CN
TSX : CNR
NYSE : CNI

CN

October 18, 2005 13:00 ET

CN reports record third-quarter earnings and nine-month free cash flow of more than $1 billion

MONTREAL, QUEBEC--(CCNMatthews - Oct. 18, 2005) - CN today reported its financial and operating results for the third quarter and nine-month period ended Sept. 30, 2005.

Third-quarter financial highlights

- Diluted earnings per share of $1.47, up 24 per cent;

- Record net income of $411 million, an increase of 19 per cent;

- Operating income of $665 million, an increase of 13 per cent;

- Operating ratio of 63.3 per cent, a 2.1-percentage point improvement;

- Record nine-month free cash flow of $1,058 million, up from $754 million for the same period of 2004;(1)

- Favourable income tax adjustments and other income helped to offset expenses related to the derailment at Wabamun Lake, Alta.

E. Hunter Harrison, president and chief executive officer of CN, said: "CN posted record third-quarter earnings and nine-month free cash flow despite the headwinds of higher fuel costs, the effects of two hurricanes on our network in the Gulf Coast region of the United States, and unfortunate accidents."

Revenues for third-quarter 2005 increased six per cent to $1,810 million, with CN's grain and fertilizers, coal, and intermodal segments registering double-digit revenue growth. Forest products, metals and minerals, and automotive revenues also improved.

CN's revenue performance was driven largely by increased freight rates. An important contributor to these rate increases was a higher fuel surcharge owing to increased crude oil prices. Partly offsetting revenue gains during the quarter was the unfavourable $80-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated revenues.

Grain and fertilizer revenues benefited from higher export shipments of Canadian peas, barley and canola, while improved coal revenues reflected metallurgical coal shipments originating at new mines in western Canada. Strong container imports over the Port of Vancouver helped to increase intermodal revenues. CN also enjoyed strong demand for construction materials, which benefited its forest products and metals and minerals revenues. Automotive revenues increased in part as a result of higher imports of vehicles over the ports of Vancouver and Halifax and increased finished vehicle traffic in the southern U.S. Petroleum and chemicals revenues were adversely affected by soft market conditions and reduced petrochemical production in the hurricane-stricken Gulf Coast region.

Operating expenses for the third quarter of 2005 increased by two per cent to $1,145 million, largely as a result of higher fuel costs and higher casualty and other expenses. These increases were partly offset by the favourable $50-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated expenses.

The continued appreciation of the Canadian dollar reduced the company's third-quarter 2005 net income by approximately $15 million.

Financial results for the first nine months of 2005

Net income for the nine-month period ended Sept. 30 was $1,126 million, or $3.98 per diluted share, compared with net income of $882 million, or $3.05 per diluted share, for the comparable period of 2004.

Operating income for the latest nine-month period increased 22 per cent to $1,904 million.

CN's operating ratio for the nine-month period was 64.4 per cent, an improvement of 3.2 percentage points.

Revenues for the latest nine-month period increased 11 per cent to $5,354 million, due mainly to freight rate increases, the inclusion of nine months of revenues from the rail and related holdings of Great Lakes Transportation LLC (GLT) and BC Rail, and a return to normal intermodal volumes following the first-quarter 2004 strike by the Canadian Auto Workers union. Partly offsetting these gains was the unfavourable $220-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated revenues.

CN acquired and consolidated GLT and BC Rail on May 10, 2004, and July 14, 2004, respectively.

Operating expenses increased six per cent to $3,450 million, primarily due to increased fuel costs, the inclusion of nine months of GLT and BC Rail expenses, and higher labour and fringe benefits. Partly offsetting these factors was the favourable $135-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated expenses, and lower equipment rents.

The continued appreciation of the Canadian dollar reduced the company's nine-month 2005 net income by approximately $45 million.

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

(1) Please see discussion and reconciliation of this non-GAAP adjusted performance measure 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 and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CN's most recent Form 40-F filed with the United States Securities and Exchange Commission, its Annual Information Form filed with the Canadian securities regulators, and its 2004 Annual and 2005 Quarterly Financial Statements and Management Discussion and Analysis, for a summary of major risks.

Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.




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
------------------- ------------------
2005 2004(1) 2005 2004(1)
---------------------------------------------------------------------
(Unaudited)

Revenues $ 1,810 $ 1,709 $ 5,354 $ 4,812
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Operating expenses 1,145 1,118 3,450 3,251
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Operating income 665 591 1,904 1,561

Interest expense (72) (79) (225) (219)

Other income (loss) 11 (9) 2 (45)
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Income before income taxes 604 503 1,681 1,297

Income tax expense (193) (157) (555) (415)
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Net income $ 411 $ 346 $ 1,126 $ 882
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Earnings per share

Basic $ 1.50 $ 1.21 $ 4.05 $ 3.09

Diluted $ 1.47 $ 1.19 $ 3.98 $ 3.05

Weighted-average number
of shares

Basic 273.7 285.9 277.9 285.1

Diluted 278.7 290.8 283.1 289.6
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See accompanying notes to consolidated financial statements.

