CNR Asbestos Liability Funds Considered Adequate ------------------------------------------------ Published January 24, 2003 The North American railway industry has made adequate provision for potential liabilities arising from asbestos-related claims from sick employees, concludes a report by a New York-based investment dealer. The review was undertaken after Montreal-based Canadian National Railway Co. took a surprise $115-million charge this week arising from asbestos-related claims on its U.S. operations, said Merrill Lynch Global Securities Research and Economic group. "The asbestos-related claims class is mostly limited to mechanics who worked before the early 1980s" in the maintenance shops, it said. The asbestos was used in insulation for boilers in steam locomotives and for brake pads. The steam locomotives with the insulation were either cleaned or taken out of service in the early 1960s and the brake pads containing asbestos were eliminated in the early 1980s, the investment dealer said. Merrill Lynch estimates that there are 15,000 asbestos-related cases filed against the US railways. "With an average payout of approximately $15,000 (U.S.), this equates to $225-million, or roughly one-half of the $500-million that we estimate the rails (railways) have already cumulatively reserved on their balance sheets," the investment dealer said. The asbestos scare has presented a good buying opportunity for Toronto Stock Exchange-listed Canadian National and New York Stock Exchange- listed Union Pacific Corporation and Burlington Northern Santa Fe Corporation, it concludes in a report released on Wednesday. The evidence from railways other than Canadian National indicates that asbestos-related claims are stable or declining, New York-based Bear Stearns said. The investment dealer forecast only modest claims from asbestos. Canadian Pacific Railway Ltd. has fewer than 200 asbestos cases outstanding and faces significantly less risk from asbestos claims than the other major carriers, Bear Stearns said. It employs far fewer workers in the United States than the other railways. A large proportion of the CNR claims arise from its acquisition of Illinois Central in 1999, RBC Capital Markets said. CNR had been accounting for the claims case by case, but it is now adopting an actuarial method of determining the potential liability, which is more consistent with U.S. railway accounting, RBC said. In Canada, workers are covered for work-related health claims by no-fault provincially administered workers' compensation plans, RBC added. In the United States, railway workers are covered by the Federal Employers' Liability Act, which was passed by the US Congress in 1908. Under that legislation, workers can be compensated by their employers when negligence can be shown, such as a failure to provide a safe working environment. The FELA legislation precludes punitive damage awards, which have been part of larger settlements in other industries, Morgan Stanley said. COMPANY PROFILE Canadian National Railway Company (NYSE: CNI) 935 de la GauchetiSre St. West Montreal, Quebec H3B 2M9, Canada Phone: 514-399-5736 Fax: 514-399-3779 Toll Free: 888-888-5909 http://www.cn.ca Employees : 22,668 Revenue : $ 3,428,000,000 Net Income : $ 457,000,000 Assets : $ 11,803,000,000 Liabilities : $ 7,806,000,000 (As of December 31, 2001) Description: With tracks that stretch from Vancouver, British Columbia, to Halifax, Nova Scotia, Canadian National Railway (CN Rail) is Canada's #1 railroad. The Company, which operates a network of nearly 18,000 route miles in Canada and the US, hauls freight such as forest products, petroleum and chemicals, and grain and fertilizers. CN Rail operates 29 intermodal terminals and offers supply chain logistics and distribution. It also links with six ports in Canada and three ports in the US to provide overseas shipment of goods. The Company plans to acquire rail operators Ontario Northland Rail and BC Rail, both owned by the Canadian government. ------------------------------------------------------------------- LitigationDataSource.com