CN
TSX : CNR
NYSE : CNI

CN

January 22, 2008 16:01 ET

CN reports Q4-2007 net income of C$833 million, or C$1.68 per diluted share, including C$0.78 per share in benefits from favorable tax adjustments and major asset sales

CN sees 2008 opportunities despite tough economic environment

MONTREAL, QUEBEC--(Marketwire - Jan. 22, 2008) - CN (TSX:CNR)(NYSE:CNI) today reported its financial and operating results for the quarter and year ended Dec. 31, 2007.

Fourth-quarter 2007 highlights


  • Diluted earnings per share were C$1.68, including a C$0.57 per share benefit from a deferred income tax recovery, C$0.13 per share from the sale of CN's Central Station Complex (CSC) in Montreal, and C$0.08 per share from the sale of the Company's investment in English Welsh and Scottish Railway (EWS). Excluding these items, CN reported adjusted diluted EPS of C$0.90, which was flat compared with adjusted diluted EPS for the fourth quarter of 2006. (1)

  • Net income was C$833 million, which included a deferred income tax recovery of C$284 million, as well as after-tax gains of C$64 million on the CSC sale and C$41 million from the EWS investment sale. Excluding these items, adjusted net income was C$444 million. (1)

  • 2006 fourth-quarter net income was C$499 million, including a deferred income tax recovery of C$27 million, or five cents per diluted share. Excluding the deferred income tax recovery, fourth-quarter 2006 adjusted net income was C$472 million (adjusted diluted EPS of C$0.90). (1)

  • Fourth-quarter 2007 revenues declined three per cent to C$1,941 million, with operating expenses declining three per cent to C$1,205 million.

  • Operating income for the final quarter of 2007 declined three per cent to C$736 million, while CN's operating ratio was essentially flat at 62.1 per cent.

  • The strengthening Canadian dollar relative to the U.S. dollar, which affected the conversion of CN's U.S. dollar-denominated revenues and expenses, resulted in a reduction to fourth-quarter 2007 net income of approximately C$25 million, or C$0.05 per diluted share.


E. Hunter Harrison, president and chief executive officer, said: "CN faced strong headwinds in 2007 but we turned in a solid performance for both the quarter and the year. The major challenges were weak housing markets in the U.S., the continuing strength of the Canadian dollar that affected our U.S. dollar-denominated revenues, a strike in the first quarter, and a number of weather-related issues, particularly in western Canada.

"During the final quarter of 2007, four of our commodity groups - intermodal, petroleum and chemicals, metals and minerals, and coal - generated increased revenues. However, tough market conditions reduced forest products revenues by 19 per cent. Operating expenses declined three per cent in the quarter, allowing the Company to deliver an operating ratio of 62.1 per cent.

"We are very pleased with the start in the fourth quarter of our new Prince Rupert intermodal service. Transit times have been consistently on target. It's this kind of performance that underscores the value of the product offering and commitment of all the parties involved - CN, the Port of Prince Rupert and Maher Terminals - to deliver a highly competitive service."

Harrison said 2008 will be challenging in some areas, but the year ahead also offers the Company opportunities for growth.

"We're cautious about the state of the North American economy, continued weakness in the U.S. housing market, and the strength of the Canadian dollar vis-a-vis the U.S. dollar. At the same time, we see opportunities for new traffic, the strongest being intermodal as a result of the new Prince Rupert gateway for containerized goods moving between Asia and North America. We also see a number of opportunities in bulk and industrial products, including those related to the continuing oil boom in western Canada. Our recent acquisitions have strengthened our freight franchise in that region."

2008 financial outlook

For 2008, CN expects the Canadian-U.S. dollar exchange rate to be in the range of C$0.95-C$1.00, the price for crude oil (West Texas Intermediate) to be around US$90 per barrel, and North American economic growth to be approximately 1.7 per cent. With this outlook, CN expects to take advantage of a number of opportunities and is targeting to deliver revenue growth in the range of six to eight per cent this year. With continued productivity improvements, the Company expects 2008 diluted earnings per share growth to be in the range of mid-to-high single digit, compared with adjusted diluted EPS of C$3.40 in 2007, and 2008 free cash flow to be in the order of C$750 million. (1)

In 2008, CN also plans to invest approximately C$1.5 billion in capital programs, of which more than C$1 billion will be targeted on track infrastructure to maintain a safe railway and improve the productivity and fluidity of the network.

