,458 million from $1,016 million for the same quarter of 2001.
As adjusted, fourth-quarter 2002 net income was $274 million ($1.36 per diluted share), operating income was $490 million, and operating expenses were $1,057 million. On a comparable basis, CN’s operating ratio for the final quarter of 2002 was 68.3 per cent, compared with 66.1 per cent for the year-earlier quarter.
Four of CN’s seven business units registered gains during the final quarter of 2002: intermodal (16 per cent); petroleum and chemicals (11 per cent); forest products (four per cent); and automotive (three per cent). Revenues declined for grain and fertilizers (21 per cent); metals and minerals (two per cent); and coal (two per cent.)
Carloadings for the final quarter of 2002 increased six per cent to 1,063 thousand.
The financial results in this press release are reported in Canadian dollars and, except where noted, were determined on the basis of U.S. generally accepted accounting principles (U.S. GAAP).
(1) The Company’s results of operations include items affecting the comparability of results. Management believes adjusted consolidated net income and the resulting adjusted performance measures for items such as operating income, operating ratio, per share data and other statistical measures are useful measures of performance that facilitate period-to-period comparisons. These adjusted measures do not have any standardized meaning prescribed by generally accepted accounting principles (GAAP) and are not necessarily comparable to similar measures presented by other companies, and therefore should not be considered in isolation. Note 11 to the accompanying financial statements provides a reconciliation of adjusted net income to the Company’s net income reported in accordance with U.S. GAAP. In addition, Supplementary Pro Forma Information has been presented to facilitate a year-over-year comparison of the Company’s results as if the Company had acquired Wisconsin Central Transportation Corporation on Jan. 1, 2001.
For 2002 and fourth-quarter 2002, two items affected the comparability of CN’s financial results: a $281-million ($173 million after tax) charge recorded in Casualty and Other expense, resulting from a change in the company’s estimated liability for U.S. personal injury and other claims; and a $120-million ($79 million after tax) workforce adjustment charge recorded in Labor and Fringe Benefits expense. For 2001, the comparability of financial results was affected by a $98-million ($62 million after tax) workforce adjustment charge recorded in Labor and Fringe Benefits expense; a $101-million ($73 million after tax) gain from the sale of CN’s 50 per cent interest in the Detroit River Tunnel Company and a $99-million ($71 million after tax) charge to write down CN’s net investment in 360networks Inc. recorded in Other Income; and a $122-million deferred income tax recovery resulting from the enactment of lower corporate tax rates in Canada.
Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.