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Press release from PR Newswire

CN reports Q4-2012 net income of C$610 million, or C$1.41 per diluted share

Tuesday, January 22, 2013

CN reports Q4-2012 net income of C$610 million, or C$1.41 per diluted share09:00 EST Tuesday, January 22, 2013 Adjusted diluted EPS for full-year 2012 increased 16 per cent to C$5.61 (1) Full-year 2012 volumes and earnings highest in Company history MONTREAL, Jan. 22, 2013 /PRNewswire/ - CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2012. Fourth-quarter and full-year 2012 financial highlights Record fourth-quarter and full-year 2012 carloads, revenues and revenue ton-miles. Fourth-quarter 2012 net income was C$610 million, or C$1.41 per diluted share, compared with net income of C$592 million or, C$1.32 per diluted share, for the year-earlier quarter. Q4-2012 diluted earnings per share (EPS) of C$1.41 increased eight per cent over year-earlier adjusted diluted EPS of C$1.30 (adjusted net income of C$581 million), which excluded an income tax recovery. (1) Full-year 2012 net income was C$2,680 million, or C$6.12 per diluted share, compared with net income of C$2,457 million, or C$5.41 per diluted share, for 2011. Full-year 2012 adjusted diluted EPS increased 16 per cent to C$5.61, with adjusted 2012 net income of C$2,456 million versus adjusted net income of C$2,194 million in 2011. (1) Q4-2012 operating income increased 10 per cent to C$922 million, while full-year 2012 operating income rose 12 per cent to C$3,685 million. Fourth-quarter 2012 operating ratio improved by 1.1 points to 63.6 per cent; full-year 2012 operating ratio was 62.9 per cent, a 0.6-point improvement. 2012 free cash flow totalled C$1,006 million, after voluntary pension plan contributions of C$700 million, compared with free cash flow of C$1,175 million for 2011. (1) Claude Mongeau, president and chief executive officer, said: "CN's team of railroaders delivered impressive fourth-quarter results on the strength of a seven per cent increase in revenues, capping a very strong 2012 performance. "Thanks to our supply chain collaboration focus and solid execution, CN's growth last year continued to outpace that of the overall economy, generating the highest volumes and earnings in Company history. "In 2012, we experienced strong growth in commodities related to oil and gas, particularly crude oil, and saw continued market share gains in overseas and domestic intermodal. CN also benefited from strong coal and petroleum coke exports, increased wheat and soybean exports, as well as higher lumber and panels shipments to the United States." 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 that excludes the impact of fluctuations in foreign currency exchange rates, CN's fourth-quarter 2012 net income would have been higher by C$11 million, or C$0.03 per diluted share, while its 2012 net income would have been lower by C$14 million, or C$0.03 per diluted share. (1) Positive 2013 outlook, increased dividend (2) Mongeau said: "For 2013, CN anticipates continued gradual improvement in the economy and further growth opportunities in intermodal, energy and other resource markets. Despite the challenge of an approximate C$150-million headwind related to increased pension expense and the impact of depreciation studies, CN is aiming for high single-digit growth in 2013 diluted earnings per share over adjusted diluted earnings per share of C$5.61 for 2012. CN also expects to generate 2013 free cash flow in the range of C$800 million to C$900 million, including a normalized, higher level of cash taxes. (1) "Given CN's strong balance sheet and its solid outlook for earnings and free cash flow generation, I am pleased to announce that the Company's Board of Directors has approved a 15 per cent increase in CN's 2013 quarterly common-share dividend." Fourth-quarter 2012 revenues, traffic volumes and expenses Revenues for the fourth quarter of 2012 increased by seven per cent to C$2,534 million. Revenues increased for coal (15 per cent), petroleum and chemicals (13 per cent), grain and fertilizers (11 per cent), intermodal (seven per cent), and automotive (five per cent). Revenues declined for forest products (two per cent), and metals and minerals (one per cent). Carloadings for the quarter rose three per cent to 1,270 thousand. Revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased by eight per cent over the year-earlier quarter. Rail freight revenue per revenue ton-mile, a measurement of yield defined as revenue earned on the movement of a ton of freight over one mile, declined by one per cent. Total operating expenses increased by five per cent to C$1,612 