CN
TSX : CNR
NYSE : CNI

CN

October 22, 2007 16:01 ET

CN reports Q3-2007 net income of C$485 million, or C$0.96 per diluted share, including C$0.03 per share benefit from favorable tax adjustments

Results reflect weak forest products revenues, challenging C$/US$ exchange rate environment

MONTREAL, QUEBEC--(Marketwire - Oct. 22, 2007) - CN (TSX:CNR)(NYSE:CNI) today reported its financial and operating results for the three-month and nine-month periods ended Sept. 30, 2007.

Key third-quarter 2007 statistics

- Diluted earnings per share of C$0.96, including a C$0.03 per share benefit from favorable tax adjustments, increased two per cent from the year-earlier period.

- Net income of C$485 million, including a C$14-million benefit from favorable tax adjustments, declined two per cent from net income for the same quarter of 2006.

- Revenues remained essentially flat at C$2,023 million, with several commodity groups helping to offset significant weakness in forest products.

- Operating income declined nine per cent to C$768 million, while CN's operating ratio increased by 3.5 points to 62.0 per cent.

E. Hunter Harrison, president and chief executive officer, said: "CN's third-quarter results are a solid achievement given the challenges we faced during the period. Revenues in our forest products segment - CN's largest commodity group by revenue - declined 13 per cent as a result of weak market conditions and mill closures, the impact of a stronger Canadian dollar and lower fuel surcharge revenues.

"The stronger Canadian dollar not only affected forest products but also our other businesses. Clearly, few of us expected that the Canadian dollar would surge beyond parity with the U.S. dollar during the quarter. Despite these challenges, we are fortunate to have a diversified portfolio of businesses and we were able to register volume and revenue growth in Canadian coal, grain and fertilizers, petroleum and chemicals, and automotive.

"In the near term, CN anticipates continued weak market conditions in a number of segments, particularly forest products and construction materials. In addition, we will continue to confront the financial impact of the Canadian dollar/U.S. dollar exchange rate and its effect on our customers. However, as a result of anticipated gains from the closing of our Central Station Complex and English Welsh and Scottish Railway transactions during the fourth quarter, CN expects to achieve full-year 2007 diluted earnings per share growth of about five per cent. Excluding these transaction gains, 2007 adjusted diluted earnings per share are expected to be flat versus 2006."

Third-quarter results

Net income for the third quarter of 2007 was C$485 million, including a C$14-million benefit from favorable tax adjustments related to the enactment of corporate tax rate changes in Canada and net capital losses arising from a reorganization of certain subsidiaries, compared with net income of C$497 million for the comparable period of 2006.

Diluted earnings per share for the latest quarter were C$0.96, including a C$0.03 per share benefit from favorable tax adjustments, compared with C$0.94 per diluted share for the same quarter of 2006.

Third-quarter revenues of C$2,023 million were relatively flat, largely on account of the unfavorable translation impact of a stronger Canadian dollar on U.S. dollar-denominated revenues, lower fuel surcharge revenues resulting from a decrease in the applicable year-over-year oil prices, and weaknesses in specific markets, particularly forest products. These decreases were partly offset by freight rate increases, an overall improvement in traffic mix, driven primarily by extended routings, and volume growth in Canadian coal, grain and fertilizers, petroleum and chemicals, and automotive traffic.

Revenue ton-miles, a measurement of the relative weight and distance of rail freight transported by the Company, declined one per cent during third-quarter 2007 versus the comparable period of 2006. Total 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 one per cent over the same period in 2006.

Operating expenses for the third quarter increased six per cent to C$1,255 million, mainly due to increased labor and fringe benefits, fuel, equipment rents, and casualty and other expenses, which were partly offset by the translation impact of the stronger Canadian dollar.

The operating ratio, defined as operating expenses as a percentage of revenues, was 62.0 per cent during the quarter, compared with 58.5 per cent for the third quarter of 2006, a 3.5-point increase.

Nine-month 2007 results

Net income for the first nine months of 2007 was C$1,325 million, or C$2.59 per diluted share, including deferred income tax recoveries of C$44 million (C$0.09 per diluted share) resulting from the enactment of lower corporate tax rates in Canada and net capital losses arising from a reorganization of certain subsidiaries.

Year-earlier net income was C$1,588 million, or C$2.95 per diluted share, including a deferred income tax recovery of C$250 million (C$0.46 per diluted share).

Revenues for the first nine months of 2007 were relatively flat at C$5,956 million, as freight rate increases and an overall improvement in traffic mix were largely offset by the impact of the first-quarter United Transportation Union (UTU) strike and adverse weather conditions, operational challenges, primarily in western Canada, the translation impact of a stronger Canadian dollar on U.S. dollar-denominated revenues, lower fuel surcharge revenues as a result of a decrease in the applicable year-over-year oil prices, and weakness in specific markets, particularly forest products.

Revenue ton-miles for the first nine months of 2007 declined two per cent from the comparable period of 2006, while total rail freight revenue per ton-mile increased two per cent.

For the first nine months of 2007, operating expenses increased four per cent to C$3,816 million, mainly due to increased fuel, equipment rents and purchased services and material expenses, which were partly offset by the translation impact of a stronger Canadian dollar and lower casualty and other expenses. The nine-month operating ratio was 64.1 per cent, a 2.5-point increase.

In addition to the adverse weather conditions in the first quarter and operational challenges in the second quarter, the Company's results in the first nine months of 2007 included the impact of a first-quarter 2007 strike by 2,800 members of the UTU in Canada for which the Company estimates that the impact on first-quarter 2007 operating income and net income approximated C$50 million and C$35 million, respectively (C$0.07 per diluted share).

The financial results in this press release were determined on the basis of U.S. generally accepted accounting principles (U.S. GAAP).

Please see discussion and reconciliation of non-GAAP adjusted performance measures in the attached supplementary schedule, Non-GAAP Measures.

This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risk, uncertainties and assumptions, and while there may be a risk of recession in the U.S. economy, the Company's assumption is that positive economic conditions in North America and globally will continue, which assumption may not materialize, and that its results could differ materially from those expressed or implied in such statements. Important factors that could cause such differences include, but are not limited to, industry competition, legislative and/or regulatory developments, compliance with environmental laws and regulations, various events which could disrupt operations, including natural events such as severe weather, droughts, floods and earthquakes, the effects of adverse general economic and business conditions, inflation, currency fluctuations, changes in fuel prices, labor disruptions, environmental claims, investigations or proceedings, other types of claims and litigation, 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 CN's most recent Form 40-F filed with the United States Securities and Exchange Commission, its Annual Information Form filed with the Canadian securities regulators, and its 2006 Annual Consolidated Financial Statements and Notes thereto and Management's Discussion and Analysis (MD&A), for a summary of major risks.