(1) Includes GLT and BC Rail from dates of acquisition.
(See Note 2 - Acquisitions)


CANADIAN NATIONAL RAILWAY COMPANY
CONSOLIDATED STATEMENT OF OPERATING INCOME (U.S. GAAP)
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(In millions)


Three months ended Nine months ended
September 30 September 30
------------------- -------------------
Variance Variance
2005 2004(1) Fav 2005 2004(1) Fav
(Unfav) (Unfav)
---------------------------------------------------------------------
(Unaudited)

Revenues

Petroleum and chemicals $ 267 $ 282 (5%) $ 813 $ 791 3%
Metals and minerals 209 203 3% 622 521 19%
Forest products 448 417 7% 1,302 1,106 18%
Coal 80 71 13% 256 212 21%
Grain and fertilizers 273 234 17% 809 764 6%
Intermodal 331 302 10% 931 817 14%
Automotive 114 112 2% 375 385 (3%)
Other items 88 88 - 246 216 14%
-------------------------------------- ------------
1,810 1,709 6% 5,354 4,812 11%

Operating expenses

Labor and fringe benefits 453 465 3% 1,388 1,350 (3%)
Purchased services and
material 188 190 1% 590 561 (5%)
Depreciation and
amortization 156 153 (2%) 470 445 (6%)
Fuel 181 132 (37%) 526 377 (40%)
Equipment rents 46 64 28% 146 195 25%
Casualty and other 121 114 (6%) 330 323 (2%)
-------------------------------------- ------------
1,145 1,118 (2%) 3,450 3,251 (6%)
-------------------------------------- ------------

Operating income $ 665 $ 591 13% $1,904 $1,561 22%
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Operating ratio 63.3% 65.4% 2.1 64.4% 67.6% 3.2
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See accompanying notes to consolidated financial statements.

(1) Includes GLT and BC Rail from dates of acquisition.
(See Note 2 - Acquisitions)

Certain of the 2004 comparative figures have been reclassified in
order to be consistent with the 2005 presentation.


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


September 30 December 31 September 30
2005 2004 2004
---------------------------------------------------------------------
(Unaudited) (Unaudited)
Assets

Current assets:
Cash and cash equivalents $ 119 $ 147 $ 132
Accounts receivable (Note 4) 643 793 743
Material and supplies 175 127 155
Deferred income taxes 47 364 106
Other 252 279 279
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1,236 1,710 1,415


Properties 19,761 19,715 20,022
Intangible and other assets 930 940 947
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Total assets $ 21,927 $ 22,365 $ 22,384
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Liabilities and shareholders' equity

Current liabilities:
Accounts payable and accrued
charges $ 1,429 $ 1,605 $ 1,331
Current portion of long-term
debt (Note 4) 370 578 257
Other 115 76 69
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1,914 2,259 1,657

Deferred income taxes 4,743 4,723 4,673
Other liabilities and deferred
credits 1,463 1,513 1,616
Long-term debt (Note 4) 4,608 4,586 5,141

Shareholders' equity:
Common shares 4,605 4,706 4,742
Accumulated other comprehensive
loss (169) (148) (57)
Retained earnings 4,763 4,726 4,612
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9,199 9,284 9,297
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Total liabilities and
shareholders' equity $ 21,927 $ 22,365 $ 22,384
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See accompanying notes to consolidated financial statements.

Certain of the 2004 comparative figures have been reclassified in
order to be consistent with the 2005 presentation.


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
------------------- ------------------
2005 2004(1) 2005 2004(1)
---------------------------------------------------------------------
(Unaudited)

Common shares (2)

Balance, beginning of
period $ 4,640 $ 4,704 $ 4,706 $ 4,664

Stock options exercised
and other 45 38 146 78

Share repurchase program
(Note 4) (80) - (247) -
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Balance, end of period $ 4,605 $ 4,742 $ 4,605 $ 4,742
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Accumulated other comprehensive loss

Balance, beginning of
period $ (106) $ (35) $ (148) $ (129)

Other comprehensive income
(loss):

Unrealized foreign exchange
gain on translation of
U.S. dollar denominated
long-term debt designated
as a hedge of the net
investment in U.S.
subsidiaries 200 238 123 109

Unrealized foreign exchange
loss on translation of
the net investment
in foreign operations (283) (333) (190) (126)

Increase (decrease) in
unrealized holding gains
on fuel derivative
instruments (Note 6) (12) 69 35 112

Realized gain (loss) on
settlement of interest
rate swaps - (6) - 12
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Other comprehensive income
(loss) before income taxes (95) (32) (32) 107

Income tax recovery(expense) 32 10 11 (35)
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Other comprehensive income
(loss) (63) (22) (21) 72
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Balance, end of period $ (169) $ (57) $ (169) $ (57)
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Retained earnings

Balance, beginning of
period $ 4,720 $ 4,322 $ 4,726 $ 3,897

Net income 411 346 1,126 882

Share repurchase program
(Note 4) (300) - (881) -

Dividends (68) (56) (208) (167)

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Balance, end of period $ 4,763 $ 4,612 $ 4,763 $ 4,612
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See accompanying notes to consolidated financial statements.

