CN reports Q2-2008 net income of C$459 million, or C$0.95 per diluted share, including deferred income tax recovery of C$0.05



    MONTREAL, July 21 /CNW Telbec/ - CN (TSX:CNR) (NYSE:  CNI) today reported
its financial and operating results for the second quarter and first half
ended June 30, 2008.

    
    Second-quarter 2008 results

    - Diluted earnings per share declined six per cent to C$0.95.
    - Net income declined 11 per cent to C$459 million.
    - Revenues increased four per cent to C$2,098 million.
    - Operating income declined 13 per cent to C$707 million, with the
      Company's operating ratio rising by 6.3 points to 66.3 per cent.
    - The stronger Canadian dollar relative to the U.S. dollar, which affects
      the conversion of CN's U.S. dollar-denominated revenues and expenses,
      reduced second-quarter 2008 net income by approximately C$25 million,
      or C$0.05 per diluted share.

    CN's second-quarter 2008 and 2007 results included deferred income tax
recoveries of C$23 million (C$0.05 per diluted share) and C$30 million
(C$0.06 per diluted share), respectively, as a result of continued reductions
in corporate income tax rates in Canada.
    E. Hunter Harrison, president and chief executive officer, said: "I am
pleased with our second-quarter results given the challenges we faced during
the period. Operations performed very well, and we saw revenue gains across
most of our commodity groups, although the gains only partly helped to offset
spiralling fuel costs that rose 60 per cent year over year to almost
C$400 million.
    "Despite the headwinds, we saw double-digit growth in intermodal revenues
as a result of new container traffic over the Port of Prince Rupert and
continued import strength at the Port of Vancouver, as well as higher volumes
of commodities to support oil sands development in Alberta.
    "CN continues to face economic uncertainties in the current environment,
but we are still targeting diluted earnings per share growth in the
mid-single-digit range for full-year 2008."(1)
    The four per cent increase in second-quarter 2008 revenues was largely
attributable to freight rate increases, of which approximately two-thirds were
due to a higher fuel surcharge, and increased volumes in specific commodity
groups, including intermodal and metals and minerals. Partly offsetting these
gains were the negative translation impact of the stronger Canadian dollar on
U.S. dollar-denominated revenues and weakness in specific markets,
particularly forest products and automotive.
    Five of CN's seven commodity groups registered revenues gains in the
quarter, led by intermodal (14 per cent), coal (eight per cent), petroleum and
chemicals (seven per cent), metals and minerals (six per cent), and grain and
fertilizers (four per cent). Forest products revenues declined 14 per cent,
and automotive revenues declined 13 per cent.
    Revenue ton-miles, measuring the relative weight and distance of rail
freight transported by the Company, declined by two per cent during the second
quarter versus the comparable period of 2007.
    Second-quarter 2008 total rail freight revenue per revenue ton-mile, a
measurement of yield defined as revenue earned on the movement of a ton of
freight over one mile, increased four per cent, mainly due to freight rate
increases that were partially offset by the translation impact of the stronger
Canadian dollar.
    Operating expenses for the quarter increased by 14 per cent to
C$1,391 million, largely as a result of increases in fuel costs, purchased
services and material, and casualty and other expenses, which were partly
offset by the favorable translation impact of the stronger Canadian dollar on
U.S. dollar-denominated expenses, and lower labor and fringe benefits expense.

    First-half 2008 results

    Net income for the first half of 2008 was C$770 million, or C$1.59 per
diluted share, compared with net income of C$840 million, or C$1.63 per
diluted share for the comparable period of 2007.
    First-half 2008 net income included a deferred income tax recovery of C$23
million (C$0.05 per diluted share) owing to a reduction in provincial
corporate income tax rates in Canada, as well as a deferred income tax
recovery of C$11 million (C$0.02 per diluted share) resulting from net capital
losses arising from the reorganization of a subsidiary.
    First-half 2007 net income included a C$30 million (C$0.06 per diluted
share) deferred income tax recovery owing to a reduction in the federal
corporate income tax rate in Canada.
    Operating income for the first half of 2008 declined 10 per cent to
C$1,230 million, while the Company's first-half 2008 operating ratio increased
by 4.3 points to 69.4 per cent.
    Revenues for the period increased two per cent to C$4,025 million, mainly
due to freight rate increases, of which approximately two-thirds were due to a
higher fuel surcharge, and increased volumes in specific commodity groups,
including intermodal and metals and minerals. The increased volumes reflected
the negative impact of a conductors' strike in Canada on first-quarter 2007
volumes that was partly offset by the impact of difficult weather conditions
experienced in Canada and the U.S. Midwest during the first quarter of 2008.
    Partly offsetting these factors were the negative translation impact of
the stronger Canadian dollar on U.S. dollar-denominated revenues and weakness
in specific markets, particularly forest products and automotive.
    Revenue ton-miles for the first half of 2008 were relatively flat compared
with the year-earlier period, while total rail freight revenue per revenue
ton-mile increased one per cent.
    First-half 2008 operating expenses increased nine per cent to
C$2,795 million, largely owing to increases in fuel costs, purchased services
and material, and casualty and other expenses. These factors were partly
offset by the favorable translation impact of the stronger Canadian dollar on
U.S. dollar-denominated expenses and lower labor and fringe benefits expense.
    CN estimates the conductors' strike had a negative impact on first-quarter
2007 operating income and net income of approximately C$50 million and C$35
million (C$0.07 per diluted share), respectively.
    The strengthening of the Canadian dollar relative to the U.S. dollar
reduced first-half 2008 net income by approximately C$55 million, or C$0.11
per diluted share.
    The financial results in this news release were determined on the basis of
U.S. Generally Accepted Accounting Principles (U.S. GAAP).