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, St. Louis, 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)
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(In millions, except per share data)

Three months ended Nine months ended
September 30 September 30
------------------ -----------------
2007 2006 2007 2006
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(Unaudited)

Revenues $ 2,023 $ 2,032 $ 5,956 $ 5,929
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Operating expenses
Labor and fringe benefits 446 420 1,361 1,349
Purchased services and material 247 250 786 756
Depreciation and amortization 165 157 504 483
Fuel 251 235 719 665
Equipment rents 59 49 187 135
Casualty and other 87 77 259 267
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Total operating expenses 1,255 1,188 3,816 3,655
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Operating income 768 844 2,140 2,274

Interest expense (78) (82) (251) (232)

Other income (loss) 2 (10) 7 (16)
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Income before income taxes 692 752 1,896 2,026

Income tax expense (Note 8) (207) (255) (571) (438)
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Net income $ 485 $ 497 $ 1,325 $ 1,588
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Earnings per share (Note 9)

Basic $ 0.97 $ 0.95 $ 2.62 $ 3.00

Diluted $ 0.96 $ 0.94 $ 2.59 $ 2.95

Weighted-average number of shares

Basic 499.7 522.5 505.0 529.5

Diluted 506.4 530.2 512.1 538.0
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See accompanying notes to unaudited consolidated financial statements.


CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED BALANCE SHEET (U.S. GAAP)
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(In millions)

September 30 December 31 September 30
2007 2006 2006
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(Unaudited) (Unaudited)

Assets

Current assets:
Cash and cash equivalents $ 214 $ 179 $ 56
Accounts receivable 641 692 1,035
Material and supplies 206 189 205
Deferred income taxes (Notes 2, 8) 69 84 80
Other 316 192 107
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1,446 1,336 1,483

Properties 19,883 21,053 20,216
Intangible and other assets 1,576 1,615 976
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Total assets $ 22,905 $ 24,004 $ 22,675
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Liabilities and shareholders' equity

Current liabilities:
Accounts payable and accrued charges $ 1,205 $ 1,823 $ 1,671
Current portion of long-term debt
(Note 4) 293 218 151
Other 56 73 69
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1,554 2,114 1,891

Deferred income taxes (Notes 2, 8) 4,940 5,215 4,884
Other liabilities and deferred credits 1,410 1,465 1,474
Long-term debt (Note 4) 5,342 5,386 5,164

Shareholders' equity:
Common shares 4,359 4,459 4,476
Accumulated other comprehensive loss (257) (44) (520)
Retained earnings 5,557 5,409 5,306
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9,659 9,824 9,262
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Total liabilities and shareholders'
equity $ 22,905 $ 24,004 $ 22,675
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See accompanying notes to unaudited consolidated financial statements.


CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. GAAP)
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(In millions)

Three months ended Nine months ended
September 30 September 30
------------------ ------------------
2007 2006 2007 2006
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(Unaudited)

Common shares (1)

Balance, beginning of period $ 4,417 $ 4,543 $ 4,459 $ 4,580
Stock options exercised
and other 16 8 83 90
Share repurchase programs
(Note 4) (74) (75) (183) (194)
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Balance, end of period $ 4,359 $ 4,476 $ 4,359 $ 4,476
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Accumulated other comprehensive loss

Balance, beginning of period $ (180) $ (521) $ (44) $ (222)

Other comprehensive income (loss):

Unrealized foreign exchange gain
(loss) on:
Translation of the net investment
in foreign operations (381) 50 (914) (214)
Translation of U.S. dollar-
denominated long-term debt
designated as a hedge of the net
investment in U.S. subsidiaries 328 (44) 766 163

Pension and other postretirement
benefit plans:
Amortization of:
Prior service cost (Note 6) 5 - 16 -
Net actuarial loss (Note 6) 13 - 38 -

Derivative instruments:
Decrease in unrealized holding
gains on fuel derivative
instruments - (10) - (57)

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Other comprehensive loss before
income taxes (35) (4) (94) (108)

Income tax recovery (expense) (42) 5 (119) (190)
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Other comprehensive income (loss) (77) 1 (213) (298)

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Balance, end of period $ (257) $ (520) $ (257) $ (520)
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Retained earnings

Balance, beginning of period $ 5,554 $ 5,212 $ 5,409 $ 4,891

Adoption of new accounting
pronouncements (Note 2) - - 95 -
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Restated balance, beginning
of period 5,554 5,212 5,504 4,891

Net income 485 497 1,325 1,588

Share repurchase programs
(Note 4) (378) (318) (956) (916)

Dividends (104) (85) (316) (257)

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Balance, end of period $ 5,557 $ 5,306 $ 5,557 $ 5,306
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See accompanying notes to unaudited consolidated financial statements.

(1) During the three and nine months ended September 30, 2007, the Company
issued 0.5 million and 2.9 million common shares, respectively, as a
result of stock options exercised. At September 30, 2007, the Company
had 494.5 million common shares outstanding.


CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (U.S. GAAP)
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(In millions)

Three months ended Nine months ended
September 30 September 30
------------------ -----------------
2007 2006 2007 2006
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(Unaudited)
Operating activities

Net income $ 485 $ 497 $ 1,325 $ 1,588
Adjustments to reconcile net
income to net cash provided
from operating activities:
Depreciation and amortization 165 159 506 486
Deferred income taxes 75 74 125 (20)
Other changes in:
Accounts receivable (252) (71) (38) (420)
Material and supplies (6) 30 (26) (54)
Accounts payable and accrued
charges (65) 134 (471) 149
Other net current assets and
liabilities 42 9 51 92
Other (14) 22 (40) 57
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Cash provided from operating
activities 430 854 1,432 1,878
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Investing activities

Property additions (350) (384) (897) (826)
Other, net 14 6 26 (39)
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Cash used by investing activities (336) (378) (871) (865)
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Financing activities

Issuance of long-term debt 1,841 - 3,325 3,125
Reduction of long-term debt (1,420) (153) (2,469) (2,855)
Issuance of common shares due to
exercise of stock options and
related excess tax benefits
realized 14 4 73 78
Repurchase of common shares (452) (393) (1,139) (1,110)
Dividends paid (104) (85) (316) (257)
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Cash used by financing activities (121) (627) (526) (1,019)
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Net increase (decrease) in cash
and cash equivalents (27) (151) 35 (6)

Cash and cash equivalents,
beginning of period 241 207 179 62
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Cash and cash equivalents, end
of period $ 214 $ 56 $ 214 $ 56
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Supplemental cash flow information
Net cash receipts from customers
and other $ 1,770 $ 1,949 $ 5,930 $ 5,521
Net cash payments for:
Employee services, suppliers
and other expenses (1,106) (924) (3,387) (3,097)
Interest (86) (86) (273) (227)
Workforce reductions (8) (10) (24) (37)
Personal injury and other claims (12) (18) (58) (60)
Pensions (27) (21) (50) (46)
Income taxes (101) (36) (706) (176)
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Cash provided from operating
activities $ 430 $ 854 $ 1,432 $ 1,878
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See accompanying notes to unaudited consolidated financial statements.