(1) Includes GLT and BC Rail from dates of acquisition.
(See Note 2 - Acquisitions)

(2) During the three and nine months ended September 30, 2005, the
Company issued 0.7 million and 3.0 million common shares,
respectively, as a result of stock options exercised. At
September 30, 2005, the Company had 271.3 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
------------------- ------------------
2005 2004(1) 2005 2004(1)
---------------------------------------------------------------------
(Unaudited)

Operating activities

Net income $ 411 $ 346 $ 1,126 $ 882
Adjustments to reconcile
net income to net cash
provided from operating
activities:
Depreciation and
amortization 157 153 473 448
Deferred income taxes 146 158 444 300
Equity in earnings of
English Welsh and Scottish
Railway - (1) (6) 7
Other changes in:
Accounts receivable (10) (80) 124 (140)
Material and supplies 9 30 (50) (8)
Accounts payable and
accrued charges (103) (81) (184) (110)
Other net current assets
and liabilities 40 26 83 45
Other (7) 5 1 27
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Cash provided from
operating activities 643 556 2,011 1,451
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Investing activities

Net additions to
properties (321) (323) (792) (707)
Acquisition of BC Rail
(Note 2) - (984) - (984)
Acquisition of Great
Lakes Transportation LLC's
railroads and related
holdings(Note 2) - 6 - (547)
Other, net 17 (3) 90 169
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Cash used by investing
activities (304) (1,304) (702) (2,069)
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Dividends paid (68) (56) (208) (167)

Financing activities

Issuance of long-term debt 648 2,903 1,741 6,924
Reduction of long-term debt (599) (2,132) (1,846) (6,198)
Issuance of common shares 24 30 104 61
Repurchase of common shares (380) - (1,128) -
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Cash provided from (used by)
financing activities (307) 801 (1,129) 787
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Net increase (decrease) in
cash and cash equivalents (36) (3) (28) 2

Cash and cash equivalents,
beginning of period 155 135 147 130
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Cash and cash equivalents,
end of period $ 119 $ 132 $ 119 $ 132
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Supplemental cash flow information

Net cash receipts from
customers and other $ 1,825 $ 1,738 $ 5,545 $ 4,761
Net cash payments for:
Employee services,
suppliers and other
expenses (946) (974) (2,951) (2,746)
Interest (93) (71) (236) (199)
Workforce reductions (20) (25) (72) (81)
Personal injury and other
claims (23) (23) (71) (78)
Pensions (19) (61) (73) (127)
Income taxes (81) (28) (131) (79)
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Cash provided from operating
activities $ 643 $ 556 $ 2,011 $ 1,451
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See accompanying notes to consolidated financial statements.

(1) Includes GLT and BC Rail from dates of acquisition.
(See Note 2 - Acquisitions)

Certain of the 2004 comparative figures have been reclassified in
order to be consistent with the 2005 presentation.


CANADIAN NATIONAL RAILWAY COMPANY
NOTES TO CONSOLIDATED 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, 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 September
30, 2005 and December 31 and September 30, 2004, its results of
operations, changes in shareholders' equity and cash flows for the
three and nine months ended September 30, 2005 and 2004.

These interim consolidated financial statements and notes have been
prepared using accounting policies consistent with those used in
preparing the Company's 2004 Annual Consolidated Financial
Statements. While management believes that the disclosures presented
are adequate to make the information not misleading, these interim
consolidated financial statements and notes should be read in
conjunction with the Company's Interim Management's Discussion and
Analysis and Annual Consolidated Financial Statements and notes
thereto.

Note 2 - Acquisitions

Great Lakes Transportation LLC's railroads and related holdings (GLT)
and BC Rail Partnership and the former BC Rail Ltd. (collectively BC
Rail) were acquired and consolidated effective May 10, 2004 and July
14, 2004, respectively. Accordingly, the Company's results of
operations for the three and nine months ended September 30, 2004
included the results of operations of GLT as of May 10, 2004 and BC
Rail as of July 14, 2004.

The Company's final cost to acquire GLT of U.S.$395 million
(Cdn$547 million) and BC Rail of $991 million, included purchase
price adjustments and transaction costs. By the second quarter of
2004, the Company had paid U.S.$399 million (Cdn$553 million) for the
acquisition of GLT and subsequently received Cdn$6 million for
purchase price adjustments finalized in the third quarter of 2004.

The Company had estimated, on a preliminary basis, the fair value of
GLT's and BC Rail's assets acquired, owned and leased, and
liabilities assumed at acquisition based on then current available
information. The Company has since finalized the allocations of the
GLT and BC Rail purchase price and has not made any significant
adjustments to the preliminary purchase price allocations as
presented in Note 3 - Acquisitions, of the Company's 2004 Annual
Consolidated Financial Statements.

For comparative purposes only, if the Company had acquired both GLT
and BC Rail on January 1, 2004, based on their respective historical
amounts, net of the amortization of the difference between the
Company's cost to acquire GLT and BC Rail and their respective net
assets (based on preliminary estimates of the fair value of GLT's and
BC Rail's assets and liabilities), revenues, net income, and basic
and diluted earnings per share would have been $1,719 million, $347
million, $1.21 per basic share and $1.19 per diluted share,
respectively, for the three months ended September 30, 2004 and
$5,037 million, $896 million, $3.14 per basic share and $3.09 per
diluted share, respectively, for the nine months ended September 30,
2004.

