CN's record revenues help drive best ever fourth-quarter and full-yea

    News Editors

    MONTREAL--(BUSINESS WIRE)--Jan. 25, 2005--CN (NYSE:CNI) (TSX:CNR) today reported its financial results for the fourth quarter and 12-month period ended Dec. 31, 2004.

    Highlights

    - Fourth-quarter net income of $376 million, or $1.29 per diluted share. Net income for the fourth quarter of 2003 was $224 million, or 78 cents per diluted share, including a deferred income tax (DIT) expense of $79 million, or 27 cents per diluted share. Excluding the 2003 DIT, net income for the fourth quarter of 2004 rose 24 per cent, and diluted earnings per share increased 23 per cent (1);

    - Quarterly revenues of $1,736 million, an increase of 15 per cent;

    - Fourth-quarter operating income of $607 million, up 19 per cent year-over-year;

    - Quarterly operating ratio of 65.0 per cent, a 1.1-percentage point improvement over the fourth-quarter 2003 performance;

    - Full-year 2004 free cash flow of $1,025 million, compared with $578 million for 2003. (1)

    E. Hunter Harrison, president and chief executive officer of CN, said: "I am delighted to report these record results. Our railroaders delivered the best quarterly and full-year operating ratio in company history, along with record annual operating income, net income and free cash flow.

    "CN's outstanding performance resulted from strong core business growth at low incremental cost, the early benefits of two acquisitions, and the discipline of precision railroading.

    "This winning combination allowed CN to generate free cash flow of more than $1 billion, an exceptional achievement that underscores the quality of our earnings. CN's proven ability to produce strong free cash flow gives management the flexibility to reward investors: it will support a 28 per cent increase in our 2005 dividend - the ninth consecutive increase since CN's privatization in 1995."

    Business levels benefited from the acquisitions of BC Rail and the railroad and related holdings of Great Lakes Transportation LLC (GLT), which added $145 million to CN's fourth-quarter 2004 revenues. Central to CN's performance was strong demand for lumber, chemicals, iron ore, coal, consumer goods from Asia, and Canadian wheat and barley.

    Six of CN's seven commodity groups registered revenue gains during the fourth quarter: metals and minerals (37 per cent); forest products (22 per cent); coal (20 per cent); intermodal (12 per cent); petroleum and chemicals (nine per cent); and grain and fertilizers (five per cent). Automotive revenues declined eight per cent, largely due to the impact of the stronger Canadian Dollar on the conversion of U.S.-dollar denominated revenues.

    Operating expenses for the fourth quarter of 2004 increased 13 per cent to $1,129 million, largely as a result of the inclusion of $92 million of expenses of GLT and BC Rail, whose operations CN consolidated on May 10, 2004, and July 14, 2004, respectively. This increase was partially offset by the positive impact on expenses of the stronger Canadian dollar. During the latest three-month period, casualty and other expenses grew by 31 per cent, fuel by 29 per cent, and labour and fringe benefits expenses by 13 per cent. Equipment rents declined 25 per cent.

    The stronger Canadian dollar affected the conversion of CN's U.S.-dollar denominated revenues and expenses, and, accordingly, reduced the company's fourth-quarter revenues, operating income and net income by approximately $60 million, $15 million and $7 million, respectively.

    Full-year 2004 financial results

    Net income for 2004 was $1,258 million, or $4.34 per diluted share, compared with net income of $1,014 million, or $3.49 per diluted share, for 2003.

    Net income for 2003 included a fourth-quarter deferred income tax expense of $79 million, or 27 cents per diluted share, and a cumulative benefit of $48 million after tax (16 cents per diluted share) resulting from a change in the accounting for removal costs for certain track structure assets. Excluding these items, adjusted net income for 2003 was $1,045 million, or $3.60 per diluted share. (1)

    Operating income for 2004 increased 22 per cent to $2,168 million. Revenues rose by 11 per cent to $6,548 million, while operating expenses grew by seven per cent to $4,380 million. For 2004, BC Rail and GLT added $351 million to CN's revenues and $228 million to its operating expenses.

    CN's 2004 operating ratio was 66.9 per cent, a 2.9-percentage point improvement over the year-earlier performance.