    (1) CN's financial outlook for 2008 - diluted earnings per share (EPS)
        growth in the mid-single-digit range over 2007 adjusted diluted EPS
        of C$3.40 - is based on certain assumptions for the balance of 2008:
        a Canadian-U.S. dollar exchange rate at or around parity, a crude oil
        (West Texas Intermediate) price of around US$135 per barrel, and
        North American economic growth of approximately one per cent.

    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 believes the U.S. economy is currently experiencing recessionary
conditions, but assumes that it will recover within the next six to nine
months, and that the global economy will grow at a moderate pace throughout
this period. The Company cautions that these, as well as its other assumptions
stated above, 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 "Management's Discussion and Analysis" in
CN's annual and interim reports and Annual Information Form and Form 40-F
filed with Canadian and U.S. securities regulators, available on CN's website,
for a summary of major 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, 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)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (In millions, except per share data)

                                    Three months ended     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
                                      2008       2007       2008       2007
    -------------------------------------------------------------------------
                                                   (Unaudited)

    Revenues                       $ 2,098    $ 2,027    $ 4,025    $ 3,933
    -------------------------------------------------------------------------

    Operating expenses
    Labor and fringe benefits          392        430        853        915
    Purchased services and material    283        263        568        539
    Fuel                               399        249        709        468
    Depreciation and amortization      176        168        351        339
    Equipment rents                     60         62        124        128
    Casualty and other                  81         44        190        172
    -------------------------------------------------------------------------
    Total operating expenses         1,391      1,216      2,795      2,561
    -------------------------------------------------------------------------

    Operating income                   707        811      1,230      1,372

    Interest expense                   (87)       (85)      (173)      (173)

    Other income                         9          1          3          5
    -------------------------------------------------------------------------

    Income before income taxes         629        727      1,060      1,204

    Income tax expense (Note 7)       (170)      (211)      (290)      (364)
    -------------------------------------------------------------------------

    Net income                     $   459    $   516    $   770    $   840
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share (Note 8)
    Basic                          $  0.96    $  1.02    $  1.61    $  1.65

    Diluted                        $  0.95    $  1.01    $  1.59    $  1.63

    Weighted-average number
     of shares
    Basic                            476.4      505.2      479.6      507.7

    Diluted                          482.0      512.3      485.3      515.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to unaudited consolidated financial statements.


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

                                          June 30  December 31      June 30
                                             2008         2007         2007
    -------------------------------------------------------------------------
                                       (Unaudited)               (Unaudited)

    Assets

    Current assets:
      Cash and cash equivalents          $    161     $    310     $    241
      Accounts receivable (Note 3)            843          370          425
      Material and supplies                   217          162          204
      Deferred income taxes                    67           68           73
      Other                                    88          138          159
    -------------------------------------------------------------------------
                                            1,376        1,048        1,102

    Properties                             20,864       20,413       20,401
    Intangible and other assets             2,113        1,999        1,664
    -------------------------------------------------------------------------

    Total assets                         $ 24,353     $ 23,460     $ 23,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity

    Current liabilities:
      Accounts payable and accrued
       charges                           $  1,198     $  1,282     $  1,427
      Current portion of long-term debt        85          254          366
      Other                                    91           54           62
    -------------------------------------------------------------------------
                                            1,374        1,590        1,855

    Deferred income taxes (Note 7)          5,100        4,908        4,885
    Other liabilities and deferred
     credits                                1,381        1,422        1,443
    Long-term debt (Note 3)                 6,389        5,363        5,193

    Shareholders' equity:
      Common shares                         4,208        4,283        4,417
      Accumulated other comprehensive
       loss                                    (1)         (31)        (180)
      Retained earnings                     5,902        5,925        5,554
    -------------------------------------------------------------------------
                                           10,109       10,177        9,791
    -------------------------------------------------------------------------

    Total liabilities and shareholders'
     equity                              $ 24,353     $ 23,460     $ 23,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to unaudited consolidated financial statements.


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

                                    Three months ended     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
                                      2008       2007       2008       2007
    -------------------------------------------------------------------------
                                                   (Unaudited)

    Common shares(1)

    Balance, beginning of period   $ 4,241    $ 4,426    $ 4,283    $ 4,459
      Stock options exercised and
       other                            19         44         42         67
      Share repurchase programs
       (Note 3)                        (52)       (53)      (117)      (109)
    -------------------------------------------------------------------------
    Balance, end of period         $ 4,208    $ 4,417    $ 4,208    $ 4,417
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive loss

    Balance, beginning of period   $     9    $   (50)   $   (31)   $   (44)

    Other comprehensive income (loss):

    Unrealized foreign exchange
     gain (loss) on:
      Translation of the net
       investment in foreign
       operations                      (47)      (477)       140       (533)
      Translation of U.S.
       dollar-denominated
       long-term debt designated
       as a hedge of the net
       investment in U.S.
       subsidiaries                     41        391       (141)       438

    Pension and other postretirement
     benefit plans (Note 5):
      Amortization of net actuarial
       loss (gain) included in net
       periodic benefit cost            (1)        13         (2)        25
      Amortization of prior service
       cost included in net
       periodic benefit cost             6          6         12         11
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss) before income taxes         (1)       (67)         9        (59)
    Income tax recovery (expense)       (9)       (63)        21        (77)
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss)                            (10)      (130)        30       (136)
    -------------------------------------------------------------------------
    Balance, end of period         $    (1)   $  (180)   $    (1)   $  (180)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings

    Balance, beginning of period   $ 5,823    $ 5,434    $ 5,925    $ 5,409
      Adoption of new accounting
       pronouncements(2)                 -          -          -         95
    -------------------------------------------------------------------------

    Restated balance, beginning of
     period                          5,823      5,434      5,925      5,504

    Net income                         459        516        770        840
    Share repurchase programs
     (Note 3)                         (271)      (291)      (573)      (578)
    Dividends                         (109)      (105)      (220)      (212)
    -------------------------------------------------------------------------
    Balance, end of period         $ 5,902    $ 5,554    $ 5,902    $ 5,554
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to unaudited consolidated financial statements.

