FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of July 2020
Commission File Number: 001-02413
Canadian National Railway Company
(Translation of registrant’s name into English)
935 de la Gauchetiere Street West
Montreal, Quebec
Canada H3B 2M9
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
| Form 20-F o | Form 40-F x |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
| Yes o | No x |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
| Yes o | No x |
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
| Yes o | No x |
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Canadian National Railway Company | ||
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Date: July 6, 2020 |
| By: | /s/ Cristina Circelli | |
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| Name: | Cristina Circelli |
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| Title: | Vice-President, Deputy Corporate Secretary and General Counsel |
CANADIAN NATIONAL RAILWAY COMPANY
Table of Contents
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1 |
| 2020 Investor Fact Book Update |
Item 1.
Forward CN 2020 INVESTOR FACT BOOK UPDATE Moving
CONTENTS Financials 5 Quarterly Consolidated Statements of Income Except where otherwise indicated, all financial information reflected in this document is expressed in Canadian dollars and determined on the basis of United States generally accepted accounting principles (GAAP). FORWARD-LOOKING STATEMENTS: As used herein, the terms “CN”, the “Company”, “we”, “our”, and “us” refer to Canadian National Railway Company, together with its wholly-owned subsidiaries. Certain statements included in the CN 2019 Investor Fact Book constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. By their nature, forward-looking statements involve risks, uncertainties and assumptions. The Company 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 the actual results or performance of the Company to be materially different from the outlook or any future results or performance 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 effects of a pandemic outbreak of a contagious illness; 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 Management’s Discussion and Analysis in CN’s annual and interim reports, Annual Information Form and Form 40-F, filed with Canadian and U.S. securities regulators on SEDAR (www.sedar.com) as well as on the U.S. Securities and Exchange Commission’s website (www.sec.gov) through EDGAR and available on CN’s website (www.cn.ca/investors), 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. PICTURED ABOVE: One of CN’s newest high-efficiency locomotives, Jasper, AB. Photo by CN employee Tim Stevens. 1 1 1 2 2 6 Quarterly Consolidated Balance Sheets 7 Quarterly Consolidated Statements of Cash Flows 9 Quarterly Financial and Statistical Data 0 Non-GAAP Measures 5 Shareholder and Investor Information Overview 01 Creating Value for Our Shareholders 1 02 Our Strengths and Competitive Advantages 04 Financial and Operating Measures Markets 06 Market Overview 08 Petroleum and Chemicals 09 Metals and Minerals 10 Forest Products 11 Coal 12 Grain and Fertilizers 13 Intermodal 14 Automotive