The pro forma figures for both GLT and BC Rail do not reflect
synergies, and accordingly, do not account for any potential
increases in operating income, any estimated cost savings or
facilities consolidation.

Note 3 - Note receivable from English Welsh and Scottish Railway
(EWS)

On April 28, 2005, EWS fully redeemed the Company's 8% note
receivable due 2009. The Company received Pounds Sterling 26 million
(Cdn$61 million), which included principal and accrued but unpaid
interest to the date of redemption.

Note 4 - Financing activities

In January 2005, the Company repaid its borrowings of U.S.$90 million
(Cdn$108 million) outstanding at December 31, 2004 under its
U.S.$1,000 million revolving credit facility. On March 29, 2005, the
Company refinanced, by way of amendment, its revolving credit
facility, which was scheduled to mature in December 2005, for a five-
year period to March 2010. The credit facility is available for
general corporate purposes, including back-stopping the Company's
commercial paper program. The credit facility provides for borrowings
at various interest rates, including the Canadian prime rate,
bankers' acceptance rates, the U.S. federal funds effective rate and
the London Interbank Offer Rate, plus applicable margins. The amended
credit facility agreement retains the customary limitation on debt as
a percentage of total capitalization, but eliminates the requirement
for maintaining tangible net worth above pre-defined levels. The
Company has been in compliance with this covenant throughout the
period. As at September 30, 2005, the Company had letters of credit
of $317 million under its revolving credit facility and outstanding
borrowings of U.S.$383 million (Cdn$448 million) under its commercial
paper program.

In May 2005, the Company repaid U.S.$100 million (Cdn$125 million) of
7.75% 10-year Notes with cash on hand.

The Company has an accounts receivable securitization program,
expiring in June 2006, under which it may sell, on a revolving basis,
a maximum of $500 million ($450 million prior to February 2005) of
eligible freight trade and other receivables outstanding at any point
in time, to an unrelated trust. The Company has a contingent residual
interest of approximately 10% of receivables sold, which is recorded
in Other current assets. At September 30, 2005, pursuant to the
agreement, $480 million had been sold, compared to $445 million at
December 31, 2004.

On July 20, 2005, the Board of Directors of the Company approved a
new share repurchase program which allows for the repurchase of up to
16.0 million common shares between July 25, 2005 and July 24, 2006
pursuant to a normal course issuer bid, at prevailing market prices.

In the third quarter of 2005, under its current share repurchase
program, the Company repurchased 4.75 million common shares for $380
million, at an average price of $79.98 per share.

In the second quarter of 2005, the Company completed its 14.0 million
share repurchase program, which began November 1, 2004. The total
cost of the program was $1,021 million (average price per share of
$72.94), with 10.0 million common shares repurchased in 2005 for $748
million (average price per share of $74.78).

Note 5 - Stock-based compensation

For the three and nine months ended September 30, 2005 and 2004, the
Company recorded total compensation cost for awards under all plans
of $38 million and $79 million, respectively, and $12 million and $37
million, respectively, for the same periods in 2004.

(a) Restricted share units
In 2005, the Company granted approximately 0.4 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 are scheduled for payout after three years and vest upon
the attainment of targets relating to return on invested capital over
the three-year period and to the Company's share price during the
three-month period ending December 31, 2007. At September 30, 2005,
the Company had approximately 1.6 million RSUs outstanding under the
Plan. For the three and nine months ended September 30, 2005, the
Company recorded compensation cost of $27 million and $58 million,
respectively, compared to $8 million and $15 million, respectively,
for the same 2004 periods.

(b) Stock options
In 2005, the Company granted approximately 0.7 million conventional
stock options to designated senior management employees, that vest
over a period of four years of continuous employment. The total
number of options outstanding at September 30, 2005, including
conventional, performance, and performance-accelerated options was
11.0 million. For the three and nine months ended September 30, 2005,
the Company recorded compensation cost of $4 million and $15 million,
respectively, compared to $2 million and $7 million, respectively,
for the same 2004 periods. At September 30, 2005, 8.1 million options
remained authorized for future issuances.

(c) Vision 2008 Share Unit Plan
In the first quarter of 2005, the Board of Directors of the Company
approved a special share unit plan with a four-year term to December
2008, entitling designated senior management employees to receive
payout in cash in January 2009. The Company granted 0.4 million share
units which vest conditionally upon the attainment of targets
relating to the Company's share price during the six-month period
ending December 31, 2008. Payout is also conditional upon the
attainment of targets relating to return on invested capital over the
four-year period and to the Company's share price during the 20-day
period ending on December 31, 2008. Award payout will be equal to the
number of share units vested on December 31, 2008 multiplied by the
Company's 20-day average share price ending on such date. Due to the
nature of the vesting conditions, no compensation cost was recorded
for the three and nine months ended September 30, 2005.

