CN reports Q4-2008 net income of C$573 million, or C$1.21 per diluted share, including deferred income tax recovery of C$0.09



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

    
    Fourth-quarter 2008 highlights

    - Net income was C$573 million, or C$1.21 per diluted share, including a
      deferred income tax recovery of C$42 million, or C$0.09 per diluted
      share.
    - Revenues increased 13 per cent over Q4-2007 to C$2,200 million, while
      operating expenses rose 15 per cent to C$1,380 million.
    - Operating income was C$820 million, an increase of 11 per cent from the
      year earlier results, with the operating ratio increasing six-tenths of
      a point to 62.7 per cent.
    - Strong full-year 2008 free cash flow of C$794 million. (1)
    

    Net income for the fourth quarter of 2008 was C$573 million, or C$1.21
per diluted share, including a deferred income tax recovery of C$42 million
(C$0.09 per diluted share) resulting from the resolution of various income tax
matters and adjustments related to tax filings of prior years. Excluding this
item, adjusted fourth-quarter 2008 net income was C$531 million, or C$1.12 per
diluted share. (1)
    Net income for the comparable quarter of 2007 was C$833 million, or
C$1.68 per diluted share, including a net deferred income tax recovery of
C$284 million (C$0.57 per diluted share) resulting from the enactment of
corporate income tax rate changes in Canada, and after-tax gains of C$64
million (C$0.13 per diluted share) on the sale of CN's Central Station Complex
(CSC) in Montreal and C$41 million (C$0.08 per diluted share) on the sale of
the Company's investment in English Welsh and Scottish Railway (EWS).
Excluding these items, CN's adjusted fourth-quarter 2007 net income was C$444
million, or C$0.90 per diluted share. (1)
    E. Hunter Harrison, president and chief executive officer, said: "CN
turned in a solid fourth-quarter 2008 performance despite significantly lower
volumes. Two factors acted as shock absorbers, offsetting the impact of the
weaker volumes on our results. One was the decline in the value of the
Canadian dollar versus the American dollar, which had a net positive
translation impact on the conversion of U.S. dollar-denominated revenues and
expenses into Canadian dollars. The second was the two-month lag in CN's fuel
surcharge catching up to lower fuel prices."
    "The North American economy is in recession, and we do not know how long
or deep it will be," said Harrison. "And, although overall freight demand is
much weaker, the basic driver of our business - demand for reliable,
efficient, cost-effective transportation - remains intact. To meet our
long-term objectives, we will continue to maintain pricing discipline and
pursue opportunities that extend beyond business-cycle considerations.
    "At the same time we will continue to do what's necessary to manage our
assets and costs effectively in response to lower traffic volumes. CN, as one
of the rail industry's most efficient operators, is well positioned to face
the challenges of the current economic environment, and we are committed to
making additional productivity improvements."
    Harrison added: "CN has a very resilient business model and a highly
talented and dedicated team of railroaders, as demonstrated by our 2008
results. Looking ahead, 2009 will present even greater challenges, but we
expect to continue to deliver value to our customers and shareholders."

    Fourth-quarter 2008 results

    Fourth-quarter 2008 results from operations were affected by significant
weakness in almost all markets, primarily as a result of the current economic
environment.
    Revenue ton-miles, a measurement of the relative weight and distance of
rail freight transported by the Company, declined by 10 per cent during the
quarter versus the comparable period of 2007.
    Revenues for the final quarter of 2008 increased 13 per cent to C$2,200
million. The increase was mainly due to the positive C$230-million translation
impact of the weaker Canadian dollar on U.S. dollar-denominated revenues and
freight rate increases, including a higher fuel surcharge resulting from
year-over-year net increases in applicable fuel prices. These gains were
partly offset by lower volumes in almost all commodity groups due to weak
market conditions. In addition, the decision of the Canadian Transportation
Agency (CTA) to retroactively reduce rail revenue entitlement for grain
transportation and the CTA's determination that CN exceeded the revenue cap
for the 2007-08 crop year reduced grain revenues by C$26 million. Associated
penalties of C$4 million increased the Company's casualty and other expense.
    Operating expenses for the fourth quarter increased by 15 per cent to
C$1,380 million, primarily owing to the C$145-million negative translation
impact of the weaker Canadian dollar on U.S. dollar-denominated expenses, and
increased casualty and other and labor and fringe benefit expenses. These
factors were partly offset by lower fuel costs, as a result of a decrease in
the average price per U.S. gallon of fuel during the quarter.
    Operating income increased 11 per cent to C$820 million, while the
operating ratio, defined as operating expenses as a percentage of revenues,
increased by 0.6 of a point to 62.7 per cent.
    The fluctuation of the Canadian dollar relative to the U.S. dollar, which
affects the conversion of the Company's U.S. dollar-denominated revenues and
expenses, increased fourth-quarter 2008 net income by approximately C$45
million, or 10 cents per diluted share.

