CN reports Q4-2009 net income of C$582 million, or C$1.23 per diluted share

Excluding line-sale to Metrolinx and deferred income tax recovery, adjusted Q4-2009 net income was C$424 million or C$0.90 per diluted share

MONTREAL, Jan. 26 /CNW Telbec/ - CN (TSX: CNR)(NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2009.

Fourth-quarter and full-year 2009 highlights

    
    - Net income and diluted earnings per share for the final quarter of 2009
      increased two per cent from the year-earlier period to C$582 million
      and C$1.23, respectively. The results included an after-tax gain of
      C$59 million (C$0.12 per diluted share) from a line-sale to Metrolinx,
      a transit agency in Toronto, and a deferred income tax recovery of
      C$99 million (C$0.21 per diluted share).
    - Excluding these items, adjusted fourth-quarter 2009 net income was
      C$424 million, or C$0.90 per diluted share, compared with adjusted net
      income of C$531 million, or C$1.12 per diluted share, excluding a
      deferred income tax recovery, for the year-earlier period.(1)
    - Fourth-quarter 2009 revenues declined 14 per cent from a year earlier
      to C$1,882 million.
    - Fourth-quarter operating ratio was 65.3 per cent, compared with
      62.7 per cent for the same quarter of 2008.
    - Free cash flow for full-year 2009 was C$790 million, compared with
      2008's C$794 million.(1)
    

Net income for full-year 2009 decreased two per cent from 2008 to C$1,854 million, with diluted earnings per share declining one per cent to C$3.92. The 2009 results included after-tax gains of C$194 million (C$0.41 per diluted share) from two line-sales; a deferred income tax recovery of C$157 million (C$0.33 per diluted share), mainly resulting from the enactment of lower provincial corporate income tax rates; and after-tax acquisition-related costs of C$30 million (C$0.06 per diluted share) related to CN's purchase of the Elgin, Joliet and Eastern Railway Company. Excluding these items, adjusted 2009 net income was C$1,533 million (C$3.24 per diluted share), compared with adjusted 2008 net income, excluding a deferred income tax recovery, of C$1,778 million, or C$3.71 per diluted share.(1)

Claude Mongeau, president and chief executive officer, said: "CN overcame a number of challenges during the fourth quarter, ranging from weather and operational disruptions in Western Canada to a five-day strike by locomotive engineers in Canada. In addition, the stronger Canadian dollar adversely affected our earnings. Despite these challenges, the final quarter of 2009 saw continued sequential improvement in CN's traffic levels and an easing in year-over-year volume comparisons. Carloadings were flat year-over-year, but up four per cent versus the third quarter of 2009."

Fourth-quarter year-over-year growth was in coal, automotive, grain and fertilizers, and petroleum and chemicals volumes as the economic recovery began taking hold. Intermodal volumes declined three per cent, metals and mineral carloadings were down by two per cent, and forest products markets remain depressed.

Mongeau said: "Throughout the year, the CN team raised the bar on operational execution, tightly controlled costs, and generated solid free cash flow and increased shareholder value through the monetization of underutilized assets. As we go forward, we will build on the improvements in operating metrics we achieved in 2009, including train velocity, lower freight car dwell times in terminals, and improved locomotive fuel efficiency."

Foreign currency impact on results

The fluctuation of the Canadian dollar relative to the U.S. dollar, which affects the conversion of CN's U.S.-dollar-denominated revenues and expenses, reduced fourth-quarter 2009 net income by approximately C$35 million (C$0.07 per diluted share), while increasing full-year 2009 net income by C$25 million (C$0.05 per diluted share).

2010 outlook, increased dividend, new share buy-back program(2)

Mongeau said: "CN believes there will be gradual economic recovery in 2010. A number of our markets appear to be improving, and we expect to take advantage of a number of opportunities this year. We are still facing some headwinds, but are aiming for double-digit growth in diluted earnings per share (EPS) in 2010 over adjusted diluted EPS of C$3.24 in 2009, with 2010 free cash flow in the order of C$700 million."(1)

One of the headwinds CN will face in 2010 is the Canadian-U.S. dollar exchange rate, which averaged C$0.88 in 2009 but is expected to be substantially higher in 2010. In addition, CN anticipates increased expenses in 2010, including higher depreciation expense and substantially lower credits for casualty expense.