    The translation impact of the stronger Canadian dollar reduced 2004 revenues, operating income and net income by approximately $255 million, $85 million, and $45 million, respectively.

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

    (1) Please see discussion and reconciliation of these non-GAAP adjusted performance measures in the attached supplementary schedule, Non-GAAP Measures.

    This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risk and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CN's most recent Form 40-F filed with the United States Securities and Exchange Commission, and the Annual Information Form filed with the Canadian securities regulators, for a summary of major risks.

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

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

Three months ended Year ended December 31 December 31 ------------------ --------------- 2004(1) 2003 2004(1) 2003 --------------------------------------------------------------------- (Unaudited)

Revenues $ 1,736 $ 1,512 $ 6,548 $ 5,884 ---------------------------------------------------------------------

Operating expenses 1,129 1,000 4,380 4,107 ---------------------------------------------------------------------

Operating income 607 512 2,168 1,777

Interest expense (75) (71) (294) (315)

Other income (loss) 25 8 (20) 21 ---------------------------------------------------------------------

Income before income taxes and cumulative effect of change in accounting policy 557 449 1,854 1,483

Income tax expense (181) (225) (596) (517) ---------------------------------------------------------------------

Income before cumulative effect of change in accounting policy 376 224 1,258 966

Cumulative effect of change in accounting policy (net of applicable taxes) - - - 48 ---------------------------------------------------------------------

Net income $ 376 $ 224 $ 1,258 $ 1,014 --------------------------------------------------------------------- ---------------------------------------------------------------------

Earnings per share (2)

Basic earnings per share

Income before cumulative effect of change in accounting policy $ 1.32 $ 0.79 $ 4.41 $ 3.38

Net income $ 1.32 $ 0.79 $ 4.41 $ 3.54

Diluted earnings per share

Income before cumulative effect of change in accounting policy $ 1.29 $ 0.78 $ 4.34 $ 3.33

Net income $ 1.29 $ 0.78 $ 4.34 $ 3.49

Weighted-average number of shares

Basic 285.1 283.9 285.1 286.8

Diluted 290.7 288.1 289.9 290.7 --------------------------------------------------------------------- ---------------------------------------------------------------------

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, 2004 and December 31, 2003, its results of operations, changes in shareholders' equity and cash flows for the three months and year ended December 31, 2004 and 2003. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2004 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and Management's Discussion and Analysis (MD&A).

(1) Includes GLT and BC Rail from May 10, 2004 and July 14, 2004, respectively.

(2) All share and per share data has been adjusted to reflect the three-for-two common stock split approved by the Board of Directors on January 27, 2004.

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

Three months ended Year ended December 31 December 31 -------------------- ------------------- Variance Variance 2004(1) 2003 Fav 2004(1) 2003 Fav (Unfav) (Unfav) -------------------------------------------------------------------- (Unaudited)

Revenues

Petroleum and chemicals $ 283 $ 260 9% $ 1,123 $ 1,058 6% Metals and minerals 192 140 37% 713 527 35% Forest products 387 318 22% 1,452 1,284 13% Coal 72 60 20% 284 261 9% Grain and fertilizers 297 283 5% 1,053 938 12% Intermodal 300 267 12% 1,117 1,101 1% Automotive 125 136 (8%) 510 525 (3%) Other items 80 48 67% 296 190 56% -------------------------------------- ------------- 1,736 1,512 15% 6,548 5,884 11%

Operating expenses

Labor and fringe benefits 469 415 (13%) 1,819 1,698 (7%) Purchased services and material 185 174 (6%) 746 703 (6%) Depreciation and amortization 153 136 (13%) 598 554 (8%) Fuel 151 117 (29%) 528 469 (13%) Equipment rents 49 65 25% 244 293 17% Casualty and other 122 93 (31%) 445 390 (14%) -------------------------------------- ------------- 1,129 1,000 (13%) 4,380 4,107 (7%) -------------------------------------- -------------

Operating income $ 607 $ 512 19% $ 2,168 $ 1,777 22% --------------------------------------------------------------------- ---------------------------------------------------------------------

Operating ratio 65.0% 66.1% 1.1 66.9% 69.8% 2.9 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Includes GLT and BC Rail from May 10, 2004 and July 14, 2004, respectively.

