CN reports Q3-2008 net income of C$552 million, or C$1.16 per diluted share, including deferred income tax recovery of C$0.09



    MONTREAL, Oct. 21 /CNW Telbec/ - CN (TSX: CNR)(NYSE:   CNI) today reported
its financial and operating results for the third quarter and nine months
ended Sept. 30, 2008.

    
    Third-quarter 2008 highlights

    - Diluted earnings per share increased 21 per cent to C$1.16.
    - Net income increased 14 per cent to C$552 million.
    - Revenues increased 12 per cent to C$2,257 million.
    - Operating income increased 10 per cent to C$844 million, with the
      Company's operating ratio rising by six-tenths of one point to
      62.6 per cent.

    CN said third-quarter 2008 net income was C$552 million, or C$1.16 per
diluted share, compared with net income of C$485 million, or C$0.96 per
diluted share, for the comparable period of 2007.
    The results for the third quarters of 2008 and 2007 were affected by
deferred income tax adjustments. Net income for the latest quarter included a
deferred income tax recovery of C$41 million, or C$0.09 per diluted share,
following resolution of various income tax matters and adjustments related to
tax filings of prior years. Third-quarter 2007 net income included a deferred
income tax recovery of C$14 million, or C$0.03 per diluted share, as a result
of net capital losses from the reorganization of subsidiaries.
    Operating income for third-quarter 2008 increased by 10 per cent to
C$844 million from C$768 million a year earlier. Revenues increased
12 per cent to C$2,257 million from C$2,023 million, while operating expenses
increased 13 per cent to C$1,413 million from C$1,255 million.
    CN's operating ratio for the most recent three-month period was
62.6 per cent, compared with 62.0 per cent for the third quarter of 2007.
    E. Hunter Harrison, president and chief executive officer, said: "I am
extremely pleased with our results. Operational execution during the quarter
was outstanding, with notable gains in network fluidity, productivity and
asset utilization, while we enjoyed good revenue growth across most commodity
groups.
    "Looking forward, the uncertain economic landscape in North America and
around the world will pose challenges to CN and its customers. But we believe
CN is well positioned to weather the headwinds -- we have a unique business
model anchored on precision railroading, and a strong freight franchise with
growth prospects in intermodal, bulk commodities and energy-related
developments in Western Canada. We will continue to pursue these opportunities
aggressively while maintaining a clear focus on cost control and productivity
improvements to keep CN at the forefront of rail industry efficiency."
    CN's third-quarter 2008 revenues increased 12 per cent due to freight rate
increases, of which approximately two thirds was related to a higher fuel
surcharge resulting from year-over-year increases in applicable fuel prices;
and higher volumes in specific commodity groups, particularly intermodal,
metals and minerals, and coal. These gains were partly offset by weakness in
forest products, reduced grain volumes as a result of depleted stockpiles, and
the effect of hurricanes on traffic in the Southern U.S.
    Five of CN's seven commodity groups registered revenues gains in the
quarter, led by coal (41 per cent), metals and minerals (29 per cent),
intermodal (24 per cent), petroleum and chemicals (nine per cent), and
automotive (three per cent). Forest products revenues declined two per cent,
and grain and fertilizers revenues declined one per cent.
    Revenue ton-miles, measuring the relative weight and distance of rail
freight transported by CN, declined by two per cent during the third quarter
versus the comparable period of 2007.
    Operating expenses for the quarter increased by 13 per cent to
C$1,413 million, largely as a result of higher fuel costs and purchased
services and material expenses, which were partly offset by lower labor and
fringe benefits expense.
    The financial results in this news release were determined on the basis of
U.S. Generally Accepted Accounting Principles (U.S. GAAP).

