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Canadian National Railway Company (NYSE:CNI)

18th Annual Meeting of Shareholders

April 23, 2013 11:30 am ET

Executives

David G. A. McLean - Independent Chairman, Member of Corporate Governance & Nominating Committee, Member of Human Resources & Compensation Committee, Member of Strategic Planning Committee, Member of Donations & Sponsorships Committee, Member of Finance Committee and Member of Investment Committee of CN’s Pension Trust Funds

Sean Finn - Chief Legal Officer, Executive Vice-President of Corporate Services and Corporate Secretary

Denis Losier - Independent Director, Chairman of Audit Committee, Member of Human Resources & Compensation Committee, Member of Environment, Safety & Security Committee, Member of Donations & Sponsorships Committee and Member of Strategic Planning Committee

Claude Mongeau - Chief Executive Officer, President, Director, Chairman of Donations & Sponsorships Committee and Member of Strategic Planning Committee

Luc Jobin - Chief Financial Officer and Executive Vice-President

David G. A. McLean

My name is David McLean, and I'm CN's Chairman of the Board. It's a great pleasure to welcome our shareholders, our employees and our guests in Edmonton, Alberta, to this, our 18th Annual Meeting of Shareholders. It has been our custom to hold our annual meetings in cities across CN's North American network, and we're delighted to be with you today in Edmonton. [French]

CN's had long ties to its predecessor companies. The Canadian Northern mainline reached Edmonton in 1905, which was the date that you formed your province, with the mainline and the Grand Trunk Pacific reaching here 4 years later. It was the Grand Trunk Pacific that built the hotel in which we're holding today's meeting, the Hotel Macdonald, which opened in 1915. Soon afterwards, both the Canadian Northern and the Grand Trunk Pacific became components of the then newly formed Canadian National Railway, and the hotel's ownership eventually passed on to other hands.

Today, CN maintains its significant presence in Edmonton. We employ 1,800 railroaders here at a range of facilities, including our Walker freight yard and our classification operation and CN's network operation center, our Edmonton intermodal terminal, an automotive distribution facility and various freight transloading and materials distribution operations.

CN has invested significantly in Northern Alberta in response to strong traffic growth. We purchased and upgraded 4 shortline railways, serving the resort-rich areas of Northern Alberta at a cost of roughly $400 million. And we spent major sums laying double track on our high-end volume mainline east of Edmonton, adding new capacity to our rail line to the oil sands region of Northern Alberta and improving productivity at Walker Yard. Clearly, CN has stepped up to the plate to drive new capacity and efficiencies to help its customers be more competitive in their markets at home. And matter of fact, the board yesterday discussed at length additional capital expenses that will improve the mainline between Edmonton and Winnipeg. We are constantly upgrading them.

I'm now pleased to call to order the Annual Meeting of Shareholders of the meeting of Canadian National Railway Company. Before we begin with the business of the meeting, I would ask Sean Finn, our Executive Vice President, Corporate Services and our Chief Legal Officer, to give a safety briefing for this meeting. Sean?

Sean Finn

Thank you, Chairman. Good morning. At CN, every work assignment begins with a safety briefing. This morning is no exception. Allow me to take a few moments to review the safety procedures of Macdonald Hotel. This room is equipped with a audible fire alarm system. The alarm consist of a slow and consistent warning signal, followed by a message providing directions.

In case of evacuation, we ask that you follow the hotels staff outside and regroup at the park in front of the hotel. To exit this room, there are 2 exits that can be used, the main doors to your left, which you came in, and exit doors to your right that leads directly outside to the park. Should we need to evacuate through the main doors, turn left after exiting and then right towards the exit. Fire extinguishers are located near the emergency exits of this room.

In the event of a medical emergency, Dean Sullivan [ph], where's Dean, stand up, is a qualified first aid medical responder and Bennuat Tasey [ph] has been designated to call 911. Ben Tasey? There he is. Thank you very much. [French]

Have a good meeting.

David G. A. McLean

As Sean mentioned, every work assignment in CN begins with a safety briefing. Nothing is more important to us at CN than creating a safe place to work. The safety of the men and women who work for CN is of paramount importance to us as a company. We devote significant effort and resources to ensuring a safe environment and a culture that minimizes work-related injuries. The goal, of course, is to eliminate work-related risks altogether.

Through technology, employee education, and the insistence of a safety mindset throughout the company, we work diligently each year to improve our results. CN's significant and ongoing investments in its training programs and its new state-of-the-art training facilities are designed to strengthen CN's safety culture and prepare a new generation of safety conscious railroaders. In spite of our best efforts, however, it saddens me to report that 2 of our employees have died in the service of our company since our last meeting. Please rise and join me for a moment of silence. For Bryan Giesbrecht, British Columbia; and Fernando Borges, Alberta. Thank you.

I would now like to introduce the senior officers of CN who are present on the stage today. On my far right is Luc Jobin, Executive Vice President and Chief Financial Officer of the company. Next to Mr. Jobin is Claude Mongeau, President and Chief Executive Officer of the company. Next to Mr. Mongeau is Sean Finn, Executive Vice President, Corporate Services and Chief Legal Officer and Corporate Secretary of the company. I will act as Chairman of the meeting and Mr. Sean Finn will act as Secretary of the meeting.