The Company follows the fair value based approach for stock option
awards and had prospectively applied this method of accounting to all
awards granted, modified or settled on or after January 1, 2003. The
Company follows the intrinsic value method for cash settled awards.
If compensation cost had been determined based upon fair values at
the date of grant for awards under all plans, the Company's pro forma
net income and earnings per share would have been as follows:


---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
In millions, except per ------------------ ------------------
share data 2005 2004 2005 2004
---------------------------------------------------------------------
Net income, as reported $ 411 $ 346 $ 1,126 $ 882

Add (deduct) compensation
cost, net of applicable
taxes, determined under:

Fair value method for all
awards granted after
Jan 1, 2003 (SFAS No. 123) 26 9 57 19

Intrinsic value method for
performance-based awards
granted prior to 2003
(APB 25) - - - 9

Fair value method for all
awards (SFAS No. 123) (33) (17) (76) (51)
------------------------------------------
Pro forma net income $ 404 $ 338 $ 1,107 $ 859
------------------------------------------
------------------------------------------
Basic earnings per share,
as reported $ 1.50 $ 1.21 $ 4.05 $ 3.09
Basic earnings per share,
pro forma $ 1.48 $ 1.18 $ 3.98 $ 3.01

Diluted earnings per share,
as reported $ 1.47 $ 1.19 $ 3.98 $ 3.05
Diluted earnings per share,
pro forma $ 1.45 $ 1.16 $ 3.91 $ 2.97
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Compensation cost related to stock option awards granted in the
current period under the fair value based approach was calculated
using the Black-Scholes option-pricing model with the following
assumptions:

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Three months ended Nine months ended
September 30 September 30
------------------- ------------------
2005 2004(1) 2005 2004(1)
---------------------------------------------------------------------
Expected option life (years) 5.2 - 5.2 -
Risk-free interest rate 3.34% - 3.55% -
Expected stock price
volatility 25% - 25% -
Average dividend per share $ 1.00 - $ 1.00 -
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Weighted average fair value
of options granted $ 19.41 $ - $ 18.48 $ -
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(1) The Company did not grant any stock option awards in 2004.


Note 6 - Derivative instruments

Fuel
At September 30, 2005, the Company had hedged approximately 47% of
the estimated remaining 2005 fuel consumption, representing
approximately 49 million U.S. gallons at an average price of
U.S.$0.82 per U.S. gallon, and approximately 17% of the estimated
2006 fuel consumption, representing approximately 69 million U.S.
gallons at an average price of U.S.$0.89 per U.S. gallon. These
derivative instruments are carried at market value on the balance
sheet and are accounted for as cash flow hedges whereby the effective
portion of the cumulative change in the market value of the
derivative instruments has been recorded in Other comprehensive
income (loss). At September 30, 2005, Accumulated other comprehensive
loss included unrealized gains of $127 million, $86 million after tax
($92 million, $62 million after tax at December 31, 2004), which
relate to derivative instruments that will mature within the next
twelve months and are presented in Other current assets.

Note 7 - Pensions and other post-retirement benefits

For the three and nine months ended September 30, 2005 and 2004, the
components of net periodic benefit cost for pensions and other post-
retirement benefits were as follows:


(a) Components of net periodic benefit cost for pensions
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Three months ended Nine months ended
September 30 September 30
------------------ ------------------
In millions 2005 2004 2005 2004
---------------------------------------------------------------------
Service cost $ 35 $ 30 $ 106 $ 88
Interest cost 185 185 556 546
Amortization of prior
service cost 4 5 14 15
Expected return on plan
assets (220) (219) (662) (635)
Recognized net actuarial
loss - 1 1 2
----------------------------------------
Net periodic benefit cost $ 4 $ 2 $ 15 $ 16
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(b) Components of net periodic benefit cost for post-retirement
benefits
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
In millions 2005 2004 2005 2004
---------------------------------------------------------------------
Service cost $ 2 $ 2 $ 6 $ 6
Interest cost 4 6 14 15
Amortization of prior
service cost 1 1 2 3
Recognized net actuarial
gain (1) (4) (3) (3)
----------------------------------------
Net periodic benefit cost $ 6 $ 5 $ 19 $ 21
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For the 2005 funding year, the Company expects to make total
contributions of $120 million for all its defined benefit plans of
which $73 million had been made at September 30, 2005.

Note 8 - Major commitments and contingencies

A. Commitments
As at September 30, 2005, the Company had commitments to acquire
railroad ties, rail, freight cars, locomotives and other equipment at
an aggregate cost of $488 million ($194 million at December 31,
2004). The Company also had outstanding information technology
service contracts of $17 million and agreements with fuel suppliers
to purchase approximately 73% of the estimated remaining 2005 volume,
50% of its anticipated 2006 volume, and 12% of its anticipated 2007
volume 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.

In 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 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.

In the 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 expense 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 occupational disease claims, based on actuarial
estimates of their ultimate cost. A liability for the minimum amount
of unasserted occupational disease claims is also accrued to the
extent they can be reasonably estimated. The amount recorded reflects
a 25-year horizon, as the Company expects that a large majority of
these cases will be received over such period. An actuarial study is
conducted on an annual basis by an independent actuarial firm. 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, 2005, the Company had aggregate reserves for
personal injury and other claims of $672 million ($642 million at
December 31, 2004). 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, 2005, 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 federal, provincial, state,
municipal and local regulations under 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.