    Forward-Looking Statements

    This news release contains forward-looking statements. CN cautions that,
by their nature, forward-looking statements involve risk, uncertainties and
assumptions. Implicit in these statements, particularly in respect of growth
opportunities, is the Company's assumption that such growth opportunities
extend beyond business cycle considerations and, as such, are less affected by
the current situation in the North American and global economies. The Company
cautions that its assumptions may not materialize and that current economic
conditions render such assumptions, reasonable at the time they were made,
subject to greater uncertainty. The current situation in financial markets is
adding a substantial amount of risk to the North American economy, which is
currently experiencing recessionary conditions, and to the global economy,
which is already slowing down. Under these circumstances, it is difficult to
make a projection in respect of business prospects for the next 12 to
18 months. The Company cautions that its 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      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                  (Unaudited)

    Revenues                    $ 2,257     $ 2,023     $ 6,282     $ 5,956
    -------------------------------------------------------------------------

    Operating expenses
    Labor and fringe benefits       424         446       1,277       1,361
    Purchased services and
     material                       268         247         836         786
    Fuel                            390         251       1,099         719
    Depreciation and
     amortization                   177         165         528         504
    Equipment rents                  59          59         183         187
    Casualty and other               95          87         285         259
    -------------------------------------------------------------------------
    Total operating expenses      1,413       1,255       4,208       3,816
    -------------------------------------------------------------------------

    Operating income                844         768       2,074       2,140

    Interest expense                (92)        (78)       (265)       (251)

    Other income                      4           2           7           7
    -------------------------------------------------------------------------

    Income before income taxes      756         692       1,816       1,896

    Income tax expense (Note 7)    (204)       (207)       (494)       (571)
    -------------------------------------------------------------------------

    Net income                  $   552     $   485     $ 1,322     $ 1,325
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share (Note 8)
    Basic                       $  1.17     $  0.97     $  2.77     $  2.62

    Diluted                     $  1.16     $  0.96     $  2.74     $  2.59

    Weighted-average number
     of shares
    Basic                         471.7       499.7       477.0       505.0

    Diluted                       477.1       506.4       482.6       512.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to unaudited consolidated financial statements.


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

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

    Assets

    Current assets:
      Cash and cash equivalents        $    288      $    310      $    214
      Accounts receivable (Note 3)          657           370           641
      Material and supplies                 213           162           206
      Deferred income taxes                  69            68            69
      Other                                 131           138           316
    -------------------------------------------------------------------------
                                          1,358         1,048         1,446

    Properties                           21,472        20,413        19,883
    Intangible and other assets           2,134         1,999         1,576
    -------------------------------------------------------------------------

    Total assets                       $ 24,964      $ 23,460      $ 22,905
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity

    Current liabilities:
      Accounts payable and accrued
       charges                         $  1,252      $  1,282      $  1,205
      Current portion of long-term
       debt                                 449           254           293
      Other                                  77            54            56
    -------------------------------------------------------------------------
                                          1,778         1,590         1,554

    Deferred income taxes (Note 7)        5,246         4,908         4,940
    Other liabilities and deferred
     credits                              1,378         1,422         1,410
    Long-term debt (Note 3)               6,264         5,363         5,342

    Shareholders' equity:
      Common shares                       4,171         4,283         4,359
      Accumulated other comprehensive
       income (loss)                         54           (31)         (257)
      Retained earnings                   6,073         5,925         5,557
    -------------------------------------------------------------------------
                                         10,298        10,177         9,659
    -------------------------------------------------------------------------

    Total liabilities and
     shareholders' equity              $ 24,964      $ 23,460      $ 22,905
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                  (Unaudited)

    Common shares(1)

    Balance, beginning of
     period                     $ 4,208     $ 4,417     $ 4,283     $ 4,459
      Stock options exercised
       and other                     17          16          59          83
      Share repurchase
       programs (Note 3)            (54)        (74)       (171)       (183)
    -------------------------------------------------------------------------
    Balance, end of period      $ 4,171     $ 4,359     $ 4,171     $ 4,359
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income (loss)

    Balance, beginning of
     period                     $    (1)    $  (180)    $   (31)    $   (44)

    Other comprehensive
     income (loss):

    Unrealized foreign
     exchange gain (loss) on:
      Translation of the net
       investment in foreign
       operations                   259        (381)        399        (914)
      Translation of
       U.S. dollar-denominated
       long-term debt desig-
       nated as a hedge of the
       net investment in
       U.S. subsidiaries           (248)        328        (389)        766