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

December 31 December 31 2004 2003 ---------------------------------------------------------------------

Assets

Current assets: Cash and cash equivalents $ 147 $ 130 Accounts receivable 793 529 Material and supplies 127 120 Deferred income taxes 364 125 Other 279 223 --------------------------------------------------------------------- 1,710 1,127

Properties 19,715 18,305 Intangible and other assets 940 905 ---------------------------------------------------------------------

Total assets $ 22,365 $ 20,337 --------------------------------------------------------------------- ---------------------------------------------------------------------

Liabilities and shareholders' equity

Current liabilities: Accounts payable and accrued charges $ 1,605 $ 1,421 Current portion of long-term debt 578 483 Other 76 73 --------------------------------------------------------------------- 2,259 1,977

Deferred income taxes 4,723 4,550 Other liabilities and deferred credits 1,513 1,203 Long-term debt 4,586 4,175

Shareholders' equity: Common shares 4,706 4,664 Accumulated other comprehensive loss (148) (129) Retained earnings 4,726 3,897 --------------------------------------------------------------------- 9,284 8,432 ---------------------------------------------------------------------

Total liabilities and shareholders' equity $ 22,365 $ 20,337 --------------------------------------------------------------------- ---------------------------------------------------------------------

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, 2004 and December 31, 2003, its results of operations, changes in shareholders' equity and cash flows for the three months and year ended December 31, 2004 and 2003. These consolidated financial statements have been prepared using accounting policies consistent with those used in preparing the Company's 2004 Annual Consolidated Financial Statements and should be read in conjunction with such statements, notes thereto and MD&A.

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 ------------------ --------------- 2004(1) 2003 2004(1) 2003 --------------------------------------------------------------------- (Unaudited)

Common shares (2)

Balance, beginning of period $ 4,742 $ 4,642 $ 4,664 $ 4,785

Stock options exercised and other 30 22 108 122

Share repurchase program (3) (66) - (66) (243) --------------------------------------------------------------------- Balance, end of period $ 4,706 $ 4,664 $ 4,706 $ 4,664 --------------------------------------------------------------------- ---------------------------------------------------------------------

Accumulated other comprehensive income (loss)

Balance, beginning of period $ (57) $ (116) $ (129) $ 97

Other comprehensive income (loss):

Unrealized foreign exchange gain on translation of U.S. dollar denominated long-term debt designated as a hedge of the net investment in U.S. subsidiaries 217 165 326 754

Unrealized foreign exchange loss on translation of the net investment in foreign operations (302) (203) (428) (1,101)

Unrealized holding gain (loss) on fuel derivative instruments (58) 14 54 8

Realized gain on settlement of interest rate swaps - - 12 -

Minimum pension liability adjustment 8 7 8 7

Deferred income tax rate enactment - (2) - (2) --------------------------------------------------------------------- Other comprehensive loss before income taxes (135) (19) (28) (334)

Income tax recovery 44 6 9 108 --------------------------------------------------------------------- Other comprehensive loss (91) (13) (19) (226) --------------------------------------------------------------------- Balance, end of period $ (148) $ (129) $ (148) $ (129) --------------------------------------------------------------------- ---------------------------------------------------------------------

Retained earnings

Balance, beginning of period $ 4,612 $ 3,720 $ 3,897 $ 3,487

Net income 376 224 1,258 1,014

Share repurchase program (3) (207) - (207) (413)

Dividends (55) (47) (222) (191) --------------------------------------------------------------------- Balance, end of period $ 4,726 $ 3,897 $ 4,726 $ 3,897 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Includes GLT and BC Rail from May 10, 2004 and July 14, 2004, respectively.

(2) For the three months and year ended December 31, 2004, the Company issued 0.7 million and 2.9 million common shares, respectively, as a result of stock options exercised. At December 31, 2004, the Company had 283.1 million common shares outstanding.

(3) As at December 31, 2004, under the Company's current share repurchase program, 4.0 million common shares have been repurchased for $273 million, at an average price of $68.31 per share.