Please see "Forward-Looking Statements" below for additional information.

Fourth-quarter 2007 results

Net income for the fourth quarter of 2007 was C$833 million, including a deferred income tax recovery of C$284 million (C$0.57 per diluted share) resulting from the enactment of corporate income tax rate changes in Canada, and the after-tax gains on the sale of the CSC of C$64 million (C$0.13 per diluted share) and the Company's investment in EWS of C$41 million (C$0.08 per diluted share). Excluding the three items, CN reported adjusted diluted EPS of C$0.90. (1)

Fourth-quarter 2006 net income was C$499 million (C$0.95 per diluted share), including a deferred income tax recovery of C$27 million (C$0.05 per diluted share) attributable to the resolution of matters relating to prior years' income taxes. Excluding the deferred income tax recovery, fourth-quarter 2006 adjusted net income was C$472 million (adjusted diluted EPS of C$0.90). (1)

Fourth-quarter 2007 revenues declined three per cent to C$1,941 million. The decrease was mainly due to the translation impact of a stronger Canadian dollar on U.S. dollar-denominated revenues and weakness in the forest products market.

Revenue ton-miles, a measurement of the relative weight and distance of rail freight transported by the Company, increased by three per cent during fourth-quarter 2007 versus the comparable period of 2006. 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 six per cent over the same period in 2006.

Operating expenses for the fourth quarter decreased three per cent to C$1,205 million, largely as a result of decreased labor and fringe benefits expense and the translation impact of a stronger Canadian dollar on U.S. dollar-denominated expenses. These factors were partially offset by significantly higher fuel expense.

The operating ratio, defined as operating expenses as a percentage of revenues, was 62.1 per cent during the quarter, compared with 62.2 per cent for the fourth quarter of 2006, a 0.1-point decrease.

Full-year 2007 results

Net income for 2007 was C$2,158 million, with diluted earnings per share of C$4.25. The 2007 results included a deferred income tax recovery of C$328 million (C$0.64 per diluted share) resulting mainly from the enactment of corporate income tax rate changes in Canada, as well as the gains on the sale of the CSC of C$64 million (C$0.13 per diluted share) and the Company's investment in EWS of C$41 million (C$0.08 per diluted share). Year-earlier net income was C$2,087 million (C$3.91 per diluted share). Included in the 2006 figures was a deferred income tax recovery of C$277 million (C$0.51 per diluted share), resulting from the enactment of lower corporate income tax rates in Canada and the resolution of matters pertaining to prior years' income taxes.

Excluding benefits from favorable tax adjustments and major asset sales, adjusted net income for 2007 was C$1,725 million, or C$3.40 per diluted share, compared with adjusted 2006 net income of C$1,810 million, or C$3.40 per diluted share. (1)

Revenues for 2007 totaled C$7,897 million, compared with C$7,929 million for 2006. The decline in revenues was mainly a result of the translation impact of the stronger Canadian dollar on U.S. dollar-denominated revenues, weakness in specific markets, particularly forest products, the United Transportation Union (UTU) strike, and adverse weather conditions in the first half of 2007. Largely offsetting these factors were the impact of net freight rate increases, which included lower fuel surcharge revenues as a result of applicable fuel prices, and an overall improvement in traffic mix.

Revenue ton-miles for 2007 declined one per cent from the comparable period of 2006, while rail freight revenue per ton-mile was essentially flat.

Operating expenses increased two per cent to C$5,021 million, mainly due to increased fuel costs and equipment rents, which were partly offset by the translation impact of a stronger Canadian dollar and decreased labor and fringe benefits expense.

Operating income declined five per cent to C$2,876 million. The operating ratio was 63.6 per cent in 2007, compared with 61.8 per cent in 2006, a 1.8-point increase.