3,244 3,239 3,159 Creating Value for Our Shareholders (Index: Closing price on January 31, 2013 = 100) CNI (NYSE) S&P 500 (in millions $) p Dividends 3,333 TO SHAREHOLDERS IN 2019 us to distribute over $3.2 billion to increased our dividend every year since CN | 2020 INVESTOR FACT BOOK UPDATE 01 2019 Highlights TOTAL REVENUES OPERATING RATIO ADJUSTED ROIC 1) $14.9B 62.5% 15.1% FREE CASH FLOW 1)DILUTED EARNINGSADJUSTED DILUTED EARNINGS PER SHARE PER SHARE 1) $2.0B $5.83$5.80 1) See section entitled Non-GAAP Measures for an explanation of these non-GAAP measures. CN’S STOCK PERFORMANCE (2013 – 2019 ) 1) 192% CNR (TSX) CUMULATIVE TOTAL RETURN SINCE TSX JANUARY 2013 CN’s share price on the TSX (CNR) has increased at a compound annual growth rate (CAGR) of 16% since our initial public offering (IPO) in 1995. 2013201420152016201720182019 1) As at December 31, 2019Source: Bloomberg TOTAL SHAREHOLDER DISTRIBUTION p Share repurchases~7 7% OF ADJUSTED NET INCOME1) RETURNED CN’s strong financial position allowed our shareholders in 2019. We have 1995 at an average CAGR of 16%. CN has returned over $23 billion to our shar2e0h13olders since 2000 in the form of 2013201420152016201720182019shar1e) Ares patuDrecemabseer 3s1. , 2019 1) See section entitled Non-GAAP Measures for an explanation of these non-GAAP measures. 2,7461,1591,239 2,323996 2,124 724818 2,0002,000 1,750 1,4001,505 1,333 2,000 1,544 1,700
Expansive North American network with unmatched reach ~20,000 for our shareholders through strong financial performance and a best-in-class Our solid franchise is the result of strategic investing in the business to accommodate the network and our key acquisitions across and fluidity of the network. and extend our geography, which includes 25,975 that draws on experience and knowledge with a supply chain focus from other industries to build a more Railroading has been the foundation of management team is composed of operations to our procurement practices. leaders who are willing to take measured risks and build on our solid foundation. we are looking at innovative ways to transform our whole business, from MORE FUEL EFFICIENT THAN THE p 34% pTran3s4b%ordTrearnsborder p 17p% pCan1a7d%ianCdaonmadeisatnicdomestic p 25%CIOnNteSrUmModEaRl PRODUCT SUPPLY CHAIN RAIL CENpTRIC6%SUPAPuLtoYmCoHtAivIeN p 21%RPAeILtroClEeNumTRaICndSUchPePmLYicaClHs AIN p p 16%pGra2i1n%anPdefterortlieliuzmersand chemicals p 11%pMe1ta2l%s aFnodremstinperroadlsucts OTHER p 4% Coal p 5% Other revenues Overview Our Strengths and Competitive Advantages A GREAT AND DIVERSIFIED FRANCHISE CN is a leading North American transportation and logistics company, and our approximately 20,000-mile network spans Canada and Mid-America, connecting ports on three coasts. KEY STATISTICS 1)What sets CN apart Proven track record of growth and financial stability CN is committed to long-term value CN’s network was not built overnight. ROUTE MILEScapital spending to strengthen and evolvebalance sheet. Our first use of cash is $3.9B Canada and in the U.S. to build our tracksexpected growth and to ensure the safety CAPITAL INVESTMENTSCN’s fluidity advantage in Chicago.Experienced and diverse talent Pioneers of Scheduled RailroadingCN is proud to have a pool of talent For more than 15 years, Schedulednot only from the rail industry, but also EMPLOYEES (end of period)how CN operates, from our day-to-daywell-rounded management team. Our 15% With Scheduled Railroading as our base,innovative, transformative and accountable INDUSTRY AVERAGEengineering to sales and marketing, to be a best-in-class supply chain enabler. Broad geographic exposureBalanced and diverse portfolio 2019 REVENUES BY GEOGRAPHIC FLOW2019 REVENUES BY COMMODITY GROUP (% of freight revenues)(% of total revenues) CONSUMER PRODUCT SUPPLY CHAIN p 33p% pOve3r3se%asOverseasp 6%pAu2to5m%otIinvteermodal p 16p% pU.S1. 6do%mUes.Sti.cdomestic p 12%pFor1e6st%prGordauinctsand fertilizers p 4%pCo1al1% Metals and minerals p 5%OOTtHhEeRr revenues 1) As at or for the year ending December 31, 2019 02CN | 2020 INVESTOR FACT BOOK UPDATE