While the Company believes that it has identified the costs likely to
be incurred for environmental matters in the next several years,
based on known information, 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.

In the third quarter of 2005, the Company recorded a liability
related to a derailment at Wabamun Lake, Alberta. The liability,
which is mostly short-term, is based on current facts and
circumstances and represents clean-up costs for the shoreline,
fronting residences and First Nation Land. The Company's insurance
policies are expected to cover substantially all expenses related to
the derailment above the self-insured retention. Accordingly, the
Company has recorded a long-term receivable for estimated recoveries
from the Company's insurance carriers. Third quarter expenses
included approximately $28 million related to this derailment, which
represents the Company's retention under its insurance policies and
other uninsured costs. The ultimate liability for clean-up costs
could differ from the current amount recorded, but such a change is
expected to be offset by a corresponding change in the insurance
receivable. The Company expects its insurance coverage to be adequate
to cover any additional clean-up costs related to the derailment
above its self-insured retention.

As at September 30, 2005, the Company had aggregate accruals for
environmental costs of $156 million ($113 million as at December 31,
2004).

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

Effective January 1, 2003, 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.

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 2006 and 2012, 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, 2005, the maximum exposure
in respect of these guarantees was $93 million of which $8 million
has been recorded. Of that amount, $6 million represents the expected
cash outlay for such guarantees, while the remaining $2 million
represents the Company's obligation to stand ready and honor the
guarantees that were entered into subsequent to January 1, 2003.
There are no recourse provisions to recover any amounts from third
parties.

Other guarantees
The Company, including certain of its subsidiaries, has granted
irrevocable standby letters of credit and surety 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, 2005, the maximum potential
liability under these guarantees was $468 million of which $374
million was for workers' compensation and other employee benefits and
$94 million was for equipment under leases and other. The Company has
granted guarantees for which no liability has been recorded, as they
relate to the Company's future performance.

As at September 30, 2005, 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 guarantee instruments mature at various dates between
2005 and 2010.

CN Pension Plan, CN 1935 Pension Plan and BC Rail Ltd Pension Plan
The Company has indemnified and held harmless the current trustee and
the former trustee of the Canadian National Railways Pension Trust
Funds, the trustee of the BC Rail Ltd Pension Trust Fund, and the
respective officers, directors, employees and agents of such
trustees, from any and all taxes, claims, liabilities, damages, costs
and expenses arising out of the performance of their obligations
under the relevant trust agreements and trust deeds, including in
respect of their reliance on authorized instructions of the Company
or for failing to act in the absence of authorized instructions.
These indemnifications survive the termination of such agreements or
trust deeds. As at September 30, 2005, the Company had not recorded a
liability associated with these indemnifications, as the Company does
not expect to make any payments pertaining to these indemnifications.

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 agreements relating to pension plans and other
plans, including those establishing trust funds to secure the 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 the guarantees and accordingly,
no liability was recorded. As at September 30, 2005, the carrying
value for guarantees for which the Company was able to determine the
fair value, was $1 million. There are no recourse provisions to
recover any amounts from third parties.


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


Three months ended Nine months ended
September 30 September 30
------------------- ------------------
2005 2004(1) 2005 2004(1)
---------------------------------------------------------------------
(Unaudited)

Statistical operating data

Freight revenues
($ millions) 1,722 1,621 5,108 4,596
Gross ton miles (GTM)
(millions) 84,384 83,039 255,066 244,171
Revenue ton miles (RTM)
(millions) 44,425 43,798 134,103 128,267
Carloads (thousands) 1,216 1,210 3,633 3,333
Route miles (includes
Canada and the U.S.) 19,221 19,303 19,221 19,303
Employees (end of period) 22,141 23,466 22,141 23,466
Employees (average
during period) 22,233 23,332 22,373 22,283
---------------------------------------------------------------------

Productivity

Operating ratio (%) 63.3 65.4 64.4 67.6
Freight revenue per RTM
(cents) 3.88 3.70 3.81 3.58
Freight revenue per
carload ($) 1,416 1,340 1,406 1,379
Operating expenses per GTM
(cents) 1.36 1.35 1.35 1.33
Labor and fringe benefits
expense per GTM (cents) 0.54 0.56 0.54 0.55
GTMs per average number
of employees (thousands) 3,795 3,559 11,401 10,958
Diesel fuel consumed
(U.S. gallons in millions) 96 95 302 288
Average fuel price
($/U.S. gallon) 1.79 1.31 1.66 1.26
GTMs per U.S. gallon of
fuel consumed 879 874 845 848
---------------------------------------------------------------------

Safety indicators

Injury frequency rate per
200,000 person hours 2.8 2.8 2.5 2.7
Accident rate per
million train miles 1.8 2.0 1.4 1.5
---------------------------------------------------------------------

Financial ratios

Debt to total
capitalization ratio
(% at end of period) 35.1 36.7 35.1 36.7
---------------------------------------------------------------------
---------------------------------------------------------------------

(1) Includes GLT and BC Rail from dates of acquisition.