million. Full-year 2012 revenues, traffic volumes and expenses 2012 revenues increased 10 per cent to C$9,920 million, with all business units registering gains: petroleum and chemicals (15 per cent), coal (15 per cent), metals and minerals (13 per cent), intermodal (11 per cent), automotive (11 per cent), forest products (five per cent), and grain and fertilizers (four per cent). The rise in total revenues was largely attributable to higher freight volumes, due in part to growth in North American and Asian economies, and the Company's performance above market conditions in a number of segments, as well as increased volumes in the second quarter as a result of a labor disruption at a key competitor; freight rate increases; the impact of a higher fuel surcharge as a result of year-over-year increases in applicable fuel prices and higher volumes; and the positive translation impact of the weaker Canadian dollar on U.S. dollar-denominated revenues. Carloadings for the year increased four per cent to 5,059 thousand. Revenue ton-miles increased by seven per cent over 2011, while rail freight revenue per revenue ton-mile increased by three per cent. Total operating expenses for 2012 increased by nine per cent to C$6,235 million, mainly due to higher labor and fringe benefits expense, increased purchased services and material expense, as well as increased fuel costs. Forward-Looking Statements Certain information included in this news release constitutes "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. CN cautions that, by their nature, these 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. Such 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 or the rail industry to be materially different from the outlook or any future results or performance implied by such statements. To the extent that CN has provided guidance that are non-GAAP financial measures, the Company may not be able to provide a reconciliation to the GAAP measures, due to unknown variables and uncertainty related to future results. Key assumptions used in determining forward-looking information are set forth below. Key assumptions CN has made a number of economic and market assumptions in preparing its 2013 outlook. The Company is forecasting that North American industrial production for the year will increase by about 2.0 per cent. CN also expects U.S. housing starts to be in the range of 950,000 units and U.S. motor vehicles sales to be approximately 15 million units. In addition, CN is assuming that 2013/2014 grain crop production in both Canada and the U.S. will be in-line with their respective five-year averages. With respect to the 2012/2013 crop, production in Canada was slightly above the five-year average while production in the U.S. was below the five-year average. With these assumptions, CN assumes carload growth of three to four per cent, along with continued pricing improvement above inflation. CN also assumes the Canadian-U.S. exchange rate to be around parity for 2013 and that the price of crude oil (West Texas Intermediate) for the year to be in the range of US$90-$100 per barrel. In 2013, CN plans to invest approximately C$1.9 billion in capital programs, of which more than C$1 billion will be targeted on track infrastructure to maintain a safe and fluid railway network. In addition, the Company will invest in projects to support a number of productivity and growth initiatives. 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, various events which could disrupt operations, including natural events such as severe weather, droughts, floods and earthquakes, 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, available on CN's website, for a summary of major risk factors. 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 Canadian 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. 1) See discussion and reconciliation of non-GAAP adjusted performance-measures in the attached supplementary schedule, Non-GAAP Measures. 2) See Forward-Looking statements for a summary of the key assumptions and risks regarding CN's 2013 outlook.     