(CN issued the following news release on January 28.)
MONTREAL — CN today reported its financial results for the fourth quarter and year ended Dec. 31, 2003.
Quarterly highlights
— Fourth-quarter 2003 net income was $224 million, or $1.17 per diluted share, including a deferred income tax expense of $79 million, or 41 cents per diluted share, as a result of the enactment of higher corporate tax rates in Ontario;
— Net income for the final quarter of 2002 was $22 million, or 11 cents per diluted share, including a charge of $173 million after tax (86 cents per diluted share) to increase the company’s provision for U.S. personal injury and other claims, and a $79 million after-tax charge (39 cents per diluted share) for workforce reductions;
— Excluding the items above that affect the year-over-year comparison of CN’s financial results, fourth-quarter 2003 adjusted net income rose 11 per cent, and adjusted diluted earnings per share for the quarter rose 16 per cent to $1.58; (1)
— Record operating ratio of 66.1 per cent for the quarter, 2.2 points better than the year-earlier adjusted operating ratio; (1)
— Fourth-quarter revenues were $1,512 million and were affected by the conversion impact of the stronger Canadian dollar (approximately $145 million).
E. Hunter Harrison, president and chief executive officer of CN, said: “We delivered strong fourth-quarter results in the face of the continuing challenges of the strong Canadian dollar and high fuel costs. The dollar’s strength masked CN’s impressive revenue performance in the quarter. Excluding the conversion impact of the stronger dollar, revenues would have risen seven per cent for the final three-month period of 2003.
“In the quarter we benefited from strength in Canadian and United States grain shipments, strong overseas container traffic at Vancouver and Halifax, higher lumber and panels shipments, and new iron traffic from the Mesabi Range to China via the Port of Prince Rupert.
“Our expense management was particularly good, reflecting the effects of a reduced workforce, lower equipment rents, and significant progress in curbing discretionary spending. At the same time IMX – our intermodal excellence initiative – resulted in lower costs and improved contribution.
“Together our revenue and expense performance produced a record fourth-quarter operating ratio of just over 66 per cent, and for the year below 70 per cent. CN also generated strong free cash flow (1) of $578 million in 2003, demonstrating the value of CN’s proven business model focused on service, cost control, asset utilization, safety and people. We believe our fourth quarter results set the stage for continued strong performance in 2004.”
CN converts its U.S.-dollar denominated revenues and expenses into Canadian dollars. The 19 per cent year-over-year appreciation of the Canadian dollar, relative to the U.S. dollar during the most recent period, reduced CN’s fourth-quarter revenues, operating income, and net income by approximately $145 million, $45 million and $25 million (13 cents per diluted share), respectively.
Operating income for the fourth quarter of 2003 was $512 million, compared with $89 million for the year-earlier three-month period. Revenues declined two per cent to $1,512 million, while operating expenses declined by 31 per cent to $1.0 billion. Excluding the previously discussed fourth-quarter 2002 items, operating income for the final quarter of 2003 increased by four per cent, while operating expenses decreased by five per cent from the year-earlier period. (1)
2003 results
Net income for 2003 was $1,014 million, or $5.23 per diluted share, compared with net income of $800 million, or $3.97 per diluted share for 2002.
CN’s 2003 results included a cumulative after-tax benefit of $48 million (24 cents per diluted share), resulting from a change in the accounting for removal costs for certain track structure assets, in addition to the previously described deferred income tax expense of $79 million recorded in the fourth quarter.
The company’s 2002 net income included the previously described expenses for charges recorded in the fourth quarter of that year to increase the company’s provision for U.S. personal injury and other claims and for workforce reductions.
Excluding the items affecting the year-over-year comparison of CN’s financial results, 2003 adjusted net income was $1,045 million, or $5.40 per diluted share, compared with adjusted net income of $1,052 million, or $5.22 per diluted share, for 2002. (1)
The 12 per cent year-over-year appreciation of the Canadian dollar, relative to the U.S. dollar last year, reduced CN’s 2003 revenues, operating income, and net income by approximately $380 million, $120 million and $62 million (32 cents per diluted share), respectively.
Operating income for 2003 was $1,777 million, compared with $1,469 million a year earlier. CN’s 2003 revenues declined four per cent to $5,884 million, while operating expenses improved by 12 per cent to $4,107 million. Excluding the fourth-quarter 2002 items that affect the year-over-year comparison of CN’s financial results, 2003 operating income decreased by five per cent, and operating expenses decreased by three per cent from 2002. (1)
The company’s 2003 operating ratio was 69.8 per cent, compared with an adjusted operating ratio of 69.4 per cent for 2002. (1)
The financial results in this press release are reported in Canadian dollars and were determined on the basis of U.S. generally accepted accounting principles (U.S. GAAP).
(1) These adjusted measures do not have any standardized meaning prescribed by GAAP and may, therefore, not be comparable to similar measures presented by other companies. Management believes that non-GAAP measures such as adjusted net income and the resulting adjusted performance measures for such items as operating income, operating ratio and per share data are useful measures of performance that can facilitate period-to-period comparisons, as they exclude items that do not arise as part of the normal day-to-day operations or that could potentially distort the analysis of trends in business performance. The exclusion of specified items in the adjusted measures does not imply that they are necessarily non-recurring. Please see the attached supplementary schedule entitled “NON-GAAP MEASURES” for a reconciliation of non-GAAP measures presented in this press release to the comparable U.S. GAAP measures. The reader is advised to read all information provided in the company’s Management’s Discussion and Analysis, Annual Consolidated Financial Statements, and notes thereto.
This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risk and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CN’s most recent Form 40-F filed with the United States Securities and Exchange Commission, and the Annual Information Form filed with the Canadian securities regulators, for a summary of major risks.
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.