    (1) During the three and six months ended June 30, 2008, the Company
        issued 0.7 million and 1.5 million common shares, respectively, as a
        result of stock options exercised, and repurchased 6.0 million and
        13.3 million common shares, respectively, under its 33.0 million
        share repurchase program. At June 30, 2008, the Company had
        473.4 million common shares outstanding.

    (2) 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)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (In millions)

                                    Three months ended     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
                                      2008       2007       2008       2007
    -------------------------------------------------------------------------
                                                   (Unaudited)

    Operating activities

    Net income                     $   459    $   516    $   770    $   840
    Adjustments to reconcile net
     income to net cash provided
     from operating activities:
      Depreciation and amortization    176        169        351        341
      Deferred income taxes             89         43        114         50
      Other changes in:
        Accounts receivable           (233)        38       (468)       214
        Material and supplies           (6)        (1)       (54)       (20)
        Accounts payable and
         accrued charges               (58)        (4)      (126)      (406)
        Other net current assets
         and liabilities                41         27         79          9
      Other                            (59)       (22)       (92)         1
    -------------------------------------------------------------------------
    Cash provided from operating
     activities                        409        766        574      1,029
    -------------------------------------------------------------------------

    Investing activities

    Property additions                (352)      (344)      (529)      (547)
    Other, net                           9          2         20         12
    -------------------------------------------------------------------------
    Cash used by investing
     activities                       (343)      (342)      (509)      (535)
    -------------------------------------------------------------------------

    Financing activities

    Issuance of long-term debt       1,597      1,050      2,652      1,484
    Reduction of long-term debt     (1,418)      (904)    (1,998)    (1,049)
    Issuance of common shares due
     to exercise of stock
     options and related excess
     tax benefits realized              16         41         34         59
    Repurchase of common shares       (323)      (344)      (690)      (687)
    Dividends paid                    (109)      (105)      (220)      (212)
    -------------------------------------------------------------------------
    Cash used by financing
     activities                       (237)      (262)      (222)      (405)
    -------------------------------------------------------------------------

    Effect of foreign exchange
     fluctuations on U.S. dollar-
     denominated cash and cash
     equivalents                        (2)       (27)         8        (27)
    -------------------------------------------------------------------------

    Net increase (decrease) in
     cash and cash equivalents        (173)       135       (149)        62

    Cash and cash equivalents,
     beginning of period               334        106        310        179
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                 $   161    $   241    $   161    $   241
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
      Net cash receipts from
       customers and other         $ 1,886    $ 2,086    $ 3,634    $ 4,160
      Net cash payments for:
        Employee services,
         suppliers and other
         expenses                   (1,215)    (1,017)    (2,554)    (2,254)
        Interest                       (90)       (73)      (190)      (187)
        Workforce reductions            (6)        (7)       (12)       (16)
        Personal injury and
         other claims                  (18)       (26)       (44)       (46)
        Pensions                       (31)       (22)       (53)       (23)
        Income taxes                  (117)      (175)      (207)      (605)
    -------------------------------------------------------------------------
    Cash provided from operating
     activities                    $   409    $   766    $   574    $ 1,029
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to unaudited consolidated financial statements.


    CANADIAN NATIONAL RAILWAY COMPANY
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (U.S. GAAP)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 1 - Basis of presentation

    In management's opinion, the accompanying unaudited Interim Consolidated
Financial Statements and Notes thereto, expressed in Canadian dollars, and
prepared in accordance with U.S. generally accepted accounting principles
(U.S. GAAP) for interim financial statements, contain all adjustments
(consisting of normal recurring accruals) necessary to present fairly Canadian
National Railway Company's (the Company) financial position as at June 30,
2008, December 31, 2007, and June 30, 2007, and its results of operations,
changes in shareholders' equity and cash flows for the three and six months
ended June 30, 2008 and 2007.
    These unaudited Interim Consolidated Financial Statements and Notes
thereto have been prepared using accounting policies consistent with those
used in preparing the Company's 2007 Annual Consolidated Financial Statements.
While management believes that the disclosures presented are adequate to make
the information not misleading, these unaudited Interim Consolidated Financial
Statements and Notes thereto should be read in conjunction with the Company's
Interim Management's Discussion and Analysis (MD&A) and Annual Consolidated
Financial Statements and Notes thereto.

    Note 2 - Agreement to acquire Elgin, Joliet and Eastern Railway Company
    (EJ&E)

    In September 2007, the Company entered into an agreement with the U.S.
Steel Corporation (U.S. Steel) for the acquisition of the key operations of
EJ&E for a purchase price of approximately U.S.$300 million. Under the terms
of the agreement, the Company will acquire substantially all of the railroad
assets and equipment of EJ&E, except those that support the Gary Works site in
northwest Indiana and the steelmaking operations of U.S. Steel. The
acquisition will be financed by debt and cash on hand.
    In accordance with the terms of the agreement, the Company's obligation to
consummate the acquisition is subject to the Company having obtained from the
Surface Transportation Board (STB) a final, unappealable decision that
approves the acquisition and does not impose on the parties conditions that
would significantly and adversely affect the anticipated economic benefits of
the acquisition to the Company.
    On November 26, 2007, the STB accepted the Company's application to
consider the acquisition as a minor transaction. The STB, however, is also
requiring an Environmental Impact Statement (EIS) for the transaction, and it
has indicated that its decision on the transaction will not be issued until
the EIS process is completed. The Company has requested that the STB establish
time limits for it to conclude its environmental review and issue a decision
that would enable the transaction to close by late 2008. If the transaction is
approved by the STB, the Company will account for the acquisition using the
purchase method of accounting.