Mongeau added: "Given the anticipated economic recovery, CN's strong balance sheet and its ability to produce solid cash flow, I'm pleased that the Company's Board of Directors has approved a seven per cent increase in CN's quarterly common-share dividend, and a new share repurchase program to buy-back up to 15 million CN common shares."

Fourth-quarter 2009 revenues and expenses

The 14 per cent decline in fourth-quarter revenues largely resulted from the negative translation impact of the year-over-year stronger Canadian dollar on U.S.-dollar-denominated revenues; a reduction in the fuel surcharge resulting from year-over-year decreases in applicable fuel prices, and lower freight volumes in most markets because of economic conditions. These factors were partly offset by freight rate increases.

All commodity groups experienced decreased revenues: forest products (26 per cent), metals and minerals (20 per cent), petroleum and chemicals (16 per cent), intermodal (13 per cent), automotive (13 per cent), coal (eight per cent), and grain and fertilizers (seven per cent).

Operating expenses for fourth-quarter 2009 declined by 11 per cent to C$1,229 million. The decrease was primarily owing to the positive translation impact of the stronger Canadian dollar on U.S.-dollar-denominated expenses, lower fuel costs, and reduced expenses for casualty and other and purchased services and material. These factors were partly offset by higher labor and fringe-benefits expense.

Full-year 2009 revenues and expenses

Revenues for the year decreased by 13 per cent to C$7,367 million, mainly due to significantly lower freight volumes in almost all markets as a result of economic conditions in the North American and global economies, and a reduction in the fuel surcharge resulting from year-over-year decreases in applicable fuel prices and lower volumes. These factors were partly offset by freight rate increases and the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues.

All commodity groups saw revenue declines for 2009: automotive (24 per cent), metals and minerals (23 per cent), forest products (20 per cent), intermodal (15 per cent), petroleum and chemicals (six per cent), coal (three per cent), and grain and fertilizers (three per cent). Revenue ton-miles for the year declined 10 per cent from 2008.

Operating expenses for 2009 decreased by 11 per cent to C$4,961 million, mainly due to lower fuel costs and reduced expenses for purchased services and material, partly reflecting the impact of reduced freight volumes as well as management's cost-reduction initiatives. These factors were partially offset by the negative translation impact of the weaker Canadian dollar on U.S.-dollar-denominated expenses.

CN's operating ratio for 2009 increased by 1.4 points to 67.3 per cent when compared to 2008.

    
    (1) Please see discussion and reconciliation of non-GAAP adjusted
        performance measures in the attached supplementary schedule, Non-GAAP
        Measures.
    (2) See Forward-Looking Statements for a summary of the key assumptions
        and risks regarding CN's 2010 outlook.
    

Forward-Looking Statements

Certain information included in this news release are "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. CN cautions that, by their nature, these forward-looking statements involve risks, uncertainties and assumptions. 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. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results of performance of the Company or the rail industry to be materially different from the outlook or any future results or performance implied by such statements. Key assumptions used in determining forward-looking information are set forth below.

Key assumptions

CN made a number of economic and market assumptions in preparing its 2010 outlook. The Company is forecasting that North American industrial production for the year will increase in the range of three to four per cent. Of particular importance is that CN expects U.S. housing starts to be about 750,000 units and U.S. motor vehicles sales to be approximately 11.5 million units for the year. In addition, CN is assuming a 2010/2011 Canadian grain crop in line with the five-year average, and that in 2010 the crop will be complemented by a good carryover stock from 2009. With these assumptions, CN is targeting carload growth in the high-single-digit range, along with pricing improvement of about four per cent. CN expects the Canadian-U.S. exchange rate to be in the range of C$0.95 to par, and that the price of crude oil (West Texas Intermediate) to be about US$75 to US$80 per barrel. In 2010, CN plans to invest approximately C$1.5 billion in capital programs, of which more than C$1 billion will be targeted on track infrastructure to maintain a safe railway and improve the productivity and fluidity of the network.