Matane Vancouver Hearst Moncton Winnipeg Thunder Bay Auburn Green Toronto Sarnia Minneapolis/St. Paul Arcadia Buffalo CN main lines Secondary and feeder lines Shortline partners Detroit Sioux City Chicago Pittsburgh Omaha Decatur Markam Chicago Mobile Gulfport 20 38% improvement in locomotive emission 500 IT and Other 38% Equipment in capital investments 0 0 GTMs (billions) Tons CO2e/GTM Hay River Fort Nelson Prince Rupert Fort McMurray Prince George EdmontonSept-Îles Kamloops SaskatoonBaie-Comeau Calgary Regina QuebecHalifax Montreal Saint John Duluth Sault Ste. Marie Stevens Chippewa FallsPoint LEGEND BayWorcester Fond du LacNew London Conneaut Joliet Toledo East Peoria Ports served by CNSpringfield Indianapolis East St. Louis ILLINOISROUTE IN Memphis Munger Jackson Griffith Baton Rouge New Orleans Disciplined approach to capital investmentsDecoupling growth from carbon emissions CAPITAL INVESTMENTS1) LOCOMOTIVE CARBON EMISSION INTENSITY vs. GROSS TON MILES (GTMs) (in millions $)3,865(Tons CO2e/GTM vs. Traffic Billion GTM) Positive Train Control intensity over the past 25 years Capacity and Growth16400 12300 Infrastructure Maintenance8200 $20B4100 since 2013 2013 2014 2015 2016 2017 2018201994 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 1) Excludes finance leasesLocomotive Emission IntensityGross Ton Miles CN | 2020 INVESTOR FACT BOOK UPDATE 03 3,531 2,706 2,695 2,673 2,297 1,973 Waukegan Leithton FASTEST RAIL AND AROUND CHICAGO West Chicago Chicago South Chicago Gary Outer BeltMatteson (CN)Joliet Chicago Heights Goose LakeINDIANA
Overview Financial and Operating Measures Financial measures 20152016201720182019 2019 VS. 2015 CAGR +4% +2% +7% +340bps* 14,3215,49361.6 58.2 1) See section entitled Non-GAAP Measures for an explanation of these non-GAAP measures. 04CN | 2020 INVESTOR FACT BOOK UPDATE TOTAL REVENUESOPERATING INCOME DILUTED EARNINGS PER SHAREOPERATING RATIO ($ millions)($ millions)($)(%) 14,9175,593Adjusted 7.2462.5 5,155 5,032 5,243 12,037 4.39 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 * Variance between 2019 and 2015 59.8 59.1 Diluted Earnings Per Share1) 4.67 5.87 5.83 12,61113,041 KEY FINANCIAL PERFORMANCE INDICATORS Total revenues ($ millions) Freight revenues ($ millions) Operating income ($ millions) Adjusted operating income ($ millions) 1) Net income ($ millions) Adjusted net income ($ millions) 1) Diluted earnings per share ($) Adjusted diluted earnings per share ($) 1) Free cash flow ($ millions) 1) Gross property additions ($ millions) Share repurchases ($ millions) Dividends per share ($) 12,61112,03713,04114,321 14,917 11,90511,32612,29313,548 14,198 5,1555,0325,2435,493 5,593 5,1555,0325,2435,520 5,708 3,5383,6405,4844,328 4,216 3,5803,5813,7784,056 4,189 4.394.677.245.87 5.83 4.444.594.995.50 5.80 2,3732,5202,7782,514 1,992 2,7062,7522,7033,531 4,079 1,7502,0002,0002,000 1,700 1.251.501.651.82 2.15 FINANCIAL POSITION Total assets ($ millions) Total liabilities ($ millions) Shareholders’ equity ($ millions) 36,40237,05737,62941,214 43,784 21,45222,21620,97323,573 25,743 14,95014,84116,65617,641 18,041 FINANCIAL RATIOS Operating ratio (%) Adjusted operating ratio (%) 1) Adjusted debt-to-adjusted EBITDA multiple (times) 1) Return on invested capital (ROIC) (%) 1) Adjusted ROIC (%) 1) 59.158.259.861.6 62.5 59.158.259.861.5 61.7 1.771.851.751.94 2.02 16.816.022.416.7 15.3 17.015.815.915.7 15.1