During the meeting, I will entertain questions relating to a specific motion after that motion has been moved and properly seconded, but before the vote on that motion takes place. Please keep your questions as short as possible and focus on the business before the meeting. If you have questions or motions, please use the floor microphones when addressing the meeting. Also -- and there are 2 microphones, #1 and #2. Also, identify yourself and state whether you are a shareholder or a proxy holder.

There will also be 2 short presentations. Claude Mongeau will give the President's address, and Luc Jobin will outline the highlights of CN's financial performance for the previous year. After Luc's remarks, we will welcome your general questions.

On behalf of the board and the company, we would like to thank the shareholders who submitted their proxies in advance of the meeting. Of course, only registered shareholders or their proxy holders are entitled to take an active part in or vote at the meeting. To move the meeting along, a number of shareholders have already agreed to move and second formal motions, and I will call upon them at the appropriate times.

We will conduct a ballot on the election of directors and the nonbinding advisory resolution on the company's approach to executive compensation. I will explain the procedure to be followed at the appropriate time. Regarding the nomination of auditors, we will proceed on this motion by a show of hands.

Corporate Secretary of the company has advised me that the notice calling these meeting and the accompanying information circular, formal proxy and the annual report were mailed starting on March 22, 2013, to holders of common shares at the close of business on March 6, 2013, which is known as the record date. A copy of the confirmation of mailing of such documents has been filed with me for inclusion with minutes of this meeting.

With your agreement, I will appoint Mark Thompson and Christopher Parsons of Computershare Trust Company of Canada, the transfer agent for CN's common shares, to act as scrutineers of the meeting. I see no great rebellion on that point, so I gather they're appointed.

I have been advised by the scrutineers that on the basis of proxies received prior to the meeting and the shareholders and proxy holders attending this meeting, there is a quorum present. I, therefore, declare that the meeting has been regularly called and properly constituted for the transaction of business.

The next item of business is submission of the financial statements of the company. The annual report of the company, which contains the comparative consolidated financial statements of the company and all its subsidiaries at December 31, 2012, together with the auditors and the company's management discussion and analysis, has been mailed to shareholders of the company who have requested it. Copies remain available to you this morning in the adjacent room.

There is no formal action required to be taken with regard to this item on the agenda. However, as I previously mentioned, Luc Jobin, our Executive Vice President and Chief Financial Officer, will be delivering a report on the financial statements later this morning.

We will now proceed with the election of directors. According to a resolution of the board, 13 directors are to be elected. Information regarding the nominees proposed by management is set out in the management information circular sent to all shareholders.

I would now ask Sean Finn, Corporate Secretary of the company, to read the names of those nominated for election as directors in the management information circular.

Sean Finn

Mr. Chairman, the following individuals are nominated for election as directors of Canadian National Railway Company: Michael Armellino, Charles Baillie, Hugh Bolton, Donald Carty, Ambassador Gordon Giffin, Edith Holiday, Maureen Kempston Darkes, The Honorable Denis Losier, The Honorable Edward Lumley, David McLean, Claude Mongeau, James O'Connor and Robert Pace.

David G. A. McLean

Thank you, Sean. I'll ask Stephanie Miller [ph] to nominate the directors.

Unknown Shareholder

Mr. Chairman, my name is Stephanie Miller. I am a shareholder of the company, and I'm pleased to nominate each of the persons named by the secretary of the meeting to be elected as a director to hold office until the next Annual Meeting of Shareholders or until his or her successor is duly elected or appointed.

David G. A. McLean

Thank you, Stephanie. Ken Elmer [ph], will you second the nominations?

Unknown Shareholder

Mr. Chairman, my name is Ken Elmer, and I'm a shareholder of the company. And I second the nomination.

David G. A. McLean

Thank you, Ken. As there are no further nominations, I declare the nominations closed. Pursuant to a resolution adopted by the Board of Directors, 13 directors are to be elected and 13 eligible candidates have been nominated. I now direct that the ballot be taken on the motion to elect the directors.

The names of 13 management nominees for election of directors is set out on the ballot. You should mark the ballot opposite the names of each of the persons for whom you wish to vote and complete the form. Please sign and print your name in the places indicated in the bottom of the ballot and indicate the total number of shares that you're entitled to vote as a registered shareholder and/or proxy holder. The Board of Directors recommend voting for the election of each nominee.

Many shareholders that are present have already filed proxies with us. These shareholders should not complete the ballot since their shares will be voted in accordance with the instructions contained in the proxies granted to their proxy holders. Registered shareholders who have not sent in their proxies and proxy holders who are present have received a ballot at the registration desk. It is included in the agenda package handed to you.

If you are entitled to vote today but have not received a ballot, raise your hand so that the scrutineers may provide you with a ballot form. Please hold on to the ballot forms. We will collect them after the ballot on the advisory board on -- vote on executive compensation.

We will now proceed with the appointment of auditors. I would like to call upon Denis Losier, the Chairman the Audit Committee of the board, to present the motion to appoint the auditors of the company.

