CN's Fourth-Quarter 1998 Net Income Rises to $182 Million, While 1998 Net Income Increases to $569 Million, Excluding Non-Recurring Items - Part 1 of 4 -.

MONTREAL--(BUSINESS WIRE)--Jan. 19, 1999--CN (ME:CNR.) (TSE:CNR.) (NYSE:CNI)

Part 1 of 4 - More Text & Financial Tables Will Follow

Favorable fourth-quarter, full-year results reflect continued focus on costs, productivity and introduction of comprehensive service

plan

Canadian National today reported fourth-quarter net income of $182 million, compared with net income of $95 million for the comparable period of 1997. CN reduced operating expenses by 11 per cent during the final quarter of 1998 in response to a five per cent reduction in carloads and a five per cent revenue decline.

Diluted earnings per share for the fourth quarter of 1998 were $1.88, compared with $1.10 ($1.29 for continuing operations) for the comparable period of 1997.

CN's 1997 fourth-quarter results included an after-tax loss of $16 million from discontinued operations at a subsidiary company. Excluding the loss, CN's income from continuing operations for the final quarter of 1997 was $111 million.

Operating income for the most recent quarter increased 19 per cent to $293 million from $246 million for the fourth quarter of 1997. CN's operating ratio for fourth-quarter 1998 was 72.5 per cent, an improvement of 5.5 points over the performance of 78 per cent for the final quarter of 1997.

CN President and Chief Executive Officer Paul M. Tellier said: "We are satisfied with the fourth-quarter 1998 results, as well as with the performance

for the year, given a challenging environment where grain volumes declined significantly and key customers were affected by work stoppages.

"Successful cost management and initiatives to boost productivity - particularly the introduction last fall of a comprehensive service plan focused on producing a more scheduled, efficient and accountable rail service for customers - all contributed to favorable fourth-quarter results in the face of soft revenue.

"The ability to adjust costs quickly, as demonstrated by CN during the quarter and throughout 1998, has enabled the Company to break decisively from the past. Today, we are equipped to generate acceptable returns, whatever the economic environment, in order to protect the interests of our customers, employees and shareholders."

Tellier said CN's 1998 safety record was exemplary, with the railroad's accident ratio and injury frequency rate improving substantially.

"Looking forward, CN is determined to meet its customer commitments - doing what we say we'll do. We will also manage assets effectively, control costs and increase revenue. Generating new business is a priority, as is maintaining a safe railroad."

For the fourth quarter of 1998, CN's equity in the earnings of Illinois Central Corporation (IC), less after-tax interest costs associated with the acquisition of IC, increased CN's net income by $15 million. The U.S. Surface Transportation Board is scheduled to vote on the CN/IC transaction in late March 1999, with a written decision reflecting the March vote expected in late May.

CN's operating expenses for the fourth quarter of 1998 declined by 11 per cent to $772 million from $872 million a year earlier, owing largely to lower expenses for material, fuel, freight car leasing and purchased services.

Revenue for the final quarter of 1998 declined five per cent to $1,065 million from $1,118 million for the comparable quarter of 1997. Forest products revenue rose by five per cent, while automotive revenue was flat. Four business units posted revenue declines: grain and grain products (23 per cent), industrial products (four per cent), coal, sulphur, and fertilizers (three per cent) and intermodal (three per cent).

Carloads for the most recent quarter declined five per cent to 629 thousand from 664 thousand for the year-earlier period.

Net income for full-year 1998 was $569 million, excluding a third-quarter pre-tax special charge of $590 million ($345 million, after tax) for workforce reductions, and $42-million cumulative effect of change in accounting policy for pensions. Including the special charge and accounting policy change, net income for 1998 was $266 million.

For 1997, CN recorded net income of $439 million, excluding $589- million cumulative effect of change in accounting policy for track replacement costs, and pre-tax gain of $21 million ($12 million, after tax) related to the sale of the Company's interest in a joint venture. Including these non-recurring items, CN reported net income of $1,040 million for 1997.

The 1997 results included an after-tax loss of $18 million from discontinued operations. Excluding non-recurring items, income from continuing operations for 1997 was $457 million.

Diluted earnings per share for 1998, excluding the special charge and accounting policy change, were $6.16. Including these non- recurring items, diluted earnings per share were $2.88 for 1998.

Excluding non-recurring items, diluted earnings per share for 1997 were $5.09 ($5.31 for continuing operations). Including these items, diluted earnings per share were $12.06.

CN's equity in the earnings of IC, net of after-tax interest costs associated with the IC acquisition, increased 1998-net income by $37 million.

Excluding the special charge, operating income for 1998 was $1,008 million, an increase of nine per cent over operating income of $927 million for 1997. Including the special charge, 1998-operating income was $418 million.

CN's operating ratio for 1998, excluding the special charge, was 75.5 per cent, an improvement of 3.1 points over the 1997 performance of 78.6 per cent.

Excluding the special charge, operating expenses for 1998 declined eight per cent to $3,113 million from $3,395 million for 1997.

Revenue for 1998 declined five per cent to $4,121 million from $4,322 million for 1997. Revenue for forest products increased three per cent, while industrial products revenue grew by one per cent. Four business units reported declines in revenue: grain and grain products (20 per cent), automotive (11 per cent), coal, sulphur, and fertilizers (three per cent) and intermodal (two per cent).

Carloads for 1998 were 2,456 thousand, down four per cent from 2,547 thousand for 1997.

Canadian National Railway Company serves all of Canada and the U.S. Midwest, including the ports of Vancouver, Montreal and Halifax, and the key cities of Toronto, Chicago, Detroit and Buffalo, with connections to all points in North America.