    Pension and other
     postretirement benefit
     plans (Note 5):
      Amortization of net
       actuarial loss (gain)
       included in net periodic
       benefit cost                   -          13          (2)         38
      Amortization of prior
       service cost included in
       net periodic benefit cost      6           5          18          16
    -------------------------------------------------------------------------
    Other comprehensive
     income (loss) before
     income taxes                    17         (35)         26         (94)
    Income tax
     recovery (expense)              38         (42)         59        (119)
    -------------------------------------------------------------------------
    Other comprehensive
     income (loss)                   55         (77)         85        (213)
    -------------------------------------------------------------------------
    Balance, end of period      $    54     $  (257)    $    54     $  (257)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings

    Balance, beginning of
     period                     $ 5,902     $ 5,554     $ 5,925     $ 5,409
      Adoption of new
       accounting
       pronouncements(2)              -           -           -          95
    -------------------------------------------------------------------------

    Restated balance,
     beginning of period          5,902       5,554       5,925       5,504
      Net income                    552         485       1,322       1,325
      Share repurchase
       programs (Note 3)           (273)       (378)       (846)       (956)
      Dividends                    (108)       (104)       (328)       (316)
    -------------------------------------------------------------------------
    Balance, end of period      $ 6,073     $ 5,557     $ 6,073     $ 5,557
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to unaudited consolidated financial statements.

    (1) During the three and nine months ended September 30, 2008, the
        Company issued 0.7 million and 2.2 million common shares,
        respectively, as a result of stock options exercised, and repurchased
        6.0 million and 19.3 million common shares, respectively, under its
        share repurchase programs. At September 30, 2008, the Company had
        468.1 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      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                  (Unaudited)

    Operating activities

    Net income                  $   552     $   485     $ 1,322     $ 1,325
    Adjustments to reconcile
     net income to net cash
     provided from operating
     activities:
      Depreciation and
       amortization                 177         165         528         506
      Deferred income taxes          73          75         187         125
      Other changes in:
        Accounts receivable         209        (252)       (259)        (38)
        Material and supplies         6          (6)        (48)        (26)
        Accounts payable and
         accrued charges             16         (65)       (110)       (471)
        Other net current
         assets and liabilities     (33)         42          46          51
      Other                         (43)          2        (135)          3
    -------------------------------------------------------------------------
    Cash provided from
     operating activities           957         446       1,531       1,475
    -------------------------------------------------------------------------

    Investing activities

    Property additions             (415)       (350)       (944)       (897)
    Other, net                       22          14          42          26
    -------------------------------------------------------------------------
    Cash used by investing
     activities                    (393)       (336)       (902)       (871)
    -------------------------------------------------------------------------

    Financing activities

    Issuance of long-term debt      778       1,841       3,430       3,325
    Reduction of long-term debt    (798)     (1,420)     (2,796)     (2,469)
    Issuance of common shares
     due to exercise of stock
     options and related excess
     tax benefits realized           14          14          48          73
    Repurchase of common shares    (327)       (452)     (1,017)     (1,139)
    Dividends paid                 (108)       (104)       (328)       (316)
    -------------------------------------------------------------------------
    Cash used by financing
     activities                    (441)       (121)       (663)       (526)
    -------------------------------------------------------------------------
    Effect of foreign exchange
     fluctuations on U.S. dollar-
     denominated cash and cash
     equivalents                      4         (16)         12         (43)
    -------------------------------------------------------------------------

    Net increase (decrease) in
     cash and cash equivalents      127         (27)        (22)         35
    Cash and cash equivalents,
     beginning of period            161         241         310         179
    -------------------------------------------------------------------------

    Cash and cash equivalents,
     end of period              $   288     $   214     $   288     $   214
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information

      Net cash receipts from
       customers and other      $ 2,391     $ 1,770     $ 6,025     $ 5,930
      Net cash payments for:
        Employee services,
         suppliers and other
         expenses                (1,195)     (1,090)     (3,749)     (3,344)
        Interest                    (82)        (86)       (272)       (273)
        Workforce reductions         (5)         (8)        (17)        (24)
        Personal injury and
         other claims               (18)        (12)        (62)        (58)
        Pensions                    (24)        (27)        (77)        (50)
        Income taxes               (110)       (101)       (317)       (706)
    -------------------------------------------------------------------------

    Cash provided from
     operating activities       $   957     $   446     $ 1,531     $ 1,475
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to unaudited consolidated financial statements.