Denis Losier

Mr. Chairman, my name is Denis Losier, and I'm a shareholder of the company. I move that KPMG LLP Chartered Accountants, the appointed auditors of the company, to hold office for the fiscal year 2013 or until the close of the next Annual Meeting of Shareholders.

David G. A. McLean

Thank you, Denis. Paul Butcher, would you please second the motion?

Paul Butcher

Mr. Chairman, my name is Paul Butcher. I am a shareholder of the company, and I second the motion.

David G. A. McLean

Thank you, Paul. All those in favor of the motion, please do by raising your hand.

[Voting]

All those opposed?

[Voting]

Seeing no one opposed, I declare that KPMG LLP Chartered Accountants have been appointed as the auditors of the company to hold the office for the fiscal year 2013 or until the close of the next Annual Meeting of Shareholders.

The next item on the agenda is the consideration of the nonbinding advisory resolution on the company's approach to executive compensation. The statement of executive compensation section in the company's information circular was sent to shareholders and discloses in detail our approach.

The results of the vote will not be binding on the board. However, the board will take into account the results of the vote, together with other pertinent information or comments from shareholders when considering the company's approach to executive compensation.

I will ask Jody Evely to present the motion. Jody?

Jody Evely

Mr. Chairman, my name is Jody Evely. I'm a shareholder of the company. I move that nonbinding advisory resolution on the company's approach to executive compensation, as set out on Page 6 of the management's information circular, be approved.

David G. A. McLean

Thank you, Jody. Carol Cusano [ph], would you second the motion?

Unknown Shareholder

Mr. Chairman, my name is Carol Cusano. I'm a shareholder for the company, and I second that motion.

David G. A. McLean

Thank you, Carol. I direct that the ballot be taken on the motion to adopt the nonbinding advisory resolution of the company's approach to executive compensation.

You should sign and print your name on -- in the places indicated at the bottom of the ballot. Please indicate the total number of shares that you're entitled to vote as a registered shareholder and/or a proxy holder. You're asked to either vote for or against the motion. The Board of Directors recommends voting for the motion.

When your ballot form is completed, hand it together with the ballot on the election of directors to the nearest attendant. We will now proceed the -- to vote.

This is the point where I do the soft-shoe and entertain you while we're voting. Unfortunately, I -- it's been long time since I did the soft-shoe, so I think I'm just going to sit here and tell stories.

[Voting]

Are there any more ballots to be collected?

We do have numerous proxies that have been -- it's not like people are not interested in what's going on here. It's that a lot of institutional shareholders, particularly, vote by proxy.

Any further ballots?

I'll call once more. Any further ballots to be collected?

Okay. I think we've given people ample time to vote.

While the scrutineers are tabulating the ballots, we will continue with the meeting. We do not have any other business to bring before the meeting. So we now move to the next item, which is our Chief Executive Officer's presentation and address.

2012 was a record year for CN on many fronts. Thanks to the company's agenda of operational and service excellence, our focus on supply chain collaboration and solid execution, CN's 2012 growth continued to outpace that -- I'm sorry, continued to outpace that of the overall economy, generating the highest volumes and earnings in the company's history. Claude Mongeau made significant contributions to our success helping the team, drive the major gains and service, safety and asset utilization, achieve superior growth through share gains through a range of existing markets and new ones and open new markets with breakthrough opportunities and build stronger ties with our employees and key stakeholders.

Claude, I call upon you now to address the shareholders about our substantial 2012 successes and to talk about the next steps in CN's remarkable transformational journey. Claude?

Claude Mongeau

Thank you, David, and thank you to all to be here at our Annual General Meeting in Edmonton. [French]

It's very fitting that we would be here in Edmonton for that AGM. Edmonton is the base of our operating network. We have here all of the people who, day in and day out, manage the network function and try to ensure smooth service, efficient service across North America.

It's also the home base for our western region. Mike Cory, who leads our western region, is based here in Edmonton with his team. And they oversee the activity of about half of our business volume. That's a high concentration of business going both for exports, rest of Canada and deep into the U.S.

I wanted to spend a moment to talk to you about what CN stands for. Luc will give you a more detailed report of our financial performance and some of our initiatives in 2012. But I thought it would be a good idea to step back and tell you what makes CN tick, what do we stand for and why do we believe that we have a bright future in this business.

As you know, our mantra, our core philosophy is about delivering operational and service excellence. It's a balancing act. It's about both operating efficiency and quality service for our customers. It's about both inside-out management of the core metrics to sweat the assets and outside-in perspective on what it is that we need to do to help our customers win in their marketplace.

We are truly trying to become a true supply chain enabler. We are a railroad, first and foremost, but we want to be a true supply chain enabler. We can play a role in the middle of it all, helping partners in the transportation chains, whether it's for bulk, intermodal or general carload traffic, have better end-to-end service experience.

Now these last 3 months, we were tested, particularly here in Western Canada. Mike and his team, and I see some of them in this room, have been fighting the battle of a very difficult winter for many months. It extended much longer than usual, and it was harsher than the norm, even for Canadian winters. Now, of course, in those kinds of circumstances, our service was impacted. Our network efficiency was also impacted. So our ability to deliver the balance between operational and service excellence was tested.