Important factors that could affect the forward-looking statements include, but are not limited to, the effects of general economic and business conditions, industry competition, inflation, currency and interest rate fluctuations, changes in fuel prices, legislative and/or regulatory developments, compliance with environmental laws and regulations, actions by regulators, various events which could disrupt operations, including natural events such as severe weather, droughts, floods and earthquakes, labor negotiations and disruptions, environmental claims, uncertainties of investigations, proceedings or other types of claims and litigation, risks and liabilities arising from derailments, 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, 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 Canadian securities 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 maters, 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)
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    (In millions, except per share data)

                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2009        2008        2009        2008
    -------------------------------------------------------------------------
                                                (Unaudited)

    Revenues                   $  1,882    $  2,200    $  7,367    $  8,482
    -------------------------------------------------------------------------

    Operating expenses
      Labor and fringe
       benefits                     413         397       1,696       1,674
      Purchased services and
       material                     256         301       1,027       1,137
      Fuel                          221         304         769       1,403
      Depreciation and
       amortization                 197         197         790         725
      Equipment rents                66          79         284         262
      Casualty and other             76         102         395         387
    -------------------------------------------------------------------------

    Total operating expenses      1,229       1,380       4,961       5,588
    -------------------------------------------------------------------------

    Operating income                653         820       2,406       2,894

    Interest expense                (95)       (110)       (412)       (375)

    Other income                     76          19         267          26
    -------------------------------------------------------------------------

    Income before income
     taxes                          634         729       2,261       2,545

    Income tax expense              (52)       (156)       (407)       (650)
    -------------------------------------------------------------------------

    Net income                 $    582    $    573    $  1,854    $  1,895
    -------------------------------------------------------------------------
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    Earnings per share
      Basic                    $   1.24    $   1.22    $   3.95    $   3.99

      Diluted                  $   1.23    $   1.21    $   3.92    $   3.95

    Weighted-average number
     of shares
      Basic                       470.5       468.1       469.2       474.7

      Diluted                     474.8       472.5       473.5       480.0
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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, 2009 and December 31, 2008, and its results of operations, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2009 and 2008. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2009 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and Management's Discussion and Analysis (MD&A).

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

                                                  December 31   December 31
                                                         2009          2008
    -------------------------------------------------------------------------
                                                   (Unaudited)
    Assets

    Current assets:
      Cash and cash equivalents                      $    352      $    413
      Accounts receivable                                 797           913
      Material and supplies                               170           200
      Deferred income taxes                               105            98
      Other                                                66           132
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                                                        1,490         1,756

    Properties                                         22,630        23,203
    Intangible and other assets                         1,056         1,761
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    Total assets                                     $ 25,176      $ 26,720
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    Liabilities and shareholders' equity

    Current liabilities:
      Accounts payable and other                     $  1,167      $  1,386
      Current portion of long-term debt                    70           506
    -------------------------------------------------------------------------
                                                        1,237         1,892

    Deferred income taxes                               5,119         5,511
    Other liabilities and deferred credits              1,196         1,353
    Long-term debt                                      6,391         7,405

    Shareholders' equity:
      Common shares                                     4,266         4,179
      Accumulated other comprehensive loss               (948)         (155)
      Retained earnings                                 7,915         6,535
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                                                       11,233        10,559
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    Total liabilities and shareholders' equity       $ 25,176      $ 26,720
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    -------------------------------------------------------------------------
    

These unaudited interim consolidated financial statements, expressed in Canadian dollars, and prepared in accordance with U.S. GAAP, contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as at December 31, 2009 and December 31, 2008, and its results of operations, changes in shareholders' equity and cash flows for the three months and years ended December 31, 2009 and 2008. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2009 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and MD&A.

Subsequent event

On January 26, 2010, the Board of Directors of the Company approved a new share repurchase program which allows for the repurchase of up to 15.0 million common shares between January 29, 2010 and December 31, 2010 pursuant to a normal course issuer bid, at prevailing market prices or such other prices as may be permitted by the Toronto Stock Exchange.