47 442.1 Operating measures2) 20152016201720182019 2) Statistical operating data, key operating measures and rolling stock information are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available. Definitions of these indicators are provided on our website, www.cn.ca/glossary. 2019 VS. 2015 CAGR +2% +1% -1% -3% 469.248224 CN | 2020 INVESTOR FACT BOOK UPDATE 05 GROSS TON MILES (GTMs) TRAIN PRODUCTIVITY YARD PRODUCTIVITY CAR VELOCITY (billions)(GTMs per train mile)(cars per yard switching hour)(car miles per day) 490.4 482.99,314 9,424 9,163 9,125515149236 198 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 8,739 211 188 423.4 STATISTICAL OPERATING DATA Gross ton miles (GTMs) (billions) Revenue ton miles (RTMs) (billions) Carloads (thousands) Route miles (includes Canada and the U.S.) Employees (end of period) Employees (average for the period) 442.1423.4469.2490.4 482.9 224.7214.3237.1248.4 242.0 5,4855,2055,7375,976 5,912 19,60019,60019,50019,500 19,500 23,06622,24923,94525,720 25,975 24,40622,32223,07425,423 26,733 KEY OPERATING MEASURES Freight revenue per RTM (cents) Freight revenue per carload ($) GTMs per average number of employees (thousands) Operating expenses per GTM (cents) Labor and fringe benefits expense per GTM (cents) Diesel fuel consumed (US gallons in millions) Average fuel price ($/US gallon) GTMs per US gallon of fuel consumed 5.305.285.185.45 5.87 2,1702,1762,1432,267 2,402 18,11418,96920,33519,290 18,063 1.691.651.661.80 1.93 0.570.570.540.58 0.61 425.0398.9441.4462.7 451.4 2.682.342.743.32 3.17 1,0401,0611,0631,060 1,070 OPERATING METRICS Car velocity (car miles per day) Yard productivity (cars per yard switching hour) Locomotive utilization (trailing GTMs per total horsepower) Train productivity (GTMs per train mile) Through dwell (hours) Through network train speed (miles per hour) 224236211188 198 48515149 47 219230225208 198 8,7399,3149,4249,163 9,125 7.36.97.78.3 7.9 21.522.520.318.0 18.5 CN ROLLING STOCK Diesel locomotives (end of period) Freight cars (end of period) 2,1802,2682,2852,412 2,398 63,91363,44265,01966,978 64,607
11% Markets Market Overview REACHING FARTHER WITH OUR CUSTOMERS CN aims to deliver valuable transportation services for our customers and to work with all our supply chain partners as ONE TEAM with ONE GOAL. Our freight revenues are derived from seven commodity groups representing a balanced and diversified portfolio of goods, enabling CN to better weather economic fluctuations and enhance our potential for growth opportunities. Our business model is anchored on the continuous pursuit of operational and service excellence. We focus on continuous improvement and a supply chain mindset that allows us to collaborate with our customers. Considering changing economic conditions and shifting market cycles, CN nurtures the close relationships of our business units with our customers to better anticipate future demands and help them win in new end markets. Well-diversified portfolio supported by solid base of customers and partners 5% $250B COALWORTH OF TRADE EACH YEAR MINERALS 12% $15B 6% PRODUCTS GRAIN ANDPETROLEUM AND 06CN | 2020 INVESTOR FACT BOOK UPDATE 2019 REVENUES BY COMMODIT Y GROUP (% of total revenues) 4% OTHER REVENUES 25% INTERMODAL METALS AND300M tons ANNUAL CARGO CARRIED FORESTTOTAL REVENUESAUTOMOTIVE 9 ports SERVED ACROSS NORTH AMERICA 16%21%65% FERTILIZERSCHEMICALSOF TRAFFIC ORIGINATING AND Rail Centric Supply ChainConsumer Product Supply ChainOther TERMINATING ON CN’S NETWORK