We are coming out of it. It is spring in Edmonton. It is a sunny day. There's only a little bit of snow on the ground. And we are, as we speak, recovering our fluidity and getting our service back where it needs to be, to help our customers meet their demand in their own markets. We are truly supply chain enabler, and we are going to learn from our difficulties over the last few months to come back even stronger next winter.

We do this because, first and foremost, we want to create value for our customers. We are a service business. At the end of the day, we can only move what our customers produce. This is why an outside-in perspective is important. This is why end-to-end supply chain thinking is critical, and this is why we believe firmly that we have the right agenda to help our customers win in the marketplace.

And as we do this, because we are such an important part of the infrastructure in both Canada and the U.S., our network goes from Vancouver to Halifax, all the way to New Orleans. We truly believe that we are a backbone to the economy. We touch, on an ongoing basis, more than $250 billion of goods in any given years. We connect North America to the rest of the world. We connect Canada in the U.S. on a northbound and southbound basis, and we connect Canadians and Americans all over our network.

And that role we take seriously. We think we play it very well, and we are determined to continue to improve. Part of that improvement path is to deliver responsibly and safely. Safety is the cornerstone of our business. Safety makes good business sense, delivering responsibly, having a clear sustainability agenda is essential for your social license and the connection to the communities we touch across the country.

We believe we are at the forefront of most companies in that agenda. We are more fuel efficient of the rest of the industry by about 15%. We care about a clean right-of-way approach. We focus on connecting with the communities that we touch, and we support our employees in their efforts wherever they decide to champion causes. Delivering safely and responsibly is more than just a statement for the AGM, it's the way we do business at CN.

At the end of the day, if you stand for the right principles and if you do, day in, day out, what I just described, you create the conditions for solid shareholder value creation. That's what business is all about. That's what CN is known for. And I am convinced that we have the right approach, the right assets, the right people, and we'll continue for many, many years to deliver solid shareholder value. Thank you.

David G. A. McLean

Thank you, Claude. Now our CFO's presentation. CN's overall corporate performance for 2012 was in the best -- was the best in the company's history, with financial results exceeding targets through all corporate performance objectives. Revenues increased by 10%. Adjusted diluted earnings per share rose by 16%. And free cash flow, which is my favorite item, topped $1 billion. This was, indeed, a remarkable achievement.

I now call upon Luc Jobin, CN's Chief -- CN's Executive Vice President, Chief Financial Officer, to discuss CN's 2012 financial performance. Luc?

Luc Jobin

Thank you, David. I would also like to thank CN's shareholder for joining us this morning here in Edmonton and via webcast. It is my pleasure to be here today and to present my report at the Annual General Meeting of CN's shareholders, so let me get right to it.

2012 was record year for CN. A record year in terms of volumes, earnings and safety. Claude has just reviewed with you how CN's strategic agenda is gaining momentum by balancing operational and service excellence as we deepen our supply chain approach. Through continuous service innovation and our supply chain partnerships, we're helping our customers win in their markets, which, in turn, is allowing us to grow faster than the economy.

We remain focused on the delicate balancing act involved in continuing to drive the operational efficiency while improving service excellence. This is the formula that allows us to accommodate revenue growth at low incremental costs. The net result, as we can see from our performance, not only delivers value to our customers, but it also rewards our shareholders.

Clearly, the company's stellar financial results this past year substantiate our efforts to become a true supply chain enabler. In 2012, CN achieved the highest annual volumes, revenues and earnings in the company's history. On a reported basis, earnings per share grew 13% to $6.12. Both 2011 and 2012 include a number of items that affect the comparability of the financial results. Adjusting for these noncomparable items, CN's 2012 adjusted earnings per share grew an impressive 16% versus 2011. Allow me to walk you through the key drivers that underpin this performance.

The company handled record volume in 2012 with carloads up 4% versus 2011. Growth was driven by modest improvements in North American and Asian economies, as well as by the company's ability to leverage its supply chain focus. This allowed us to outperform base market conditions in a number of commodity segments.

While all commodity groups grew revenues in 2012, notable growth was experienced in a few sectors, namely: intermodal, which was driven by share gains in domestic and international markets; also, in the petroleum and chemicals, as well as in the metals and minerals sectors, volumes grew significantly, fueled by strong demand for energy-related commodities.

Overall revenues increased 10%, just shy of $10 billion, achieving the highest revenues in the company's history. We benefited from a higher fuel surcharge as a result of higher volumes and year-over-year increases in fuel prices. Revenues were also positively affected by the impact of a weaker Canadian dollar on U.S. dollar-denominated revenues. On a constant currency basis, therefore, revenues were up 9% in 2012.

At the same time, CN continued to maintain its disciplined approach to managing expenses. 2012 operating expenses increased by 9%. This increase was mainly due to higher labor and fringe benefit expense, increased purchase services and materials, as well as increased fuel costs. On a constant currency basis, expenses increased by 8% compared to 2011.