In addition to the weather conditions and operational challenges in the first half of 2007, CN's results in 2007 included the impact of the first-quarter 2007 strike by 2,800 UTU members, for which the Company estimated the negative impact on first-quarter 2007 operating income and net income to be approximately C$50 million and C$35 million, respectively, (C$0.07 per diluted share).

The strengthening Canadian dollar relative to the U.S. dollar, which affected the conversion of CN's U.S. dollar-denominated revenues and expenses, resulted in a reduction to net income of approximately C$35 million, or 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).

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

Forward-Looking Statements

This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risk, uncertainties and assumptions. In addition to the other assumptions contained in this release, the Company assumes that, although there is an increasing risk of recession in the U.S. economy, growth in North America and globally will continue to slow down in 2008, but that a recession will not take place. The Company cautions that this as well as its other assumptions may not materialize. The Company's results could differ materially from those expressed or implied in such forward-looking 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), as well as its 2007 unaudited interim consolidated financial statements and MD&A, for a summary of major risks.

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 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.

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 Year ended
December 31 December 31
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2007 2006 2007 2006
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(Unaudited)

Revenues $ 1,941 $ 2,000 $ 7,897 $ 7,929
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Operating expenses
Labor and fringe benefits 340 474 1,701 1,823
Purchased services and material 259 271 1,045 1,027
Fuel 307 227 1,026 892
Depreciation and amortization 173 167 677 650
Equipment rents 60 63 247 198
Casualty and other 66 42 325 309
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Total operating expenses 1,205 1,244 5,021 4,899
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Operating income 736 756 2,876 3,030

Interest expense (85) (80) (336) (312)

Other income 159 27 166 11
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Income before income taxes 810 703 2,706 2,729

Income tax recovery (expense) 23 (204) (548) (642)
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Net income $ 833 $ 499 $ 2,158 $ 2,087
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Earnings per share

Basic $ 1.70 $ 0.97 $ 4.31 $ 3.97

Diluted $ 1.68 $ 0.95 $ 4.25 $ 3.91

Weighted-average number of shares

Basic 489.8 515.5 501.2 525.9

Diluted 495.9 523.6 508.0 534.3
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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 the presentation of
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 $58 million and $213 million in the three months
and year ended December 31, 2006, respectively. In addition, the Company
reclassified its non-rail transportation revenues to Other revenues.
Previously, various revenues for non-rail transportation services were
reported in both Rail freight revenues and Other revenues.

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, 2007
and December 31, 2006, and its results of operations, changes in
shareholders' equity and cash flows for the three months and years ended
December 31, 2007 and 2006. These consolidated financial statements have
been prepared using accounting policies consistent with those used in
preparing the Company's 2007 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 BALANCE SHEET (U.S. GAAP)
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(In millions)


December 31 December 31
2007 2006
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(Unaudited)

Assets

Current assets:
Cash and cash equivalents $ 310 $ 179
Accounts receivable 370 692
Material and supplies 162 189
Deferred income taxes 68 84
Other 138 192
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1,048 1,336

Properties 20,413 21,053
Intangible and other assets 1,999 1,615
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Total assets $ 23,460 $ 24,004
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Liabilities and shareholders' equity

Current liabilities:
Accounts payable and accrued charges $ 1,282 $ 1,823
Current portion of long-term debt 254 218
Other 54 73
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1,590 2,114

Deferred income taxes 4,908 5,215
Other liabilities and deferred credits 1,422 1,465
Long-term debt 5,363 5,386

Shareholders' equity:
Common shares 4,283 4,459
Accumulated other comprehensive loss (31) (44)
Retained earnings 5,925 5,409
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10,177 9,824
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Total liabilities and shareholders' equity $ 23,460 $ 24,004
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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, 2007 and December
31, 2006, and its results of operations, changes in shareholders' equity and
cash flows for the three months and years ended December 31, 2007 and 2006.
These consolidated financial statements have been prepared using accounting
policies consistent with those used in preparing the Company's 2007 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)
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(In millions)