CANADIAN NATIONAL RAILWAY COMPANY
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (U.S. GAAP)
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Note 1 - Basis of presentation

In management's opinion, the accompanying unaudited Interim Consolidated
Financial Statements and Notes thereto, expressed in Canadian dollars, and
prepared in accordance with U.S. generally accepted accounting principles
(U.S. GAAP) for interim financial statements, contain all adjustments
(consisting of normal recurring accruals) necessary to present fairly
Canadian National Railway Company's (the Company) financial position as at
September 30, 2007, December 31, 2006, and September 30, 2006, and its
results of operations, changes in shareholders' equity and cash flows for
the three and nine months ended September 30, 2007 and 2006.

These unaudited Interim Consolidated Financial Statements and Notes thereto
have been prepared using accounting policies consistent with those used in
preparing the Company's 2006 Annual Consolidated Financial Statements,
except for accounting for income taxes and pensions and other postretirement
benefits as explained in Note 2 - Adoption of new accounting pronouncements.
While management believes that the disclosures presented are adequate to
make the information not misleading, these unaudited Interim Consolidated
Financial Statements and Notes thereto should be read in conjunction with
the Company's Interim Management's Discussion and Analysis (MD&A) and Annual
Consolidated Financial Statements and Notes thereto.

Certain of the comparative figures have been reclassified in order to be
consistent with the 2007 presentation as discussed herein. As a result of
the Company's expansion of its existing non-rail transportation services, in
combination with its rail service, the Company has become primarily
responsible for the fulfillment of the transportation of goods involving
non-rail activities. In order to be consistent with other non-rail
transportation services, the Company reclassified certain operating expenses
incurred for non-rail transportation services, which were previously netted
with their related revenues, to reflect the gross reporting of revenues
where appropriate. This change had no impact on the Company's operating
income and net income, as both revenues and operating expenses were
increased by $92 million and $225 million in the three and nine months ended
September 30, 2007, respectively, and $51 million and $155 million,
respectively, for the same periods in 2006.


Note 2 - Adoption of new accounting pronouncements

Income taxes
On January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB) Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income
Taxes," which prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. This Interpretation also
provides guidance on derecognition, classification, interest and penalties,
disclosure, and transition. The application of FIN No. 48 on January 1, 2007
had the effect of decreasing the net deferred income tax liability and
increasing Retained earnings by $98 million.

At January 1, 2007, the total amount of unrecognized tax benefits was $80
million, of which $36 million related to accrued interest and penalties. The
total amount of the gross unrecognized tax benefits was $140 million, before
considering tax treaties and other arrangements between taxation
authorities. If recognized, all of the unrecognized tax benefits would
affect the effective tax rate. The amount of unrecognized tax benefits did
not significantly change as at September 30, 2007.

The Company recognizes interest accrued and penalties related to
unrecognized tax benefits in Income tax expense in the Company's
Consolidated Statement of Income. The amount of interest and penalties
expense for the three and nine months ended September 30, 2007 was not
significant.

In Canada, the federal income tax returns filed for the years 2002 to 2006
and the provincial income tax returns filed for the years 1998 to 2006
remain subject to examination by the taxation authorities. In the U.S., the
income tax returns filed for the years 2004 to 2006 remain subject to
examination by the taxation authorities.

Pensions and other postretirement benefits
On January 1, 2007, pursuant to Statement of Financial Accounting Standards
(SFAS) No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R )," the Company early adopted the requirement to measure the defined
benefit plan assets and the projected benefit obligation as of the date of
the fiscal year-end statement of financial position for its U.S. plans. The
Company elected to use the 15-month transition method, which allows for the
extrapolation of net periodic benefit cost based on the September 30, 2006
measurement date to the fiscal year-end date of December 31, 2007. As a
result, the Company recorded a reduction of $3 million to Retained earnings
at January 1, 2007, which represents the net periodic benefit cost
attributable to the period between the early measurement date of September
30, 2006 and January 1, 2007 (the date of adoption).


Note 3 - Agreement to acquire Elgin, Joliet and Eastern Railway Company
(EJ&E)

In September 2007, the Company entered into an agreement with the U.S. Steel
Corporation (U.S. Steel) for the acquisition of the key operations of EJ&E
for a purchase price of approximately U.S.$300 million. Under the terms of
the agreement, the Company will acquire substantially all of the railroad
assets and equipment of EJ&E, except those that support the Gary Works site
in Northwest Indiana and the steelmaking operations of U.S. Steel. The
acquisition will be financed by debt and cash on hand.

In accordance with the terms of the agreement, the Company's obligation to
consummate the acquisition is subject to the Company having obtained from
the U.S. Surface Transportation Board (STB) a final, unappealable decision
that approves the acquisition or exempts it from regulation and does not
impose on the parties conditions that would significantly and adversely
affect the anticipated economic benefits of the acquisition to the Company.

The Company believes that if its application to acquire EJ&E is approved by
the STB as filed, the transaction should close by mid-2008. If the
transaction is approved, the Company will account for the acquisition using
the purchase method of accounting.


Note 4 - Financing activities

Shelf prospectus and registration statement
In September 2007, the Company issued U.S.$250 million (Cdn$250 million) of
5.85% Notes due 2017 and U.S.$300 million (Cdn$300 million) of 6.375%
Debentures due 2037, the total remaining amount under its shelf registration
statement filed in May 2006. The Company used the net proceeds of U.S.$544
million to repay a portion of its commercial paper outstanding and to reduce
its accounts receivable securitization program.

Revolving credit facility
As at September 30, 2007, the Company had letters of credit drawn on its
U.S.$1 billion revolving credit facility of $58 million ($308 million as at
December 31, 2006). The Company also had total borrowings under its
commercial paper program of $377 million, of which $136 million was
denominated in Canadian dollars and $241 million was denominated in U.S.
dollars (U.S.$242 million). The weighted-average interest rate on these
borrowings was 5.43%. The Company had no commercial paper outstanding as at
December 31, 2006.

Accounts receivable securitization
The Company has a five-year agreement, expiring in May 2011, to sell an
undivided co-ownership interest of up to a maximum of $600 million in a
revolving pool of freight receivables to an unrelated trust.