In 2012, the company's operating ratio improved by 60 basis points to 62.9%. 62.9%, now that's close to 7 points better than our U.S. competitors. There's only one time in CN's history when the annual operating ratio dipped below that level. That was in 2006, and we had some very favorable onetime fuel hedging gains and claims adjustments at that time. So let me assure you, when it comes to operating discipline, it's in our bones. We're passionate about it.

But we're also focusing on how to balance, day in, day out, that operating productivity with the service excellence required to grow our business. Looking ahead, we see a sustainable mid to low 60s in terms of operating ratio. That's where we're at, and that's what we see looking into the future. So the key is to continue accelerating our growth and to continue managing our costs as tightly as ever, always with an eye to the customer, as well as to the bottom line.

And when you're successful in growing the revenues at low incremental costs, you create the capacity to generate cash. In 2012, CN generated just over $1 billion of free cash flow. That's cash after capital investments and after dividends. Our 2012 free cash flow included proceeds of $310 million, generated by the sale of a few segments of our greater Toronto subdivisions. Adjusting for these asset sales, the company recorded free cash flow of $695 million.

We also made voluntary pension contributions of $700 million in 2012. Over the last 3 years, we've made over $1.3 billion in such contributions in anticipation of funding requirements and to strengthen the financial position of the company's pension plan.

Turning now to capital expenditures. CN invested just over $1.8 billion on capital programs in 2012, approximately $1 billion of which was for basic track infrastructure, including the replacement of rail, ties, other track materials and bridge improvements. These investments enable us to continue operating a safe railway and to improve the productivity and fluidity of the network.

Over the last 5 years, the company has reinvested in the business more than $8 billion. These investments provide us with a solid foundation, on top of which we're building and executing our model of operational and service excellence. For example, our investments to add and extend sidings, particularly in Western Canada, provide the infrastructure needed to run longer, more efficient trains. Our locomotive renewal plan, including distributed power technology, is providing the locomotives to meet our growing volumes and improved service and reliability, especially in cold weather conditions. And those new locomotives, combined with additional investments and technology and training, are keeping us at the forefront of the industry in terms of fuel efficiency.

We're also investing in growth across a variety of commodity segments, such as in crude, frac sands, intermodal and bulk. These investments, combined with process improvements, are allowing us to increase our performance in terms of customer order fulfillment rates.

Little less obvious, perhaps, but a critical part of the CN foundation is our investment in information technology. We invest in the order of $100 million per year in this particular area. These investments help us streamline internal processes, provide the timely information required to make informed decisions and are key to supporting productivity, enabling a supply chain approach and driving our first-mile/last-mile customer service initiatives. So all of this investment is paying off for us and will continue to do so well into the future.

Our strong cash flow performance and our disciplined approach to capital helps us maintain a solid balance sheet. Adjusted to include the impact of operating leases, our debt ratio was 40% at the end of 2012, while our adjusted debt-to-EBITDA ratio held steady at 1.6x. Prudent financial management, that's another key, another key piece to the CN foundation. Our investment-grade credit rating allows us to have continuous access to a low-cost source of funds.

Let me turn now to our shareholders. Rewarding shareholders for the confidence they entrust in us is a priority. With a strong balance sheet and more solid economic prospects, the company bought back nearly 17 million shares in 2012. As you can see, we've had a robust buyback program in place over the last 5 years, pausing only in 2009 during the worst part of the recession. Our current program, which began in October of last year and runs until October of 2013, provides further repurchase of up to $1.4 billion with a maximum number of 18 million shares.

Dividend growth has also been a priority. The dividend has actually grown every year since the company was privatized. That's a 17-year track record of uninterrupted dividend growth. Within this timeframe, CN has grown dividends at an average rate of about 16% per year. For 2013, the company's Board of Directors has approved a 15% dividend increase.

When you combine these 2 measures, the value returned to shareholders is over $7 billion over the last 5 years. Now this clearly demonstrates our commitment to delivering shareholder value.

Of course, the reward in terms of stock price performance has also been substantial. Over the last 5 years, our Canadian stock price increased over 94%. When you add in the reinvestment of dividends, the cumulative total return is 111%. By comparison, over the same period, the TSX increased by 4% while the S&P increased by 9%.

So our supply chain approach is helping us improve not only service, but also is challenging us to seek new ways to gain efficiency. We have a great franchise, solid service and new product innovation. It's helping us, it's helping our customers win in their markets and it's helping us, as a result, grow both revenues and the bottom line.

Yesterday, the company reported its first quarter 2013 earnings. Diluted earnings per share decreased by 26% to $1.30. However, both the first quarter of 2013 and 2012 included gains from asset sales. Excluding these gains, adjusted diluted EPS for the quarter was $1.22, an increase of 3% over the same period last year.

The company faced a number of operational challenges in the first quarter, including harsh weather conditions in Western Canada, which hampered operations, congested the network and constrained our volume growth. Fortunately, we've turned the corners since then, improving train velocity and reducing dwell times in yards across the network. CN will emerge stronger from this first quarter experience.

To improve our network resilience, particularly given our expectation of continued strong volume growth, we're undertaking several capacity enhancement projects in the Edmonton, Winnipeg corridor. These and other productivity initiatives will increase CN's planned 2013 capital spending to $2 billion, an increase of $100 million over our original plan.