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

                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2009        2008        2009        2008
    -------------------------------------------------------------------------
                                                (Unaudited)
    Common shares(1)
    Balance, beginning of
     period                    $  4,239    $  4,171    $  4,179    $  4,283
      Stock options exercised
       and other                     27           9          87          68
      Share repurchase
       programs                       -          (1)          -        (172)
    -------------------------------------------------------------------------
    Balance, end of period     $  4,266    $  4,179    $  4,266    $  4,179
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income
     (loss)

    Balance, beginning of
     period                    $   (288)   $     54    $   (155)   $    (31)
    Other comprehensive
     income (loss):
    Unrealized foreign
     exchange gain (loss) on:
      Translation of the net
       investment in foreign
       operations                  (114)        860        (998)      1,259
      Translation of
       U.S. dollar-denominated
       long-term debt
       designated as a hedge
       of the net investment
       in U.S. subsidiaries         113        (877)        976      (1,266)
    Pension and other
     postretirement benefit
     plans:
      Net actuarial
       loss arising during
       the period                  (868)       (452)       (868)       (452)
      Prior service cost
       arising during the
       period                        (2)         (3)         (2)         (3)
      Amortization of net
       actuarial loss (gain)
       included in net
       periodic benefit cost
       (income)                       1           -           2          (2)
      Amortization of prior
       service cost included
       in net periodic benefit
       cost (income)                  3           3           5          21
    -------------------------------------------------------------------------
    Other comprehensive loss
     before income taxes           (867)       (469)       (885)       (443)

    Income tax recovery             207         260          92         319
    -------------------------------------------------------------------------
    Other comprehensive loss       (660)       (209)       (793)       (124)
    -------------------------------------------------------------------------
    Balance, end of period     $   (948)   $   (155)   $   (948)   $   (155)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Retained earnings

    Balance, beginning of
     period                    $  7,452    $  6,073    $  6,535    $  5,925
      Net income                    582         573       1,854       1,895
      Share repurchase
       programs                       -          (3)          -        (849)
      Dividends                    (119)       (108)       (474)       (436)
    -------------------------------------------------------------------------
    Balance, end of period     $  7,915    $  6,535    $  7,915    $  6,535
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) During the three months and year ended December 31, 2009, the Company
        issued 0.9 million and 2.8 million common shares, respectively, as a
        result of stock options exercised. At December 31, 2009, the Company
        had 471.0 million common shares outstanding.


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

                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2009        2008        2009        2008
    -------------------------------------------------------------------------
                                                (Unaudited)
    Operating activities

    Net income                 $    582    $    573    $  1,854    $  1,895
    Adjustments to reconcile
     net income to net cash
     provided from operating
     activities:
      Depreciation and
       amortization                 197         197         790         725
      Deferred income taxes          (8)         43         138         230
      Gain on disposal of
       property                     (69)          -        (226)          -
      Other changes in:
        Accounts receivable          41        (173)         39        (432)
        Material and supplies        65          25          32         (23)
        Accounts payable and
         other                      (12)        (28)       (204)       (127)
        Other current assets         (9)          2          77          37
      Other                        (108)       (139)       (221)       (274)
    -------------------------------------------------------------------------

    Cash provided from
     operating activities           679         500       2,279       2,031
    -------------------------------------------------------------------------

    Investing activities

    Property additions             (564)       (480)     (1,402)     (1,424)
    Acquisitions, net of cash
     acquired                         -         (50)       (373)        (50)
    Disposal of property             74           -         231           -
    Other, net                       57          32         107          74
    -------------------------------------------------------------------------
    Cash used by investing
     activities                    (433)       (498)     (1,437)     (1,400)
    -------------------------------------------------------------------------