At September 30, 2007, the Company had sold receivables that resulted in
proceeds of $406 million under this program ($393 million at December 31,
2006). The retained interest in the receivables was approximately 10% of
this amount and is recorded in Other current assets. At September 30, 2007,
the servicing asset and liability were not significant.

Share repurchase programs
On July 23, 2007, the Board of Directors of the Company approved a new share
repurchase program which allows for the repurchase of up to 33.0 million
common shares between July 26, 2007 and July 25, 2008 pursuant to a normal
course issuer bid, at prevailing market prices or such other price as may be
permitted by the Toronto Stock Exchange.

In the third quarter of 2007, under this current share repurchase program,
the Company repurchased 8.3 million common shares for $452 million, at a
weighted-average price of $54.46 per share.

In the second quarter of 2007, the Company completed its 28.0 million share
repurchase program, which began on July 25, 2006, repurchasing a total of
28.0 million common shares for $1,453 million, at a weighted-average price
of $51.88 per share. Of this amount, 12.5 million common shares were
repurchased in 2007 for $687 million, at a weighted-average price of $54.93
per share.


Note 5 - Stock plans

The Company has various stock-based incentive plans for eligible employees.
A description of the plans is provided in Note 12 - Stock plans, to the
Company's 2006 Annual Consolidated Financial Statements. For the three and
nine months ended September 30, 2007, the Company recorded total
compensation expense for awards under all plans of $39 million and $112
million, respectively, and $7 million and $48 million, respectively, for the
same periods in 2006. The total tax benefit recognized in income in relation
to stock-based compensation expense for the three and nine months ended
September 30, 2007, was $12 million and $33 million, respectively, and $1
million and $12 million, respectively, for the same periods in 2006.

Cash settled award
Following approval by the Board of Directors in January 2007, the Company
granted 0.7 million restricted share units (RSUs) to designated management
employees entitling them to receive payout in cash based on the Company's
share price. The RSUs granted by the Company are generally scheduled for
payout in cash after three years ("plan period") and vest upon the
attainment of targets relating to return on invested capital over the plan
period and the Company's share price during the last three months of the
plan period. As at September 30, 2007, 0.1 million RSUs remained authorized
for future issuance under this plan.

The following table provides the activity for all cash settled awards in
2007:

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Vision 2008 Voluntary
Share Unit Incentive Deferral
RSUs Plan (Vision) Plan (VIDP)
---------------- ---------------- ----------------
In millions Nonvested Vested Nonvested Vested Nonvested Vested
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Outstanding at
December 31, 2006 2.0 - 0.8 - 0.3 1.9
Granted 0.7 - - - - -
Forfeited - - - - - -
Vested during period (0.2) 0.2 - - (0.1) 0.1
Payout - (0.1) - - - (0.2)
Conversion into VIDP - (0.1) - - - 0.1
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Outstanding at
September 30, 2007 2.5 - 0.8 - 0.2 1.9
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The following table provides valuation and expense information for all cash
settled awards:

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In millions, unless
otherwise indicated RSUs(1) Vision(1) VIDP(2) Total
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2003
Year of grant 2007 2006 2005 2004 2005 onwards
------------------------- ---- -------

Stock-based
compensation expense
recognized over
requisite service
period
Nine months ended
September 30, 2007 $ 17 $ 19 $ 19 $ 5 $ 13 $ 30 $ 103
Nine months ended
September 30, 2006 N/A $ 8 $ 12 $ 5 $ 6 $ 5 $ 36
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Liability outstanding
September 30, 2007 $ 17 $ 40 $ 53 $ 4 $ 20 $ 115 $ 249
December 31, 2006 N/A $ 21 $ 34 $ 8 $ 8 $ 99 $ 170
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Fair value per unit
September 30, 2007 $48.31 $53.97 $56.56 $56.76 $37.20 $56.76 N/A
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Fair value of awards
vested during period
Nine months ended
September 30, 2007 $ - $ - $ - $ 5 $ - $ 3 $ 8
Nine months ended
September 30, 2006 N/A $ - $ - $ - $ - $ 2 $ 2
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Nonvested awards at
September 30, 2007
Unrecognized
compensation cost $ 15 $ 14 $ 5 $ 5 $ 9 $ 10 $ 58
Remaining recognition
period (years) 2.25 1.25 0.25 1.25 1.25 3.25 N/A
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Assumptions (3)
Stock price ($) $56.76 $56.76 $56.76 $56.76 $56.76 $56.76 N/A
Expected stock price
volatility (4) 20% 20% 21% N/A 20% N/A N/A
Expected term
(years) (5) 2.25 1.25 0.25 N/A 1.25 N/A N/A
Risk-free
interest rate (6) 4.07% 4.20% 4.20% N/A 4.13% N/A N/A
Dividend rate ($) (7) $ 0.84 $ 0.84 $ 0.84 N/A $ 0.84 N/A N/A
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(1) Compensation cost is based on the fair value of the awards at
period-end using the lattice-based valuation model that uses the
assumptions as presented herein, except for time-vested RSUs.

(2) Compensation cost is based on intrinsic value.

(3) Assumptions used to determine fair value are at period-end.

(4) Based on the historical volatility of the Company's stock over a period
commensurate with the expected term of the award.

(5) Represents the remaining period of time that awards are expected to be
outstanding.

(6) Based on the implied yield available on zero-coupon government issues
with an equivalent term commensurate with the expected term of the
awards.

(7) Based on the annualized dividend rate.

Stock option award
Following approval by the Board of Directors in January 2007, the Company
granted 0.9 million conventional stock options to designated senior
management employees. The stock option plan allows eligible employees to
acquire common shares of the Company upon vesting at a price equal to the
market value of the common shares at the date of grant. The options are
exercisable during a period not exceeding 10 years. The right to exercise
options generally accrues over a period of four years of continuous
employment. Options are not generally exercisable during the first 12
months after the date of grant. At September 30, 2007, 14.4 million common
shares remained authorized for future issuances under this plan. The total
number of options outstanding at September 30, 2007, including conventional,
performance, and performance-accelerated options, was 10.7 million, 0.6
million and 3.5 million, respectively.

The following table provides the activity of stock option awards in 2007:

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Options outstanding
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Weighted- Weighted-
average average Aggregate
Number exercise years to intrinsic
of options price expiration value
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In millions In millions
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Outstanding at December 31, 2006 (1) 16.9 $23.29
Granted 0.9 $52.79
Forfeited (0.1) $36.92
Exercised (2.9) $20.25
---------------------------------------------------------------------------
Outstanding at September 30, 2007 (1) 14.8 $24.52 4.8 $ 477
---------------------------------------------------------------------------
Exercisable at September 30, 2007 (1) 12.5 $21.15 4.2 $ 446
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Stock options with a U.S. dollar exercise price have been translated to
Canadian dollars using the foreign exchange rate in effect at the
balance sheet date.


