GlobeNewswire Inc | Jan 25, 2022 04:05PM EST

January 25, 2022

Results show progress against Strategic Plan and confirm value of long-termcapital investments for a resilient and modern railroad

MONTREAL, Jan. 25, 2022 (GLOBE NEWSWIRE) -- CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended December 31, 2021. CN delivered solid operating and financial performance across the board, with adjusted diluted earnings per share (EPS) growing 20 per cent in the fourth quarter to C$1.71, and adjusted operating ratio improving to a fourth quarter record of 57.9 per cent. (1) For the same period, the Company reported diluted EPS growth of 18 per cent to C$1.69, while operating ratio improved to 58.3 per cent.

I would like to thank our dedicated team of railroaders for delivering once again despite extreme weather and disruptive global supply chain issues. The last months of 2021 allowed us to tangibly demonstrate our resilience, our ability to make significant progress against the goals of our Strategic Plan, and what it means to build the premier railway of the 21st century. Our previous strategic investments in safety, technology, and capacity enabled us to continue delivering high-quality service to customers while generating profitable growth and enhanced value to shareholders. While Ill be retiring, I am excited to see what CNs world-class team will accomplish as they continue to lead the next transformation of the industry by delivering high-quality service to our customers and to the communities we serve, while driving sustainable returns to shareholders over the long-term.

- JJ Ruest, President and Chief Executive Officer, CN

Financial results highlights Fourth-quarter 2021 compared to fourth-quarter 2020

-- Revenues of C$3,753 million, an increase of C$97 million or three per cent. -- Record fourth quarter operating income of C$1,566 million, an increase of 11 per cent, and record fourth quarter adjusted operating income of C$1,579 million, an increase of 12 per cent. (1) -- Diluted EPS of C$1.69, an increase of 18 per cent, and adjusted diluted EPS of C$1.71, an increase of 20 per cent.(1) -- Operating ratio, defined as operating expenses as a percentage of revenues, of 58.3 per cent, an improvement of 3.1 points, and record fourth quarter adjusted operating ratio of 57.9 per cent, an improvement of 3.5 points. (1)

Full-year 2021 compared to full-year 2020

-- Revenues of C$14,477 million, an increase of C$658 million or five per cent. -- Operating income of C$5,616 million, an increase of 18 per cent, and adjusted operating income of C$5,622 million, an increase of seven per cent. (1) -- Diluted EPS of C$6.89, an increase of 38 per cent, and record adjusted diluted EPS of C$5.94, an increase of 12 per cent.(1) -- Operating ratio and adjusted operating ratio of 61.2 per cent, an improvement of 4.2 points and 0.7 points respectively. (1) -- For the year ended December 31, 2021, after accounting for all direct and incremental expenses as well as income generated from the merger termination fee, CN recorded additional income of C$705 million (C$616 million after-tax) as a result of its strategic decision to bid for KCS. -- Record free cash flow for the year ended December 31, 2021 of C$3,296 million compared to C$3,227 million for the same period in 2020. (1) -- Return on invested capital (ROIC) of 16.4 per cent, an increase of 3.7 points, and adjusted ROIC of 14.1 per cent, an increase of 0.7 points. (1)

Operating performanceFourth-quarter 2021 compared to fourth-quarter 2020Operating performance improved across most measures in the fourth quarter of 2021 when compared to the same period in 2020.

-- Fuel efficiency improved by one per cent to a fourth quarter record of 0.876 US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs). -- Injury frequency rate (3) improved by two per cent and the accident rate (4) increased by 22 per cent. -- Car velocity (car miles per day) decreased by three per cent. -- Through network train speed (mph) improved by six per cent. -- Through dwell (entire railroad, hours) improved by one per cent. -- Train length (in feet) remained flat.

Full-year 2021 compared to full-year 2020Operating performance improved across most measures in 2021 when compared to 2020, specifically through network train speed, through dwell and car velocity, despite negative impacts from the polar vortex in February, the forest fires in Western Canada over the summer and the washouts in British Columbia caused by severe rain and flooding, resulting in a network shutdown in the region for three weeks in the fourth quarter ("B.C. washouts"). The Company capitalized on its prior year's strategic investments in its infrastructure and its continued focus on efficiency and network fluidity. In addition, the Company's fuel initiatives allowed it to achieve an all-time record fuel efficiency of 0.867.

-- Fuel efficiency improved by three per cent to a record 0.867 US gallons of locomotive fuel consumed per 1,000 GTMs. -- Injury frequency rate (3) improved by 19 per cent to a record 1.33 injuries per 200,00 person hours. -- Accident rate (4) improved by three per cent. -- Car velocity (car miles per day) improved by five per cent. -- Through network train speed (mph) improved by four per cent. -- Through dwell (entire railroad, hours) improved by eight per cent. -- Train length (in feet) remained flat.

2022 outlook and shareholder distributions (2)CN expects to deliver approximately 20 per cent adjusted diluted EPS growth, versus 2021 adjusted diluted EPS of C$5.94.(1) CN assumes total revenue ton miles (RTMs) in 2022 will increase in the low single-digit range versus 2021.

In 2022, CN plans to invest approximately 17 per cent of revenues in its capital program.

CN continues to target an operating ratio of approximately 57 per cent for 2022 as well as approximately 15 per cent of ROIC.(1)

CN is also targeting free cash flow of approximately C$4.0 billion in 2022 compared to C$3.3 billion in 2021.(1)

The Companys Board of Directors approved a 19 per cent increase to CNs 2022 quarterly cash dividend, effective for the first quarter of 2022. This is the 26th consecutive year of dividend increases, demonstrating our confidence in the long-term financial health of the Company. In addition, the Companys Board of Directors also approved a new Normal course issuer bid (NCIB) that permits CN to purchase, for cancellation, over a 12-month period up to 42 million common shares, starting on February1, 2022, and ending no later than January31, 2023.

Fourth-quarter 2021 revenues, traffic volumes and expensesRevenues for the quarter increased by three per cent to C$3,753 million, when compared to the same period in 2020. The increase in revenues was mainly attributable to higher applicable fuel surcharge rates, freight rate increases and an increase in intermodal ancillary services; partly offset by lower volumes of Canadian grain in terms of RTMs compared to record volumes in the fourth quarter of 2020, the impact of the B.C. washouts and the negative translation impact of a stronger Canadian dollar.

RTMs, measuring the weight and distance of freight transported by CN, declined by 11 per cent. Freight revenue per RTM increased by 14 per cent, mainly driven by a significant decrease in the average length of haul, higher applicable fuel surcharge rates and freight rate increases; partly offset by the negative translation impact of a stronger Canadian dollar.

Operating expenses for the quarter decreased by three per cent to C$2,187 million, when compared to the same period in 2020. The decrease was mainly due to lower average headcount due to cost reduction initiatives and lower volumes, as well as the positive translation impact of a stronger Canadian dollar; partly offset by higher fuel costs.

Full-year 2021 revenues, traffic volumes and expensesRevenues for 2021 increased by five per cent to C$14,477 million, when compared to 2020. The increase in revenues was mainly attributable to freight rate increases, higher applicable fuel surcharge rates and an increase in intermodal ancillary services; partly offset by the negative translation impact of a stronger Canadian dollar and lower volumes of Canadian grain in terms of RTMs compared to record volumes in 2020.