With this, allow me to review quickly our 2013 outlook. We're assuming a gradual, though modest, improvement in the North American economy and positive growth in Asian markets. This should translate into carload growth in the range of 3% to 4% with stronger revenue ton miles as we continue to gain length of haul.

We do have about $150 million worth of headwinds this year relating to pensions and depreciation studies. On the pension front, our expense will increase by about $120 million in 2013. This is mostly the result of interest rates that have kept declining for several years now to an all-time low at the end of 2012. These lower interest rates turn into accumulated actual losses, which must be amortized into earnings. Depreciation studies, on the other hand, are carried out periodically, and they are used to adjust the useful life of certain assets which affect our depreciation expense.

Despite these headwinds and a challenging first quarter, we are maintaining, however, our objective and our guidance. And that is to deliver high single-digit EPS growth in 2013.

In terms of free cash flow, we're forecasting to generate in the range of $800 million to $900 million. And that's after dividends, capital investments and also after $100 million of special pension contribution, which we completed earlier this month. With regards to capital expenditures, as I mentioned earlier, our target is now $2 billion.

So as we look ahead to the balance of 2013 and beyond, we have a solid foundation in place. The CN team remains more committed than ever to deliver superior results, creating value for customers and shareholders as we continue to unfold our strategic agenda and leverage a solid pipeline of growth and productivity initiatives.

We achieved an outstanding performance and a record year in 2012. I, for one, along with the CN leadership team, remain committed to ensuring that the CN franchise is well positioned to deliver customer and shareholder value well into the future.

On that note, thank you very much. Back to you, Mr. Chairman.

David G. A. McLean

Thank you, Luc. It's nice to know the finances are in good shape.

I now have received the report of the scrutineers according to the proxies received and ballots cast. Each director nominee received at least 96.96% of the shares voted in favor of his or her election. I, therefore, declare that the 13 nominees set out in the management information circular have been duly elected as directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are duly elected or appointed.

I also declare that the nonbinding advisory say-on-pay resolution on the company's approach to executive compensation has been approved by a majority of the shareholders. Just to give you an idea, it was 97.76%. So both of these resolutions have been passed.

I would now like to take a moment to present the members of your Board of Directors. They're a very talented group from all over North America who make every effort to bring value to the shareholders of the company.

Before I proceed further to nominate, I want to tell you a little bit about them. These are people who really are very committed to this company. If you look at the proxy statement, you'll see we have an attendance record, and our attendance record is virtually 100%. There might be 1 or 2 meetings that someone misses because they got a broken leg, and they've got their mouth taped, but other than that, they show up.

And the second thing I think you should know about them is the average value the shareholders owned by the Board of Directors, excluding the CEO, is $9,800,000 per director. Now that's skin in the game, and I really think it's what separates CN from a lot of other companies. And I don't know as a fact, but I doubt that many other publicly traded Canadian companies have shareholdings of their directors of that magnitude.

So these are not only directors that are committed to do the job, but they have big investments in the company. And everything they look at, at every board meeting is viewed from a point of view of a shareholder. And I think one of the things I'm most proud of at CN is that we have big focus on increasing shareholder value, and that's been our main focus from the day we started.

So I'll now ask each of them, who are seated before me, to rise and face the audience. You've got to face your audience now, guys. Remain standing until all of them have been introduced. I'd ask you to hold your applause until they've all been introduced.

From Long Beach Island, New Jersey, a retired partner of the Goldman Sachs Group where he was Chair and CEO of the Goldman Sachs Asset Management and an outstanding transportation analyst for many years, Michael Armellino.

From Toronto, Ontario, a former Chairman and CEO of the Toronto-Dominion Bank, Chair of the Board of Alberta Investment Management Corporation, a director of George Weston Limited and TELUS Corporation, Charles Baillie.

From Edmonton, Alberta, the Chairman of EPCOR Utilities Inc. and a director of Capital Power Corporation, Teck Resources Limited, TD Bank Financial Group, WestJet Airlines Ltd. and a former Chairman and Chief Executive Partner of Coopers & Lybrand in Canada, now PricewaterhouseCoopers, Hugh Bolton.

From Dallas, Texas, the retired Chairman and CEO of AMR Corporation and American Airlines and a former Vice Chairman and Chief Financial Officer of Dell, Inc., he currently serves as the lead director of Barrick Gold Corporation and also serves as a director of Dell, Inc. and Talisman Energy Inc. and Gluskin Sheff & Associates Inc. He's also Chairman of Virgin Airlines and Porter Airlines, Donald Carty.

From Atlanta, Georgia, senior partner in the law firm of McKenna Long & Aldridge, unfortunately, he couldn't join us today because -- it's a long story. But we had originally thought of having our meeting in Alberta, and we thought we might have done it in Calgary. We finally decided to do it in Edmonton, and he had moved the TransAlta board to Calgary, thinking we're going to move there. So wrong and right is he has -- he can't share the annual meeting, like I'm doing in being 2 places. But anyway, Ambassador Gordon Giffin is a Director who would have very much liked to be here and was on the phone yesterday at our board meeting.