    Financing activities

    Issuance of long-term
     debt                             1       1,003       1,626       4,433
    Reduction of long-term
     debt                           (39)       (793)     (2,109)     (3,589)
    Issuance of common shares
     due to exercise of stock
     options and related
     excess tax benefits
     realized                        24           6          73          54
    Repurchase of common
     shares                           -          (4)          -      (1,021)
    Dividends paid                 (119)       (108)       (474)       (436)
    -------------------------------------------------------------------------
    Cash provided from (used
     by) financing activities      (133)        104        (884)       (559)
    -------------------------------------------------------------------------
    Effect of foreign
     exchange fluctuations on
     U.S. dollar-denominated
     cash and cash equivalents        6          19         (19)         31
    -------------------------------------------------------------------------
    Net increase (decrease)
     in cash and cash
     equivalents                    119         125         (61)        103
    Cash and cash equivalents,
     beginning of period            233         288         413         310
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $    352    $    413    $    352    $    413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information

    Net cash receipts from
     customers and other       $  1,965    $  1,987    $  7,505    $  8,012
    Net cash payments for:
      Employee services,
       suppliers and other
       expenses                  (1,057)     (1,171)     (4,314)     (4,920)
      Interest                     (101)       (124)       (407)       (396)
      Workforce reductions           (4)         (5)        (17)        (22)
      Personal injury and
       other claims                 (26)        (29)       (112)        (91)
      Pensions                      (46)        (50)       (131)       (127)
      Income taxes                  (52)       (108)       (245)       (425)
    -------------------------------------------------------------------------

    Cash provided from
     operating activities      $    679    $    500    $  2,279    $  2,031
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    CANADIAN NATIONAL RAILWAY COMPANY
    SELECTED RAILROAD STATISTICS(1) (U.S. GAAP)
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                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
                                   2009        2008        2009        2008
    -------------------------------------------------------------------------
                                                (Unaudited)
    Statistical operating data

    Rail freight revenues
     ($ millions)                 1,679       1,977       6,632       7,641
    Gross ton miles (GTM)
     (millions)                  78,760      81,871     304,690     339,854
    Revenue ton miles (RTM)
     (millions)                  41,819      42,382     159,862     177,951
    Carloads (thousands)          1,077       1,078       3,991       4,615
    Route miles (includes
     Canada and the U.S.)        21,094      20,961      21,094      20,961
    Employees (end of period)    21,501      22,227      21,501      22,227
    Employees (average for
     the period)                 21,478      22,461      21,793      22,695
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    Productivity

    Operating ratio (%)            65.3        62.7        67.3        65.9
    Rail freight revenue per
     RTM (cents)                   4.01        4.66        4.15        4.29
    Rail freight revenue per
     carload ($)                  1,559       1,834       1,662       1,656
    Operating expenses per
     GTM (cents)                   1.56        1.69        1.63        1.64
    Labor and fringe benefits
     expense per GTM (cents)       0.52        0.48        0.56        0.49
    GTMs per average number of
     employees (thousands)        3,667       3,645      13,981      14,975
    Diesel fuel consumed
     (U.S. gallons in millions)      83          93         327         380
    Average fuel price
     ($/U.S. gallon)               2.33        2.88        2.12        3.39
    GTMs per U.S. gallon of
     fuel consumed                  949         880         932         894
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    Safety indicators

    Injury frequency rate per
     200,000 person hours(2)       2.09        1.72        1.78        1.78
    Accident rate per million
     train miles(2)                3.30        2.83        2.27        2.58
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    Financial ratio

    Debt to total
     capitalization ratio (%
     at end of period)             36.5        42.8        36.5        42.8
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    -------------------------------------------------------------------------
    (1) Includes data relating to companies acquired as of the date of
        acquisition.
    (2) Based on Federal Railroad Administration (FRA) reporting criteria.
    

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

    
    CANADIAN NATIONAL RAILWAY COMPANY
    SUPPLEMENTARY INFORMATION (U.S. GAAP)
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                          Three months ended               Year ended
                              December 31                 December 31
                      --------------------------  ---------------------------
                                      Variance                     Variance
                                           Fav                          Fav
                        2009     2008   (Unfav)      2009     2008   (Unfav)
    -------------------------------------------------------------------------
                                               (Unaudited)
    Revenues (millions
     of dollars)