    Full-year 2008 results

    Net income for 2008 was C$1,895 million, or C$3.95 per diluted share,
compared with net income of C$2,158 million, or C$4.25 per diluted share, for
2007.
    CN's 2008 net income included a deferred income tax recovery of C$117
million (C$0.24 per diluted share), of which C$83 million was due to the
resolution of various income tax matters and adjustments related to tax
filings of prior years, C$23 million was due to lower corporate income tax
rates in Canada, and C$11 million was due to net capital losses arising from
the reorganization of a subsidiary. Excluding the deferred income tax
recovery, adjusted 2008 net income was C$1,778 million, or C$3.71 per diluted
share. (1)
    Included in 2007 net income was a net deferred income tax recovery of
C$328 million (C$0.64 per diluted share), resulting mainly from the enactment
of corporate income tax rate changes in Canada, and gains on the sales of the
CSC of C$64 million after-tax (C$0.13 per diluted share) and the Company's
investment in EWS of C$41 million after-tax (C$0.08 per diluted share).
Excluding benefits from favourable tax adjustments and major asset sales,
adjusted net income for 2007 was C$1,725 million, or C$3.40 per diluted share.
(1)
    Operating income for 2008 increased to C$2,894 million from C$2,876
million in 2007.
    Revenues for 2008 increased by seven per cent to C$8,482 million, mainly
due to freight rate increases, of which approximately half were related to a
higher fuel surcharge resulting from year-over-year net increases in
applicable fuel prices, and higher volumes in specific commodity groups,
particularly metals and minerals, intermodal, and coal, which also reflect the
negative impact of a conductors' strike on first-quarter 2007 volumes.
    These gains were partly offset by lower volumes due to weakness in
specific markets, particularly forest products and automotive, the impact of
harsh weather conditions in Canada and the U.S. Midwest during first-quarter
2008, and reduced grain volumes as a result of depleted stockpiles. In
addition, the decision of the CTA to retroactively reduce rail revenue
entitlement for grain transportation and the CTA's determination that CN
exceeded the revenue cap for the 2007-08 crop year reduced grain revenues by
C$26 million. Associated penalties of C$4 million increased the Company's
casualty and other expense.
    In the first nine months of the year, CN experienced a C$245 million
negative translation impact of the stronger Canadian dollar on U.S.
dollar-denominated revenues that was almost entirely offset in the fourth
quarter as a result of the weakened Canadian dollar.
    Revenue ton-miles, a measurement of the relative weight and distance of
rail freight transported by the Company, declined by three per cent in 2008
from the 2007 level.
    CN's 2008 operating expenses increased by 11 per cent, to C$5,588
million, mainly due to higher fuel costs and increases in purchased services
and material and in casualty and other expenses. These factors were partly
offset by lower labor and fringe benefits expense.
    In the first nine months of the year, CN experienced a positive C$145
million translation impact of the stronger Canadian dollar on U.S.
dollar-denominated expenses that was almost entirely offset in the fourth
quarter as a result of the weakened Canadian dollar.
    The operating ratio was 65.9 per cent in 2008, compared with 63.6 per
cent in 2007, a 2.3-point increase.
    The fluctuation of the Canadian dollar relative to the U.S. dollar
reduced 2008 net income by approximately C$10 million, or C$0.02 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) Please see discussion and reconciliation of non-GAAP adjusted
        performance measures in the attached supplementary schedule, Non-GAAP
        Measures.
    

