- CN expects the Canadian-U.S. dollar exchange rate to be in the range of C$0.95-C$1, the price for crude oil (West Texas Intermediate) to be around US$90 per barrel, and North American economic growth to be approximately 1.7%. With this outlook, CN expects to take advantage of a number of opportunities and is targeting to deliver revenue growth in the range of six to eight per cent this year. With continued productivity improvements, the company expects 2008 earnings per share growth to be in the range of mid-to-high single digit, compared with adjusted EPS of C$3.40 in 2007, and 2008 free cash flow to be in the order of C$750 million.
- CN also 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.

Key questions from the fourth quarter earnings call conducted by Canadian National Railway Company on January 22, 2008.

William Green (Morgan Stanley): Given the volume growth one would have thought it would have been better in the fourth quarter, measured in carloads per employee. What your thoughts are there and how much better can it get?

E. Hunter Harrison: We have not been obsessed with the operating ratio; we are trying to grow this business. There are some initiatives we have got going on: one, the NCN Worldwide which is a startup business which we account for differently which show some deterioration. The biggest issue from those metrics that you are looking at is that when you lose the amount of lumber business that we had in Western Canada that was our largest segment which now has dropped down enough that grain in Canada and intermodal are larger than forest products. It effects the train productivity, it affects a lot of things, but we have not hit the ceiling as far as the ability to produce an improved productivity on our operating metrics.

Claude Mongeau: We have had an increase in our headcount for the reasons that we discussed on our third quarter call. Some of this is replenishing our crews in the West in particular, some of it is in sourcing, but the reality in terms of getting leverage, the beauty is when you have a better volume outlook going forward.

William Green (Morgan Stanley): Your outlook does not have a recession in your numbers. What you think this sensitivity would be if you had to move toward a more consensus view that there would be a recession?

Claude Mongeau: It seems the market was calling for a clear recession, today I think people are not sure anymore. That is the difficulty in the volatility that we see going forward. We have initiatives that are fully independent of the economy. Some of the bulk business out west, some of the initiatives we have to take in market share again, truck, etc. If there is a recession that will have an impact on our top line, but on balance that may also help with the exchange, it may also help with fuel price and who knows our focus will be on doing the best in those circumstances and rebound strong when the economy comes back.

Tom Wadewitz (JP Morgan): Can you give a sense of the stock base and the incentive comp that was paid out in 2007 and what that number might have looked like in 2006?

Claude Mongeau: 2006 was a stellar year so we blew the lights out, and we had the highest possible bonus as a team, 2007 was harder and in the end the Board recognized that and we did not get a bonus. Next year we are going to have to replenish, we are shooting for a stretch. That alone, having said this, might be an increase in terms of expenses in the range of $60 million, perhaps $65 million which about the benefit that we will get on pension because of the higher discount rate. The two of them offset and the real impact will be the stock based compensation that could be as things rebound and goes as one would expect, could be in a range of $40 million to $50 million increase.

Tom Wadewitz (JP Morgan): What is the $40 - $50 million increase?

Claude Mongeau: Broad base compensation, if the stock performs the way we would expect it based on expenses.

Tom Wadewitz (JP Morgan): You got a $60 to $65 million potential increase in incentive comp and then on top of that $40 or $50 million from stock base. Is that correct?

Claude Mongeau: That is correct, offset by a reduction in pension expense in the range of $60 to 70 million.

Tom Wadewitz (JP Morgan): Could you highlight some of the biggest productivity drivers and what the timing might be for when we would see an impact from some of those things in 2008, 2009?

E. Hunter Harrison: Three areas I will mention on a short term basis and one of a longer term nature. One is by year end we will have the new yard at Memphis fully implemented. Within the next two months we will be pulling out cars there which will have a positive impact on terminal expense at Battle Creek. The continuing initiative in taking advantage of the long siding program which is near completion, is 85% done, but it is just now fully kicking in. There is a lot of them going on in mechanical and smaller, but the largest one is where we are spending a lot of time and resources and that is with EJ&E transaction in Chicago.

Tom Wadewitz (JP Morgan): Where would Memphis and the long siding tend to show up in the P&L?

E. Hunter Harrison: It would not show up in equipment rents, it shows up in line of productivity predominantly the most of it. We have contracted in a lot of engineering work that we were doing our self which was one of the reasons that we developed a relationship that we were able to get an agreement quickly with the steel workers, and get 80% ratification for it. Then we talked about the replenishing of the predominantly older workforce and the overlap when we do the training, so that will wash itself. We have got new locomotives and we are starting to see the opportunity with the fuel productivity with the locomotive that will get better. To some degree it is just to take advantage of those opportunities when you look out here at 35 degree weather in Western Canada, 35 below in Western Canada and you have to run to adjust to the weather. Since we got the setback with 2007, We are back where we were prior to that and you will see the productivity metrics make a substantial move forward.

Edward Wolfe (Bear Stearns): Going forward you talk about 4% to 5% pricing. the reported yields for the quarter on a mixed adjusted basis are down 6%. What there is to FX, fuel, pricing and what is mixed?

James M. Foote: If you look at the quarter’s result and you adjust the volumes for this significant pickup in iron ore, our volumes in the quarter were relatively flat. If you look at the other business groups with forest products being down as much as it was, the other businesses did well. Then you add to that the prices impact in the quarter you will see that the prices are much in line with what we have been talking about in the past of around 4%. Going forward into 2008 we expect that trend to continue and would be higher than 4%.

Edward Wolfe (Bear Stearns): What areas make you confident it is going to be higher?