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

Three months ended Year ended December 31 December 31 ------------------ --------------- 2004(1) 2003 2004(1) 2003 --------------------------------------------------------------------- (Unaudited)

Operating activities

Net income $ 376 $ 224 $ 1,258 $ 1,014 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 154 138 602 560 Deferred income taxes 66 189 366 411 Equity in earnings of English Welsh and Scottish Railway (3) 3 4 (17) Cumulative effect of change in accounting policy - - - (48) Other changes in: Accounts receivable (93) 34 (233) 153 Material and supplies 18 24 10 (3) Accounts payable and accrued charges 115 9 5 (96) Other net current assets and liabilities (24) (27) 21 (29) Other 79 (6) 106 31 --------------------------------------------------------------------- Cash provided from operating activities 688 588 2,139 1,976 ---------------------------------------------------------------------

Investing activities

Net additions to properties (365) (347) (1,072) (1,043) Acquisition of BC Rail - - (984) - Acquisition of GLT - - (547) - Other, net 23 (27) 192 (32) --------------------------------------------------------------------- Cash used by investing activities (342) (374) (2,411) (1,075) ---------------------------------------------------------------------

Dividends paid (55) (47) (222) (191)

Financing activities

Issuance of long-term debt 1,353 1,380 8,277 4,109 Reduction of long-term debt (1,381) (1,553) (7,579) (4,141) Issuance of common shares 25 14 86 83 Repurchase of common shares (273) - (273) (656) --------------------------------------------------------------------- Cash provided from (used by) financing activities (276) (159) 511 (605) ---------------------------------------------------------------------

Net increase in cash and cash equivalents 15 8 17 105

Cash and cash equivalents, beginning of period 132 122 130 25 --------------------------------------------------------------------- Cash and cash equivalents, end of period $ 147 $ 130 $ 147 $ 130 --------------------------------------------------------------------- ---------------------------------------------------------------------

Supplemental cash flow information Net cash receipts from customers and other $ 1,740 $ 1,375 $ 6,501 $ 6,022 Net cash payments for: Employee services, suppliers and other expenses (882) (574) (3,628) (3,262) Interest (83) (82) (282) (325) Workforce reductions (12) (34) (93) (155) Personal injury and other claims (28) (35) (106) (126) Pensions (34) (46) (161) (92) Income taxes (13) (16) (92) (86) --------------------------------------------------------------------- Cash provided from operating activities $ 688 $ 588 $ 2,139 $ 1,976 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Includes GLT and BC Rail from May 10, 2004 and July 14, 2004, respectively.

CANADIAN NATIONAL RAILWAY COMPANY SELECTED RAILROAD STATISTICS --------------------------------------------------------------------- ---------------------------------------------------------------------

Three months ended Year ended December 31 December 31 ------------------ --------------- 2004(1) 2003 2004(1) 2003 --------------------------------------------------------------------- (Unaudited)

Statistical operating data

Freight revenues ($ millions) 1,656 1,464 6,252 5,694 Gross ton miles (GTM) (millions) 88,636 83,600 332,807 313,593 Revenue ton miles (RTM) (millions) 46,215 43,840 175,355 162,901 Carloads (thousands) 1,260 1,064 4,654 4,177 Route miles (includes Canada and the U.S.) 19,304 17,544 19,304 17,544 Employees (end of period) 22,679 21,489 22,679 21,489 Employees (average during period) 23,043 21,918 22,470 22,012 ---------------------------------------------------------------------

Productivity

Operating ratio (%) 65.0 66.1 66.9 69.8 Freight revenue per RTM (cents) 3.58 3.34 3.57 3.50 Freight revenue per carload ($) 1,314 1,376 1,343 1,363 Operating expenses per GTM (cents) 1.27 1.20 1.32 1.31 Labor and fringe benefits expense per GTM (cents) 0.53 0.50 0.55 0.54 GTMs per average number of employees (thousands) 3,847 3,814 14,811 14,246 Diesel fuel consumed (U.S. gallons in millions) 103 99 391 374 Average fuel price ($/U.S. gallon) 1.43 1.12 1.30 1.21 GTMs per U.S. gallon of fuel consumed 861 844 851 838 ---------------------------------------------------------------------

Safety indicators

Injury frequency rate per 200,000 person hours 2.3 2.4 2.6 2.9 Accident rate per million train miles 1.7 2.1 1.6 2.0 ---------------------------------------------------------------------

Financial ratios

Debt to total capitalization ratio (% at end of period) 35.7 35.6 35.7 35.6 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Includes GLT and BC Rail from May 10, 2004 and July 14, 2004, respectively.