    Certain of the 2007 figures have been restated to conform to the 2008
    presentation.


    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 September 30, 2008, December 31, 2007, and September 30, 2007, and its
results of operations, changes in shareholders' equity and cash flows for the
three and nine months ended September 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 and U.S. Steel Corporation (U.S. Steel),
the indirect owner of the EJ&E, announced an agreement under which CN would
acquire the principal lines of the 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 decision that approves the
acquisition and does not impose 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, which otherwise would have
been required by governing law by April 25, 2008, will not be issued until the
EIS process is completed. The STB issued a draft EIS on July 25, 2008. CN,
along with other parties, filed responsive comments on the draft EIS on
September 30, 2008.
    With the environmental review continuing and the time for its completion
uncertain, the Company twice requested that the STB establish time limits on
its review and issue a final decision that, if the application were approved,
would enable the transaction to close by December 31, 2008, and thereby avoid
a significant risk that the transaction could be terminated under the
agreement. Upon the STB's second denial of those requests, the Company filed a
petition on September 18, 2008 with the U.S. Court of Appeals for the District
of Columbia Circuit for an expedited ruling to direct the STB to issue such a
decision. 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 registered for offering
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 September 30, 2008, the Company had letters of credit drawn on its
U.S.$1 billion revolving credit facility, expiring in October 2011, of
$176 million ($57 million as at December 31, 2007). The Company also had total
borrowings under its commercial paper program of $346 million, of which
$99 million was denominated in Canadian dollars and $247 million was
denominated in U.S. dollars (U.S.$232 million). The weighted-average interest
rate on these borrowings was 2.91%. 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 September 30, 2008, the Company had sold receivables that resulted
in proceeds of $441 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 September 30, 2008, the servicing asset and
liability were not significant.

    Share repurchase programs

    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.
    In the third quarter of 2008, under this current share repurchase program,
the Company repurchased 6.0 million common shares for $327 million, at a
weighted-average price of $54.48 per share.
    In the second quarter of 2008, the Company ended its 33.0 million share
repurchase program, which began on July 26, 2007, repurchasing a total of
31.0 million common shares for $1,588 million, at a weighted-average price of
$51.22 per share. Of this amount, 13.3 million common shares were repurchased
in 2008 for $690 million, at a weighted-average price of $51.91 per share.

    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
nine months ended September 30, 2008, the Company recorded total compensation
expense for awards under all plans of $16 million and $50 million,
respectively, and $39 million and $112 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 nine months ended
September 30, 2008 was $5 million and $15 million, respectively, and
$12 million and $33 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
September 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)
                    ----------------  ----------------  ---------------------
                        Non-              Non-                 Non-
    In millions      vested   Vested   vested   Vested      vested   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)
    -------------------------------------------------------------------------
    Outstanding at
     September 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
    Nine
     months
     ended
     September
     30,
     2008     $   11  $    1  $   14     N/A  $    3  $    2  $    8  $  39
    Nine
     months
     ended
     September
     30,
     2007        N/A  $   17  $   19  $   19  $    5  $   13  $   30  $ 103
    -------------------------------------------------------------------------

    Liability
     outstanding
    September
     30,
     2008     $   11  $   12  $   43     N/A  $    3  $   10  $   98  $ 177
    December
     31,
     2007        N/A  $   11  $   29  $   48  $    4  $    8  $   95  $ 195
    -------------------------------------------------------------------------

    Fair
     value
     per unit
    September
     30,
     2008     $32.12  $31.63  $46.40     N/A  $50.78  $14.66  $50.78    N/A
    -------------------------------------------------------------------------

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

    Nonvested
     awards at
     September
     30, 2008
    Unrecog-
     nized
     compen-
     sation
     cost     $    9  $    4  $    2     N/A  $    1  $    1  $    4  $  21
    Remaining
     recog-
     nition
     period
     (years)    2.25    1.25    0.25     N/A    0.25    0.25    3.25    N/A
    -------------------------------------------------------------------------