CN - Canadian National Railway Company and its operating railway subsidiaries - 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 metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, and Jackson, Miss., with connections to all points in North America. For more information on CN, visit the Company's website at www.cn.ca. CANADIAN NATIONAL RAILWAY COMPANY CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP) - unaudited (In millions, except per share data)     Three months ended   Year ended     December 31   December 31       2012     2011     2012     2011       Revenues $ 2,534   $ 2,377   $ 9,920   $ 9,028                           Operating expenses                         Labor and fringe benefits   463     511     1,952     1,812   Purchased services and material   340     295     1,248     1,120   Fuel   400     382     1,524     1,412   Depreciation and amortization   237     231     924     884   Equipment rents   64     63     249     228   Casualty and other   108     56     338     276 Total operating expenses   1,612     1,538     6,235     5,732                           Operating income   922     839     3,685     3,296                           Interest expense   (86)     (85)     (342)     (341)                         Other income (loss)   (5)     21      315      401                          Income before income taxes   831     775     3,658     3,356                           Income tax expense   (221)     (183)     (978)     (899) Net income $ 610   $ 592   $ 2,680   $ 2,457                           Earnings per share                         Basic $ 1.42   $ 1.33   $ 6.15   $ 5.45   Diluted $ 1.41   $ 1.32   $ 6.12   $ 5.41                                  Weighted-average number of shares                         Basic           430.3     444.3     435.6     451.1   Diluted   432.0     447.3     437.7     454.4 These unaudited interim consolidated financial statements, expressed in Canadian dollars, and prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Canadian National Railway Company's (the Company) financial position as at December 31, 2012 and December 31, 2011, and its results of operations, comprehensive income, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2012 and 2011. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2012 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and Management's Discussion and Analysis (MD&A). CANADIAN NATIONAL RAILWAY COMPANY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (U.S. GAAP) - unaudited (In millions)       Three months ended   Year ended       December 31   December 31         2012   2011     2012   2011                         Net income $ 610 $ 592   $ 2,680 $ 2,457                         Other comprehensive income (loss)                     Foreign exchange gain (loss) on:                       Translation of the net investment in foreign operations   71   (185)     (128)   130     Translation of US dollar-denominated long-term debt designated  as a hedge of the net investment in U.S. subsidiaries   (66)   180     123   (122)                           Pension and other postretirement benefit plans                       Net actuarial loss arising during the year   (660)   (1,541)     (660)   (1,541)     Prior service cost arising during the year   (6)   (28)     (6)   (28)     Amortization of net actuarial loss included in net periodic  benefit cost (income)   27   2      119   8     Amortization of prior service cost included in net periodic benefit cost (income)   2   2      7   4                           Derivative instruments   -   (1)     -   (2) Other comprehensive loss before income taxes   (632)   (1,571)     (545)   (1,551) Income tax recovery   178   379     127   421 Other comprehensive loss   (454)   (1,192)     (418)   (1,130) Comprehensive income (loss) $ 156 $ (600)   $ 2,262 $ 1,327 CANADIAN NATIONAL RAILWAY COMPANY CONSOLIDATED BALANCE SHEET (U.S. GAAP) - unaudited (In millions)   December 31   December 31     2012     2011             Assets                       Current assets:             Cash and cash equivalents $ 155   $ 101   Restricted cash and cash equivalents   521     499   Accounts receivable   831     820   Material and supplies   230     201   Deferred and receivable income taxes   43     122   Other   89     105 Total current assets   1,869     1,848             Properties   24,541     23,917 Intangible and other assets   249     261 Total assets $ 26,659   $ 26,026             Liabilities and shareholders' equity                       Current liabilities:             Accounts payable and other $ 1,626   $ 1,580   Current portion of long-term debt   577     135 Total current liabilities   2,203     1,715             Deferred income taxes   5,555     5,333 Pension and other postretirement benefits, net of current portion   784     1,095 Other liabilities and deferred credits   776     762 Long-term debt   6,323     6,441             Shareholders' equity:             Common shares   4,108     4,141   Accumulated other comprehensive loss   (3,257)     (2,839)   Retained earnings   10,167     9,378 Total shareholders' equity   11,018     10,680 Total liabilities and shareholders' equity $ 26,659   $ 26,026 These unaudited interim consolidated financial statements, expressed in Canadian dollars, and prepared in accordance with U.S. GAAP, contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as at December 31, 2012 and December 31, 2011, and its results of operations, comprehensive income, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2012 and 2011. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2012 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and MD&A. CANADIAN NATIONAL RAILWAY COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. GAAP) - unaudited (In millions)   Three months ended   Year ended   December 31   December 31     2012     2011     2012     2011       Common shares (1)                       Balance, beginning of period $ 4,120   $ 4,149   $ 4,141   $ 4,252   Stock options exercised and other   23     24     128     74   Share repurchase programs   (35)     (32)     (161)     (185) Balance, end of period $ 4,108   $ 4,141   $ 4,108   $ 4,141                           Accumulated other comprehensive loss                       Balance, beginning of period $ (2,803)   $ (1,647)   $ (2,839)   $ (1,709)   Other comprehensive loss   (454)     (1,192)     (418)     (1,130) Balance, end of period $ (3,257)   $ (2,839)   $ (3,257)   $ (2,839)                           Retained earnings                       Balance, beginning of period $ 9,988   $ 9,154   $ 9,378   $ 8,741   Net income   610     592     2,680     2,457   Share repurchase programs   (270)     (224)     (1,239)     (1,235)   Dividends   (161)     (144)     (652)     (585) Balance, end of period $ 10,167   $ 9,378   $ 10,167   $ 9,378 (1) During the three months and year ended December 31, 2012, the Company issued 0.5 million and 3.2 million common shares, respectively, as a result of stock options exercised and repurchased 3.6 million and 16.9 million common shares, respectively, under its share repurchase programs. At December 31, 2012, the Company had 428.4 million common shares outstanding. CANADIAN NATIONAL RAILWAY COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP) - unaudited (In millions)   Three months ended   Year ended   December 31   December 31     2012     2011     2012     2011          Operating activities                       Net income $ 610   $ 592   $ 2,680   $ 2,457 Adjustments to reconcile net income to net cash provided by operating activities:                         Depreciation and amortization   237     231     924     884   Deferred income taxes   120     204     451     531   Gain on disposal of property   -     -     (281)     (348) Changes in operating assets and liabilities:                         Accounts receivable   17     (34)     (20)     (51)   Material and supplies   43     70     (30)     11   Accounts payable and other   (11)     (68)     129     34   Other current assets   (7)     (11)     (13)     (2) Pensions and other, net   (285)     (393)     (780)     (540) Net cash provided by operating activities   724     591     3,060     2,976                         Investing activities                       Property additions   (610)     (613)     (1,731)     (1,625) Disposal of property   -     -     311     369 Change in restricted cash and cash equivalents   (3)     (10)     (22)     (499) Other, net   16     4     21     26 Net cash used in investing activities   (597)     (619)     (1,421)     (1,729)                         Financing activities                       Issuance of debt   493     1,165     2,354     1,361 Repayment of debt   (195)     (858)     (2,001)     (1,083) Issuance of common shares due to exercise of stock options and related excess tax benefits realized   20     21     117     77 Repurchase of common shares   (305)     (256)     (1,400)     (1,420) Dividends paid   (161)     (144)     (652)     (585) Net cash used in financing activities   (148)     (72)     (1,582)     (1,650) Effect of foreign exchange fluctuations on US dollar-denominated cash and cash equivalents   1     9     (3)     14 Net increase (decrease) in cash and cash equivalents   (20)     (91)     54     (389) Cash and cash equivalents, beginning of period   175     192     101     490 Cash and cash equivalents, end of period $ 155   $ 101   $ 155   $ 101                         Supplemental cash flow information                         Net cash receipts from customers and other $ 2,481   $ 2,336   $ 9,877   $ 8,995   Net cash payments for:                           Employee services, suppliers and other expenses   (1,239)     (1,092)     (5,241)     (4,643)     Interest   (89)     (80)     (364)     (329)     Personal injury and other claims   (22)     (49)     (79)     (97)     Pensions   (257)     (365)     (844)     (468)     Income taxes   (150)     (159)     (289)     (482) Net cash provided by operating activities $ 724   $ 591   $ 3,060   $ 2,976 CANADIAN NATIONAL RAILWAY COMPANY SELECTED RAILROAD STATISTICS (U.S. GAAP) - unaudited                 Three months ended   Year ended   December 31   December 31   2012 2011   2012   2011     Statistical operating data                           Rail freight revenues ($ millions) 2,280 2,132   8,938   8,111 Gross ton miles (GTM) (millions) 97,873 92,128   383,754   357,927 Revenue ton miles (RTM) (millions) 52,124 48,156   201,496   187,753 Carloads (thousands) 1,270 1,232   5,059   4,873 Route miles (includes Canada and the U.S.) (1) 20,100 20,000   20,100   20,000 Employees (end of period) 23,430 23,339   23,430   23,339 Employees (average for the period) 23,532 23,433   23,466   23,079               Productivity                           Operating ratio (%) 63.6 64.7   62.9   63.5 Rail freight revenue per RTM (cents) 4.37 4.43   4.44   4.32 Rail freight revenue per carload ($) 1,795 1,731   1,767   1,664 Operating expenses per GTM (cents) 1.65 1.67   1.62   1.60 Labor and fringe benefits expense per GTM (cents) 0.47 0.55   0.51   0.51 GTMs per average number of employees (thousands) 4,159 3,932   16,354   15,509 Diesel fuel consumed (US gallons in millions) 99.9 94.3   388.7   367.7 Average fuel price ($/US gallon) 3.53 3.55   3.47   3.39 GTMs per US gallon of fuel consumed 980 977   987   973               Safety indicators                           Injury frequency rate per 200,000 person hours (2) 1.34 1.32   1.31   1.55 Accident rate per million train miles (2) 1.77 1.96   2.10   2.25               Financial ratio                           Debt-to-total capitalization ratio (% at end of period) (3) 38.5 38.1   38.5   38.1 (1) Rounded to the nearest hundred miles. (2) Based on Federal Railroad Administration (FRA) reporting criteria. (3) Debt-to-total capitalization is calculated as total long-term debt plus current portion of long-term debt, divided by the sum of total debt plus total shareholders' equity. Certain of the 2011 comparative figures have been restated to conform with the 2012 presentation. Such statistical data and related productivity measures are based on estimated data available at such time and are subject to change as more complete information becomes available. CANADIAN NATIONAL RAILWAY COMPANY SUPPLEMENTARY INFORMATION (U.S. GAAP) - unaudited                           Three months ended December 31   Year ended December 31                           2012 2011 % Change Fav (Unfav)   % Change at constant currency Fav (Unfav) (1)   2012 2011 % Change Fav (Unfav)   % Change at constant currency Fav (Unfav) (1)     Revenues (millions of dollars)                       Petroleum and chemicals 427 377 13%   16%   1,640 1,420 15%   15% Metals and minerals 274 278 (1%)   1%   1,133 1,006 13%   12% Forest products 323 329 (2%)   -   1,331 1,270 5%   4% Coal 171 149 15%   17%   712 618 15%   15% Grain and fertilizers 459 413 11%   13%   1,590 1,523 4%   4% Intermodal 498 464 7%   8%   1,994 1,790 11%   11% Automotive 128 122 5%   7%   538 484 11%   10% Total rail freight revenues 2,280 2,132 7%   9%   8,938 8,111 10%   10% Other revenues 254 245 4%   5%   982 917 7%   6% Total revenues 2,534 2,377 7%   8%   9,920 9,028 10%   9%                         Revenue ton miles (millions)                       Petroleum and chemicals 10,154 8,532 19%   19%   37,449 32,962 14%   14% Metals and minerals 5,000 5,119 (2%)   (2%)   20,236 18,899 7%   7% Forest products 7,141 7,345 (3%)   (3%)   29,674 29,336 1%   1% Coal 5,754 4,685 23%   23%   23,570 19,980 18%   18% Grain and fertilizers 12,826 11,900 8%   8%   45,417 45,468 -    -  Intermodal 10,614 9,950 7%   7%   42,396 38,563 10%   10% Automotive 635 625 2%   2%   2,754 2,545 8%   8%   52,124 48,156 8%   8%   201,496 187,753 7%   7% Rail freight revenue / RTM (cents)                       Total rail freight revenue per RTM 4.37 4.43 (1%)   -   4.44 4.32 3%   2% Commodity groups:                       Petroleum and chemicals 4.21 4.42 (5%)   (3%)   4.38 4.31 2%   1% Metals and minerals 5.48 5.43 1%   3%   5.60 5.32 5%   4% Forest products 4.52 4.48 1%   3%   4.49 4.33 4%   3% Coal 2.97 3.18 (7%)   (5%)   3.02 3.09 (2%)   (3%) Grain and fertilizers 3.58 3.47 3%   5%   3.50 3.35 4%   4% Intermodal 4.69 4.66 1%   2%   4.70 4.64 1%   1% Automotive 20.16 19.52 3%   6%   19.54 19.02 3%   2%                         Carloads (thousands)                       Petroleum and chemicals 150 139 8%   8%   594 560 6%   6% Metals and minerals 246 261 (6%)   (6%)   1,024 1,013 1%   1% Forest products 109 109 -   -   445 443 -   - Coal 103 110 (6%)   (6%)   435 464 (6%)   (6%) Grain