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

CANADIAN NATIONAL RAILWAY COMPANY SUPPLEMENTARY INFORMATION --------------------------------------------------------------------- ---------------------------------------------------------------------

Three months ended Year ended December 31 December 31 -------------------- ------------------- Variance Variance 2004(1) 2003 Fav 2004(1) 2003 Fav (Unfav) (Unfav) -------------------------------------------------------------------- (Unaudited)

Revenue ton miles (millions)

Petroleum and chemicals 8,344 7,968 5% 32,618 30,901 6% Metals and minerals 4,089 3,792 8% 16,421 13,876 18% Forest products 9,949 8,810 13% 38,414 34,516 11% Coal 3,534 3,254 9% 13,614 13,659 - Grain and fertilizers 11,272 11,339 (1%) 39,965 35,556 12% Intermodal 8,185 7,832 5% 31,002 31,168 (1%) Automotive 842 845 - 3,321 3,225 3% --------------------------------------- --------------- 46,215 43,840 5% 175,355 162,901 8%

Freight revenue / RTM (cents)

Total freight revenue per RTM 3.58 3.34 7% 3.57 3.50 2% Commodity groups: Petroleum and chemicals 3.39 3.26 4% 3.44 3.42 1% Metals and minerals 4.70 3.69 27% 4.34 3.80 14% Forest products 3.89 3.61 8% 3.78 3.72 2% Coal 2.04 1.84 11% 2.09 1.91 9% Grain and fertilizers 2.63 2.50 5% 2.63 2.64 - Intermodal 3.67 3.41 8% 3.60 3.53 2% Automotive 14.85 16.09 (8%) 15.36 16.28 (6%) --------------------------------------- --------------

Carloads (thousands)

Petroleum and chemicals 161 155 4% 637 604 5% Metals and minerals 257 99 160% 809 396 104% Forest products 175 148 18% 653 594 10% Coal 122 111 10% 486 471 3% Grain and fertilizers 156 159 (2%) 572 548 4% Intermodal 314 313 - 1,202 1,276 (6%) Automotive 75 79 (5%) 295 288 2% --------------------------------------- -------------- 1,260 1,064 18% 4,654 4,177 11%

Freight revenue / carload (dollars)

Total freight revenue per carload 1,314 1,376 (5%) 1,343 1,363 (1%) Commodity groups: Petroleum and chemicals 1,758 1,677 5% 1,763 1,752 1% Metals and minerals 747 1,414 (47%) 881 1,331 (34%) Forest products 2,211 2,149 3% 2,224 2,162 3% Coal 590 541 9% 584 554 5% Grain and fertilizers 1,904 1,780 7% 1,841 1,712 8% Intermodal 955 853 12% 929 863 8% Automotive 1,667 1,722 (3%) 1,729 1,823 (5%) ------------------------------------------------------------------- -------------------------------------------------------------------

(1) Includes GLT and BC Rail from May 10, 2004 and July 14, 2004, respectively.

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

CANADIAN NATIONAL RAILWAY COMPANY SUPPLEMENTARY INFORMATION PROFORMA CONSOLIDATED STATEMENT OF INCOME (1) (U.S. GAAP) --------------------------------------------------------------------- --------------------------------------------------------------------- (In millions, except per share data) Three months ended Year --------------------------------- ended Septem- Decem- Decem- March 31 June 30 ber 30 ber 31 ber 31 2004 2004 2004 2004 2004 --------------------------------- ------ (Unaudited) (Unaudited)