    Note 3 - Financing activities

    Shelf prospectus and registration statement

    In May 2008, the Company issued U.S.$325 million (Cdn$331 million) of
4.95% Notes due 2014 and U.S.$325 million (Cdn$331 million) of 5.55% Notes due
2018. The debt offering was made under the Company's current shelf prospectus
and registration statement. Accordingly, the amount available under the shelf
prospectus and registration statement has been reduced to U.S.$1.85 billion.
The Company used the net proceeds of U.S.$643 million to repay a portion of
its commercial paper outstanding, and to reduce its account receivable
securitization program.

    Revolving credit facility

    As at June 30, 2008, the Company had letters of credit drawn on its
U.S. $1 billion revolving credit facility, expiring in October 2011, of
$179 million ($57 million as at December 31, 2007). The Company also had total
borrowings under its commercial paper program of $345 million, of which
$230 million was denominated in Canadian dollars and $115 million was
denominated in U.S. dollars (U.S.$113 million). The weighted-average interest
rate on these borrowings was 2.96%. As at December 31, 2007, total borrowings
under the Company's commercial paper program were $122 million, of which
$114 million was denominated in Canadian dollars and $8 million was
denominated in U.S. dollars (U.S.$8 million). The weighted-average interest
rate on these borrowings was 5.01%.

    Accounts receivable securitization

    The Company has a five-year agreement, expiring in May 2011, to sell an
undivided co-ownership interest for maximum cash proceeds of $600 million in a
revolving pool of freight receivables to an unrelated trust. Pursuant to the
agreement, the Company sells an interest in its receivables and receives
proceeds net of the retained interest as stipulated in the agreement.
    As at June 30, 2008, the Company had sold receivables that resulted in
proceeds of $231 million under this program ($588 million at December 31,
2007), and recorded retained interest of approximately 10% of this amount in
Other current assets (retained interest of approximately 10% recorded as at
December 31, 2007). As at June 30, 2008, the servicing asset and liability
were not significant.

    Share repurchase programs

    In the second quarter of 2008, under its 33.0 million share repurchase
program, the Company repurchased 6.0 million common shares for $323 million,
at a weighted-average price of $53.91 per share. As at June 30, 2008, the
Company has ended this program, repurchasing a total of 31.0 million common
shares since July 26, 2007, the inception of this program, for $1,588 million,
at a weighted-average price of $51.22 per share.
    On July 21, 2008, the Board of Directors of the Company approved a new
share repurchase program which allows for the repurchase of up to 25.0 million
common shares between July 28, 2008 and July 20, 2009 pursuant to a normal
course issuer bid, at prevailing market prices or such other prices as may be
permitted by the Toronto Stock Exchange.

    Note 4 - Stock plans

    The Company has various stock-based incentive plans for eligible
employees. A description of the plans is provided in Note 12 - Stock plans, to
the Company's 2007 Annual Consolidated Financial Statements. For the three and
six months ended June 30, 2008, the Company recorded total compensation
expense for awards under all plans of $6 million and $34 million,
respectively, and $44 million and $73 million, respectively, for the same
periods in 2007. The total tax benefit recognized in income in relation to
stock-based compensation expense for the three and six months ended June 30,
2008 was $3 million and $10 million, respectively, and $13 million and
$21 million, respectively, for the same periods in 2007.

    Cash settled awards

    Following approval by the Board of Directors in January 2008, the Company
granted 0.7 million restricted share units (RSUs) to designated management
employees entitling them to receive payout in cash based on the Company's
share price. The RSUs granted by the Company are generally scheduled for
payout in cash after three years ("plan period") and vest upon the attainment
of targets relating to return on invested capital over the plan period and the
Company's share price during the last three months of the plan period. As at
June 30, 2008, 0.1 million RSUs remained authorized for future issuance under
this plan.
    The following table provides the activity for all cash settled awards in
2008:

    -------------------------------------------------------------------------
                                         Vision 2008
                                         Share Unit     Voluntary Incentive
                           RSUs         Plan (Vision)   Deferral Plan (VIDP)
                    ----------------  ----------------  --------------------
    In millions     Nonvested Vested  Nonvested Vested     Nonvested Vested
    -------------------------------------------------------------------------
    Outstanding at
     December 31, 2007    1.6    0.9        0.8      -           0.2    1.9
    Granted               0.7      -          -      -             -      -
    Forfeited            (0.1)     -          -      -             -      -
    Vested during
     period                 -      -          -      -          (0.1)   0.1
    Payout                  -   (0.9)         -      -             -   (0.2)
    Conversion into
     VIDP                   -      -          -      -             -      -
    -------------------------------------------------------------------------
    Outstanding at
     June 30, 2008        2.2      -        0.8      -           0.1    1.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table provides valuation and expense information for all
cash settled awards:

    -------------------------------------------------------------------------
    In millions, unless
     otherwise indicated       RSUs(1)              Vision(1) VIDP(2) Total
    -------------------------------------------------------------------------
    Year of                                                     2003
     grant      2008    2007    2006    2005    2004    2005 onwards
              ------  ------  ------   -----  ------   -----  ------
    Stock-based
     compensation
     expense
     recognized
     over
     requisite
     service
     period
    Six months
     ended
     June 30,
     2008     $    9  $    -  $    7     N/A  $    2  $    2  $    6  $  26
    Six months
     ended
     June 30,
     2007        N/A  $   13  $   12   $  12  $    3  $    7  $   19  $  66
    -------------------------------------------------------------------------

    Liability
     outstanding
    June 30,
     2008     $    9  $   11  $   36     N/A  $    2  $   10  $   94  $ 162
    December
     31, 2007    N/A  $   11  $   29   $  48  $    4  $    8  $   95  $ 195
    -------------------------------------------------------------------------

    Fair value
     per unit
    June 30,
     2008     $29.63  $31.25  $41.63     N/A  $48.98  $15.90  $48.98    N/A
    -------------------------------------------------------------------------