From Palm Beach, Florida, a lawyer and former General Counsel of the United States Treasury Department and Secretary of the Cabinet of the White House under President George H. W. Bush. She's also, I think, now a former director of Heinz Company, or not former yet, not yet. Okay, I know it's been taken over, so it's only a matter of time. But she has been a director of Heinz and still is. Hess Corporation, RTI International Metals, White Mountains Insurance Group and the Franklin Templeton Group of Funds, Edith Holiday.

From Fort Lauderdale-by-the-Sea, the retired group Vice President and President of Latin America, Africa, the Middle East, General Motors Corporation and Director of Balfour Beatty Plc., Enbridge Inc., Brookfield Asset Management Inc. and the Irving Oil Co., Maureen Kempston Darkes.

From Moncton, New Brunswick, the President and CEO of Assumption Life and the director of Enbridge Gas Brunswick and Plazacorp Retail Properties Ltd. and Chair of the Board of Invest New Brunswick. He's a member of the Security Intelligence Review Committee and, as such, is a member of the Privy Council of Canada and a former Minister of Fisheries, Agriculture and the Minister of Economic Development and Tourism for the province of New Brunswick, The Honorable Denis Losier.

From South Lancaster, Ontario, the Vice Chairman of BMO Capital Markets, a director of BCE Inc., Bell Canada Enterprises and a member of the Advisory Board of Mercedes Benz Canada, the Chancellor of the University of Windsor of and a former federal Minister of Industry International Trade, Regional Economic Development, Communication Science and Technology, The Honorable Edward Lumley.

From Fort Lauderdale, Florida, the former Chair and Chief Executive Officer of Republic Services, Inc. and a director of Clean Energy Fuels Corp. He was named on the list of the Americas Best CEOs each year from 2005 to 2010 and 2011, on the Institutional Investors' All American Executive Team, James O'Connor.

I'm going to skip the next one and I'll tell you in a minute why, and maybe just leave his on because I can do the rest by myself. From Montréal, Quebec, our President and Chief Executive Officer, Claude Mongeau, and myself.

Now the reason I didn't introduce the last director is I want to say a few things before I do. First of all, about a year ago, I approached the board and under the direction of our Chair of our Corporate Governance Committee, Michael Armellino, asked the board to develop a process to pick a Vice Chairman of the Board who would subsequently become Chairman when I retire at the Annual Meeting in 2014.

I'm pleased to say that the process was very, very well done. And I think one of the things about CN that we've been able to do over the 18 years I've been Chairman is to get it right in terms of making proper appointments. The process was very well done, and the board decided to unanimously elect the Vice Chairman. And he is Robert Pace from Glen Market, Nova Scotia, the President and CEO of The Pace Group, a director of High Liner Foods Incorporated, Hydro One, and he's been Chair of both of our Audit Committee for a long period of time and Chairman of our HR Committee. I have no doubt whatsoever that Robert will make an excellent Chairman of CN.

Ladies and gentlemen, this is your board.

We are fortunate to have in attendance today at our meeting a former Senior Vice President of Operations, and I think he's here, Jack McBain. Jack, are you here? Now Jack McBain is the author of the McBain International Terminal in Edmonton, and we're very, very proud to have Jack here. And also, the former Vice President and Chief Safety Officer, Paul Miller, and Paul is standing right beside.

Also with us today are 2 former CN directors. And we have a tradition in CN as we started about -- many, many years ago now to elect certain directors to the position of a Director Emeritus. And basically, what a Director Emeritus is at CN is somebody who has had, at least, a minimum of 10 years on the board, but more importantly than that, has made a very significant contribution to the company.

And we have 3 Directors Emeritus, 2 of whom aren't with us today, Purdy Crawford from Toronto and Raymond Cyr from Montréal. But we do have 2 of our Directors Emeritus with us today who are absolutely outstanding individuals, who have given so much to us in the past and who continue to give us counsel and advise when asked. And I'm just delighted that they're both here. From the city of Toronto, the former Chairman and the Chief Executive Officer for, I think, over 25 years of the Bank of Nova Scotia, Mr. Cedric Ritchie. And from the city of Calgary, a wonderful friend of mine and an incredibly effective director, Jim Gray.

Going to get my script to catch up with me. We would also like to acknowledge the passing of a former Senior Vice President, western region of CN, a very old friend of mine, Ross Walker, during in the past year. CN's Edmonton yard, the Walker Yard, was named after Ross, recognizing his long and preeminent career at CN.

As we've now completed all of the formal business to come before the meeting, I'll entertain a motion to conclude the formal part of the meeting. Karen Phillips, would you introduce the motion?

Karen Borlaug Phillips

Mr. Chairman, my name is Karen Phillips. I'm a shareholder of the company. I move that the formal part of this meeting be concluded.

David G. A. McLean

Thank you, Karen. Matthew Lamont [ph], would you second the motion?

Unknown Shareholder

Mr. Chairman, my name is Matthew Lamont. I'm a shareholder of the company, and I second the motion.

David G. A. McLean

Thank you, Matthew. All in favor, raise your hand.

[Voting]

Opposed?