Revenues Petroleum and chemicals $ 279 $ 287 $ 301 $ 283 $ 1,150 Metals and minerals 172 205 203 192 772 Forest products 356 401 409 387 1,553 Coal 71 77 71 72 291 Grain and fertilizers 257 272 232 297 1,058 Intermodal 228 287 302 300 1,117 Automotive 130 143 112 125 510 Other items 64 89 89 80 322 --------------------------------------------------------------------- 1,557 1,761 1,719 1,736 6,773

Operating expenses Labor and fringe benefits 463 494 469 469 1,895 Purchased services and material 216 196 191 185 788 Depreciation and amortization 154 158 153 153 618 Fuel 134 132 133 151 550 Equipment rents 60 62 63 49 234 Casualty and other 116 108 114 122 460 --------------------------------------------------------------------- 1,143 1,150 1,123 1,129 4,545

Operating income 414 611 596 607 2,228

Interest expense (93) (87) (82) (75) (337) Other income (loss) (12) (23) (9) 25 (19) --------------------------------------------------------------------- Income before income taxes 309 501 505 557 1,872

Income tax expense (98) (163) (158) (181) (600) ---------------------------------------------------------------------

Net income $ 211 $ 338 $ 347 $ 376 $ 1,272 --------------------------------------------------------------------- ---------------------------------------------------------------------

Operating ratio 73.4% 65.3% 65.3% 65.0% 67.1% --------------------------------------------------------------------- ---------------------------------------------------------------------

Diluted earnings per share $ 0.73 $ 1.17 $ 1.19 $ 1.29 $ 4.39

Diluted weighted- average number of shares 288.8 289.2 290.8 290.7 289.9 --------------------------------------------------------------------- ---------------------------------------------------------------------

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

CANADIAN NATIONAL RAILWAY COMPANY SUPPLEMENTARY PROFORMA INFORMATION (1) --------------------------------------------------------------------- ---------------------------------------------------------------------

Three months ended Year --------------------------------- ended Septem- Decem- Decem- March 31 June 30 ber 30 ber 31 ber 31 2004 2004 2004 2004 2004 --------------------------------- ------ (Unaudited) (Unaudited)

Revenue ton miles (millions)

Petroleum and chemicals 8,220 8,093 8,408 8,344 33,065 Metals and minerals 4,403 4,492 4,348 4,089 17,332 Forest products 9,422 10,198 10,595 9,949 40,164 Coal 3,457 3,427 3,256 3,534 13,674 Grain and fertilizers 10,053 10,001 8,796 11,272 40,122 Intermodal 6,990 7,737 8,090 8,185 31,002 Automotive 834 905 740 842 3,321 --------------------------------------------------------------------- 43,379 44,853 44,233 46,215 178,680

Freight revenue / RTM (cents)

Total freight revenue per RTM 3.44 3.73 3.69 3.58 3.61

Commodity groups: Petroleum and chemicals 3.39 3.55 3.58 3.39 3.48 Metals and minerals 3.91 4.56 4.67 4.70 4.45 Forest products 3.78 3.93 3.86 3.89 3.87 Coal 2.05 2.25 2.18 2.04 2.13 Grain and fertilizers 2.56 2.72 2.64 2.63 2.64 Intermodal 3.26 3.71 3.73 3.67 3.60 Automotive 15.59 15.80 15.14 14.85 15.36 ---------------------------------------------------------------------

Carloads (thousands)

Petroleum and chemicals 161 159 163 161 644 Metals and minerals 225 263 257 257 1,002 Forest products 172 177 180 175 704 Coal 128 125 121 122 496 Grain and fertilizers 143 143 132 156 574 Intermodal 260 313 314 314 1,201 Automotive 79 77 64 75 295 --------------------------------------------------------------------- 1,168 1,257 1,231 1,260 4,916

Freight revenue / carload (dollars)

Total freight revenue per carload 1,278 1,330 1,324 1,314 1,312

Commodity groups: Petroleum and chemicals 1,733 1,805 1,847 1,758 1,786 Metals and minerals 764 779 790 747 770 Forest products 2,070 2,266 2,272 2,211 2,206 Coal 555 616 587 590 587 Grain and fertilizers 1,797 1,902 1,758 1,904 1,843 Intermodal 877 917 962 955 930 Automotive 1,646 1,857 1,750 1,667 1,729 ---------------------------------------------------------------------