RTMs increased by one per cent despite the unfavorable impact of the ongoing supply chain challenges, the polar vortex in February, the forest fires and drought in Western Canada over the summer and the B.C. washouts in the fourth quarter of 2021. Freight revenue per RTM increased by four per cent, mainly driven by a decrease in the average length of haul, freight rate increases and higher applicable fuel surcharge rates; partly offset by the negative translation impact of a stronger Canadian dollar.

Operating expenses decreased by two per cent to C$8,861 million, mainly due to the C$137 million recovery recorded in the first quarter of 2021 related to the C$486 million loss on assets held for sale recorded in the second quarter of 2020, as well as the positive translation impact of a stronger Canadian dollar; partly offset by higher fuel costs due to rising fuel prices, higher incentive compensation and C$84 million of transaction-related costs resulting from the terminated CN Merger Agreement with KCS.

(1) Non-GAAP MeasuresCN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). CN also uses non-GAAP measures in this news release that do not have any standardized meaning prescribed by GAAP, of adjusted net income, adjusted earnings per share, adjusted operating income and adjusted operating ratio (referred to as adjusted performance measures), free cash flow, ROIC and adjusted ROIC. These non-GAAP measures may not be comparable to similar measures presented by other companies. For further details of these non-GAAP measures, including a reconciliation to the most directly comparable GAAP financial measures, refer to the attached supplementary schedule, Non-GAAP Measures.

CN's full-year adjusted diluted EPS outlook (2) , ROIC outlook (2) and free cash flow outlook (2) excludes the expected impact of certain income and expense items, which are expected to be comparable adjustments to those made to the historical adjusted diluted EPS, ROIC and free cash flow. However, management cannot individually quantify on a forward-looking basis the impact of these items on its adjusted diluted EPS, ROIC or free cash flow because these items, which could be significant, are difficult to predict and may be highly variable. As a result, CN does not provide a corresponding GAAP measure for, or reconciliation to, its adjusted diluted EPS outlook, its ROIC outlook or its free cash flow outlook.

(2) Forward-Looking StatementsCertain statements included in this news release constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws, including statements based on managements assessment and assumptions and publicly available information with respect to CN. By their nature, forward-looking statements involve risks, uncertainties and assumptions. CN cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Forward-looking statements may be identified by the use of terminology such as "believes", "expects", "anticipates", "assumes", "outlook", "plans", "targets" or other similar words.

Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors which may cause actual results, performance or achievements of CN to be materially different from the outlook or any future results, performance or achievements implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. Important risk factors that could affect the forward-looking statements include, but are not limited to, the duration and effects of the COVID-19 pandemic; general economic and business conditions, particularly in the context of the COVID-19 pandemic; industry competition; inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; increases in maintenance and operating costs; security threats; reliance on technology and related cybersecurity risk; trade restrictions or other changes to international trade arrangements; transportation of hazardous materials; various events which could disrupt operations, including illegal blockades of rail networks and natural events such as severe weather, droughts, fires, floods and earthquakes; climate change; labor negotiations and disruptions; environmental claims; uncertainties of investigations, proceedings or other types of claims and litigation; risks and liabilities arising from derailments; timing and completion of capital programs; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should be made to Managements Discussion and Analysis in CNs annual and interim reports, Annual Information Form and Form 40-F,filed with Canadian and U.S. securities regulators and available on CNs website, for a description of major risk factors.

Forward-looking statements reflect information as of the date on which they are made. CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement.

(3) Per 200,000 person hours, based on Federal Railroad Administration (FRA) reporting criteria.

(4) Per million train miles, based on FRA reporting criteria.

2022 key assumptionsCN has made a number of economic and market assumptions in preparing its 2022 outlook. The Company assumes that North American industrial production for the year will increase in the mid single-digit range, and now assumes U.S. housing starts of approximately 1.6 million units (compared to its October 19, 2021 assumption that it would be approximately 1.57 million units) and now assumes U.S. motor vehicle sales of approximately 15.5 million units (compared to its October 19, 2021 assumption that it would be approximately 16.9 million units). For the 2021/2022 crop year, the grain crop in Canada was below its three-year average and the U.S. grain crop was in line with its three-year average. The Company assumes that the 2022/2023 grain crops in both Canada and the U.S. will be in line with their respective three-year averages. CN assumes total RTMs in 2022 will increase in the low single-digit range versus 2021. CN assumes continued pricing above rail inflation. CN assumes that in 2022, the value of the Canadian dollar in U.S. currency will be approximately $0.80, and now assumes that in 2022 the average price of crude oil (West Texas Intermediate) will be approximately in the US$65 - US$70 range per barrel (compared to its October 19, 2021 assumption that it would be approximately US$65 per barrel). In 2022, CN plans to invest approximately 17% of revenues in its capital program.

This earnings news release is available on the Company's website at www.cn.ca/financial-results and on SEDAR at www.sedar.com as well as on the U.S. Securities and Exchange Commission's website at www.sec.gov through EDGAR.

About CNCN is a world-class transportation leader and trade-enabler. Essential to the economy, to the customers, and to the communities it serves, CN safely transports more than 300 million tons of natural resources, manufactured products, and finished goods throughout North America every year. As the only railroad connecting Canadas Eastern and Western coasts with the U.S. South through a 19,500-mile rail network, CN and its affiliates have been contributing to community prosperity and sustainable trade since 1919. CN is committed to programs supporting social responsibility and environmental stewardship.

Contacts: Media Investment CommunityJonathan Abecassis Paul ButcherSenior Manager Vice-PresidentMedia Relations Investor Relations(438) 455-3692 (514) 399-0052media@cn.ca investor.relations@cn.ca