    Forward-Looking Statements

    This news release contains forward-looking statements. CN cautions that,
by their nature, forward-looking statements involve risk, uncertainties and
assumptions. Implicit in these statements, particularly in respect of
long-term growth opportunities, is the Company's assumption that such growth
opportunities 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,
although 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 already in
a recession, and to the global economy, which is significantly slowing down.
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 - 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           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                  (Unaudited)

    Revenues                  $   2,200   $   1,941   $   8,482   $   7,897
    -------------------------------------------------------------------------

    Operating expenses
      Labor and fringe
       benefits                     397         340       1,674       1,701
      Purchased services and
       material                     301         259       1,137       1,045
      Fuel                          304         307       1,403       1,026
      Depreciation and
       amortization                 197         173         725         677
      Equipment rents                79          60         262         247
      Casualty and other            102          66         387         325
    -------------------------------------------------------------------------
    Total operating expenses      1,380       1,205       5,588       5,021
    -------------------------------------------------------------------------

    Operating income                820         736       2,894       2,876

    Interest expense               (110)        (85)       (375)       (336)

    Other income                     19         159          26         166
    -------------------------------------------------------------------------

    Income before income taxes      729         810       2,545       2,706

    Income tax recovery (expense)  (156)         23        (650)       (548)
    -------------------------------------------------------------------------

    Net income                $     573   $     833   $   1,895   $   2,158
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share
      Basic                   $    1.22   $    1.70   $    3.99   $    4.31

      Diluted                 $    1.21   $    1.68   $    3.95   $    4.25

    Weighted-average number
     of shares
      Basic                       468.1       489.8       474.7       501.2

      Diluted                     472.5       495.9       480.0       508.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    These unaudited interim consolidated financial statements, expressed in
Canadian dollars, and prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP), contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly Canadian National
Railway Company's (the Company) financial position as at December 31, 2008 and
December 31, 2007, and its results of operations, changes in shareholders'
equity and cash flows for the three months and years ended December 31, 2008
and 2007. These consolidated financial statements have been prepared using
accounting policies consistent with those used in preparing the Company's 2008
Annual Consolidated Financial Statements and should be read in conjunction
with such statements, notes thereto and Management's Discussion and Analysis
(MD&A).


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

                                                    December 31 December 31
                                                           2008        2007
    -------------------------------------------------------------------------
                                                     (Unaudited)
    Assets

    Current assets:
      Cash and cash equivalents                       $     413   $     310
      Accounts receivable                                   913         370
      Material and supplies                                 200         162
      Deferred income taxes                                  98          68
      Other                                                 132         138
    -------------------------------------------------------------------------
                                                          1,756       1,048

    Properties                                           23,203      20,413
    Intangible and other assets                           1,761       1,999
    -------------------------------------------------------------------------

    Total assets                                      $  26,720   $  23,460
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity

    Current liabilities:
      Accounts payable and other                      $   1,386   $   1,336
      Current portion of long-term debt                     506         254
    -------------------------------------------------------------------------
                                                          1,892       1,590

    Deferred income taxes                                 5,511       4,908
    Other liabilities and deferred credits                1,353       1,422
    Long-term debt                                        7,405       5,363

    Shareholders' equity:
      Common shares                                       4,179       4,283
      Accumulated other comprehensive loss                 (155)        (31)
      Retained earnings                                   6,535       5,925
    -------------------------------------------------------------------------
                                                         10,559      10,177
    -------------------------------------------------------------------------

    Total liabilities and shareholders' equity        $  26,720   $  23,460
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain of the 2007 figures have been restated to conform to the 2008
presentation.

    These unaudited interim consolidated financial statements, expressed in
Canadian dollars, and prepared in accordance with U.S. GAAP, contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's financial position as at December 31, 2008 and December
31, 2007, and its results of operations, changes in shareholders' equity and
cash flows for the three months and years ended December 31, 2008 and 2007.
These consolidated financial statements have been prepared using accounting
policies consistent with those used in preparing the Company's 2008 Annual
Consolidated Financial Statements and should be read in conjunction with such
statements, notes thereto and MD&A.

    Subsequent event

    The Company's agreement to acquire the principal lines of Elgin, Joliet
and Eastern Railway Company (EJ&E) for a purchase price of approximately
U.S.$300 million received all necessary regulatory approvals, including the
U.S. Surface Transportation Board (STB) ruling rendered on December 24, 2008.
The STB's decision will become effective on January 23, 2009 and the Company
expects to close the transaction shortly thereafter and pay the purchase price
with cash on hand. The Company will account for the acquisition using the
purchase method of accounting pursuant to Statement of Financial Accounting
Standards (SFAS) No. 141(R), "Business Combinations," which became effective
for acquisitions closing on or after January 1, 2009.