Certain of the comparative statistical data and related productivity
measures have been restated to reflect changes to estimated
statistical data previously reported.


CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY INFORMATION (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------


Three months ended Nine months ended
September 30 September 30
------------------- --------------------
Variance Variance
2005 2004(1) Fav 2005 2004(1) Fav
(Unfav) (Unfav)
---------------------------------------------------------------------
(Unaudited)

Revenue ton miles (millions)

Petroleum and chemicals 7,611 8,050 (5%) 23,286 23,364 -
Metals and minerals 4,217 4,317 (2%) 12,603 12,286 3%
Forest products 10,676 10,728 - 31,749 29,178 9%
Coal 3,360 3,038 11% 10,573 9,342 13%
Grain and fertilizers 9,747 8,835 10% 29,475 28,801 2%
Intermodal 8,128 8,090 - 24,090 22,817 6%
Automotive 686 740 (7%) 2,327 2,479 (6%)
------------------------------------- ---------------
44,425 43,798 1% 134,103 128,267 5%

Freight revenue / RTM (cents)

Total freight revenue
per RTM 3.88 3.70 5% 3.81 3.58 6%
Commodity groups:
Petroleum and chemicals 3.51 3.50 - 3.49 3.39 3%
Metals and minerals 4.96 4.70 6% 4.94 4.24 17%
Forest products 4.20 3.89 8% 4.10 3.79 8%
Coal 2.38 2.34 2% 2.42 2.27 7%
Grain and fertilizers 2.80 2.65 6% 2.74 2.65 3%
Intermodal 4.07 3.73 9% 3.86 3.58 8%
Automotive 16.62 15.14 10% 16.12 15.53 4%
------------------------------------- ---------------

Carloads (thousands)

Petroleum and chemicals 146 151 (3%) 448 445 1%
Metals and minerals 259 253 2% 748 547 37%
Forest products 177 184 (4%) 540 497 9%
Coal 115 110 5% 347 316 10%
Grain and fertilizers 137 134 2% 415 420 (1%)
Intermodal 320 314 2% 926 888 4%
Automotive 62 64 (3%) 209 220 (5%)
------------------------------------- ---------------
1,216 1,210 - 3,633 3,333 9%

Freight revenue / carload (dollars)

Total freight revenue
per carload 1,416 1,340 6% 1,406 1,379 2%
Commodity groups:
Petroleum and chemicals 1,829 1,868 (2%) 1,815 1,778 2%
Metals and minerals 807 802 1% 832 952 (13%)
Forest products 2,531 2,266 12% 2,411 2,225 8%
Coal 696 645 8% 738 671 10%
Grain and fertilizers 1,993 1,746 14% 1,949 1,819 7%
Intermodal 1,034 962 8% 1,005 920 9%
Automotive 1,839 1,750 5% 1,794 1,750 3%
---------------------------------------------------------------------
---------------------------------------------------------------------

(1) Includes GLT and BC Rail from dates of acquisition.

Certain of the comparative statistical data and related productivity
measures have been restated to reflect changes to estimated
statistical data previously reported and reclassified in order to be
consistent with the 2005 presentation.


CANADIAN NATIONAL RAILWAY COMPANY
NON-GAAP MEASURES (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------

Free cash flow
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. Free cash
flow does not have any standardized meaning prescribed by GAAP and
may, therefore, not be comparable to similar measures presented by
other companies. The Company defines free cash flow as cash provided
from operating activities, excluding changes in the level of accounts
receivable sold under the securitization program, less investing
activities and dividends paid, and adjusted for significant
acquisitions as they are not indicative of normal day-to-day
investments in the Company's asset base, calculated as follows:


---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
In millions 2005 2004 2005 2004
---------------------------------------------------------------------

Cash provided from
operating activities $ 643 $ 556 $ 2,011 $ 1,451

Less:
Investing activities (304) (1,304) (702) (2,069)
Dividends paid (68) (56) (208) (167)
----------------------------------------
Cash provided (used)
before financing
activities 271 (804) 1,101 (785)
----------------------------------------
----------------------------------------

Adjustments:
Change in accounts
receivable sold - (7) (43) 8
Acquisition of BC Rail - 984 - 984
Acquisition of GLT - (6) - 547
----------------------------------------

Free cash flow $ 271 $ 167 $ 1,058 $ 754
---------------------------------------------------------------------
---------------------------------------------------------------------


CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY INFORMATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (U.S. GAAP)
---------------------------------------------------------------------
---------------------------------------------------------------------
(In millions, except per share data)


Three months ended Nine months ended
September 30 September 30
--------------------- ---------------------
2005 2004 Variance 2005 2004 Variance
pro Fav pro Fav
forma(1) (Unfav) forma(1) (Unfav)
--------------------------------------------------------------------
(Unaudited)

Revenues
Petroleum and
chemicals $ 267 $ 284 (6%) $ 813 $ 818 (1%)
Metals and minerals 209 203 3% 622 580 7%
Forest products 448 424 6% 1,302 1,207 8%
Coal 80 71 13% 256 219 17%
Grain and fertilizers 273 235 16% 809 769 5%
Intermodal 331 301 10% 931 817 14%
Automotive 114 112 2% 375 385 (3%)
Other items 88 89 (1%) 246 242 2%
----------------------------------- --------------
1,810 1,719 5% 5,354 5,037 6%