The following table provides valuation and expense information for all
stock option awards:

---------------------------------------------------------------------------
In millions, unless otherwise indicated
---------------------------------------------------------------------------
Prior
to
Year of grant 2007 2006 2005 2005 Total
---------------------------------------

Stock-based compensation expense
recognized over requisite service
period (1)
Nine months ended September 30, 2007 $ 6 $ 1 $ 2 $ - $ 9
Nine months ended September 30, 2006 N/A $ 7 $ 2 $ 3 $ 12
---------------------------------------------------------------------------

Fair value per unit
At grant date ($) $13.36 $13.80 $ 9.19 $ 8.61 N/A
---------------------------------------------------------------------------

Fair value of awards vested during
period
Nine months ended September 30, 2007 $ - $ 4 $ 3 $ - $ 7
Nine months ended September 30, 2006 N/A $ - $ 3 $ 34 $ 37
---------------------------------------------------------------------------

Nonvested awards at September 30, 2007
Unrecognized compensation cost $ 5 $ 5 $ 4 $ - $ 14
Remaining recognition period (years) 3.4 2.4 1.3 - N/A
---------------------------------------------------------------------------

Assumptions (1)
Grant price ($) $52.79 $51.51 $36.33 $23.59 N/A
Expected stock price volatility (2) 24% 25% 25% 30% N/A
Expected term (years) (3) 5.2 5.2 5.2 6.2 N/A
Risk-free interest rate (4) 4.12% 4.04% 3.50% 5.13% N/A
Dividend rate ($) (5) $ 0.84 $ 0.65 $ 0.50 $ 0.30 N/A
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Compensation cost is based on the grant date fair value using the
Black-Scholes option-pricing model that uses the assumptions at the
grant date.

(2) Based on the historical volatility of the Company's stock over a period
commensurate with the expected term of the award.

(3) Represents the period of time that awards are expected to be
outstanding. The Company uses historical data to estimate option
exercise and employee termination, and groups of employees that have
similar historical exercise behavior are considered separately.

(4) Based on the implied yield available on zero-coupon government issues
with an equivalent term commensurate with the expected term of the
awards.

(5) Based on the annualized dividend rate.


Note 6 - Pensions and other postretirement benefits

For the three and nine months ended September 30, 2007 and 2006, the
components of net periodic benefit cost for pensions and other
postretirement benefits were as follows:

(a) Components of net periodic benefit cost for pensions

----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
In millions 2007 2006 2007 2006
----------------------------------------------------------------------------
Service cost $ 38 $ 29 $ 114 $ 109
Interest cost 186 180 557 538
Expected return on plan assets (234) (227) (703) (680)
Amortization of prior service cost 5 5 15 14
Amortization of net actuarial loss 13 22 40 68
----------------------------------------------------------------------------
Net periodic benefit cost $ 8 $ 9 $ 23 $ 49
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(b) Components of net periodic benefit cost for postretirement benefits

----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ -----------------
In millions 2007 2006 2007 2006
----------------------------------------------------------------------------
Service cost $ 1 $ 1 $ 3 $ 3
Interest cost 4 3 11 11
Curtailment - - (3) -
Amortization of prior service cost - - 1 -
Recognized net actuarial gain - - (2) (4)
----------------------------------------------------------------------------
Net periodic benefit cost $ 5 $ 4 $ 10 $ 10
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For the 2007 funding year, the Company expects to make total contributions
of approximately $90 million for all its defined benefit plans, of which $50
million was disbursed as at September 30, 2007.


Note 7 - Major commitments and contingencies

A. Commitments
As at September 30, 2007, the Company had commitments to acquire railroad
ties, rail, freight cars, locomotives, and other equipment and services, as
well as outstanding information technology service contracts and licenses,
at an aggregate cost of $815 million ($773 million at December 31, 2006).
The Company also has agreements with fuel suppliers to purchase
approximately 75% of the estimated remaining 2007 volume, 52% of its
anticipated 2008 volume, 31% of its anticipated 2009 volume, 13% of its
anticipated 2010 volume, and approximately 18% of its anticipated 2011 to
2015 volumes, at market prices prevailing on the date of the purchase.

B. Contingencies
In the normal course of its operations, the Company becomes involved in
various legal actions, including claims relating to personal injuries,
occupational disease and damage to property.

Canada
Employee injuries are governed by the workers' compensation legislation in
each province whereby employees may be awarded either a lump sum or future
stream of payments depending on the nature and severity of the injury.
Accordingly, the Company accounts for costs related to employee work-related
injuries based on actuarially developed estimates of the ultimate cost
associated with such injuries, including compensation, health care and
third-party administration costs. For all other legal actions, the Company
maintains, and regularly updates on a case-by-case basis, provisions for
such items when the expected loss is both probable and can be reasonably
estimated based on currently available information.

United States
Employee work-related injuries, including occupational disease claims, are
compensated according to the provisions of the Federal Employers' Liability
Act (FELA), which requires either the finding of fault through the U.S. jury
system or individual settlements, and represent a major liability for the
railroad industry. The Company follows an actuarial-based approach and
accrues the expected cost for personal injury and property damage claims and
asserted and unasserted occupational disease claims, based on actuarial
estimates of their ultimate cost. A comprehensive actuarial study is
conducted on an annual basis, in the fourth quarter, by an independent
actuarial firm for occupational disease claims, while an actuarial study is
conducted on a semi-annual basis for non-occupational disease claims. In the
second quarter of 2007, the Company recorded a net reduction to its
provision for U.S. personal injuries and other claims pursuant to the
results of the latest actuarial study. On an ongoing basis, management
reviews and compares the assumptions inherent in the latest actuarial study
with the current claim experience and, if required, adjustments to the
liability are recorded.

As at September 30, 2007, the Company had aggregate reserves for personal
injury and other claims of $500 million, of which $103 million was recorded
as a current liability ($602 million, of which $115 million was recorded as
a current liability at December 31, 2006). Although the Company considers
such provisions to be adequate for all its outstanding and pending claims,
the final outcome with respect to actions outstanding or pending at
September 30, 2007, or with respect to future claims, cannot be predicted
with certainty, and therefore there can be no assurance that their
resolution will not have a material adverse effect on the Company's
financial position or results of operations in a particular quarter or
fiscal year.