Selected Railroad Statistics unaudited

Three months ended December Year ended December 31 31 2021 2020 2021 2020Financial measures Key financialperformance indicators ^(1)Total revenues ($ 3,656 13,819millions) 3,753 14,477Freight revenues ($ 3,507 13,218millions) 3,586 13,888Operating income ($ 1,411 4,777millions) 1,566 5,616Adjusted operating income ($ millions) ^ 1,579 1,411 5,622 5,263(2)(3)Net income ($ 1,021 3,562millions) 1,199 4,892Adjusted net income 1,021 3,784($ millions) ^(2)(3) 1,209 4,218Diluted earnings per 1.43 5.00share ($) 1.69 6.89Adjusted diluted earnings per share 1.71 1.43 5.94 5.31($) ^(2)(3)Free cash flow ($ 1,140 3,227millions) ^(2)(4) 1,262 3,296Gross property additions ($ 920 855 2,897 2,863millions)Share repurchases ($ ? 379millions) 1,059 1,582Dividends per share 0.575 2.300($) 0.615 2.460Financial ratio Operating ratio (%) ^ 58.3 61.4 61.2 65.4(5)Adjusted operating 57.9 61.4 61.2 61.9ratio (%) ^(2)(3)Operational measures ^(6)Statistical operating dataGross ton miles 110,196 125,310 458,401 455,368(GTMs) (millions)Revenue ton miles 63,207 233,138 230,390(RTMs) (millions) 56,563Carloads (thousands) 1,526 5,595 1,374 5,701Route miles (includes 19,500 19,500Canada and the U.S.) 19,500 19,500Employees (end of 24,381 24,381period) 22,604 22,604Employees (average 24,272 23,786for the period) 23,107 24,084Key operating measuresFreight revenue per 5.55 5.74RTM (cents) 6.34 5.96Freight revenue per 2,298 2,362carload ($) 2,610 2,436GTMs per average number of employees 4,769 5,163 19,033 19,144(thousands)Operating expenses 1.79 1.99per GTM (cents) 1.98 1.93Labor and fringe benefits expense per 0.61 0.60 0.63 0.60GTM (cents)Diesel fuel consumed (US gallons in 96.5 110.9 397.6 407.2millions)Average fuel price ($ 2.37 2.42/US gallon) 3.71 3.28Fuel efficiency (USgallons of locomotive 0.885 0.894fuel consumed per 0.876 0.8671,000 GTMs)Train weight (tons) 9,397 9,501 9,665 9,658Train length (feet) 8,514 8,572 8,491 8,559Car velocity (car 195 185miles per day) 189 195Through dwell (entire 8.0 8.6railroad, hours) 7.9 7.9Through network train speed (miles per 19.5 18.4 19.2 18.5hour)Locomotiveutilization (trailing 202 196GTMs per total 194 198horsepower)Safety indicators ^ (7)Injury frequency rate (per 200,000 person 1.29 1.31 1.33 1.64hours)Accident rate (per 1.69 1.87million train miles) 2.06 1.82

Amounts expressed in Canadian dollars and prepared in accordance with(1) United States generally accepted accounting principles (GAAP), unless otherwise noted. These Non-GAAP measures do not have any standardized meaning prescribed by(2) GAAP and therefore, may not be comparable to similar measures presented by other companies.(3) See the supplementary schedule entitled Non-GAAP Measures ? Adjusted performance measures for an explanation of these non-GAAP measures.(4) See the supplementary schedule entitled Non-GAAP Measures ? Free cash flow for an explanation of this non-GAAP measure.(5) Operating ratio is defined as operating expenses as a percentage of revenues. Statistical operating data, key operating measures and safety indicators are unaudited and based on estimated data available at such time and are(6) subject to change as more complete information becomes available. Definitions of these indicators are provided on CN's website, www.cn.ca/ glossary.(7) Based on Federal Railroad Administration (FRA) reporting criteria.

Supplementary Information unaudited

Three months ended December 31 Year ended December 31 % Change % Change % at % at Change constant Change constant 2021 2020 Fav currency 2021 2020 Fav currency (Unfav) Fav (Unfav) Fav (Unfav)^ (Unfav) (1) ^(1)Revenues ($millions) ^ (2)Petroleum and 755 664 14 % 16 % 2,816 2,631 7 % 12 %chemicalsMetals and 354 11 % 14 % 1,409 10 % 16 %minerals 393 1,548Forest 433 ? % 3 % 1,700 2 % 8 %products 435 1,740Coal 126 31 % 33 % 527 17 % 20 % 165 618Grain and 742 (13 %) (12 %) 2,609 (5 %) (2 %)fertilizers 643 2,475Intermodal 1,036 1 % 3 % 3,751 10 % 12 % 1,049 4,115Automotive 152 (4 %) (1 %) 591 (3 %) 3 % 146 576Total freight 3,586 3,507 2 % 4 % 13,888 13,218 5 % 9 %revenuesOther 149 12 % 15 % 601 (2 %) 3 %revenues 167 589Total 3,656 3 % 5 % 13,819 5 % 9 %revenues 3,753 14,477Revenue tonmiles(RTMs) (millions) ^(3)Petroleum and 10,955 11,638 (6 %) (6 %) 42,436 43,556 (3 %) (3 %)chemicalsMetals and 5,785 14 % 14 % 21,561 24 % 24 %minerals 6,617 26,743Forest 6,699 (9 %) (9 %) 25,602 1 % 1 %products 6,087 25,948Coal 4,186 10 % 10 % 16,173 14 % 14 % 4,608 18,471Grain and 14,196 17,910 (21 %) (21 %) 61,736 (5 %) (5 %)fertilizers 58,733Intermodal 13,529 16,330 (17 %) (17 %) 59,165 (1 %) (1 %) 58,412Automotive 659 (13 %) (13 %) 2,597 (8 %) (8 %) 571 2,395Total RTMs 56,563 63,207 (11 %) (11 %) 230,390 1 % 1 % 233,138Freightrevenue / RTM (cents)^(2) (3)Petroleum and 6.89 5.71 21 % 23 % 6.64 6.04 10 % 15 %chemicalsMetals and 6.12 (3 %) ? % 6.53 (11 %) (7 %)minerals 5.94 5.79Forest 6.46 11 % 14 % 6.64 1 % 6 %products 7.15 6.71Coal 3.01 19 % 20 % 3.26 3 % 6 % 3.58 3.35Grain and 4.14 9 % 11 % 4.23 ? % 3 %fertilizers 4.53 4.21Intermodal 6.34 22 % 24 % 6.34 11 % 14 % 7.75 7.04Automotive 23.07 11 % 15 % 22.76 6 % 12 % 25.57 24.05Totalfreight 5.55 14 % 17 % 5.74 4 % 8 %revenue / 6.34 5.96RTMCarloads(thousands) ^(3)Petroleum and 153 155 (1 %) (1 %) 596 597 ? % ? %chemicalsMetals and 241 (1 %) (1 %) 935 4 % 4 %minerals 239 969Forest 87 (7 %) (7 %) 342 (1 %) (1 %)products 81 339Coal 73 38 % 38 % 289 31 % 31 % 101 379Grain and 189 (16 %) (16 %) 663 (5 %) (5 %)fertilizers 159 628Intermodal 731 (19 %) (19 %) 2,582 1 % 1 % 595 2,611Automotive 50 (8 %) (8 %) 187 (4 %) (4 %) 46 179Total 1,526 (10 %) (10 %) 5,595 2 % 2 %carloads 1,374 5,701Freightrevenue / carload ($)^(2) (3)Petroleum and 4,935 4,284 15 % 18 % 4,725 4,407 7 % 12 %chemicalsMetals and 1,469 12 % 15 % 1,507 6 % 12 %minerals 1,644 1,598Forest 4,977 8 % 11 % 4,971 3 % 9 %products 5,370 5,133Coal 1,726 (5 %) (4 %) 1,824 (11 %) (8 %) 1,634 1,631Grain and 3,926 3 % 5 % 3,935 ? % 3 %fertilizers 4,044 3,941Intermodal 1,417 24 % 26 % 1,453 8 % 11 % 1,763 1,576Automotive 3,040 4 % 8 % 3,160 2 % 8 % 3,174 3,218Totalfreight 2,298 14 % 16 % 2,362 3 % 7 %revenue / 2,610 2,436carload

This Non-GAAP measure does not have any standardized meaning prescribed by(1) GAAP and therefore, may not be comparable to similar measures presented by other companies. See the supplementary schedule entitled Non-GAAP Measures ? Constant currency for an explanation of this non-GAAP measure.(2) Amounts expressed in Canadian dollars. Statistical operating data and related key operating measures are unaudited(3) and based on estimated data available at such time and are subject to change as more complete information becomes available.