Three months ended Year ended
December 31 December 31
------------------ ----------------
2007 2006 2007 2006
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(Unaudited)

Common shares

Balance, beginning of period $ 4,359 $ 4,476 $ 4,459 $ 4,580
Stock options exercised and
other 6 43 89 133
Share repurchase programs (82) (60) (265) (254)
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Balance, end of period $ 4,283 $ 4,459 $ 4,283 $ 4,459
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Accumulated other comprehensive loss

Balance, beginning of period $ (257) $ (520) $ (44) $ (222)

Other comprehensive income (loss):

Unrealized foreign exchange
gain (loss) on:
Translation of the net
investment in foreign
operations (90) 246 (1,004) 32
Translation of U.S. dollar-
denominated long-term debt
designated as a hedge of the net
investment in U.S. subsidiaries 22 (196) 788 (33)

Pension and other postretirement
benefit plans:
Net actuarial gain arising
during the period 391 - 391 -
Prior service cost arising
during the period (12) - (12) -
Amortization of net actuarial
loss included in net periodic
benefit cost 11 - 49 -
Amortization of prior service
cost included in net periodic
benefit cost 5 - 21 -
Minimum pension liability
adjustment - 1 - 1

Derivative instruments (1) - (1) (57)
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Other comprehensive income
(loss) before income taxes 326 51 232 (57)
Income tax recovery (expense) (100) 11 (219) (179)
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Other comprehensive income (loss) 226 62 13 (236)
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Adjustment to reflect the funded
status of benefit plans:
Net actuarial gain (net of income
tax expense of $(200) for 2006) - 434 - 434
Prior service cost (net of income
tax recovery of $14 for 2006) - (31) - (31)
Reversal of minimum pension
liability adjustment (net of
income tax expense of $(6) for
2006) - 11 - 11
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Balance, end of period $ (31) $ (44) $ (31) $ (44)
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Retained earnings

Balance, beginning of period $ 5,557 $ 5,306 $ 5,409 $ 4,891
Adoption of new accounting
pronouncements (1) - - 95 -
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Restated balance, beginning
of period 5,557 5,306 5,504 4,891
Net income 833 499 2,158 2,087
Share repurchase programs (363) (313) (1,319) (1,229)
Dividends (102) (83) (418) (340)
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Balance, end of period $ 5,925 $ 5,409 $ 5,925 $ 5,409
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(1) On January 1, 2007, the Company adopted Financial Accounting
Standards Board (FASB) Interpretation (FIN) No. 48, "Accounting for
Uncertainty in Income Taxes," and early adopted the measurement date
provisions of 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 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. The application of SFAS No.
158 on January 1, 2007 had the effect of decreasing Retained earnings
by $3 million.


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


Three months ended Year ended
December 31 December 31
------------------ ----------------
2007 2006 2007 2006
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(Unaudited)

Operating activities

Net income $ 833 $ 499 $ 2,158 $ 2,087
Adjustments to reconcile net
income to net cash provided
from operating activities:
Depreciation and amortization 172 167 678 653
Deferred income taxes (207) 23 (82) 3
Gain on sale of Central Station
Complex (92) - (92) -
Gain on sale of investment
in English Welsh and Scottish
Railway (61) - (61) -
Other changes in:
Accounts receivable 267 403 229 (17)
Material and supplies 44 18 18 (36)
Accounts payable and accrued
charges 120 48 (351) 197
Other net current assets and
liabilities (12) (34) 39 58
Other (122) (61) (119) 6
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Cash provided from operating
activities 942 1,063 2,417 2,951
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Investing activities

Property additions (490) (472) (1,387) (1,298)
Acquisitions, net of cash acquired (25) (26) (25) (84)
Sale of Central Station Complex 351 - 351 -
Sale of investment in English
Welsh and Scottish Railway 114 - 114 -
Other, net 26 14 52 33
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Cash used by investing
activities (24) (484) (895) (1,349)
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Financing activities