    Fair value
     of awards
     vested
     during
     period
    Six months
     ended
     June 30,
     2008     $    -  $    -  $    -     N/A  $    -  $    -  $    2  $   2
    Six months
     ended
     June 30,
     2007        N/A  $    -  $    -   $   -  $    5  $    -  $    3  $   8
    -------------------------------------------------------------------------

    Nonvested
     awards at
     June 30,
     2008
    Unrecognized
     compensation
     cost     $   10  $    4  $    4     N/A  $    2  $    2  $    4  $  26
    Remaining
     recognition
     period
     (years)    2.50    1.50    0.50     N/A    0.50    0.50    3.50    N/A
    -------------------------------------------------------------------------

    Assumptions(3)
    Stock
     price($) $48.98  $48.98  $48.98     N/A  $48.98  $48.98  $48.98    N/A
    Expected
     stock
     price
     volati-
     lity(4)      22%     23%     26%    N/A     N/A      28%    N/A    N/A
    Expected
     term
     (years)(5) 2.50    1.50    0.50     N/A     N/A    0.50     N/A    N/A
    Risk-free
     interest
     rate(6)    3.31%   3.20%   2.96%    N/A     N/A    2.59%    N/A    N/A
    Dividend
     rate
     ($)(7)   $ 0.92  $ 0.92  $ 0.92     N/A     N/A  $ 0.92     N/A    N/A
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Compensation cost is based on the fair value of the awards at
        period-end using the lattice-based valuation model that uses the
        assumptions as presented herein, except for time-vested RSUs.

    (2) Compensation cost is based on intrinsic value.

    (3) Assumptions used to determine fair value are at June 30, 2008.

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

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

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

    (7) Based on the annualized dividend rate.

    Stock option awards

    Following approval by the Board of Directors in January 2008, the Company
granted 0.9 million conventional stock options to designated senior management
employees. The stock option plan allows eligible employees to acquire common
shares of the Company upon vesting at a price equal to the market value of the
common shares at the date of grant. The options are exercisable during a
period not exceeding 10 years. The right to exercise options generally accrues
over a period of four years of continuous employment. Options are not
generally exercisable during the first 12 months after the date of grant. At
June 30, 2008, 13.5 million common shares remained authorized for future
issuances under this plan. The total number of options outstanding at June 30,
2008, including conventional, performance and performance-accelerated options,
was 10.5 million, 0.3 million and 3.3 million, respectively.
    The following table provides the activity of stock option awards in 2008.
The table also provides the aggregate intrinsic value for in-the-money stock
options, which represents the amount that would have been received by option
holders had they exercised their options on June 30, 2008 at the Company's
closing stock price of $48.98.

    -------------------------------------------------------------------------
                                               Options outstanding
    -------------------------------------------------------------------------
                                             Weighted-  Weighted-
                                    Number    average    average  Aggregate
                                        of   exercise   years to  intrinsic
                                   options      price expiration      value
    -------------------------------------------------------------------------
                                        In                               In
                                  millions                         millions
    -------------------------------------------------------------------------
    Outstanding at
     December 31, 2007(1)             14.7   $  24.55
    Granted                            0.9   $  48.51
    Forfeited                            -   $      -
    Exercised                         (1.5)  $  17.44
    -------------------------------------------------------------------------
    Outstanding at June 30, 2008(1)   14.1   $  27.01        4.7       $311
    -------------------------------------------------------------------------
    Exercisable at June 30, 2008(1)   11.7   $  23.09        3.9       $303
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Stock options with a U.S. dollar exercise price have been translated
        to Canadian dollars using the foreign exchange rate in effect at the
        balance sheet date.

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

    -------------------------------------------------------------------------
    In millions, unless otherwise indicated
    -------------------------------------------------------------------------
    Year of grant                      2008    2007    2006    2005   Total
                                     -------  ------  ------  ------  ------
    Stock-based compensation expense
     recognized over requisite
     service period(1)
    Six months ended June 30, 2008   $    5  $    1  $    1  $    1   $   8
    Six months ended June 30, 2007      N/A  $    5  $    1  $    1   $   7
    -------------------------------------------------------------------------

    Fair value per unit
    At grant date ($)                $12.44  $13.36  $13.80  $ 9.19     N/A
    -------------------------------------------------------------------------

    Fair value of awards vested
     during period
    Six months ended June 30, 2008   $    -  $    3  $    3  $    3   $   9
    Six months ended June 30, 2007      N/A  $    -  $    4  $    3   $   7
    -------------------------------------------------------------------------

    Nonvested awards at June 30, 2008
    Unrecognized compensation cost   $    6  $    3  $    2  $    2   $  13
    Remaining recognition period
     (years)                            3.6     2.6     1.6     0.6     N/A
    -------------------------------------------------------------------------

    Assumptions(1)
    Grant price ($)                  $48.51  $52.79  $51.51  $36.33     N/A
    Expected stock price
     volatility(2)                       27%     24%     25%     25%    N/A
    Expected term (years)(3)            5.3     5.2     5.2     5.2     N/A
    Risk-free interest rate(4)         3.58%   4.12%   4.04%   3.50%    N/A
    Dividend rate ($)(5)             $ 0.92  $ 0.84  $ 0.65  $ 0.50     N/A
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Compensation cost is based on the grant date fair value using the
        Black-Scholes option-pricing model that uses the assumptions at the
        grant date.

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

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

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

    (5) Based on the annualized dividend rate.