Non-GAAP Measures unaudited

In this supplementary schedule, the Company or CN refers to Canadian National Railway Company, together with its wholly-owned subsidiaries. Financial information included in this schedule is expressed in Canadian dollars, unless otherwise noted.

CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). The Company also uses non-GAAP measures that do not have any standardized meaning prescribed by GAAP, including adjusted performance measures, constant currency, free cash flow, adjusted debt-to-adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) multiple, return on invested capital (ROIC) and adjusted ROIC. These non-GAAP measures may not be comparable to similar measures presented by other companies. From managements perspective, these non-GAAP measures are useful measures of performance and provide investors with supplementary information to assess the Companys results of operations and liquidity. These non-GAAP measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

Adjusted performance measures

Adjusted net income, adjusted earnings per share, adjusted operating income, adjusted operating expenses and adjusted operating ratio are non-GAAP measures that are used to set performance goals and to measure CN's performance. Management believes that these adjusted performance measures provide additional insight to management and investors into the Company's operations and underlying business trends as well as facilitate period-to-period comparisons, as they exclude certain significant items that are not reflective of CN's underlying business operations and could distort the analysis of trends in business performance. These items may include:

-- operating expense adjustments: workforce reduction program, depreciation expense on the deployment of replacement system, advisory fees related to shareholder matters, losses and recoveries from assets held for sale, business acquisition-related costs; -- non-operating expense adjustments: business acquisition-related financing fees, merger termination income, gains and losses on disposal of property; and -- the effect of tax law changes and rate enactments.

These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

For the three months and year ended December 31, 2021, the Company's adjusted net income was $1,209 million, or $1.71 per diluted share, and $4,218 million, or $5.94 per diluted share, respectively. The adjusted figures exclude:

-- employee termination benefits and severance costs related to a workforce reduction program of $39 million, or $29 million after-tax ($0.04 per diluted share) recorded in the third quarter in Labor and fringe benefits within the Consolidated Statements of Income; -- advisory fees related to shareholder matters of $20 million, or $15 million after-tax ($0.02 per diluted share) of which $13 million, or $10 million after-tax ($0.02 per diluted share) was recorded in the fourth quarter and $7 million, or $5 million after-tax ($0.01 per diluted share) was recorded in the third quarter in Casualty and other within the Consolidated Statements of Income; -- the recovery of $137 million, or $102 million after-tax ($0.14 per diluted share) recorded in the first quarter related to the loss on assets held for sale in the second quarter of 2020, to reflect an agreement for the sale for on-going rail operations, certain non-core rail lines in Wisconsin, Michigan and Ontario to a short line operator; -- transaction-related costs, consisting of an advance to Kansas City Southern (KCS) and a related refund, net of transaction costs, of $84 million, or $70 million after-tax ($0.10 per diluted share), recorded in the third quarter resulting from the terminated CN Merger Agreement with KCS; -- amortization of bridge financing and other fees of $65 million, or $60 million after-tax ($0.08 per diluted share) recorded in the third quarter and $32 million, or $24 million after-tax ($0.03 per diluted share) recorded in the second quarter, resulting from the KCS transaction, recorded in Interest expense within the Consolidated Statements of Income; and -- merger termination fee paid by KCS to CN of $886 million, or $770 million after-tax ($1.08 per diluted share), recorded in the third quarter resulting from KCS' notice of termination of the CN Merger Agreement with KCS.

For the year ended December 31, 2020, the Company reported adjusted net income of $3,784 million, or $5.31 per diluted share, which excludes a loss of $486 million, or $363 million after-tax ($0.51 per diluted share) in the second quarter, resulting from the Company's decision to market for sale for on-going rail operations, certain non-core lines in Wisconsin, Michigan and Ontario, and a current income tax recovery of $141 million ($0.20 per diluted share) in the first quarter resulting from the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a U.S. tax-and-spending package aimed at providing additional stimulus to address the economic impact of the COVID-19 pandemic.

Adjusted net income is defined as Net income in accordance with GAAP adjusted for certain significant items. Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted-average diluted shares outstanding. The following table provides a reconciliation of Net income and Earnings per share in accordance with GAAP, as reported for the three months and years ended December 31, 2021 and 2020, to the non-GAAP adjusted performance measures presented herein:

Three months ended December 31 Year ended December 31In millions, except 2021 2020 2020 per share data 2021Net income $ 1,199 $ 1,021 $ $ 3,562 4,892Adjustments: Operating expense adjustments:Workforce reduction ? ? 39 ? programAdvisory feesrelated to 13 ? 20 ? shareholder mattersLoss (recovery) on assets held for ? ? (137 ) 486 saleTransaction-related ? ? 84 ? costsNon-operatingexpense adjustments:Amortization ofbridge financing ? ? 97 ? and other feesMerger termination ? ? ) ? fee (886Tax adjustments: Tax effect of ) ? 109 (123 )adjustments ^(1) (3Tax law changes and ? ? ? (141 )rate enactmentsTotal adjustments 10 ? ) 222 (674Adjusted net income $ 1,209 $ 1,021 $ $ 3,784 4,218Diluted earnings $ 1.69 $ 1.43 $ $ 5.00 per share 6.89Impact of adjustments, per 0.02 ? (0.95 ) 0.31 shareAdjusted diluted $ 1.71 $ 1.43 $ $ 5.31 earnings per share 5.94



(1) The tax impact of adjustments is based on the nature of the item for tax purposes and related tax rates in the applicable jurisdiction.

Adjusted operating income is defined as Operating income in accordance with GAAP adjusted for certain significant operating expense items. Adjusted operating expenses is defined as Operating expenses in accordance with GAAP adjusted for certain significant operating expense items. Adjusted operating ratio is defined as adjusted operating expenses as a percentage of revenues. The following table provides a reconciliation of Operating income, Operating expenses and operating ratio, as reported for the three months and years ended December 31, 2021 and 2020, to the non-GAAP adjusted performance measures presented herein:

Three months ended December 31 Year ended December 31In millions, except 2020 2020 percentages 2021 2021Operating income $ $ 1,411 $ $ 4,777 1,566 5,616Operating expense adjustments:Workforce reduction ? ? 39 ? programAdvisory fees related to 13 ? 20 ? shareholder mattersLoss (recovery) on assets held for ? ? (137 ) 486 saleTransaction-related ? ? 84 ? costsTotal operating 13 ? 6 486 expense adjustmentsAdjusted operating $ 1,579 $ 1,411 $ 5,622 $ 5,263 incomeOperating expenses $ 2,187 $ 2,245 $ 8,861 $ 9,042 Total operating (13 ) ? (6 ) (486 )expense adjustmentsAdjusted operating $ 2,174 $ 2,245 $ 8,855 $ 8,556 expensesOperating ratio 58.3 % 61.4 % 61.2 % 65.4 %Impact of (0.4 ) ? % ? % (3.5 )adjustments % %Adjusted operating 57.9 % 61.4 % 61.2 % 61.9 %ratio

Constant currency

Financial results at constant currency allow results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Measures at constant currency are considered non-GAAP measures and do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. Financial results at constant currency are obtained by translating the current period results denominated in US dollars at the weighted average foreign exchange rates used to translate transactions denominated in US dollars of the comparable period of the prior year.