Issuance of long-term debt 846 183 4,171 3,308
Reduction of long-term debt (1,120) (234) (3,589) (3,089)
Issuance of common shares due
to exercise of stock options
and related excess tax benefits
realized 4 42 77 120
Repurchase of common shares (445) (373) (1,584) (1,483)
Dividends paid (102) (83) (418) (340)
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Cash used by financing activities (817) (465) (1,343) (1,484)
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Effect of foreign exchange
fluctuations on U.S. dollar-
denominated cash and cash
equivalents (5) 9 (48) (1)
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Net increase in cash and cash
equivalents 96 123 131 117

Cash and cash equivalents,
beginning of period 214 56 179 62
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Cash and cash equivalents,
end of period $ 310 $ 179 $ 310 $ 179
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Supplemental cash flow information
Net cash receipts from
customers and other $ 2,209 $ 2,425 $ 8,139 $ 7,946
Net cash payments for:
Employee services, suppliers
and other expenses (979) (1,043) (4,323) (4,130)
Interest (67) (67) (340) (294)
Workforce reductions (7) (8) (31) (45)
Personal injury and
other claims (28) (47) (86) (107)
Pensions (25) (66) (75) (112)
Income taxes (161) (131) (867) (307)
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Cash provided from operating
activities $ 942 $ 1,063 $ 2,417 $ 2,951
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Certain of the 2006 comparative figures have been reclassified in order to
be consistent with the 2007 presentation.


CANADIAN NATIONAL RAILWAY COMPANY
SELECTED RAILROAD STATISTICS (1) (U.S. GAAP)
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Three months ended Year ended
December 31 December 31
------------------ ----------------
2007 2006 2007 2006
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(Unaudited)

Statistical operating data

Rail freight revenues ($ millions) 1,763 1,824 7,186 7,254
Gross ton miles (GTM)(millions) 89,315 88,407 347,898 352,972
Revenue ton miles (RTM)(millions) 47,151 45,966 184,148 185,610
Carloads (thousands) 1,205 1,146 4,744 4,824
Route miles (includes Canada and
the U.S.) 20,421 20,264 20,421 20,264
Employees (end of period) 22,696 22,250 22,696 22,250
Employees (average for the
period) 22,796 22,196 22,389 22,092
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Productivity

Operating ratio (%) 62.1 62.2 63.6 61.8
Rail freight revenue per RTM
(cents) 3.74 3.97 3.90 3.91
Rail freight revenue per
carload ($) 1,463 1,592 1,515 1,504
Operating expenses per GTM (cents) 1.35 1.41 1.44 1.39
Labor and fringe benefits expense
per GTM (cents) 0.38 0.54 0.49 0.52
GTMs per average number of
employees (thousands) 3,918 3,983 15,539 15,977
Diesel fuel consumed
(U.S. gallons in millions) 102 101 392 401
Average fuel price
($/U.S. gallon) 2.70 2.16 2.40 2.13
GTMs per U.S. gallon of fuel
consumed 876 875 887 880
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Financial ratio

Debt to total capitalization
ratio (% at end of period) 35.6 36.3 35.6 36.3
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Safety indicators

Injury frequency rate per
200,000 person hours (2) 2.1 2.0 1.9 2.1
Accident rate per million
train miles (2) 3.6 2.0 2.7 2.4
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(1) Includes data relating to companies acquired as of the date of
acquisition.
(2) Based on Federal Railroad Administration (FRA) reporting criteria.
For 2006, the Injury frequency rate per 200,000 person hours and
the Accident rate per million train miles, prepared on a proforma
basis to include the acquisitions of Mackenzie Northern Railway and
Savage Alberta Railway, Inc., as of January 1, 2006, would have been
2.1 and 2.3, respectively, for the three months ended December 31, 2006,
and 2.1 and 2.5, respectively, for the year ended December 31, 2006.