Operating expenses
Labor and fringe
benefits 453 469 3% 1,388 1,426 3%
Purchased services
and materials 188 191 2% 590 603 2%
Depreciation and
amortization 156 153 (2%) 470 465 (1%)
Fuel 181 133 (36%) 526 399 (32%)
Equipment rents 46 63 27% 146 185 21%
Casualty and other 121 114 (6%) 330 338 2%
------------------------------------ --------------
1,145 1,123 (2%) 3,450 3,416 (1%)

Operating income 665 596 12% 1,904 1,621 17%

Interest expense (72) (82) (225) (262)

Other income (loss) 11 (9) 2 (44)
------------------------------------ --------------
Income before income
taxes 604 505 1,681 1,315

Income tax expense (193) (158) (555) (419)
------------------------------------ --------------

Net income $ 411 $ 347 $ 1,126 $ 896
--------------------------------------------------------------------
--------------------------------------------------------------------
Operating ratio 63.3% 65.3% 2.0 64.4% 67.8% 3.4
--------------------------------------------------------------------
--------------------------------------------------------------------

Basic earnings
per share $ 1.50 $ 1.21 $ 4.05 $ 3.14
Diluted earnings
per share $ 1.47 $ 1.19 $ 3.98 $ 3.09
--------------------------------------------------------------------
--------------------------------------------------------------------

(1) The pro forma figures reflect the Company's results of operations
as if the Company had acquired GLT and BC Rail on January 1,
2004.

Certain of the 2004 comparative figures have been reclassified in
order to be consistent with the 2005 presentation.


CANADIAN NATIONAL RAILWAY COMPANY
SUPPLEMENTARY PRO FORMA INFORMATION (U.S. GAAP)
--------------------------------------------------------------------
--------------------------------------------------------------------


Three months ended Nine months ended
September 30 September 30
--------------------- ---------------------
2005 2004 Variance 2005 2004 Variance
pro Fav pro Fav
forma(1) (Unfav) forma(1) (Unfav)
--------------------------------------------------------------------
(Unaudited)

Revenue ton miles (millions)

Petroleum and
chemicals 7,611 8,085 (6%) 23,286 23,811 (2%)
Metals and minerals 4,217 4,321 (2%) 12,603 13,191 (4%)
Forest products 10,676 10,843 (2%) 31,749 30,928 3%
Coal 3,360 3,036 11% 10,573 9,449 12%
Grain and fertilizers 9,747 8,843 10% 29,475 28,958 2%
Intermodal 8,128 8,090 - 24,090 22,817 6%
Automotive 686 740 (7%) 2,327 2,479 (6%)
----------------------------------- ---------------
44,425 43,958 1% 134,103 131,633 2%

Freight revenue / RTM (cents)

Total freight revenue
per RTM 3.88 3.71 5% 3.81 3.64 5%
Commodity groups:
Petroleum and
chemicals 3.51 3.51 - 3.49 3.44 1%
Metals and minerals 4.96 4.70 6% 4.94 4.40 12%
Forest products 4.20 3.91 7% 4.10 3.90 5%
Coal 2.38 2.34 2% 2.42 2.32 4%
Grain and fertilizers 2.80 2.66 5% 2.74 2.66 3%
Intermodal 4.07 3.72 9% 3.86 3.58 8%
Automotive 16.62 15.14 10% 16.12 15.53 4%
----------------------------------- ---------------

Carloads (thousands)

Petroleum and
chemicals 146 152 (4%) 448 452 (1%)
Metals and minerals 259 253 2% 748 737 1%
Forest products 177 187 (5%) 540 548 (1%)
Coal 115 109 6% 347 333 4%
Grain and fertilizers 137 134 2% 415 422 (2%)
Intermodal 320 314 2% 926 888 4%
Automotive 62 64 (3%) 209 220 (5%)
----------------------------------- ---------------
1,216 1,213 - 3,633 3,600 1%

Freight revenue / carload (dollars)

Total freight revenue
per carload 1,416 1,344 5% 1,406 1,332 6%
Commodity groups:
Petroleum and
chemicals 1,829 1,868 (2%) 1,815 1,810 -
Metals and minerals 807 802 1% 832 787 6%
Forest products 2,531 2,267 12% 2,411 2,203 9%
Coal 696 651 7% 738 658 12%
Grain and fertilizers 1,993 1,754 14% 1,949 1,822 7%
Intermodal 1,034 959 8% 1,005 920 9%
Automotive 1,839 1,750 5% 1,794 1,750 3%
--------------------------------------------------------------------
--------------------------------------------------------------------

(1) The pro forma figures reflect the Company's results of
operations as if the Company had acquired GLT and BC Rail on
January 1, 2004.

Certain of the comparative statistical data and related productivity
measures have been restated to reflect changes to estimated
statistical data previously reported and reclassified in order to be
consistent with the 2005 presentation.


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Contact Information

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