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

                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                  (Unaudited)
    Common shares

    Balance, beginning of
     period                   $   4,171   $   4,359   $   4,283   $   4,459
      Stock options exercised
       and other                      9           6          68          89
      Share repurchase programs      (1)        (82)       (172)       (265)
    ------------------------------------------------------------------------
    Balance, end of period    $   4,179   $   4,283   $   4,179   $   4,283
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive loss

    Balance, beginning of
     period                   $      54   $    (257)  $     (31)  $     (44)

    Other comprehensive
     income (loss):

    Unrealized foreign
     exchange gain (loss) on:
      Translation of the net
       investment in foreign
       operations                   860         (90)      1,259      (1,004)
      Translation of
       U.S. dollar-denominated
       long-term debt
       designated as a hedge
       of the net investment
       in U.S. subsidiaries        (877)         22      (1,266)        788

    Pension and other
     postretirement benefit
     plans:
      Net actuarial gain (loss)
       arising during the
       period                      (452)        391        (452)        391
      Prior service cost
       arising during the
       period                        (3)        (12)         (3)        (12)
      Amortization of net
       actuarial loss (gain)
       included in net periodic
       benefit cost                   -          11          (2)         49
      Amortization of prior
       service cost included in
       net periodic benefit cost      3           5          21          21
    Derivative instruments            -          (1)          -          (1)
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss) before income taxes    (469)        326        (443)        232
    Income tax recovery (expense)   260        (100)        319        (219)
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss)                        (209)        226        (124)         13
    -------------------------------------------------------------------------
    Balance, end of period    $    (155)  $     (31)  $    (155)  $     (31)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings

    Balance, beginning of
     period                   $   6,073   $   5,557   $   5,925   $   5,409
      Adoption of new
       accounting
       pronouncements(1)              -           -           -          95
    -------------------------------------------------------------------------
    Restated balance,
     beginning of period          6,073       5,557       5,925       5,504
      Net income                    573         833       1,895       2,158
      Share repurchase programs      (3)       (363)       (849)     (1,319)
      Dividends                    (108)       (102)       (436)       (418)
    -------------------------------------------------------------------------
      Balance, end of period    $   6,535   $   5,925   $   6,535   $   5,925
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) On January 1, 2007, the Company adopted Financial Accounting
        Standards Board (FASB) Interpretation (FIN) No. 48, "Accounting for
        Uncertainty in Income Taxes," and early adopted the measurement date
        provisions of Statement of Financial Accounting Standards (SFAS)
        No. 158, "Employers' Accounting for Defined Benefit Pension and Other
        Postretirement Plans, an amendment of FASB Statements No. 87, 88,
        106, and 132(R)." The application of FIN No. 48 on January 1, 2007
        had the effect of decreasing the net deferred income tax liability
        and increasing Retained earnings by $98 million. The application of
        SFAS No. 158 on January 1, 2007 had the effect of decreasing Retained
        earnings by $3 million.


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

                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                   (Unaudited)
    Operating activities

    Net income                $     573   $     833   $   1,895   $   2,158
    Adjustments to reconcile
     net income to net cash
     provided from operating
     activities:
      Depreciation and
       amortization                 197         172         725         678
      Deferred income taxes          43        (207)        230         (82)
      Gain on sale of Central
       Station Complex                -         (92)          -         (92)
      Gain on sale of
       investment in English
       Welsh and Scottish
       Railway                        -         (61)          -         (61)
      Other changes in:
        Accounts receivable        (173)        267        (432)        229
        Material and supplies        25          44         (23)         18
        Accounts payable and
         other                      (28)         99        (127)       (396)
        Other current assets          2          (9)         37          84
      Other                        (139)       (122)       (274)       (119)
    -------------------------------------------------------------------------
    Cash provided from
     operating activities           500         942       2,031       2,417
    -------------------------------------------------------------------------

    Investing activities

    Property additions             (480)       (490)     (1,424)     (1,387)
    Acquisitions, net of
     cash acquired                  (50)        (25)        (50)        (25)
    Sale of Central Station
     Complex                          -         351           -         351
    Sale of investment in
     English Welsh and
     Scottish Railway                 -         114           -         114
    Other, net                       32          26          74          52
    -------------------------------------------------------------------------
    Cash used by investing
     activities                    (498)        (24)     (1,400)       (895)
    -------------------------------------------------------------------------