    Note 5 - Pensions and other postretirement benefits

    For the three and six months ended June 30, 2008 and 2007, the components
of net periodic benefit cost (income) for pensions and other postretirement
benefits were as follows:

    (a) Components of net periodic benefit cost (income) for pensions

    -------------------------------------------------------------------------
                                    Three months ended     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
    In millions                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Service cost                    $   35     $   38     $   70     $   76
    Interest cost                      200        185        400        371
    Expected return on plan assets    (251)      (235)      (502)      (469)
    Amortization of prior service
     cost                                5          5         10         10
    Recognized net actuarial loss        -         14          -         27
    -------------------------------------------------------------------------
    Net periodic benefit cost
     (income)                       $  (11)    $    7     $  (22)    $   15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                    Three months ended     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
    In millions                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Service cost                    $    1     $    1     $    2     $    2
    Interest cost                        4          3          8          7
    Curtailment gain                    (1)         -         (3)        (3)
    Amortization of prior service
     cost                                1          1          2          1
    Recognized net actuarial gain       (1)        (1)        (2)        (2)
    -------------------------------------------------------------------------
    Net periodic benefit cost       $    4     $    4     $    7     $    5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In 2008, the Company expects to make total contributions of approximately
$120 million for all its defined benefit plans, of which $53 million was
disbursed as at June 30, 2008 and includes $22 million relating to the 2007
funding year.

    Note 6 - Major commitments and contingencies

    A. Commitments

    As at June 30, 2008, the Company had commitments to acquire railroad ties,
rail, freight cars, locomotives, and other equipment and services, as well as
outstanding information technology service contracts and licenses, at an
aggregate cost of $863 million ($952 million at December 31, 2007). The
Company also has agreements with fuel suppliers to purchase approximately 88%
of the estimated remaining 2008 volume, 66% of its anticipated 2009 volume,
and 31% of its anticipated 2010 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 actions brought on behalf of various classes
of claimants, and claims relating to personal injuries, occupational disease
and damage to property.

    Canada

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

    United States

    Employee work-related injuries, including occupational disease claims, are
compensated according to the provisions of the Federal Employers' Liability
Act (FELA), which requires either the finding of fault through the U.S. jury
system or individual settlements, and represent a major liability for the
railroad industry. The Company follows an actuarial-based approach and accrues
the expected cost for personal injury and property damage claims and asserted
and unasserted occupational disease claims, based on actuarial estimates of
their ultimate cost. A comprehensive actuarial study is conducted on an annual
basis, in the fourth quarter, by an independent actuarial firm for
occupational disease claims, while an actuarial study is conducted on a
semi-annual basis for non-occupational disease claims. 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 June 30, 2008, the Company had aggregate reserves for personal
injury and other claims of $450 million, of which $104 million was recorded as
a current liability ($446 million, of which $102 million was recorded as a
current liability at December 31, 2007). 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 June 30, 2008,
or with respect to future claims, cannot be predicted with certainty, and
therefore there can be no assurance that their resolution will not have a
material adverse effect on the Company's financial position or results of
operations in a particular quarter or fiscal year.

    C. Environmental matters

    The Company's operations are subject to numerous federal, provincial,
state, municipal and local environmental laws and regulations in Canada and
the United States concerning, among other things, emissions into the air;
discharges into waters; the generation, handling, storage, transportation,
treatment and disposal of waste, hazardous substances, and other materials;
decommissioning of underground and aboveground storage tanks; and soil and
groundwater contamination. A risk of environmental liability is inherent in
railroad and related transportation operations; real estate ownership,
operation or control; and other commercial activities of the Company with
respect to both current and past operations. As a result, the Company incurs
significant compliance and capital costs, on an ongoing basis, associated with
environmental regulatory compliance and clean-up requirements in its railroad
operations and relating to its past and present ownership, operation or
control of real property.
    The Company is subject to environmental clean-up and enforcement actions.
In particular, the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (CERCLA), also known as the Superfund law, as well
as similar state laws generally impose joint and several liability for
clean-up and enforcement costs on current and former owners and operators of a
site without regard to fault or the legality of the original conduct. The
Company has been notified that it is a potentially responsible party for study
and clean-up costs at approximately 23 sites governed by the Superfund law
(and other similar federal and state laws) for which investigation and
remediation payments are or will be made or are yet to be determined and, in
many instances, is one of several potentially responsible parties.
    While the Company believes that it has identified the costs likely to be
incurred in the next several years, based on known information, for
environmental matters, the Company's ongoing efforts to identify potential
environmental concerns that may be associated with its properties may lead to
future environmental investigations, which may result in the identification of
additional environmental costs and liabilities. The magnitude of such
additional liabilities and the costs of complying with environmental laws and
containing or remediating contamination cannot be reasonably estimated due to:

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

    therefore, the likelihood of any such costs being incurred or whether such
costs would be material to the Company cannot be determined at this time.
There can thus be no assurance that material liabilities or costs related to
environmental matters will not be incurred in the future, or will not have a
material adverse effect on the Company's financial position or results of
operations in a particular quarter or fiscal year, or that the Company's
liquidity will not be adversely impacted by such environmental liabilities or
costs. Although the effect on operating results and liquidity cannot be
reasonably estimated, management believes, based on current information, that
environmental matters will not have a material adverse effect on the Company's
financial condition or competitive position. Costs related to any future
remediation will be accrued in the year in which they become known.
    As at June 30, 2008, the Company had aggregate accruals for environmental
costs of $108 million, of which $28 million was recorded as a current
liability ($111 million, of which $28 million was recorded as a current
liability as at December 31, 2007).

    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 may extend
beyond the term of the agreement. These include, but are not limited to,
residual value guarantees on operating leases, standby letters of credit and
surety and other bonds, and indemnifications that are customary for the type
of transaction or for the railway business.
    The Company is required to recognize a liability for the fair value of the
obligation undertaken in issuing certain guarantees on the date the guarantee
is issued or modified. In addition, where the Company expects to make a
payment in respect of a guarantee, a liability will be recognized to the
extent that one has not yet been recognized.

    (i) Guarantee of residual values of operating leases

    The Company has guaranteed a portion of the residual values of certain of
its assets under operating leases with expiry dates between 2008 and 2019, 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 June 30, 2008, the maximum
exposure in respect of these guarantees was $139 million. There are no
recourse provisions to recover any amounts from third parties.