C. Environmental matters
The Company's operations are subject to numerous federal, provincial, state,
municipal and local environmental laws and regulations in Canada and the
United States concerning, among other things, emissions into the air;
discharges into waters; the generation, handling, storage, transportation,
treatment and disposal of waste, hazardous substances, and other materials;
decommissioning of underground and aboveground storage tanks; and soil and
groundwater contamination. A risk of environmental liability is inherent in
railroad and related transportation operations; real estate ownership,
operation or control; and other commercial activities of the Company with
respect to both current and past operations. As a result, the Company incurs
significant compliance and capital costs, on an ongoing basis, associated
with environmental regulatory compliance and clean-up requirements in its
railroad operations and relating to its past and present ownership,
operation or control of real property.

The Company is subject to environmental clean-up and enforcement actions. In
particular, the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (CERCLA), also known as the Superfund law, as well
as similar state laws generally impose joint and several liability for
clean-up and enforcement costs on current and former owners and operators of
a site without regard to fault or the legality of the original conduct. The
Company has been notified that it is a potentially responsible party for
study and clean-up costs at approximately 21 sites governed by the Superfund
law (and other similar federal and state laws) for which investigation and
remediation payments are or will be made or are yet to be determined and, in
many instances, is one of several potentially responsible parties.

While the Company believes that it has identified the costs likely to be
incurred in the next several years, based on known information, for
environmental matters, the Company's ongoing efforts to identify potential
environmental concerns that may be associated with its properties may lead
to future environmental investigations, which may result in the
identification of additional environmental costs and liabilities. The
magnitude of such additional liabilities and the costs of complying with
environmental laws and containing or remediating contamination cannot be
reasonably estimated due to:

(i) the lack of specific technical information available with respect to
many sites;
(ii) the absence of any government authority, third-party orders, or claims
with respect to particular sites;
(iii) the potential for new or changed laws and regulations and for
development of new remediation technologies and uncertainty regarding
the timing of the work with respect to particular sites;
(iv) the ability to recover costs from any third parties with respect to
particular sites; and

therefore, the likelihood of any such costs being incurred or whether such
costs would be material to the Company cannot be determined at this time.
There can thus be no assurance that material liabilities or costs related to
environmental matters will not be incurred in the future, or will not have a
material adverse effect on the Company's financial position or results of
operations in a particular quarter or fiscal year, or that the Company's
liquidity will not be adversely impacted by such environmental liabilities
or costs. Although the effect on operating results and liquidity cannot be
reasonably estimated, management believes, based on current information,
that environmental matters will not have a material adverse effect on the
Company's financial condition or competitive position. Costs related to any
future remediation will be accrued in the year in which they become known.

As at September 30, 2007, the Company had aggregate accruals for
environmental costs of $109 million, of which $18 million was recorded as a
current liability ($131 million, of which $25 million was recorded as a
current liability as at December 31, 2006).

D. Guarantees and indemnifications
In the normal course of business, the Company enters into agreements that
may involve providing certain guarantees or indemnifications to third
parties and others, which may extend beyond the term of the agreement. These
include, but are not limited to, residual value guarantees on operating
leases, standby letters of credit and surety and other bonds, and
indemnifications that are customary for the type of transaction or for the
railway business.

The Company is required to recognize a liability for the fair value of the
obligation undertaken in issuing certain guarantees on the date the
guarantee is issued or modified. In addition, where the Company expects to
make a payment in respect of a guarantee, a liability will be recognized to
the extent that one has not yet been recognized.

(i) Guarantee of residual values of operating leases
The Company has guaranteed a portion of the residual values of certain of
its assets under operating leases with expiry dates between 2007 and 2017,
for the benefit of the lessor. If the fair value of the assets, at the end
of their respective lease term, is less than the fair value, as estimated at
the inception of the lease, then the Company must, under certain conditions,
compensate the lessor for the shortfall. At September 30, 2007, the maximum
exposure in respect of these guarantees was $141 million. There are no
recourse provisions to recover any amounts from third parties.

(ii) Other guarantees
The Company has granted irrevocable standby letters of credit and surety and
other bonds, issued by highly rated financial institutions, to third parties
to indemnify them in the event the Company does not perform its contractual
obligations. As at September 30, 2007, the maximum potential liability under
these guarantees was $459 million, of which $384 million was for workers'
compensation and other employee benefits and $75 million was for equipment
under leases and other. During 2007, the Company has granted guarantees for
which no liability has been recorded, as the majority relates to the
Company's future performance.

As at September 30, 2007 the Company had not recorded any additional
liability with respect to these guarantees, as the Company does not expect
to make any additional payments associated with these guarantees. The
majority of the guarantee instruments mature at various dates between 2007
and 2010.

(iii) General indemnifications
In the normal course of business, the Company has provided indemnifications,
customary for the type of transaction or for the railway business, in
various agreements with third parties, including indemnification provisions
where the Company would be required to indemnify third parties and others.
Indemnifications are found in various types of contracts with third parties
which include, but are not limited to, (a) contracts granting the Company
the right to use or enter upon property owned by third parties such as
leases, easements, trackage rights and sidetrack agreements; (b) contracts
granting rights to others to use the Company's property, such as leases,
licenses and easements; (c) contracts for the sale of assets and
securitization of accounts receivable; (d) contracts for the acquisition of
services; (e) financing agreements; (f) trust indentures, fiscal agency
agreements, underwriting agreements or similar agreements relating to debt
or equity securities of the Company and engagement agreements with financial
advisors; (g) transfer agent and registrar agreements in respect of the
Company's securities; (h) trust and other agreements relating to pension
plans and other plans, including those establishing trust funds to secure
payment to certain officers and senior employees of special retirement
compensation arrangements; (i) pension transfer agreements; (j) master
agreements with financial institutions governing derivative transactions;
and (k) settlement agreements with insurance companies or other third
parties whereby such insurer or third party has been indemnified for any
present or future claims relating to insurance policies, incidents or events
covered by the settlement agreements. To the extent of any actual claims
under these agreements, the Company maintains provisions for such items,
which it considers to be adequate. Due to the nature of the indemnification
clauses, the maximum exposure for future payments may be material. However,
such exposure cannot be determined with certainty.

The Company has entered into various indemnification contracts with third
parties for which the maximum exposure for future payments cannot be
determined with certainty. As a result, the Company was unable to determine
the fair value of these guarantees and accordingly, no liability was
recorded. There are no recourse provisions to recover any amounts from third
parties.


Note 8 - Income taxes

In the third quarter of 2007, the enactment of a new Michigan income-based
business tax to replace the single business tax was shortly followed by the
enactment of an additional bill, which allows for future deductions equal to
the net taxable temporary differences existing at the beginning of 2008.
Therefore, there was no impact on the deferred income tax liability.

For the three and nine months ended September 30, 2007, the Company recorded
deferred income tax recoveries of $14 million and $44 million, respectively,
in the Consolidated Statement of Income, for the enactment of corporate
income tax rate changes in Canada and net capital losses arising from a
reorganization of certain subsidiaries.