    Financing activities

    Issuance of long-term debt    1,003         846       4,433       4,171
    Reduction of long-term debt    (793)     (1,120)     (3,589)     (3,589)
    Issuance of common shares
     due to exercise of stock
     options and related excess
     tax benefits realized            6           4          54          77
    Repurchase of common shares      (4)       (445)     (1,021)     (1,584)
    Dividends paid                 (108)       (102)       (436)       (418)
    -------------------------------------------------------------------------
    Cash provided from (used by)
     financing activities           104        (817)       (559)     (1,343)
    -------------------------------------------------------------------------
    Effect of foreign exchange
     fluctuations on
     U.S. dollar-denominated
     cash and cash equivalents       19          (5)         31         (48)
    -------------------------------------------------------------------------
    Net increase in cash and
     cash equivalents               125          96         103         131
    Cash and cash equivalents,
     beginning of period            288         214         310         179
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period            $     413   $     310   $     413   $     310
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information
      Net cash receipts from
       customers and other    $   1,987   $   2,209   $   8,012   $   8,139
      Net cash payments for:
        Employee services,
         suppliers and other
         expenses                (1,171)       (979)     (4,920)     (4,323)
        Interest                   (124)        (67)       (396)       (340)
        Workforce reductions         (5)         (7)        (22)        (31)
        Personal injury and
         other claims               (29)        (28)        (91)        (86)
        Pensions                    (50)        (25)       (127)        (75)
        Income taxes               (108)       (161)       (425)       (867)
    -------------------------------------------------------------------------
    Cash provided from
     operating activities     $     500   $     942   $   2,031   $   2,417
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


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

                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
                                                   (Unaudited)
    Statistical operating data

    Rail freight revenues
     ($ millions)                 1,977       1,763       7,641       7,186
    Gross ton miles (GTM)
     (millions)                  81,871      89,315     339,854     347,898
    Revenue ton miles (RTM)
     (millions)                  42,382      47,151     177,951     184,148
    Carloads (thousands)          1,078       1,205       4,615       4,744
    Route miles (includes
     Canada and the U.S.)        20,961      20,421      20,961      20,421
    Employees (end of period)    22,227      22,696      22,227      22,696
    Employees (average for
     the period)                 22,461      22,796      22,695      22,389
    -------------------------------------------------------------------------

    Productivity

    Operating ratio (%)            62.7        62.1        65.9        63.6
    Rail freight revenue per
     RTM (cents)                   4.66        3.74        4.29        3.90
    Rail freight revenue per
     carload ($)                  1,834       1,463       1,656       1,515
    Operating expenses per
     GTM (cents)                   1.69        1.35        1.64        1.44
    Labor and fringe benefits
     expense per GTM (cents)       0.48        0.38        0.49        0.49
    GTMs per average number
     of employees (thousands)     3,645       3,918      14,975      15,539
    Diesel fuel consumed
     (U.S. gallons in millions)      93         102         380         392
    Average fuel price
     ($/U.S. gallon)               2.88        2.70        3.39        2.40
    GTMs per U.S. gallon of
     fuel consumed                  880         876         894         887
    -------------------------------------------------------------------------

    Safety indicators

    Injury frequency rate per
     200,000 person hours(2)        1.7         2.1         1.8         1.9
    Accident rate per million
     train miles(2)                 2.8         3.6         2.6         2.7
    -------------------------------------------------------------------------

    Financial ratio

    Debt to total capitalization
     ratio (% at end of period)    42.8        35.6        42.8        35.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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             Year ended
                                 December 31               December 31
                          -----------------------   -------------------------
                                        Variance                   Variance
                                             Fav                        Fav
                             2008    2007 (Unfav)      2008     2007 (Unfav)
    -------------------------------------------------------------------------
                                             (Unaudited)

    Revenues (millions of
     dollars)
    Petroleum and
     chemicals                359     306     17%     1,346    1,226     10%
    Metals and minerals       237     195     22%       950      826     15%
    Forest products           366     336      9%     1,436    1,552     (7%)
    Coal                      132      98     35%       478      385     24%
    Grain and fertilizers     381     350      9%     1,382    1,311      5%
    Intermodal                390     362      8%     1,580    1,382     14%
    Automotive                112     116     (3%)      469      504     (7%)
    --------------------------------------          -----------------
    Total rail freight
     revenue                1,977   1,763     12%     7,641    7,186      6%
    Other revenues            223     178     25%       841      711     18%
    --------------------------------------          -----------------
    Total revenues          2,200   1,941     13%     8,482    7,897      7%
    -------------------------------------------------------------------------