    (ii) Other guarantees

    The Company, including certain of its subsidiaries, has granted
irrevocable standby letters of credit and surety and other bonds, issued by
highly rated financial institutions, to third parties to indemnify them in the
event the Company does not perform its contractual obligations. As at June 30,
2008, the maximum potential liability under these guarantees was $485 million,
of which $406 million was for workers' compensation and other employee
benefits and $79 million was for equipment under leases and other. During
2008, the Company has granted guarantees for which no liability has been
recorded, as they relate to the Company's future performance.
    As at June 30, 2008, the Company had not recorded any additional liability
with respect to these guarantees, as the Company does not expect to make any
additional payments associated with these guarantees. The majority of the
guarantee instruments mature at various dates between 2008 and 2010.

    (iii) General indemnifications

    In the normal course of business, the Company has provided
indemnifications, customary for the type of transaction or for the railway
business, in various agreements with third parties, including indemnification
provisions where the Company would be required to indemnify third parties and
others. Indemnifications are found in various types of contracts with third
parties which include, but are not limited to:

    (a) contracts granting the Company the right to use or enter upon
        property owned by third parties such as leases, easements, trackage
        rights and sidetrack agreements;
    (b) contracts granting rights to others to use the Company's property,
        such as leases, licenses and easements;
    (c) contracts for the sale of assets and securitization of accounts
        receivable;
    (d) contracts for the acquisition of services;
    (e) financing agreements;
    (f) trust indentures, fiscal agency agreements, underwriting agreements
        or similar agreements relating to debt or equity securities of the
        Company and engagement agreements with financial advisors;
    (g) transfer agent and registrar agreements in respect of the Company's
        securities;
    (h) trust and other agreements relating to pension plans and other plans,
        including those establishing trust funds to secure payment to certain
        officers and senior employees of special retirement compensation
        arrangements;
    (i) pension transfer agreements;
    (j) master agreements with financial institutions governing derivative
        transactions; and
    (k) settlement agreements with insurance companies or other third parties
        whereby such insurer or third party has been indemnified for any
        present or future claims relating to insurance policies, incidents or
        events covered by the settlement agreements.

    To the extent of any actual claims under these agreements, the Company
maintains provisions for such items, which it considers to be adequate. Due to
the nature of the indemnification clauses, the maximum exposure for future
payments may be material. However, such exposure cannot be determined with
certainty.
    The Company has entered into various indemnification contracts with third
parties for which the maximum exposure for future payments cannot be
determined with certainty. As a result, the Company was unable to determine
the fair value of these guarantees and accordingly, no liability was recorded.
There are no recourse provisions to recover any amounts from third parties.

    Note 7 - Income taxes

    In 2008, the Company recorded a deferred income tax recovery of
$34 million in the Consolidated Statement of Income, of which $23 million,
recorded in the second quarter, was due to the enactment of lower provincial
corporate income tax rates and $11 million, recorded in the first quarter,
resulted from net capital losses arising from the reorganization of a
subsidiary. In the second quarter of 2007, the Company recorded a deferred
income tax recovery of $30 million in the Consolidated Statement of Income,
due to the enactment of a lower federal corporate income tax rate in Canada.

    Note 8 - Earnings per share

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

    -------------------------------------------------------------------------
                                    Three months ended     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
    In millions, except per
     share data                       2008       2007       2008       2007
    -------------------------------------------------------------------------

    Net income                     $   459    $   516    $   770    $   840

    Weighted-average shares
     outstanding                     476.4      505.2      479.6      507.7
    Effect of stock options            5.6        7.1        5.7        7.4
    -------------------------------------------------------------------------
    Weighted-average diluted shares
     outstanding                     482.0      512.3      485.3      515.1

    Basic earnings per share       $  0.96    $  1.02    $  1.61    $  1.65
    Diluted earnings per share     $  0.95    $  1.01    $  1.59    $  1.63
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The weighted-average number of stock options that were not included in the
calculation of diluted earnings per share, as their inclusion would have had
an anti-dilutive impact, was 0.1 million for both the three and six months
ended June 30, 2008, and nil and 0.1 million, respectively, for the
corresponding periods in 2007.


    CANADIAN NATIONAL RAILWAY COMPANY
    SELECTED RAILROAD STATISTICS (1) (U.S. GAAP)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                    Three months ended     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
                                      2008       2007       2008       2007
    -------------------------------------------------------------------------
                                                   (Unaudited)
    Statistical operating data

    Rail freight revenues
     ($ millions)                    1,876      1,848      3,636      3,602
    Gross ton miles (GTM)
     (millions)                     87,287     88,344    171,614    170,085
    Revenue ton miles (RTM)
     (millions)                     45,264     46,423     90,223     90,516
    Carloads (thousands)             1,188      1,204      2,320      2,335
    Route miles (includes Canada
     and the U.S.)                  20,421     20,219     20,421     20,219
    Employees (end of period)       23,147     22,757     23,147     22,757
    Employees (average for the
     period)                        22,953     22,494     22,795     21,986
    -------------------------------------------------------------------------

    Productivity

    Operating ratio (%)               66.3       60.0       69.4       65.1
    Rail freight revenue per
     RTM (cents)                      4.14       3.98       4.03       3.98
    Rail freight revenue per
     carload ($)                     1,579      1,535      1,567      1,543
    Operating expenses per
     GTM (cents)                      1.59       1.38       1.63       1.51
    Labor and fringe benefits
     expense per GTM (cents)          0.45       0.49       0.50       0.54
    GTMs per average number of
     employees (thousands)           3,803      3,927      7,529      7,736
    Diesel fuel consumed (U.S.
     gallons in millions)               96         98        195        194
    Average fuel price
     ($/U.S. gallon)                  3.82       2.30       3.41       2.24
    GTMs per U.S. gallon of fuel
     consumed                          909        901        880        877
    -------------------------------------------------------------------------

    Safety indicators

    Injury frequency rate per
     200,000 person hours(2)           1.2        1.6        1.6        1.6
    Accident rate per million
     train miles(2)                    2.7        1.7        2.7        2.2
    -------------------------------------------------------------------------

    Financial ratio

    Debt to total capitalization
     ratio (% at end of period)       39.0       36.2       39.0       36.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes data relating to companies acquired as of the date of
        acquisition.
    (2) Based on Federal Railroad Administration (FRA) reporting criteria.