The average foreign exchange rates were $1.26 and $1.25 per US$1.00 for the three months and year ended December 31, 2021, respectively, and $1.30 and $1.34 per US$1.00 for the three months and year ended December 31, 2020, respectively.

On a constant currency basis, the Companys Net income for the three months and year ended December 31, 2021 would have been higher by $27 million ($0.04 per diluted share) and higher by $166 million ($0.23 per diluted share), respectively.

The following table provides a reconciliation of the impact of constant currency and related percentage change at constant currency on the financial results, as reported for the three months and year ended December 31, 2021:

Three months ended December 31 Year ended December 31 % Change % Change Constant at Constant atIn millions, except 2021 currency 2020 constant 2021 currency 2020 constant per share data impact currency impact currency Fav Fav (Unfav) (Unfav)Revenues Petroleum and $ 755 $ 16 $ 664 16 % $ 2,816 $ 128 $ 2,631 12 %chemicalsMetals and minerals 11 354 14 % 83 1,409 16 % 393 1,548Forest products 12 433 3 % 93 1,700 8 % 435 1,740Coal 2 126 33 % 17 527 20 % 165 618Grain and 12 742 (12 %) 80 2,609 (2 %)fertilizers 643 2,475Intermodal 1,049 14 1,036 3 % 95 3,751 12 % 4,115Automotive 5 152 (1 %) 32 591 3 % 146 576Total freight 3,586 72 3,507 4 % 13,888 528 13,218 9 %revenuesOther revenues 5 149 15 % 29 601 3 % 167 589Total revenues 3,753 77 3,656 5 % 14,477 557 13,819 9 %Operating expenses Labor and fringe 8 755 10 % 65 2,723 (8 %)benefits 674 2,879Purchased services 7 565 10 % 60 2,152 ? %and material 504 2,082Fuel 13 303 (43 %) 94 1,152 (39 %) 419 1,513Depreciation and 5 402 3 % 44 1,589 (3 %)amortization 383 1,598Equipment rents 2 97 13 % 19 432 18 % 82 336Casualty and other 3 123 (4 %) 27 508 (5 %) 125 506Loss (recovery) on assets held for ? ? ? N/A (137 ) (12 ) 486 131 %saleTransaction-related ? ? N/A 47 ? N/A costs ? 84Total operating 2,187 38 2,245 1 % 344 9,042 (2 %)expenses 8,861Operating income 1,566 39 1,411 14 % 213 4,777 22 % 5,616Interest expense ) (3 ) (134 ) 4 % ) (35 ) (554 ) (16 %) (125 (610Other components of net periodic 110 ? 78 41 % 398 ? 315 26 %benefit incomeMerger termination ? ? N/A 39 ? N/A fee ? 886Other income ? ? N/A 4 6 683 % 21 43Income before 1,572 36 1,355 19 % 221 4,544 44 %income taxes 6,333Income tax expense ) (9 ) (334 ) (14 %) ) (55 ) (982 ) (52 %) (373 (1,441Net income $ 1,199 $ 27 $ 1,021 20 % $ 4,892 $ 166 $ 3,562 42 %Diluted earnings $ 1.69 $ 0.04 $ 1.43 21 % $ 6.89 $ 0.23 $ 5.00 42 %per share

Free cash flow

Free cash flow is a useful measure of liquidity as it demonstrates the Company's ability to generate cash for debt obligations and for discretionary uses such as payment of dividends, share repurchases and strategic opportunities. The Company defines its free cash flow measure as the difference between net cash provided by operating activities and net cash used in investing activities, adjusted for the impact of business acquisitions and merger transaction-related payments and cash receipts, which are items that are not indicative of operating trends. Free cash flow does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

The following table provides a reconciliation of Net cash provided by operating activities in accordance with GAAP, as reported for the three months and years ended December 31, 2021 and 2020, to the non-GAAP free cash flow presented herein:

Three months ended December 31 Year ended December 31In millions 2021 2020 2021 2020Net cash provided by operating $ 2,086 $ 2,008 $ 6,971 $ 6,165 activitiesNet cash used in investing (860 ) (868 ) (2,873 ) (2,946 )activitiesNet cash provided before financing 1,226 1,140 4,098 3,219 activitiesAdjustments: Transaction-related 36 ? 125 ? costs ^(1)Advance for ? ? 845 ? acquisition ^(2)Refund of advance ? ? (886 ) ? for acquisitionMerger termination ? ? (886 ) ? feeAcquisitions, netof cash acquired ^ ? ? ? 8 (3)Total adjustments 36 ? (802 ) 8 Free cash flow $ $ 1,140 $ $ 3,227 1,262 3,296

Relates to transaction-related costs of $125 million paid. See Note 3 -(1) Acquisitions, Terminated CN KCS merger agreement, to CN's unaudited Interim Consolidated Financial Statements for additional information. Relates to the advance paid to KCS of US$700 million ($845 million).See(2) Note 3 - Acquisitions, Terminated CN KCS merger agreement, to CN's unaudited Interim Consolidated Financial Statements for additional information. Relates to the acquisition of H&R Transport Limited ("H&R"). See Note 3 -(3) Business combinations to the Company's 2020 Annual Consolidated Financial Statements for additional information.

Adjusted debt-to-adjusted EBITDA multiple

Management believes that the adjusted debt-to-adjusted EBITDA multiple is a useful credit measure because it reflects the Company's ability to service its debt and other long-term obligations. The Company calculates the adjusted debt-to-adjusted EBITDA multiple as adjusted debt divided by the last twelve months of adjusted EBITDA.Adjusted debt is defined as the sum of Long-term debt and Current portion of long-term debt as reported on the Companys Consolidated Balance Sheets as well as Operating lease liabilities, including current portion and pension plans in deficiency recognized on the Company's Consolidated Balance Sheets due to the debt-like nature of their contractual and financial obligations. Adjusted EBITDA is calculated as Net income excluding Interest expense, Income tax expense, Depreciation and amortization, operating lease cost, Other components of net periodic benefit income, Other income, and other significant items that are not reflective of CN's underlying business operations and which could distort the analysis of trends in business performance. Adjusted debt and adjusted EBITDA are non-GAAP measures used to compute the Adjusted debt-to-adjusted EBITDA multiple. These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

The following table provides a reconciliation of debt and Net income in accordance with GAAP, reported as at and for the years ended December31, 2021 and 2020, respectively, to the adjusted measures presented herein, which have been used to calculate the non-GAAP adjusted debt-to-adjusted EBITDA multiple:

In millions, unless As at and for theotherwise indicated year ended December 2021 2020 31,Debt $ 12,485 $ 12,906 Adjustments: Operating lease liabilities, including 418 current portion ^(1) 430Pension plans in deficiency ^(2) 553 447Adjusted debt $ 13,362 $ 13,877 Net income $ 4,892 $ 3,562 Interest expense 554 610Income tax expense 982 1,441Depreciation and amortization 1,589 1,598Operating lease cost^ (3) 143 131Other components of net periodic benefit ) (315 )income (398Other income ) (6 ) (43Adjustments: Workforce reduction ? program ^(4) 39Advisory fees related to shareholder ? matters ^(5) 20Loss (recovery) on assets held for sale ) 486 (137Transaction-related ? costs 84Merger termination fee ) ? (886Adjusted EBITDA $ 7,351 $ 6,995 Adjusted debt-to-adjusted EBITDA multiple 1.98 (times) 1.82

(1) Represents the present value of operating lease payments.(2) Represents the total funded deficit of all defined benefit pension plans with a projected benefit obligation in excess of plan assets.(3) Represents the operating lease costs recorded in Purchased services and material and Equipment rents within the Consolidated Statements of Income. Relates to employee termination benefits and severance costs related to a(4) workforce reduction program, recorded in Labor and fringe benefits within the Consolidated Statements of Income.(5) Relates to advisory fees related to shareholder matters recorded in Casualty and other within the Consolidated Statements of Income.