    Revenue ton miles
     (millions)
    Petroleum and
     chemicals              7,678   8,473     (9%)   32,346   32,761     (1%)
    Metals and minerals     3,982   4,305     (8%)   17,953   16,719      7%
    Forest products         7,848   9,156    (14%)   33,847   39,808    (15%)
    Coal                    3,697   3,432      8%    14,886   13,776      8%
    Grain and fertilizers  10,592  12,550    (16%)   42,507   45,359     (6%)
    Intermodal              8,027   8,493     (5%)   33,822   32,607      4%
    Automotive                558     742    (25%)    2,590    3,118    (17%)
    --------------------------------------          -----------------
                           42,382  47,151    (10%)  177,951  184,148     (3%)
    Rail freight revenue /
     RTM (cents)
    Total rail freight
     revenue per RTM         4.66    3.74     25%      4.29     3.90     10%
    Commodity groups:
    Petroleum and
     chemicals               4.68    3.61     30%      4.16     3.74     11%
    Metals and minerals      5.95    4.53     31%      5.29     4.94      7%
    Forest products          4.66    3.67     27%      4.24     3.90      9%
    Coal                     3.57    2.86     25%      3.21     2.79     15%
    Grain and fertilizers    3.60    2.79     29%      3.25     2.89     12%
    Intermodal               4.86    4.26     14%      4.67     4.24     10%
    Automotive              20.07   15.63     28%     18.11    16.16     12%
    --------------------------------------          -----------------

    Carloads (thousands)
    Petroleum and
     chemicals                123     151    (19%)      547      599     (9%)
    Metals and minerals       228     261    (13%)    1,025    1,010      1%
    Forest products           116     134    (13%)      511      584    (13%)
    Coal                       95      86     10%       375      361      4%
    Grain and fertilizers     143     162    (12%)      579      601     (4%)
    Intermodal                332     346     (4%)    1,377    1,324      4%
    Automotive                 41      65    (37%)      201      265    (24%)
    --------------------------------------          -----------------
                            1,078   1,205    (11%)    4,615    4,744     (3%)
    Rail freight revenue /
     carload (dollars)
    Total rail freight
     revenue per carload    1,834   1,463     25%     1,656    1,515      9%
    Commodity groups:
    Petroleum and
     chemicals              2,919   2,026     44%     2,461    2,047     20%
    Metals and minerals     1,039     747     39%       927      818     13%
    Forest products         3,155   2,507     26%     2,810    2,658      6%
    Coal                    1,389   1,140     22%     1,275    1,066     20%
    Grain and fertilizers   2,664   2,160     23%     2,387    2,181      9%
    Intermodal              1,175   1,046     12%     1,147    1,044     10%
    Automotive              2,732   1,785     53%     2,333    1,902     23%
    -------------------------------------------------------------------------

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


    CANADIAN NATIONAL RAILWAY COMPANY
    NON-GAAP MEASURES - unaudited
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Adjusted performance measures

    During the three months and year ended December 31, 2008, the Company
reported adjusted net income of $531 million, or $1.12 per diluted share, and
$1,778 million, or $3.71 per diluted share, respectively. The fourth quarter
adjusted figures exclude the impact of a net deferred income tax recovery of
$42 million ($0.09 per diluted share) resulting from the resolution of various
income tax matters and adjustments related to tax filings of prior years. The
year-to-date December 31, 2008 adjusted figures exclude a deferred income tax
recovery of $117 million ($0.24 per diluted share), of which $83 million was
due to the resolution of various income tax matters and adjustments related to
tax filings of prior years, $23 million was due to the enactment of corporate
income tax rate changes in Canada and $11 million was due to net capital
losses arising from the reorganization of a subsidiary.
    During the three months and year ended December 31, 2007, the Company
reported adjusted net income of $444 million, or $0.90 per diluted share, and
$1,725 million, or $3.40 per diluted share, respectively. These adjusted
figures exclude the impact of a net deferred income tax recovery of $284
million ($0.57 per diluted share) in the fourth quarter and $328 million
($0.64 per diluted share) for the year ended December 31, 2007 that resulted
mainly from the enactment of corporate income tax rate changes in Canada. Also
excluded from adjusted net income for both the three- and twelve-month periods
were the gains on sale of the Central Station Complex of $92 million or $64
million after-tax ($0.13 per diluted share) and the Company's investment in
English Welsh and Scottish Railway of $61 million or $41 million after-tax
($0.08 per diluted share).
    Management believes that adjusted net income and adjusted earnings per
share are useful measures of performance that can facilitate period-to-period
comparisons, as they exclude items that do not necessarily arise as part of
the normal day-to-day operations of the Company and could distort the analysis
of trends in business performance. The exclusion of such items in adjusted net
income and adjusted earnings per share does not, however, imply that such
items are necessarily non-recurring. These adjusted measures do not have any
standardized meaning prescribed by GAAP and may, therefore, not be comparable
to similar measures presented by other companies. The reader is advised to
read all information provided in the Company's 2008 Annual Consolidated
Financial Statements, Notes thereto and Management's Discussion and Analysis
(MD&A). The following tables provide a reconciliation of net income and
earnings per share, as reported for the three months and years ended December
31, 2008 and 2007, to the adjusted performance measures presented herein.