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

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

Adjusted performance measures The Company's results of operations include items affecting the comparability of results. Management believes that non-GAAP measures such as adjusted net income and the resulting adjusted performance measures for such items as operating income, operating ratio and per share data are useful measures of performance that can facilitate period-to-period comparisons as they exclude items that do not arise as part of the normal day-to-day operations or that could potentially distort the analysis of trends in business performance. The exclusion of specified items in the adjusted measures below does not imply that they 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 MD&A, Annual Consolidated Financial Statements and notes thereto.

The year ended December 31, 2003 included items impacting the comparability of the results of operations. The Company recorded a fourth quarter deferred income tax expense of $79 million resulting from the enactment of higher corporate tax rates in the province of Ontario. Also included in 2003 was a cumulative benefit of $75 million, $48 million after tax, resulting from a change in the accounting for removal costs for certain track structure assets pursuant to the requirements of Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations". The following table provides a reconciliation of adjusted net income (and resulting adjusted performance measures) to the Company's net income (and resulting performance measures) reported in accordance with U.S. GAAP.

Reconciliation of adjusted performance measures (In millions, except per share data) ---------------------------------------------------------------------

Three months ended December 31, 2003 ----------------------------- Rate Reported enactment Adjusted ----------------------------- Revenues $ 1,512 $ - $ 1,512 Operating expenses 1,000 - 1,000 ----------------------------- Operating income 512 - 512 ----------------------------- Interest expense (71) - (71) Other income 8 - 8 ----------------------------- Income before income taxes 449 - 449

Income tax expense (225) 79 (146) ----------------------------- Net income $ 224 $ 79 $ 303 ----------------------------- ----------------------------- Operating ratio 66.1% 66.1%

Basic earnings per share $ 0.79 $ 1.06 Diluted earnings per share $ 0.78 $ 1.05 -------------------------------------------------------------------- --------------------------------------------------------------------

Year ended December 31, 2003 ---------------------------------------- Change Rate Reported in policy enactment Adjusted ----------------------------------------

Revenues $ 5,884 $ - $ - $ 5,884 Operating expenses 4,107 - - 4,107 ----------------------------------------

Operating income 1,777 - - 1,777 ---------------------------------------- Interest expense (315) - - (315) Other income 21 - - 21 ---------------------------------------- Income before income taxes and cumulative effect of change in accounting policy 1,483 - - 1,483

Income tax expense (517) - 79 (438) ----------------------------------------- Income before cumulative effect of change in accounting policy 966 - 79 1,045 Cumulative effect of change in accounting policy, net of applicable taxes 48 (48) - - ---------------------------------------- Net income $ 1,014 $ (48) $ 79 $ 1,045 ---------------------------------------- ---------------------------------------- Operating ratio 69.8% 69.8%

Basic earnings per share $ 3.54 $ 3.65 Diluted earnings per share $ 3.49 $ 3.60 -------------------------------------------------------------------- --------------------------------------------------------------------

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

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Three months ended Year ended December 31 December 31 ------------------ -------------- In millions 2004 2003 2004 2003 ---------------------------------------------------------------------

Cash provided from operating activities $ 688 $ 588 $ 2,139 $ 1,976 Less: Investing activities (342) (374) (2,411) (1,075) Dividends paid (55) (47) (222) (191) --------------------------------------- Cash provided (used) before financing activities 291 167 (494) 710 --------------------------------------- --------------------------------------- Adjustments: Change in accounts receivable sold (20) (44) (12) (132) Acquisition of BC Rail - - 984 - Acquisition of GLT - - 547 - --------------------------------------- Free cash flow $ 271 $ 123 $ 1,025 $ 578 --------------------------------------------------------------------- ---------------------------------------------------------------------

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    Canadian National Railway Company (TSX:CNR) (NYSE:CNI)

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

KEYWORD: NEW YORK INTERNATIONAL CANADA INDUSTRY KEYWORD: TRANSPORTATION EARNINGS SOURCE: Canadian National Railway Company

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