Certain of the 2006 comparative figures have been reclassified in order to
be consistent with the 2007 presentation as discussed herein. 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)
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Three months ended Year ended
December 31 December 31
-------------------- --------------------
Variance Variance
Fav Fav
2007 2006 (Unfav) 2007 2006 (Unfav)
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(Unaudited)

Revenues (millions of dollars)
Petroleum and chemicals 306 300 2% 1,226 1,171 5%
Metals and minerals 195 192 2% 826 835 (1%)
Forest products 336 414 (19%) 1,552 1,747 (11%)
Coal 98 93 5% 385 370 4%
Grain and fertilizers 350 351 - 1,311 1,258 4%
Intermodal 362 353 3% 1,382 1,394 (1%)
Automotive 116 121 (4%) 504 479 5%
Other revenues 178 176 1% 711 675 5%
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1,941 2,000 (3%) 7,897 7,929 -

Revenue ton miles (millions)
Petroleum and chemicals 8,473 7,930 7% 32,761 31,868 3%
Metals and minerals 4,305 4,026 7% 16,719 17,467 (4%)
Forest products 9,156 10,049 (9%) 39,808 42,488 (6%)
Coal 3,432 3,209 7% 13,776 13,727 -
Grain and fertilizers 12,550 11,791 6% 45,359 44,096 3%
Intermodal 8,493 8,237 3% 32,607 32,922 (1%)
Automotive 742 724 2% 3,118 3,042 2%
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47,151 45,966 3% 184,148 185,610 (1%)

Rail freight revenue / RTM (cents)
Rail freight revenue per
RTM 3.74 3.97 (6%) 3.90 3.91 -
Commodity groups:
Petroleum and chemicals 3.61 3.78 (4%) 3.74 3.67 2%
Metals and minerals 4.53 4.77 (5%) 4.94 4.78 3%
Forest products 3.67 4.12 (11%) 3.90 4.11 (5%)
Coal 2.86 2.90 (1%) 2.79 2.70 3%
Grain and fertilizers 2.79 2.98 (6%) 2.89 2.85 1%
Intermodal 4.26 4.29 (1%) 4.24 4.23 -
Automotive 15.63 16.71 (6%) 16.16 15.75 3%
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Carloads (thousands)
Petroleum and chemicals 151 145 4% 599 590 2%
Metals and minerals 261 203 29% 1,010 981 3%
Forest products 134 154 (13%) 584 667 (12%)
Coal 86 94 (9%) 361 411 (12%)
Grain and fertilizers 162 157 3% 601 594 1%
Intermodal 346 332 4% 1,324 1,326 -
Automotive 65 61 7% 265 255 4%
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1,205 1,146 5% 4,744 4,824 (2%)

Rail freight revenue / carload (dollars)
Rail freight revenue
per carload 1,463 1,592 (8%) 1,515 1,504 1%
Commodity groups:
Petroleum and chemicals 2,026 2,069 (2%) 2,047 1,985 3%
Metals and minerals 747 946 (21%) 818 851 (4%)
Forest products 2,507 2,688 (7%) 2,658 2,619 1%
Coal 1,140 989 15% 1,066 900 18%
Grain and fertilizers 2,160 2,236 (3%) 2,181 2,118 3%
Intermodal 1,046 1,063 (2%) 1,044 1,051 (1%)
Automotive 1,785 1,984 (10%) 1,902 1,878 1%
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Certain of the 2006 comparative figures have been reclassified in order to
be consistent with the 2007 presentation, as discussed herein. 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
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Adjusted performance measures
During the three months and year ended December 31, 2007, the Company
reported adjusted net income of $444 million, or $0.90 per diluted share,
and $1,725 million, or $3.40 per diluted share, respectively. These adjusted
figures exclude the impact of a net deferred income tax recovery of $284
million ($0.57 per diluted share) in the fourth quarter and $328 million
($0.64 per diluted share) for the year ended December 31, 2007 that resulted
mainly from the enactment of corporate income tax rate changes in Canada.
Also excluded from adjusted net income for both the three- and twelve-month
periods were the gains on sale of the Central Station Complex of $92 million
or $64 million after-tax ($0.13 per diluted share), and the Company's
investment in English Welsh and Scottish Railway of $61 million or
$41 million after-tax ($0.08 per diluted share).