and fertilizers 171 152 13%   13%   597 592 1%   1% Intermodal 437 408 7%   7%   1,742 1,584 10%   10% Automotive 54 53 2%   2%   222 217 2%   2%   1,270 1,232 3%   3%   5,059 4,873 4%   4% Rail freight revenue / carload (dollars)                       Total rail freight revenue per carload 1,795 1,731 4%   6%   1,767 1,664 6%   6% Commodity groups:                       Petroleum and chemicals 2,847 2,712 5%   7%   2,761 2,536 9%   8% Metals and minerals 1,114 1,065 5%   7%   1,106 993 11%   10% Forest products 2,963 3,018 (2%)   -   2,991 2,867 4%   4% Coal 1,660 1,355 23%   25%   1,637 1,332 23%   22% Grain and fertilizers 2,684 2,717 (1%)   1%   2,663 2,573 3%   3% Intermodal 1,140 1,137 -   1%   1,145 1,130 1%   1% Automotive 2,370 2,302 3%   5%   2,423 2,230 9%   8% (1) See supplementary schedule entitled Non-GAAP Measures for an explanation of this Non-GAAP measure. Such statistical data and related productivity measures are based on estimated data available at such time and are subject to change as more complete information becomes available. CANADIAN NATIONAL RAILWAY COMPANY NON-GAAP MEASURES - unaudited   Adjusted performance measures For the three months and year ended December 31, 2012, the Company reported adjusted net income of $610 million, or $1.41 per diluted share and $2,456 million, or $5.61 per diluted share, respectively. The adjusted figures for the year ended December 31, 2012 exclude a gain on disposal of a segment of the Bala and a segment of the Oakville subdivisions, together with the rail fixtures and certain passenger agreements, of $281 million, or $252 million after-tax ($0.57 per diluted share); and a net income tax expense of $28 million ($0.06 per diluted share) consisting of a $35 million income tax expense resulting from the enactment of higher provincial corporate income tax rates that was partly offset by a $7 million income tax recovery resulting from the recapitalization of a foreign investment. For the three months and year ended December 31, 2011, the Company reported adjusted net income of $581 million, or $1.30 per diluted share and $2,194 million, or $4.84 per diluted share, respectively. The adjusted figures for the three months and year ended December 31, 2011 exclude an income tax recovery of $11 million ($0.02 per diluted share) relating to certain fuel costs attributed to various wholly owned subsidiaries in prior periods. The adjusted figures for the year ended December 31, 2011 also exclude a net income tax expense of $40 million ($0.08 per diluted share) resulting from the enactment of state corporate income tax rate changes and other legislated state tax revisions; a gain on disposal of a segment of the Company's Kingston subdivision, together with the rail fixtures and certain passenger agreements, of $288 million, or $254 million after-tax ($0.55 per diluted share); and a gain on disposal of substantially all of the assets of IC RailMarine Terminal Company of $60 million, or $38 million after-tax ($0.08 per diluted share). 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 the normal day-to-day operations of the Company and could distort the analysis of trends in business performance. The exclusion of such items in adjusted net income and adjusted earnings per share does not, however, imply that such items are necessarily non-recurring. 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. The reader is advised to read all information provided in the Company's 2012 Annual Consolidated Financial Statements, Notes thereto and Management's Discussion and Analysis (MD&A). The following tables provide a reconciliation of net income and earnings per share, as reported for the three months and year ended December 31, 2012 and 2011, to the adjusted performance measures presented herein.                               Three months ended   Year ended   December 31, 2012   December 31, 2012 In millions, except per share data   Reported   Adjustments   Adjusted     Reported   Adjustments   Adjusted                             Revenues $ 2,534 $ - $ 2,534   $ 9,920 $ - $ 9,920 Operating expenses   1,612   -   1,612     6,235   -   6,235 Operating income   922   -   922     3,685   -   3,685 Interest expense   (86)   -   (86)     (342)   -   (342) Other income (loss)   (5)   -   (5)     315   (281)   34 Income before income taxes   831   -   831     3,658   (281)   3,377 Income tax expense   (221)   -   (221)     (978)   57   (921) Net income $ 610 $ - $ 610   $ 2,680 $ (224) $ 2,456 Operating ratio   63.6%       63.6%     62.9%       62.9% Effective tax rate   26.6%       26.6%     26.7%       27.3% Basic earnings per share $ 1.42 $ - $ 1.42   $ 6.15 $ (0.51) $ 5.64 