    Assump-
     tions(3)
    Stock
     price($) $50.78  $50.78  $50.78     N/A  $50.78  $50.78  $50.78    N/A
    Expected
     stock
     price
     volati-
     lity(4)      22%     23%     26%    N/A     N/A      28%    N/A    N/A
    Expected
     term
     (years)(5) 2.25    1.25    0.25     N/A     N/A    0.25     N/A    N/A
    Risk-free
     interest
     rate(6)    2.59%   2.47%   1.65%    N/A     N/A    1.26%    N/A    N/A
    Dividend
     rate
     ($)(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 September 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
September 30, 2008, 13.5 million common shares remained authorized for future
issuances under this plan. The total number of options outstanding at
September 30, 2008, including conventional, performance and
performance-accelerated options, was 9.9 million, 0.2 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 September 30, 2008 at the
Company's closing stock price of $50.78.

    -------------------------------------------------------------------------
                                             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
    Exercised                      (2.2)    $ 18.18
    -------------------------------------------------------------------------
    Outstanding at
     September 30, 2008(1)         13.4     $ 27.74         4.5     $   309
    -------------------------------------------------------------------------
    Exercisable at
     September 30, 2008(1)         11.0     $ 23.47         3.8     $   300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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)
    Nine months ended
     September 30, 2008       $     5   $     2   $     2   $     2   $  11
    Nine months ended
     September 30, 2007           N/A   $     6   $     1   $     2   $   9
    -------------------------------------------------------------------------

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

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

    Nonvested awards at
     September 30, 2008
    Unrecognized
     compensation cost        $     6   $     3   $     2   $     1   $  12
    Remaining recognition
     period (years)               3.3       2.3       1.3       0.3     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 nine months ended September 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      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
    In millions                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Service cost                 $   34      $   38      $  104      $  114
    Interest cost                   200         186         600         557
    Expected return on plan
     assets                        (251)       (234)       (753)       (703)
    Amortization of prior
     service cost                     5           5          15          15
    Recognized net actuarial
     loss                             -          13           -          40
    -------------------------------------------------------------------------
    Net periodic benefit cost
     (income)                    $  (12)     $    8      $  (34)     $   23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                                  Three months ended      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
    In millions                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Service cost                 $    1      $    1      $    3      $    3
    Interest cost                     4           4          12          11
    Curtailment gain                 (4)          -          (7)         (3)
    Amortization of prior
     service cost                     1           -           3           1
    Recognized net actuarial
     gain                             -           -          (2)         (2)
    -------------------------------------------------------------------------
    Net periodic benefit cost    $    2      $    5      $    9      $   10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In 2008, the Company expects to make total contributions of approximately
$130 million for all its defined benefit plans, of which $77 million was
disbursed as at September 30, 2008 and includes $22 million relating to the
2007 funding year.

    Note 6 - Major commitments and contingencies

    A. Commitments

    As at September 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 $829 million ($952 million at December 31, 2007). The
Company also has agreements with fuel suppliers to purchase approximately 95%
of the estimated remaining 2008 volume, 70% 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 September 30, 2008, the Company had aggregate reserves for personal
injury and other claims of $452 million, of which $108 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 September 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 19 sites governed by the Superfund law
(and other similar federal and state laws) for which investigation and
remediation payments are or will be made or are yet to be determined and, in
many instances, is one of several potentially responsible parties.
    While the Company believes that it has identified the costs likely to be
incurred in the next several years, based on known information, for
environmental matters, the Company's ongoing efforts to identify potential
environmental concerns that may be associated with its properties may lead to
future environmental investigations, which may result in the identification of
additional environmental costs and liabilities. The magnitude of such
additional liabilities and the costs of complying with environmental laws and
containing or remediating contamination cannot be reasonably estimated due to:

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

    therefore, the likelihood of any such costs being incurred or whether such
costs would be material to the Company cannot be determined at this time.
There can thus be no assurance that material liabilities or costs related to
environmental matters will not be incurred in the future, or will not have a
material adverse effect on the Company's financial position or results of
operations in a particular quarter or fiscal year, or that the Company's
liquidity will not be adversely impacted by such environmental liabilities or
costs. Although the effect on operating results and liquidity cannot be
reasonably estimated, management believes, based on current information, that
environmental matters will not have a material adverse effect on the Company's
financial condition or competitive position. Costs related to any future
remediation will be accrued in the year in which they become known.
    As at September 30, 2008, the Company had aggregate accruals for
environmental costs of $118 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 September 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
September 30, 2008, the maximum potential liability under these guarantees was
$491 million, of which $410 million was for workers' compensation and other
employee benefits and $81 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 September 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 2011.