[Voting]

I declare the motion carried.

We now have a period of time for general questions. So any shareholder or proxy holder who has a question should use the floor microphones. In the interest of fairness to everyone who wishes to ask a question, I ask you to restrict your questions to matters relevant to the business of the company. In order to allow the maximum number of shareholders who wish to ask questions, we ask that you keep your questions short. Anyone who wants to ask more than one question will be asked to hold their second question until anyone else that wants to ask a question has had the opportunity to do so. Prior to asking your question, state your name and whether you are a proxy or a holder or shareholder of the company.

Question-and-Answer Session

David G. A. McLean

Do we have anybody who wishes to ask any questions?

Unknown Shareholder

My name is Joe Toriso [ph]. I'm a shareholder of the company. CN opened its new Calgary logistics park earlier this year. What intermodal market opportunities does CN think it can capture in the Calgary region market?

David G. A. McLean

Would you like to handle that Claude?

Claude Mongeau

Yes, I would. We were very pleased. Actually, it was just last week that we opened that first rate world-class facility. It's going to be a great operating terminal for our intermodal business, but also a real estate logistics park [ph] to bring customers closer to our terminals and to gain efficiencies. Calgary and Alberta, in general, are huge hubs for distribution, for both domestic and international traffic. Large retailers like Walmart, Target and a range of others have their main facility there. So we see huge opportunity for growth for the Alberta proper market, but also export business, particularly to Asia, out of the Western Canada through that facility.

David G. A. McLean

Thanks, Claude, any other questions?

Unknown Shareholder

My name is Les Sumi [ph], and I'm a shareholder of the company. Crude by rail is grabbing the newspapers' headlines and concerns have been raised about safety and greenhouse gas emissions. What is CN's view?

David G. A. McLean

Claude, do you want to handle that one? He gets the easy ones.

Claude Mongeau

Yes, good question, Les. The crude by rail is an entirely new phenomenon. It's something that have started, really, only a few years ago. Railroads are complementary to pipeline. Both modes are helping serve the energy markets in Canada and in the U.S., which are growth opportunity for North America. Efficiently and safely, the -- we think railroads have a -- and pipelines, for that matter, both have an enviable safety record. Both are sustainable in transporting their goods. And we believe that the complementarity and the fact that rail has been able to develop a niche is something that's good for CN, but also good for the energy industry, because getting to market is critical to have value for the product and to sustain solid, safe and sustainable development for years to come.

David G. A. McLean

Okay. Any further questions to come before the meeting?

Unknown Shareholder

Mr. Chairman, my name is Don Penny [ph], and I'm proud to be a shareholder of CN. What is the status of the Canadian federal and government's push toward regulated service level agreements? And what is CN's response to the move?

David G. A. McLean

You want to handle that Claude, or you want Sean to handle that?

Claude Mongeau

Yes. You know what? Let me handle it. I've been a spokesperson for CN for several months now saying that I believe, as I said earlier in my remarks, that railroads, and CN, in particular, are true backbones of the economy. We take our responsibility very seriously. I think Canada is fortunate we have a world-class rail system. It's the envy of the rest of the world. We have the lowest rates for -- freight rates for rail in the -- of all of the OECD countries. We have, by and large, a remarkable service record now. That winter is winter. It's always going to be here. Our challenge is to get better. But when you step back, we're innovating, we're providing good service, and all of that is on the basis of tried and true commercial forces. So I have said to the government, maintaining the focus on commercial engagement on supply chain visibility, on innovation, keeping to a deregulation agenda that has been so successful for Canada over the last 20 years is the right approach. Now the government has decided to introduce a legislation. We will see if it passes. And if it passes, we will work with the stakeholders to make it as least impactful as we can be -- as we can have it be, to make sure that it does not stifle innovation and it allows us to continue to provide service on a commercial basis to our customers.

David G. A. McLean

Okay. Do we have any further questions? Please go to the microphone.

John Weir

My name is John Weir. I'm a shareholder. I noticed in The Globe and Mail yesterday, I believe, concern on the parts of some shippers for their supply for forest products. I wonder, is that a real concern?

Claude Mongeau

Thank you for asking that question. Actually, the -- as I said yesterday, during our analyst call, the -- I think we have to be careful not to take press account at face value without proper review of the facts. The -- there's quite a bit of advocacy, in particular, by the forest product industry, and perhaps it's because they still want to convince the government to go forward with its legislation. We did have a difficult winter. Certainly, it impacted our ability to supply our customers. But if I take sensor beams, for instance, which are used to move lumbers, we had more than 11% increase in our fleet of the sensor beams this winter to accommodate what we believe would be the demand. Now obviously, with cycles and velocity being impacted by winter, we cannot meet every order, and we are working hard, as we speak, to recover. I think it's important to follow the facts and to have balanced advocacy. Because if you just try to paint the railroads as the bad guy, eventually, you deprive us of our ability to be the true backbone that we want to be. And that's the message I would send to the forest products industry.

David G. A. McLean

Okay. Any further questions? Any further questions?

Seeing none, I want to thank everybody for coming and participating in the business of the meeting. [French] This meeting is now adjourned.

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