ROIC and adjusted ROIC

ROIC and adjusted ROIC are useful measures for management and investors to evaluate the efficiency of the Company's use of capital funds and allow investors to assess the operating and investment decisions made by management. The Company calculates ROIC as return divided by average invested capital, both of which are non-GAAP measures. Return is defined as Net income plus interest expense after-tax, calculated using the Company's effective tax rate. Average invested capital is defined as the sum of Total shareholders' equity, Long-term debt and Current portion of long-term debt less Cash and cash equivalents, and Restricted cash and cash equivalents, averaged between the beginning and ending balance over the last twelve-month period. The Company calculates adjusted ROIC as adjusted return divided by average invested capital, both of which are non-GAAP measures. Adjusted return is defined as adjusted net income plus interest expense after-tax, calculated using the Company's adjusted effective tax rate. Return, average invested capital, ROIC, adjusted return and adjusted ROIC do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.

The following table provides a reconciliation of Net income and adjusted net income to return and adjusted return, respectively, as well as the calculation of average invested capital, which have been used to calculate ROIC and adjusted ROIC:

In millions, except percentage As at and for the year 2021 2020 ended December 31,Net income $ 4,892 $ 3,562 Interest expense 610 554 Tax on interest expense ^(1) (139 ) (120 )Return $ 5,363 $ 3,996 Average total shareholders' equity $ 21,198 $ 18,846 Average long-term debt 11,987 11,931 Average current portion of long-term debt 709 1,420 Less: Average cash, cash equivalents, restricted cash and (1,221 ) (844 )restricted cash equivalentsAverage invested capital $ 32,673 $ 31,353 ROIC 16.4 % 12.7 %Adjusted net income ^(2) $ 4,218 $ 3,784 Interest expense 610 554 Less: Amortization of bridge (97 ) ? financing and other fees ^(3)Tax on interest expense less amortization of bridge (123 ) (137 )financing and other fees ^(4)Adjusted return $ 4,608 $ 4,201 Average invested capital $ 32,673 $ 31,353 Adjusted ROIC 14.1 % 13.4 %

The effective tax rate, defined as income tax expense as a percentage of(1) income before income taxes, used to calculate the tax on interest expense for 2021 was 22.8% (2020 - 21.6%). This Non-GAAP measure does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by(2) other companies. See the supplementary schedule entitled Non-GAAP Measures ? Adjusted performance measures for an explanation of this non-GAAP measure. Relates to amortization of bridge financing and other fees resulting from(3) the KCS transaction, recorded in Interest expense within the Consolidated Statements of Income. The adjusted effective tax rate is a Non-GAAP measure, defined as Income tax expense, net of tax adjustments as presented in Adjusted performance measures as a percentage of Income before taxes, net of pre-tax adjustments as presented in Adjusted performance measures. This measure does not have(4) any standardized meaning prescribed by GAAP and therefore, may not be comparable to a similar measure presented by other companies. The adjusted effective tax rate used to calculate the adjusted tax on interest expense less amortization of bridge financing and other fees for 2021 was 24.0% (2020 - 24.8%).

Consolidated Statements of Incomeunaudited

Three months ended Year ended December 31 December 31In millions, except per 2021 2020 2021 2020 share dataRevenues $ 3,753 $ 3,656 $ $ 13,819 14,477Operating expenses Labor and fringe 674 755 2,879 2,723 benefitsPurchased services and 504 565 2,082 2,152 materialFuel 419 303 1,513 1,152 Depreciation and 383 402 1,598 1,589 amortizationEquipment rents 82 97 336 432 Casualty and other 125 123 506 508 Loss (recovery) on assets held for sale ? ? (137 ) 486 (Note 4)Transaction-related ? 84 ? costs (Note 3) ?Total operating 2,187 2,245 8,861 9,042 expensesOperating income 1,566 1,411 5,616 4,777 Interest expense (125 ) (134 ) (610 ) (554 )Other components of net 110 78 398 315 periodic benefit incomeMerger termination fee ? 886 ? (Note 3) ?Other income ? 43 6 21Income before income 1,572 1,355 6,333 4,544 taxesIncome tax expense (373 ) (334 ) (1,441 ) (982 )Net income $ 1,199 $ 1,021 $ 4,892 $ 3,562 Earnings per share Basic $ 1.70 $ 1.44 $ $ 5.01 6.90Diluted $ 1.69 $ 1.43 $ $ 5.00 6.89Weighted-average number of sharesBasic 705.3 711.2 711.3 708.5Diluted 707.4 713.2 713.0 710.3Dividends declared per $ 0.615 $ 0.575 $ $ 2.300 share 2.460

See accompanying notes to unaudited consolidated financial statements.

Consolidated Statements of Comprehensive Incomeunaudited

Three months ended Year ended December 31 December 31In millions 2021 2020 2021 2020 Net income $ 1,199 $ 1,021 $ 4,892 $ 3,562 Othercomprehensive income (loss)Net loss onforeign ) (228 ) ) (82 )currency (18 (52translationNet change inpension andother 1,858 (20 ) 2,075 160 postretirementbenefit plansOthercomprehensiveincome (loss) 1,840 (248 ) 2,023 78 before incometaxesIncome tax (489 ) (44 ) (546 ) (67 )expenseOthercomprehensive 1,351 (292 ) 1,477 11 income (loss)Comprehensive $ 2,550 $ 729 $ 6,369 $ 3,573 income

See accompanying notes to unaudited consolidated financial statements.

Consolidated Balance Sheetsunaudited

December 31 December 31 In millions 2021 2020 Assets Current assets Cash and cash equivalents $ 838 $ 569 Restricted cash and cash equivalents 503 531 Accounts receivable 1,074 1,054 Material and supplies 589 583 Other current assets (Note 4) 422 365 Total current assets 3,426 3,102 Properties 41,178 40,069 Operating lease right-of-use assets 445 435 Pension asset 3,050 777 Intangible assets, goodwill and other 439 421 Total assets $ 48,538 $ 44,804 Liabilities and shareholders' equity Current liabilities Accounts payable and other $ 2,612 $ 2,364 Current portion of long-term debt 508 910 Total current liabilities 3,120 3,274 Deferred income taxes 9,303 8,271 Other liabilities and deferred credits 427 534 Pension and other postretirement benefits 645 767 Long-term debt 11,977 11,996 Operating lease liabilities 322 311 Shareholders' equity Common shares 3,704 3,698 Common shares in Share Trusts (103 ) (115 )Additional paid-in capital 397 379 Accumulated other comprehensive loss (1,995 ) (3,472 )Retained earnings 20,741 19,161 Total shareholders' equity 22,744 19,651 Total liabilities and shareholders' equity $ 48,538 $ 44,804

See accompanying notes to unaudited consolidated financial statements.