During the three months and year ended December 31, 2006, the Company
reported adjusted net income of $472 million, or $0.90 per diluted share and
$1,810 million, or $3.40 per diluted share, respectively. These adjusted
figures exclude the impact of a deferred income tax recovery of $27 million
($0.05 per diluted share) in the fourth quarter and $277 million ($0.51 per
diluted share) for the year ended December 31, 2006 that resulted primarily
from the enactment of lower corporate income tax rates in Canada and the
resolution of matters pertaining to prior years' income taxes.

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 2007 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 years
ended December 31, 2007 and 2006, to the adjusted performance measures
presented herein.

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Year ended
December 31, 2007 December 31, 2007
----------------------------- -----------------------------
In millions,
except per
share data Reported Adjustments Adjusted Reported Adjustments Adjusted
----------------------------------------------------------------------------
Revenues $ 1,941 $ - $ 1,941 $ 7,897 $ - $ 7,897
Operating
expenses 1,205 - 1,205 5,021 - 5,021
----------------------------------------------------------------------------
Operating income 736 - 736 2,876 - 2,876
----------------------------------------------------------------------------
Interest
expense (85) - (85) (336) - (336)
Other income 159 (153) 6 166 (153) 13
----------------------------------------------------------------------------
Income before
income taxes 810 (153) 657 2,706 (153) 2,553
Income tax
recovery
(expense) 23 (236) (213) (548) (280) (828)
----------------------------------------------------------------------------
Net income $ 833 $ (389) $ 444 $ 2,158 $ (433) $ 1,725
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings
per share $ 1.70 $ (0.79) $ 0.91 $ 4.31 $ (0.87) $ 3.44
Diluted earnings
per share $ 1.68 $ (0.78) $ 0.90 $ 4.25 $ (0.85) $ 3.40
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Three months ended Year ended
December 31, 2006 December 31, 2006
----------------------------- ------------------------------
In millions,
except per
share data Reported Adjustments Adjusted Reported Adjustments Adjusted
----------------------------------------------------------------------------
Revenues $ 2,000 $ - $ 2,000 $ 7,929 $ - $ 7,929
Operating
expenses 1,244 - 1,244 4,899 - 4,899
----------------------------------------------------------------------------
Operating income 756 - 756 3,030 - 3,030
----------------------------------------------------------------------------
Interest expense (80) - (80) (312) - (312)
Other income 27 - 27 11 - 11
----------------------------------------------------------------------------
Income before
income taxes 703 - 703 2,729 - 2,729
Income tax expense (204) (27) (231) (642) (277) (919)
----------------------------------------------------------------------------
Net income $ 499 $ (27) $ 472 $ 2,087 $ (277) $ 1,810
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings
per share $ 0.97 $ (0.05) $ 0.92 $ 3.97 $ (0.53) $ 3.44
Diluted earnings
per share $ 0.95 $ (0.05) $ 0.90 $ 3.91 $ (0.51) $ 3.40
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Free cash flow
The Company generated $635 million and $828 million of free cash flow for
the three months and year ended December 31, 2007, compared to $212 million
and $1,343 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 and changes in cash and cash equivalents
resulting from foreign exchange fluctuations, less cash used by investing
activities and the payment of dividends, calculated as follows:


----------------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
------------------ ----------------
In millions 2007 2006 2007 2006
----------------------------------------------------------------------------

Cash provided from operating
activities $ 942 $ 1,063 $ 2,417 $ 2,951
Cash used by investing
activities (24) (484) (895) (1,349)

----------------------------------------------------------------------------
Cash provided before financing
activities 918 579 1,522 1,602
----------------------------------------------------------------------------

Adjustments:
Change in accounts receivable
securitization (176) (293) (228) 82
Dividends paid (102) (83) (418) (340)
Effect of foreign exchange
fluctuations on U.S. dollar-
denominated cash and cash
equivalents (5) 9 (48) (1)

----------------------------------------------------------------------------
Free cash flow $ 635 $ 212 $ 828 $ 1,343
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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Contact Information

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