    Petroleum and
     chemicals           302      359      (16%)    1,260    1,346       (6%)
    Metals and minerals  189      237      (20%)      728      950      (23%)
    Forest products      271      366      (26%)    1,147    1,436      (20%)
    Coal                 122      132       (8%)      464      478       (3%)
    Grain and
     fertilizers         356      381       (7%)    1,341    1,382       (3%)
    Intermodal           341      390      (13%)    1,337    1,580      (15%)
    Automotive            98      112      (13%)      355      469      (24%)
    ------------------------------------          ------------------
    Total rail freight
     revenue           1,679    1,977      (15%)    6,632    7,641      (13%)
    Other revenues       203      223       (9%)      735      841      (13%)
    ------------------------------------          ------------------
    Total revenues     1,882    2,200      (14%)    7,367    8,482      (13%)
    -------------------------------------------------------------------------

    Revenue ton miles
     (millions)

    Petroleum and
     chemicals         7,270    7,678       (5%)   29,381   32,346       (9%)
    Metals and
     minerals          3,507    3,982      (12%)   12,994   17,953      (28%)
    Forest products    6,910    7,848      (12%)   27,594   33,847      (18%)
    Coal               4,176    3,697       13%    14,805   14,886       (1%)
    Grain and
     fertilizers      11,281   10,592        7%    40,859   42,507       (4%)
    Intermodal         8,095    8,027        1%    32,159   33,822       (5%)
    Automotive           580      558        4%     2,070    2,590      (20%)
    ------------------------------------          ------------------
                      41,819   42,382       (1%)  159,862  177,951      (10%)

    Rail freight
     revenue /
     RTM (cents)
    Total rail freight
     revenue per RTM    4.01     4.66      (14%)     4.15     4.29       (3%)

    Commodity groups:

    Petroleum and
     chemicals          4.15     4.68      (11%)     4.29     4.16        3%
    Metals and
     minerals           5.39     5.95       (9%)     5.60     5.29        6%
    Forest products     3.92     4.66      (16%)     4.16     4.24       (2%)
    Coal                2.92     3.57      (18%)     3.13     3.21       (2%)
    Grain and
     fertilizers        3.16     3.60      (12%)     3.28     3.25        1%
    Intermodal          4.21     4.86      (13%)     4.16     4.67      (11%)
    Automotive         16.90    20.07      (16%)    17.15    18.11       (5%)
    ------------------------------------          ------------------

    Carloads
     (thousands)

    Petroleum and
     chemicals           126      123        2%       511      547       (7%)
    Metals and
     minerals            224      228       (2%)      721    1,025      (30%)
    Forest products      100      116      (14%)      403      511      (21%)
    Coal                 113       95       19%       426      375       14%
    Grain and
     fertilizers         147      143        3%       530      579       (8%)
    Intermodal           321      332       (3%)    1,246    1,377      (10%)
    Automotive            46       41       12%       154      201      (23%)
    ------------------------------------          ------------------
                       1,077    1,078        -      3,991    4,615      (14%)
    Rail freight
     revenue /
     carload (dollars)
    Total rail freight
     revenue per
     carload           1,559    1,834      (15%)    1,662    1,656        -
    Commodity groups:

    Petroleum and
     chemicals         2,397    2,919      (18%)    2,466    2,461        -
    Metals and
     minerals            844    1,039      (19%)    1,010      927        9%
    Forest products    2,710    3,155      (14%)    2,846    2,810        1%
    Coal               1,080    1,389      (22%)    1,089    1,275      (15%)
    Grain and
     fertilizers       2,422    2,664       (9%)    2,530    2,387        6%
    Intermodal         1,062    1,175      (10%)    1,073    1,147       (6%)
    Automotive         2,130    2,732      (22%)    2,305    2,333       (1%)
    -------------------------------------------------------------------------
    