Diluted earnings per share $ 1.41 $ - $ 1.41   $ 6.12 $ (0.51) $ 5.61                                                           Three months ended   Year ended   December 31, 2011   December 31, 2011 In millions, except per share data   Reported   Adjustments   Adjusted     Reported   Adjustments   Adjusted                             Revenues $ 2,377 $ - $ 2,377   $ 9,028 $ - $ 9,028 Operating expenses   1,538   -   1,538     5,732   -   5,732 Operating income   839   -   839     3,296   -   3,296 Interest expense   (85)   -   (85)     (341)   -   (341) Other income   21   -   21     401   (348)   53 Income before income taxes   775   -   775     3,356   (348)   3,008 Income tax expense   (183)   (11)   (194)     (899)   85   (814) Net income $ 592 $ (11) $ 581   $ 2,457 $ (263) $ 2,194 Operating ratio   64.7%       64.7%     63.5%       63.5% Effective tax rate   23.6%       25.0%     26.8%       27.1% Basic earnings per share $ 1.33 $ (0.02) $ 1.31   $ 5.45 $ (0.57) $ 4.88 Diluted earnings per share $ 1.32 $ (0.02) $ 1.30   $ 5.41 $ (0.57) $ 4.84 Constant currency Although CN conducts its business and reports its earnings in Canadian dollars, a large portion of revenues and expenses is denominated in US dollars. As such, the Company's results are affected by exchange-rate fluctuations. 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 may, therefore, 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 rates were $0.99 and $1.00 per US$1.00, respectively, for the three months and year ended December 31, 2012, and $1.02 and $0.99 per US$1.00, respectively, for the three months and year ended December 31, 2011. On a constant currency basis, the Company's 2012 fourth quarter net income would have been higher by $11 million, or $0.03 per diluted share, and the 2012 twelve-month net income would have been lower by $14 million, or $0.03 per diluted share, respectively. The following table presents a reconciliation of 2012 net income as reported to net income on a constant currency basis:                 Three months ended Year ended In millions December 31, 2012 December 31, 2012         Net income, as reported $ 610 $ 2,680             Add back:           Negative (positive) impact due to the strengthening (weakening) Canadian dollar included in net income   9   (11) Add:           Increase (decrease) due to the strengthening (weakening) Canadian dollar on additional year-over-year US$ net income   2   (3) Impact of foreign exchange using constant currency rates   11   (14) Net income, on a constant currency basis $ 621 $ 2,666 Free cash flow The Company utilized $30 million and generated $1,006 million of free cash flow for the three months and year ended December 31, 2012, respectively, compared to utilized $153 million and generated $1,175 million for the same periods in 2011, respectively. Free cash flow does not have any standardized meaning prescribed by GAAP and may, therefore, not be comparable to similar measures presented by other companies. The Company believes that free cash flow is a useful measure of performance as it demonstrates the Company's ability to generate cash after the payment of capital expenditures and dividends. The Company defines free cash flow as the sum of net cash provided by operating activities, adjusted for changes in cash and cash equivalents resulting from foreign exchange fluctuations; and net cash used in investing activities, adjusted for changes in restricted cash and cash equivalents, if any, the impact of major acquisitions, if any; and the payment of dividends, calculated as follows:                               Three months ended   Year ended     December 31   December 31 In millions                       2012     2011     2012     2011                     Net cash provided by operating activities   $ 724   $ 591   $ 3,060   $ 2,976 Net cash used in investing activities     (597)     (619)     (1,421)     (1,729) Net cash provided (utilized) before financing activities     127     (28)     1,639     1,247                           Adjustments:                           Dividends paid     (161)     (144)     (652)     (585)   Change in restricted cash and cash equivalents     3     10     22     499   Effect of foreign exchange fluctuations on US dollar-denominated cash and cash equivalents     1     9     (3)     14 Free cash flow   $ (30)   $ (153)   $ 1,006   $ 1,175         SOURCE CNFor further information: <p> <i><u><b>Media</b></u></i><br/> Mark Hallman<br/> Director<br/> Communications and Public Affairs<br/> (905) 669-3384 </p> <p> <i><u><b>Investment Community</b></u></i><br/> Janet Drysdale<br/> Vice-President<br/> Investor Relations<br/> (514) 399-0052 </p>