    (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
$75 million in the Consolidated Statement of Income. Of this amount
$41 million, recorded in the third quarter, resulted from the resolution of
various income tax matters and adjustments related to tax filings of prior
years, $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 2007, the Company recorded a deferred income tax recovery of
$44 million in the Consolidated Statement of Income, of which $14 million,
recorded in the third quarter, resulted from net capital losses arising from a
reorganization of certain subsidiaries, and $30 million, recorded in the
second quarter, was due to the enactment of corporate income tax rate changes
in Canada.

    Note 8 - Earnings per share

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

    -------------------------------------------------------------------------
                                  Three months ended      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
    In millions, except per
     share data                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Net income                  $   552     $   485     $ 1,322     $ 1,325

    Weighted-average shares
     outstanding                  471.7       499.7       477.0       505.0
    Effect of stock options         5.4         6.7         5.6         7.1
    -------------------------------------------------------------------------
    Weighted-average diluted
     shares outstanding           477.1       506.4       482.6       512.1

    Basic earnings per share    $  1.17     $  0.97     $  2.77     $  2.62
    Diluted earnings per
     share                      $  1.16     $  0.96     $  2.74     $  2.59
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 nine months
ended September 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      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                 (Unaudited)
    Statistical operating data

    Rail freight revenues
     ($ millions)                 2,028       1,821       5,664       5,423
    Gross ton miles (GTM)
     (millions)                  86,369      88,498     257,983     258,583
    Revenue ton miles (RTM)
     (millions)                  45,346      46,481     135,569     136,997
    Carloads (thousands)          1,217       1,204       3,537       3,539
    Route miles (includes
     Canada and the U.S.)        20,421      20,219      20,421      20,219
    Employees (end of period)    22,569      22,834      22,569      22,834
    Employees (average for the
     period)                     22,730      22,789      22,773      22,254
    -------------------------------------------------------------------------

    Productivity

    Operating ratio (%)            62.6        62.0        67.0        64.1
    Rail freight revenue per
     RTM (cents)                   4.47        3.92        4.18        3.96
    Rail freight revenue per
     carload ($)                  1,666       1,512       1,601       1,532
    Operating expenses per
     GTM (cents)                   1.64        1.42        1.63        1.48
    Labor and fringe benefits
     expense per GTM (cents)       0.49        0.50        0.49        0.53
    GTMs per average number of
     employees (thousands)        3,800       3,883      11,328      11,620
    Diesel fuel consumed (U.S.
     gallons in millions)            92          96         287         290
    Average fuel price
     ($/U.S. gallon)               3.84        2.39        3.55        2.29
    GTMs per U.S. gallon of
     fuel consumed                  939         922         899         892
    -------------------------------------------------------------------------

    Safety indicators

    Injury frequency rate per
     200,000 person hours(2)        2.1         2.2         1.8         1.8
    Accident rate per million
     train miles(2)                 2.2         3.0         2.5         2.4
    -------------------------------------------------------------------------

    Financial ratio

    Debt to total capitalization
     ratio (% at end of period)    39.5        36.8        39.5        36.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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          Nine months ended
                                 September 30                September 30
                          ------------------------  -------------------------
                                        Variance                   Variance
                                             Fav                        Fav
                             2008    2007 (Unfav)      2008     2007 (Unfav)
    -------------------------------------------------------------------------
                                             (Unaudited)