For the nine months ended September 30, 2006, the Company recorded a
deferred income tax recovery of $250 million in the Consolidated Statement
of Income, resulting primarily from the enactment of lower corporate income
tax rates in Canada.


Note 9 - Earnings per share

The following table provides a reconciliation between basic and diluted
earnings per share:

----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
In millions, ------------------ -----------------
except per share data 2007 2006 2007 2006
----------------------------------------------------------------------------

Net income $ 485 $ 497 $ 1,325 $ 1,588

Weighted-average shares
outstanding 499.7 522.5 505.0 529.5
Effect of stock options 6.7 7.7 7.1 8.5
----------------------------------------------------------------------------
Weighted-average diluted shares
outstanding 506.4 530.2 512.1 538.0

Basic earnings per share $ 0.97 $ 0.95 $ 2.62 $ 3.00
Diluted earnings per share $ 0.96 $ 0.94 $ 2.59 $ 2.95
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The weighted-average number of stock options that were not included in the
calculation of diluted earnings per share, as their inclusion would have had
an anti-dilutive impact, was nil and 0.1 million for the three and nine
months ended September 30, 2007, respectively, and 0.2 million,
respectively, for the corresponding periods in 2006.


Note 10 - Investment in English Welsh and Scottish Railway (EWS)

In July 2007, Germany's state-owned railway, Deutsche Bahn AG, entered into
an agreement to acquire all of the shares of EWS, a company that provides
most of the rail freight services in Great Britain and operates freight
trains through the English Channel Tunnel, and in which the Company has a
32% ownership interest. The acquisition is subject to approval by the
European Commission, which is expected in the fourth quarter of 2007. The
final purchase price is subject to the resolution of certain items, for
which funds will be placed in escrow for a period of up to two years. The
Company's share of the net after-tax cash proceeds is estimated to be $85
million, before the ultimate resolution of the items mentioned above. The
proceeds of disposition are expected to exceed the Company's carrying value
of the investment. The Company's investment in EWS has been reclassified to
Other current assets.


Note 11 - Sale of Central Station Complex

In September 2007, CN reached an agreement with Homburg Invest Inc., to sell
its Central Station Complex in Montreal. Under the agreement, CN will enter
into long-term arrangements to lease back its corporate headquarters
building and the Central Station railway passenger facilities. The
transaction, subject to customary closing requirements and regulatory
approvals, will generate proceeds of $355 million before any transaction
costs for the Company and is expected to be finalized by the end of the
current year. The book value of the assets being sold, excluding assets that
will be accounted for as capital leases, has been reclassified to Other
current assets. The proceeds of disposition are expected to exceed the
Company's net book value of the underlying assets. Any gain resulting from
the sale and leaseback of the corporate headquarters building and the
Central Station railway passenger facilities will be deferred and amortized
over the shorter of the lease period and the life of the assets.


CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (U.S. GAAP)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three months ended Nine months ended
September 30 September 30
------------------ -----------------
2007 2006 2007 2006
----------------------------------------------------------------------------
(Unaudited)

Statistical operating data

Rail freight revenues ($ millions) 1,821 1,857 5,423 5,430
Gross ton miles (GTM) (millions) 88,498 88,880 258,583 264,565
Revenue ton miles (RTM)
(millions) 46,481 47,066 136,997 139,644
Carloads (thousands) 1,204 1,241 3,539 3,678
Route miles (includes Canada
and the U.S.) 20,219 19,919 20,219 19,919
Employees (end of period) 22,325 21,681 22,325 21,681
Employees (average for the
period) 22,262 21,670 21,764 21,663
----------------------------------------------------------------------------

Productivity

Operating ratio (%) 62.0 58.5 64.1 61.6
Rail freight revenue per RTM
(cents) 3.92 3.95 3.96 3.89
Rail freight revenue per carload
($) 1,512 1,496 1,532 1,476
Operating expenses per GTM
(cents) 1.42 1.34 1.48 1.38
Labor and fringe benefits expense
per GTM (cents) 0.50 0.47 0.53 0.51
GTMs per average number of
employees (thousands) 3,975 4,102 11,881 12,213
Diesel fuel consumed (U.S.
gallons in millions) 96 96 290 300
Average fuel price ($/U.S.
gallon) (1) 2.39 2.33 2.29 2.12
GTMs per U.S. gallon of fuel
consumed 922 926 892 882
----------------------------------------------------------------------------

Safety indicators

Injury frequency rate per 200,000
person hours (2) 2.2 2.3 1.8 2.1
Accident rate per million train
miles (2) 3.0 2.8 2.4 2.3
----------------------------------------------------------------------------

Financial ratio

Debt to total capitalization
ratio (% at end of period) 36.8 36.5 36.8 36.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) 2006 includes the impact of the Company's fuel hedging program.
(2) Based on Federal Railroad Administration (FRA) reporting criteria.

Certain of the 2006 comparative figures have been reclassified in order to
be consistent with the 2007 presentation (see Note 1 of the Company's
unaudited Interim Consolidated Financial Statements). Certain 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)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three months ended Nine months ended
September 30 September 30
------------------- -------------------
Variance Variance
Fav Fav
2007 2006 (Unfav) 2007 2006 (Unfav)
----------------------------------------------------------------------------
(Unaudited)

Revenues (in millions of dollars)
Petroleum and chemicals 317 298 6% 920 871 6%
Metals and minerals 208 226 (8%) 631 643 (2%)
Forest products 392 450 (13%) 1,216 1,333 (9%)
Coal 99 93 6% 287 277 4%
Grain and fertilizers 330 309 7% 961 907 6%
Intermodal 361 369 (2%) 1,020 1,041 (2%)
Automotive 114 112 2% 388 358 8%
Other revenue 202 175 15% 533 499 7%
------------------------------------------- ---------------
2,023 2,032 - 5,956 5,929 -

Revenue ton miles (millions)
Petroleum and chemicals 8,369 8,049 4% 24,288 23,938 1%
Metals and minerals 4,301 4,611 (7%) 12,414 13,441 (8%)
Forest products 10,021 10,874 (8%) 30,652 32,439 (6%)
Coal 3,500 3,500 - 10,344 10,518 (2%)
Grain and fertilizers 11,241 10,839 4% 32,809 32,305 2%
Intermodal 8,339 8,487 (2%) 24,114 24,685 (2%)
Automotive 710 706 1% 2,376 2,318 3%
------------------------------------------- ---------------
46,481 47,066 (1%) 136,997 139,644 (2%)