Consolidated Statements of Changes in Shareholders' Equityunaudited

Number of Common common shares shares Additional Accumulated Total Common in paid-in other Retained shareholders' Share shares Share capital comprehensive earnings equityIn millions Outstanding Trusts Trusts loss

Balance atSeptember 30, 707.3 1.1 $ 3,727 $ (104 ) $ 381 $ (3,346 ) $ 21,002 $ 21,660 2021Net income 1,199 1,199 Stock options 0.2 12 (1 ) 11 exercisedSettlement ofequity 0.1 (0.1 ) 6 (9 ) (3 ) (6 )settledawardsStock-basedcompensation 26 ? 26 expense andotherRepurchase of (6.6 ) (35 ) (1,024 ) (1,059 )common sharesSharepurchases by (0.1 ) 0.1 (5 ) (5 )Share TrustsOthercomprehensive 1,351 1,351 incomeDividends($0.615 per (433 ) (433 )share)Balance at December 31, 700.9 1.1 $ 3,704 $ (103 ) $ 397 $ (1,995 ) $ 20,741 $ 22,744 2021

Number of Common Additional Accumulated Total common shares Common shares paid-in other Retained shareholders' In millions Outstanding Share shares in Share capital comprehensive earnings equity Trusts Trusts lossBalance atDecember 31, 710.3 1.3 $ 3,698 $ (115 ) $ 379 $ (3,472 ) $ 19,161 $ 19,651 2020Net income 4,892 4,892 Stock options 0.7 60 (8 ) 52 exercisedSettlement ofequity 0.4 (0.4 ) 38 (60 ) (42 ) (64 )settledawardsStock-basedcompensation 86 (2 ) 84 expense andotherRepurchase of (10.3 ) (54 ) (1,528 ) (1,582 )common sharesSharepurchases by (0.2 ) 0.2 (26 ) (26 )Share TrustsOthercomprehensive 1,477 1,477 incomeDividends($2.460 per (1,740 ) (1,740 )share)Balance at December 31, 700.9 1.1 $ 3,704 $ (103 ) $ 397 $ (1,995 ) $ 20,741 $ 22,744 2021

See accompanying notes to unaudited consolidated financial statements.

Number of Common common shares shares Additional Accumulated Total Common in paid-in other Retained shareholders' Share shares Share capital comprehensive earnings equityIn millions Outstanding Trusts Trusts loss

Balance atSeptember 30, 710.2 1.3 $ 3,692 $ (115 ) $ 367 $ (3,180 ) $ 18,549 $ 19,313 2020Net income 1,021 1,021 Stock options 0.1 6 (1 ) 5 exercisedSettlement ofequity ? ? 6 (6 ) ? ? settledawardsStock-basedcompensation 19 ? 19 expense andotherSharepurchases by ? ? (6 ) (6 )Share TrustsOthercomprehensive (292 ) (292 )lossDividends($0.575 per (409 ) (409 )share)Balance atDecember 31, 710.3 1.3 $ 3,698 $ (115 ) $ 379 $ (3,472 ) $ 19,161 $ 19,651 2020

Number of Common common shares shares Additional Accumulated Total Common in paid-in other Retained shareholders' Share shares Share capital comprehensive earnings equityIn millions Outstanding Trusts Trusts loss

Balance atDecember 31, 712.3 1.8 $ 3,650 $ (163 ) $ 403 $ (3,483 ) $ 17,634 $ 18,041 2019Net income 3,562 3,562 Stock options 0.8 65 (9 ) 56 exercisedSettlement ofequity 0.6 (0.6 ) 62 (82 ) (37 ) (57 )settledawardsStock-basedcompensation 67 (2 ) 65 expense andotherRepurchase of (3.3 ) (17 ) (362 ) (379 )common sharesSharepurchases by (0.1 ) 0.1 (14 ) (14 )Share TrustsOthercomprehensive 11 11 incomeDividends($2.300 per (1,634 ) (1,634 )share)Balance atDecember 31, 710.3 1.3 $ 3,698 $ (115 ) $ 379 $ (3,472 ) $ 19,161 $ 19,651 2020

See accompanying notes to unaudited consolidated financial statements.

Consolidated Statements of Cash Flowsunaudited

Three months ended Year ended December 31 December 31In millions 2021 2020 2021 2020 Operating activities Net income $ 1,199 $ 1,021 $ 4,892 $ 3,562 Adjustments to reconcilenet income to net cash provided by operatingactivities:Depreciation and 383 402 1,598 1,589 amortizationPension income and (97 ) (56 ) (305 ) (234 )fundingAmortization of bridge financing and other fees ? ? 97 ? (Note 3)Deferred income taxes 154 115 511 487 Loss (recovery) onassets held for sale ? ? (137 ) 486 (Note 4)Changes in operating assets and liabilities:Accounts receivable 135 68 ) 158 (22Material and supplies 30 20 ) 20 (7Accounts payable and 281 451 141 (49 )otherOther current assets (24 ) (25 ) ? 35Other operating 25 12 168 146 activities, netNet cash provided by 2,086 2,008 6,971 6,165 operating activitiesInvesting activities Property additions (914 ) (855 ) (2,891 ) (2,863 )Advance for acquisitionand other ? (908 ) ? transaction-related ?costs (Note 3)Refund of advance for ? ? acquisition (Note 3) ? 886Acquisitions, net of ? (8 )cash acquired (Note 3) ? ?Other investing (13 ) (75 )activities, net 54 40Net cash used in (860 ) (868 ) (2,873 ) (2,946 )investing activitiesFinancing activities Issuance of debt 32 403 1,789 ?Repayment of debt ) (30 ) (861 ) (1,221 ) (19Change in commercial (1,014 ) (434 ) 66 (1,273 )paper, netBridge financing and ? (97 ) ? other fees (Note 3) ?Settlement of foreign exchange forward (9 ) (13 ) (8 ) 26 contracts on debtIssuance of common shares for stock options 11 5 52 56 exercisedWithholding taxesremitted on the net ) ? (37 ) (48 )settlement of equity (5settled awardsRepurchase of common (1,096 ) ? (1,582 ) (379 )sharesPurchase of common shares for settlement of (2 ) ? (27 ) (9 )equity settled awardsPurchase of common ) (6 ) (26 ) (14 )shares by Share Trusts (5Dividends paid (433 ) (409 ) (1,740 ) (1,634 )Net cash used in (2,572 ) (855 ) (3,857 ) (2,707 )financing activitiesEffect of foreignexchange fluctuations oncash, cash equivalents, (1 ) ? restricted cash and ? ?restricted cashequivalentsNet increase (decrease)in cash, cashequivalents, restricted (1,346 ) 284 241 512 cash, and restrictedcash equivalentsCash, cash equivalents,restricted cash, andrestricted cash 2,687 816 1,100 588 equivalents, beginningof periodCash, cash equivalents,restricted cash, andrestricted cash $ 1,341 $ 1,100 $ 1,341 $ 1,100 equivalents, end ofperiodCash and cashequivalents, end of $ 838 $ 569 $ 838 $ 569 periodRestricted cash and cashequivalents, end of 503 531 503 531 periodCash, cash equivalents,restricted cash, andrestricted cash $ 1,341 $ 1,100 $ 1,341 $ 1,100 equivalents, end ofperiodSupplemental cash flow informationInterest paid $ (79 ) $ (90 ) $ (512 ) $ (551 )Income taxes refunded $ (177 ) $ 7 $ (759 ) $ (353 )(paid)

See accompanying notes to unaudited consolidated financial statements.