    Revenues (millions of
     dollars)
    Petroleum and
     chemicals                346     317      9%       987      920      7%
    Metals and minerals       269     208     29%       713      631     13%
    Forest products           383     392     (2%)    1,070    1,216    (12%)
    Coal                      140      99     41%       346      287     21%
    Grain and fertilizers     327     330     (1%)    1,001      961      4%
    Intermodal                446     361     24%     1,190    1,020     17%
    Automotive                117     114      3%       357      388     (8%)
    --------------------------------------          -----------------
    Total rail freight
     revenue                2,028   1,821     11%     5,664    5,423      4%
    Other revenues            229     202     13%       618      533     16%
    --------------------------------------          -----------------
    Total revenues          2,257   2,023     12%     6,282    5,956      5%
    -------------------------------------------------------------------------

    Revenue ton miles
     (millions)
    Petroleum and
     chemicals              8,272   8,369     (1%)   24,668   24,288      2%
    Metals and minerals     5,140   4,301     20%    13,971   12,414     13%
    Forest products         8,715  10,021    (13%)   25,999   30,652    (15%)
    Coal                    4,159   3,500     19%    11,189   10,344      8%
    Grain and fertilizers   9,379  11,241    (17%)   31,915   32,809     (3%)
    Intermodal              9,040   8,339      8%    25,795   24,114      7%
    Automotive                641     710    (10%)    2,032    2,376    (14%)
    --------------------------------------          -----------------
                           45,346  46,481     (2%)  135,569  136,997     (1%)
    Rail freight revenue /
     RTM (cents)
    Total rail freight
     revenue per RTM         4.47    3.92     14%      4.18     3.96      6%
    Commodity groups:
    Petroleum and
     chemicals               4.18    3.79     10%      4.00     3.79      6%
    Metals and minerals      5.23    4.84      8%      5.10     5.08      -
    Forest products          4.39    3.91     12%      4.12     3.97      4%
    Coal                     3.37    2.83     19%      3.09     2.77     12%
    Grain and fertilizers    3.49    2.94     19%      3.14     2.93      7%
    Intermodal               4.93    4.33     14%      4.61     4.23      9%
    Automotive              18.25   16.06     14%     17.57    16.33      8%
    --------------------------------------          -----------------

    Carloads (thousands)
    Petroleum and
     chemicals                139     153     (9%)      424      448     (5%)
    Metals and minerals       287     257     12%       797      749      6%
    Forest products           132     147    (10%)      395      450    (12%)
    Coal                      103      90     14%       280      275      2%
    Grain and fertilizers     137     152    (10%)      436      439     (1%)
    Intermodal                370     343      8%     1,045      978      7%
    Automotive                 49      62    (21%)      160      200    (20%)
    --------------------------------------          -----------------
                            1,217   1,204      1%     3,537    3,539      -
    Rail freight revenue /
     carload (dollars)
    Total rail freight
     revenue per carload    1,666   1,512     10%     1,601    1,532      5%
    Commodity groups:
    Petroleum and
     chemicals              2,489   2,072     20%     2,328    2,054     13%
    Metals and minerals       937     809     16%       895      842      6%
    Forest products         2,902   2,667      9%     2,709    2,702      -
    Coal                    1,359   1,100     24%     1,236    1,044     18%
    Grain and fertilizers   2,387   2,171     10%     2,296    2,189      5%
    Intermodal              1,205   1,052     15%     1,139    1,043      9%
    Automotive              2,388   1,839     30%     2,231    1,940     15%
    -------------------------------------------------------------------------

    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 $258 million and $483 million of free cash flow for
the three and nine months ended September 30, 2008, compared to $142 million
and $193 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      Nine months ended
                                     September 30            September 30
                              ----------------------- -----------------------
    In millions                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Cash provided from
     operating activities        $  957      $  446     $ 1,531     $ 1,475
    Cash used by investing
     activities                    (393)       (336)       (902)       (871)
    -------------------------------------------------------------------------
    Cash provided before
     financing activities           564         110         629         604
    -------------------------------------------------------------------------

    Adjustments:
      Change in accounts
       receivable
       securitization              (202)        152         170         (52)
      Dividends paid               (108)       (104)       (328)       (316)
      Effect of foreign
       exchange fluctuations on
       U.S. dollar-denominated
       cash and cash
       equivalents                    4         (16)         12         (43)
    -------------------------------------------------------------------------
    Free cash flow               $  258      $  142     $   483     $   193
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




For further information:

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


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