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

For the three and twelve months ended December 31, 2009, the Company reported adjusted net income of $424 million, or $0.90 per diluted share and $1,533 million or $3.24 per diluted share, respectively. The adjusted figures for the three months ended December 31, 2009 exclude the gain on sale of the Lower Newmarket subdivision of $69 million or $59 million after-tax ($0.12 per diluted share) and a deferred income tax recovery of $99 million ($0.21 per diluted share), resulting from the enactment of a lower provincial corporate income tax rate. The adjusted figures for the twelve months ended December 31, 2009 exclude the gain on sale of the Lower Newmarket subdivision of $69 million or $59 million after-tax ($0.12 per diluted share); the gain on sale of the Weston subdivision of $157 million or $135 million after-tax ($0.29 per diluted share); EJ&E acquisition-related costs of $49 million or $30 million after-tax ($0.06 per diluted share); and a deferred income tax recovery of $157 million ($0.33 per diluted share), of which $126 million ($0.27 per diluted share) resulted from the enactment of lower provincial corporate income tax rates, $16 million ($0.03 per diluted share) resulted from the recapitalization of a foreign investment and $15 million ($0.03 per diluted share) resulted from the resolution of various income tax matters and adjustments related to tax filings of prior years.

For 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 ($0.17 per diluted share) was due to the resolution of various income tax matters and adjustments related to tax filings of prior years, $23 million ($0.05 per diluted share) was due to the enactment of corporate income tax rate changes in Canada and $11 million ($0.02 per diluted share) was due to net capital losses arising from the reorganization of a subsidiary.

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 2009 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 year ended December 31, 2009 and 2008, to the adjusted performance measures presented herein.

    
    -------------------------------------------------------------------------
                        Three months ended               Year ended
                         December 31, 2009            December 31, 2009
                    ---------------------------  ----------------------------
    In millions,
     except per                Adjust-      Ad-             Adjust-      Ad-
     share data     Reported    ments   justed   Reported    ments   justed
    -------------------------------------------------------------------------

    Revenues         $ 1,882  $     -  $ 1,882    $ 7,367  $     -  $ 7,367
    Operating
     expenses          1,229        -    1,229      4,961      (49)   4,912
    -------------------------------------------------------------------------
    Operating income     653        -      653      2,406       49    2,455
    Interest expense     (95)       -      (95)      (412)       -     (412)
    Other income          76      (69)       7        267     (226)      41
    -------------------------------------------------------------------------
    Income before
     income taxes        634      (69)     565      2,261     (177)   2,084
    Income tax
     expense             (52)     (89)    (141)      (407)    (144)    (551)
    -------------------------------------------------------------------------
    Net income       $   582  $  (158) $   424    $ 1,854  $  (321) $ 1,533
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating ratio     65.3%             65.3%      67.3%             66.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings
     per share       $  1.24  $ (0.33) $  0.91    $  3.95  $ (0.68) $  3.27
    Diluted
     earnings per
     share           $  1.23  $ (0.33) $  0.90    $  3.92  $ (0.68) $  3.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating ratio     62.7%             62.7%      65.9%             65.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Free cash flow

The Company generated $133 million and $790 million of free cash flow for the three months and year ended December 31, 2009, respectively, compared to $311 million and $794 million for the same periods in 2008. 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, adjusted for changes in the accounts receivable securitization program and in cash and cash equivalents resulting from foreign exchange fluctuations, less cash used by investing activities, adjusted for the impact of major acquisitions, and the payment of dividends, calculated as follows:

    
    -------------------------------------------------------------------------
                                 Three months ended           Year ended
                                     December 31             December 31
                              ----------------------  -----------------------
    In millions                    2009        2008        2009        2008
    -------------------------------------------------------------------------

    Cash provided from
     operating activities      $    679    $    500    $  2,279    $  2,031
    Cash used by investing
     activities                    (433)       (498)     (1,437)     (1,400)
    -------------------------------------------------------------------------
    Cash provided before
     financing activities           246           2         842         631
    -------------------------------------------------------------------------

    Adjustments:
      Change in accounts
       receivable
       securitization                 -         398          68         568
      Dividends paid               (119)       (108)       (474)       (436)
      Acquisition of EJ&E             -           -         373           -
      Effect of foreign
       exchange fluctuations
       on U.S. dollar-
       denominated cash and
       cash equivalents               6          19         (19)         31
    -------------------------------------------------------------------------
    Free cash flow             $    133    $    311    $    790    $    794
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE CN

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


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