    Certain statistical data and related productivity measures are based on
estimated data available at such time and are subject to change as more
complete information becomes available.


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

                                Three months ended        Six months ended
                                      June 30                  June 30
                               --------------------     ---------------------
                                          Variance                 Variance
                                               Fav                      Fav
                               2008    2007 (Unfav)     2008    2007 (Unfav)
    -------------------------------------------------------------------------
                                                 (Unaudited)

    Revenues (millions of dollars)
    Petroleum and chemicals     322     300      7%      641     603      6%
    Metals and minerals         239     225      6%      444     423      5%
    Forest products             357     414    (14%)     687     824    (17%)
    Coal                        107      99      8%      206     188     10%
    Grain and fertilizers       334     322      4%      674     631      7%
    Intermodal                  393     346     14%      744     659     13%
    Automotive                  124     142    (13%)     240     274    (12%)
    Other revenues              222     179     24%      389     331     18%
    ----------------------------------------          ---------------
                              2,098   2,027      4%    4,025   3,933      2%

    Revenue ton miles (millions)
    Petroleum and chemicals   7,970   8,049     (1%)  16,396  15,919      3%
    Metals and minerals       4,740   4,263     11%    8,831   8,113      9%
    Forest products           8,826  10,526    (16%)  17,284  20,631    (16%)
    Coal                      3,638   3,744     (3%)   7,030   6,844      3%
    Grain and fertilizers    10,707  10,780     (1%)  22,536  21,568      4%
    Intermodal                8,666   8,184      6%   16,755  15,775      6%
    Automotive                  717     877    (18%)   1,391   1,666    (17%)
    ----------------------------------------          ---------------
                             45,264  46,423     (2%)  90,223  90,516      -

    Rail freight revenue / RTM (cents)
    Total rail freight
     revenue per RTM           4.14    3.98      4%     4.03    3.98      1%
    Commodity groups:
    Petroleum and chemicals    4.04    3.73      8%     3.91    3.79      3%
    Metals and minerals        5.04    5.28     (5%)    5.03    5.21     (3%)
    Forest products            4.04    3.93      3%     3.97    3.99     (1%)
    Coal                       2.94    2.64     11%     2.93    2.75      7%
    Grain and fertilizers      3.12    2.99      4%     2.99    2.93      2%
    Intermodal                 4.53    4.23      7%     4.44    4.18      6%
    Automotive                17.29   16.19      7%    17.25   16.45      5%
    ----------------------------------------          ---------------

    Carloads (thousands)
    Petroleum and chemicals     140     149     (6%)     285     295     (3%)
    Metals and minerals         272     261      4%      510     492      4%
    Forest products             136     151    (10%)     263     303    (13%)
    Coal                         90      95     (5%)     177     185     (4%)
    Grain and fertilizers       148     146      1%      299     287      4%
    Intermodal                  348     330      5%      675     635      6%
    Automotive                   54      72    (25%)     111     138    (20%)
    ----------------------------------------          ---------------
                              1,188   1,204     (1%)   2,320   2,335     (1%)

    Rail freight revenue / carload (dollars)
    Total rail freight
     revenue per carload      1,579   1,535      3%    1,567   1,543      2%
    Commodity groups:
    Petroleum and chemicals   2,300   2,013     14%    2,249   2,044     10%
    Metals and minerals         879     862      2%      871     860      1%
    Forest products           2,625   2,742     (4%)   2,612   2,719     (4%)
    Coal                      1,189   1,042     14%    1,164   1,016     15%
    Grain and fertilizers     2,257   2,205      2%    2,254   2,199      3%
    Intermodal                1,129   1,048      8%    1,102   1,038      6%
    Automotive                2,296   1,972     16%    2,162   1,986      9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 MEASURE - unaudited
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Free cash flow

    The Company generated $164 million and $225 million of free cash flow for
the three and six months ended June 30, 2008, compared to $227 million and
$51 million of free cash flow for the same periods in 2007. Free cash flow
does not have any standardized meaning prescribed by GAAP and may, therefore,
not be comparable to similar measures presented by other companies. The
Company believes that free cash flow is a useful measure of performance as it
demonstrates the Company's ability to generate cash after the payment of
capital expenditures and dividends. The Company defines free cash flow as 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     Six months ended
                                          June 30               June 30
                                    ------------------     -----------------
    In millions                       2008       2007       2008       2007
    -------------------------------------------------------------------------

    Cash provided from operating
     activities                    $   409    $   766    $   574    $ 1,029
    Cash used by investing
     activities                       (343)      (342)      (509)      (535)
    -------------------------------------------------------------------------
    Cash provided before financing
     activities                         66        424         65        494
    -------------------------------------------------------------------------

    Adjustments:
      Change in accounts receivable
       securitization                  209        (65)       372       (204)
      Dividends paid                  (109)      (105)      (220)      (212)
      Effect of foreign exchange
       fluctuations on U.S.
       dollar-denominated cash and
       cash equivalents                 (2)       (27)         8        (27)
    -------------------------------------------------------------------------
    Free cash flow                 $   164    $   227    $   225    $    51
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




For further information:

For further information: Mark Hallman (Media), Director, Communications,
Media, CN, (905) 669-3384; Robert Noorigian (Investment Community),
Vice-President, Investor Relations, CN, (514) 399-0052


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