Notes to Unaudited Consolidated Financial Statements

1 Basis of presentation

In these notes, the "Company" or "CN" refers to, Canadian National Railway Company, together with its wholly-owned subsidiaries.

The accompanying unaudited Interim Consolidated Financial Statements, expressed in Canadian dollars, have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial statements. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In management's opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim operating results are not necessarily indicative of the results that may be expected for the full year.

These unaudited Interim Consolidated Financial Statements have been prepared using accounting policies consistent with those used in preparing CN's 2020 Annual Consolidated Financial Statements and should be read in conjunction with such statements and Notes thereto.

2 Recent accounting pronouncements

The following recent Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) came into effect in 2020, was amended in 2021 and has not been adopted by the Company:

ASU 2020-04 Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting and related amendments

London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. The administrator of LIBOR has ceased the publication of one week and two month USD LIBOR rates on January 1, 2022 and intends to discontinue the remaining USD LIBOR rates immediately following the LIBOR publication on June 30, 2023.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.

The ASU was effective starting on March 12, 2020, and is available to be adopted on a prospective basis no later than December 31, 2022, when the reference rate replacement activity is expected to be completed. The Company currently has outstanding loans referencing LIBOR, that were not impacted by the administrator of LIBOR ceasing publication of one week and two month USD LIBOR rates, totaling US$572million that would be affected by the provisions of this ASU. The Company also has a revolving credit facility and an accounts receivable securitization program that reference LIBOR. The Company had no outstanding borrowing under these credit facilities as at December 31, 2021. The Company has fallback language to allow for the succession of a clearly defined alternative reference rate within the contracts that reference LIBOR. The Company is evaluating the effects that the adoption of the ASU will have on its Consolidated Financial Statements and related disclosures, and whether it will elect to apply any of the optional expedients and exceptions provided in the ASU.

Other recently issued ASUs required to be applied on or after December 31, 2021 have been evaluated by the Company and are not expected to have a significant impact on the Company's Consolidated Financial Statements.

3 Acquisitions

Terminated CN KCS merger agreement

On September 15, 2021, Kansas City Southern (KCS) notified CN that it terminated the previously announced May 21, 2021 definitive merger agreement (the CN Merger Agreement") under which CN would have acquired KCS for an implied total transaction value of US$33.6 billion, including the assumption of US$3.8 billion of debt.

On August 31, 2021, the Surface Transportation Board ("STB") rejected the joint motion by CN and KCS to approve a proposed voting trust agreement. On September 15, 2021, KCS and its Board of Directors announced that the revised acquisition proposal of September 12, 2021 from Canadian Pacific Railway Limited (CP) constituted a "Company Superior Proposal" as defined in the CN Merger Agreement. Consequently, KCS entered into a waiver letter agreement with CN under which KCS agreed to terminate the CN Merger Agreement in order to enter into a merger agreement with CP. As a result, CN received from KCS a merger termination fee of US$700 million ($886 million), recorded in Merger termination fee within the Companys Consolidated Statements of Income and reflected in Operating activities within the Consolidated Statements of Cash Flows. In addition, KCS also refunded Brooklyn US Holdings, Inc. ("Holdco"), a wholly owned subsidiary of the Company, US$700 million ($886 million) that CN had previously paid as an advance to KCS of US$700 million ($845 million) in connection with KCSs payment of the termination fee to CP under KCSs original merger agreement with CP that was terminated on May 21, 2021. The refund received in the third quarter was recorded in Transaction-related costs within the Consolidated Statements of Income and reflected in Investing activities within the Consolidated Statements of Cash flows. The US$700 million ($845 million) advance had been recorded in Advance to KCS and other transaction costs within the Consolidated Balance Sheets in the second quarter of 2021 and has been expensed to Transaction-related costs within the Consolidated Statements of Income in the third quarter. This advance, along with $63 million of transaction-related costs paid in the second quarter, have been reflected in Investing activities within the Consolidated Statements of Cash flows.

The Company incurred $84 million of transaction-related costs for the year ended December 31, 2021 recorded in Transaction-related costs within the Consolidated Statements of Income. This included $125 million of transaction-related costs, consisting of a $76 million expense for costs previously capitalized to Advance to KCS and other transaction costs within the Consolidated Balance Sheets in the second quarter of 2021 in accordance with the expected application of equity method accounting and $49 million of additional transaction-related costs incurred in the third quarter of 2021; partially offset by $41 million of income generated as a result of the applicable foreign exchange rates prevailing at the time of payment of the US dollar denominated advance to KCS and receipt of the related refund.

The Company also paid $97 million of bridge financing and other fees which were recorded in Interest expense within the Consolidated Statements of Income for the year ended December 31, 2021.

For the year ended December 31, 2021, after accounting for all direct and incremental expenses as well as income generated from the merger termination fee, CN recorded additional income of $705 million ($616 million after-tax), as a result of its strategic decision to bid for KCS.

4 Assets held for sale

In the second quarter of 2020, the Company committed to a plan and was actively marketing for sale for on-going rail operations, certain non-core lines in Wisconsin, Michigan and Ontario representing approximately 850 miles and has met the criteria for classification of the related assets as assets held for sale. Accordingly, a $486 million loss ($363 million after-tax) was recorded to adjust the carrying amount of these track and roadway assets to their estimated net selling price.

On March 31, 2021, CN entered into an agreement with a short line operator, for the sale of the non-core lines plus an additional 50 miles of track and roadway assets not originally included within assets held for sale, subject to various conditions including regulatory authorization by the STB. The carrying amount of assets held for sale was adjusted in the first quarter of 2021 to $260 million ($90 million as at December 31, 2020), to reflect the contractual selling price net of estimated transaction costs and the additional track and roadway assets included as part of the agreement. The increase of $170 million included a $137 million recovery of the loss ($102 million after-tax) on the non-core lines and $33 million for the additional track and roadway assets. The carrying amount of assets held for sale was included in Other current assets in the Consolidated Balance Sheets. As at December 31, 2021, the criteria for the classification of assets held for sale continued to be met and there was no change to the carrying amount of assets held for sale.

In the fourth quarter of 2021, the STB approved the Company's agreement with the short line operator without condition and the transaction is expected to close on January 28, 2022 and January 31, 2022 for the U.S. and Canadian assets, respectively.

5 Subsequent events

Normal course issuer bid (NCIB)

On January 25, 2022, the Board of Directors of the Company approved a new NCIB, which allows for the repurchase of up to 42.0 million common shares between February1, 2022 and January31, 2023.