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                        Three months ended               Year ended
                         December 31, 2008           December 31, 2008
                  ----------------------------  -----------------------------
    In millions,
     except per               Adjust-                      Adjust-
     share data    Reported    ments  Adjusted  Reported    ments  Adjusted
    -------------------------------------------------------------------------

    Revenues        $ 2,200  $     -  $  2,200   $ 8,482  $     -   $ 8,482

    Operating
     expenses         1,380        -     1,380     5,588        -     5,588
    -------------------------------------------------------------------------
    Operating income    820        -       820     2,894        -     2,894
    Interest
     expense           (110)       -      (110)     (375)       -      (375)
    Other income         19        -        19        26        -        26
    -------------------------------------------------------------------------
    Income before
     income taxes       729        -       729     2,545        -     2,545

    Income tax
     expense           (156)     (42)     (198)     (650)    (117)     (767)
    -------------------------------------------------------------------------

    Net income       $  573  $   (42) $    531   $ 1,895  $  (117)  $ 1,778
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings
     per share       $ 1.22  $ (0.09) $   1.13   $  3.99  $ (0.24)  $  3.75

    Diluted earnings
     per share       $ 1.21  $ (0.09) $   1.12   $  3.95  $ (0.24)  $  3.71
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                        Three months ended               Year ended
                         December 31, 2007           December 31, 2007
                  ----------------------------  -----------------------------
    In millions,
     except per               Adjust-                      Adjust-
     share data    Reported    ments  Adjusted  Reported    ments  Adjusted
    -------------------------------------------------------------------------

    Revenues        $ 1,941  $     -   $ 1,941   $ 7,897  $     -   $ 7,897

    Operating
     expenses         1,205        -     1,205     5,021        -     5,021
    -------------------------------------------------------------------------
    Operating income    736        -       736     2,876        -     2,876
    Interest expense    (85)       -       (85)     (336)       -      (336)
    Other income        159     (153)        6       166     (153)       13
    -------------------------------------------------------------------------
    Income before
     income taxes       810     (153)      657     2,706     (153)    2,553

    Income tax
     recovery
     (expense)           23     (236)     (213)     (548)    (280)     (828)
    -------------------------------------------------------------------------

    Net income      $   833  $  (389)  $   444   $ 2,158  $  (433)  $ 1,725
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings
     per share      $  1.70  $ (0.79)  $  0.91   $  4.31  $ (0.87)  $  3.44

    Diluted earnings
     per share      $  1.68  $ (0.78)  $  0.90   $  4.25  $ (0.85)  $  3.40
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Free cash flow

    The Company generated $311 million and $794 million of free cash flow for
the three months and year ended December 31, 2008, respectively, compared to
$635 million and $828 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           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
    In millions                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Cash provided from
     operating activities     $     500   $     942   $   2,031   $   2,417
    Cash used by investing
     activities                    (498)        (24)     (1,400)       (895)
    -------------------------------------------------------------------------
    Cash provided before
     financing activities             2         918         631       1,522
    -------------------------------------------------------------------------

    Adjustments:
      Change in accounts
       receivable
       securitization               398        (176)        568        (228)
      Dividends paid               (108)       (102)       (436)       (418)
      Effect of foreign
       exchange fluctuations
       on U.S. dollar-
       denominated cash and
       cash equivalents              19          (5)         31         (48)
    -------------------------------------------------------------------------
    Free cash flow            $     311   $     635   $     794   $     828
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




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


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890