Rail freight revenue / RTM (cents)
Total rail freight revenue
per RTM 3.92 3.95 (1%) 3.96 3.89 2%
Commodity groups:
Petroleum and chemicals 3.79 3.70 2% 3.79 3.64 4%
Metals and minerals 4.84 4.90 (1%) 5.08 4.78 6%
Forest products 3.91 4.14 (6%) 3.97 4.11 (3%)
Coal 2.83 2.66 6% 2.77 2.63 5%
Grain and fertilizers 2.94 2.85 3% 2.93 2.81 4%
Intermodal 4.33 4.35 - 4.23 4.22 -
Automotive 16.06 15.86 1% 16.33 15.44 6%
------------------------------------------- ---------------

Carloads (thousands)
Petroleum and chemicals 153 152 1% 448 445 1%
Metals and minerals 257 270 (5%) 749 778 (4%)
Forest products 147 165 (11%) 450 513 (12%)
Coal 90 99 (9%) 275 317 (13%)
Grain and fertilizers 152 150 1% 439 437 -
Intermodal 343 348 (1%) 978 994 (2%)
Automotive 62 57 9% 200 194 3%
------------------------------------------- ---------------
1,204 1,241 (3%) 3,539 3,678 (4%)

Rail freight revenue / carload (dollars)
Total rail freight revenue
per carload 1,512 1,496 1% 1,532 1,476 4%
Commodity groups:
Petroleum and chemicals 2,072 1,961 6% 2,054 1,957 5%
Metals and minerals 809 837 (3%) 842 826 2%
Forest products 2,667 2,727 (2%) 2,702 2,598 4%
Coal 1,100 939 17% 1,044 874 19%
Grain and fertilizers 2,171 2,060 5% 2,189 2,076 5%
Intermodal 1,052 1,060 (1%) 1,043 1,047 -
Automotive 1,839 1,965 (6%) 1,940 1,845 5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Certain of the 2006 comparative figures have been reclassified in order to
be consistent with the 2007 presentation (see Note 1 of the Company's
unaudited Interim Consolidated Financial Statements). 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
During the three months ended September 30, 2007, the Company reported
adjusted net income of $471 million, or $0.93 per diluted share, excluding
the impact of a net deferred income tax recovery of $14 million ($0.03 per
diluted share) that resulted from the enactment of corporate income tax rate
changes in Canada and net capital losses arising from a reorganization of
certain subsidiaries. During the nine months ended September 30, 2007, the
Company reported adjusted net income of $1,281 million, or $2.50 per diluted
share, excluding the impact of a net deferred income tax recovery of $44
million ($0.09 per diluted share) that resulted from the enactment of lower
corporate income tax rates in Canada and net capital losses arising from a
reorganization of certain subsidiaries.

During the nine months ended September 30, 2006, the Company reported
adjusted net income of $1,338 million, or $2.49 per diluted share, excluding
the impact of a second-quarter deferred income tax recovery of $250 million
($0.46 per diluted share) that resulted primarily from the enactment of
lower corporate income tax rates in Canada.

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 such as deferred income tax adjustments,
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 Interim Consolidated Financial Statements and
Notes thereto. The following tables provide a reconciliation of net income
and earnings per share, as reported for the three and nine months ended
September 30, 2007 and 2006, to the adjusted performance measures presented
herein.

Three months ended Nine months ended
September 30, 2007 September 30, 2007
----------------------------- -----------------------------
In millions,
except per Tax Tax
share data Reported adjustments Adjusted Reported adjustments Adjusted
----------------------------------------------------------------------------
Revenues $2,023 $ - $2,023 $5,956 $ - $5,956
Operating
expenses 1,255 - 1,255 3,816 - 3,816
----------------------------------------------------------------------------
Operating income 768 - 768 2,140 - 2,140
----------------------------------------------------------------------------
Interest expense (78) - (78) (251) - (251)
Other income 2 - 2 7 - 7
----------------------------------------------------------------------------
Income before
income taxes 692 - 692 1,896 - 1,896
Income tax
expense (207) (14) (221) (571) (44) (615)
----------------------------------------------------------------------------
Net income $ 485 $ (14) $ 471 $1,325 $ (44) $1,281
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings
per share $ 0.97 $(0.03) $ 0.94 $ 2.62 $(0.09) $ 2.53
Diluted earnings
per share $ 0.96 $(0.03) $ 0.93 $ 2.59 $(0.09) $ 2.50
----------------------------------------------------------------------------

Three months ended Nine months ended
September 30, 2006 September 30, 2006
----------------------------- -----------------------------
In millions,
except per Tax Tax
share data Reported adjustments Adjusted Reported adjustments Adjusted
----------------------------------------------------------------------------
Revenues $2,032 $ - $2,032 $5,929 $ - $5,929
Operating
expenses 1,188 - 1,188 3,655 - 3,655
----------------------------------------------------------------------------
Operating income 844 - 844 2,274 - 2,274
----------------------------------------------------------------------------
Interest expense (82) - (82) (232) - (232)
Other loss (10) - (10) (16) - (16)
----------------------------------------------------------------------------
Income before
income taxes 752 - 752 2,026 - 2,026
Income tax
expense (255) - (255) (438) (250) (688)
----------------------------------------------------------------------------
Net income $ 497 $ - $ 497 $1,588 $ (250) $1,338
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings
per share $ 0.95 $ - $ 0.95 $ 3.00 $(0.48) $ 2.52
Diluted earnings
per share $ 0.94 $ - $ 0.94 $ 2.95 $(0.46) $ 2.49
----------------------------------------------------------------------------


Free cash flow

The Company generated $142 million and $193 million of free cash flow for
the three and nine months ended September 30, 2007, compared to $391 million
and $1,131 million for the same periods in 2006. 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 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
cash provided from operating activities, excluding changes in the accounts
receivable securitization program, less cash used by investing activities,
and after the payment of dividends, calculated as follows:


----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ -----------------
In millions 2007 2006 2007 2006
----------------------------------------------------------------------------

Cash provided from operating
activities $ 430 $ 854 $ 1,432 $ 1,878
Cash used by investing activities (336) (378) (871) (865)
----------------------------------------------------------------------------
Cash provided before financing
activities 94 476 561 1,013
----------------------------------------------------------------------------

Adjustments:
Change in accounts receivable
securitization 152 - (52) 375
Dividends paid (104) (85) (316) (257)
----------------------------------------------------------------------------
Free cash flow $ 142 $ 391 $ 193 $ 1,131
----------------------------------------------------------------------------
----------------------------------------------------------------------------

www.cn.ca

Contact Information

  • CN
    Mark Hallman (Media)
    Director, Communications, Media & Eastern Region
    (905) 669-3384
    or
    CN
    Robert Noorigian (Investment Community)
    Vice-President, Investor Relations
    (514) 399-0052