Performance Summary RevenuesCarloads $ millionsthousands % % 20152016201720182019 Change1)20152016201720182019 Change1) RTMsAverage length of haul millionsmiles % % 20152016201720182019 Change1)20152016201720182019 Change1) 1) % change from 2018 to 2019. Industry leading in volume growth 130CN+2.4% CSX2013 AND 2019 2013201420152016201720182019 CN | 2020 INVESTOR FACT BOOK UPDATE 07 CN VOLUME PERFORMANCE RELATIVE TO INDUSTRY PEERS (RTMs) (Index 2013 = 100) KSU CP 120NSCCAGR IN RTMs BETWEEN UNP 110CN’s objective is to grow our business faster than the overall North American 100economy. CN has demonstrated a strong track record of growth, outpacing our 90railroad industry peers. 80 Petroleum and Chemicals Metals and Minerals Forest Products Coal Grain and Fertilizers Intermodal Automotive 51,103 43,395 44,375 50,722 53,989 6% 897821819874 885 1% 21,828 20,233 27,938 27,993 25,449 (9%) 307313339336 315 (6%) 30,097 31,401 30,510 29,918 27,187 (9%) 810836840839 841 –% 15,956 11,032 14,539 17,927 17,653 (2%) 317292435464 470 1% 50,001 51,485 56,123 57,819 55,597 (4%) 831865905905 887 (2%) 52,144 53,056 59,356 60,120 58,344 (3%) 1,8221,8411,8481,826 1,816 (1%) 3,5813,7254,2573,884 3,735 (4%) 766730802762 741 (3%) 224,710 214,327 237,098 248,383 241,954 (3%) 727749775782 777 (1%) Petroleum and Chemicals Metals and Minerals Forest Products Coal Grain and Fertilizers Intermodal Automotive 2,4422,1742,2082,660 3,052 15% 640599614653 688 5% 1,4371,2181,5231,689 1,643 (3%) 8868079951,030 1,008 (2%) 1,7281,7971,7881,886 1,808 (4%) 441440424418 375 (10%) 612434535661 658 –% 438333303346 335 (3%) 2,0712,0982,2142,357 2,392 1% 607602619632 619 (2%) 2,8962,8463,2003,465 3,787 9% 2,2322,1632,5142,634 2,618 (1%) 719759825830 858 3% 241261268263 269 2% Total freight Other 11,905 11,326 12,293 13,548 14,198 5% 5,4855,2055,7375,976 5,912 (1%) 706711748773 719 (7%) Total 12,611 12,037 13,041 14,321 14,917 4%
Crude and Condensate 4% Sulfur p Markets Petroleum and Chemicals p move in customer-supplied private cars• Polyethylene, caustic soda, sulfuric 08CN | 2020 INVESTOR FACT BOOK UPDATE Business unit overview and market drivers p 36% Chemicals and Plastics 22% KEY FACTSCOMMODITIESMARKET DRIVERS • CN is the only rail carrier servicing three PETROLEUM PRODUCTS • North American industrial production petrochemical centers in North America• Propane, butane, crude oil, • North American crude oil and • CN handles over 50% of all Canadiangasoline, diesel, fuel oil, lubricants,gas production chemicals production asphalt, condensate• Chemicals and plastics feedstock prices • Petroleum and chemicals shipmentsCHEMICALS AND PLASTICS• Investment by supply chain partners • Prince Rupert propane exportsacid, pulp mill chemicals expanding CN’s scope to international SULFUR markets• Molten and dry sulfur Metrics 640 653 51,10350,722 874 885 2,442 REVENUESCARLOADSRTMs AVERAGE LENGTH ($ millions)(thousands)(millions)OF HAUL (miles) 3,052 688 53,989897 599 614 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 2019 vs. 2015 CAGR +5.7% +1.8% +1.4% -0.3% 821 819 43,395 44,375 2,660 2,174 2,208 2019 COMMODIT Y BREAKDOWN (% of revenues) p 38% Refined Petroleum Products$3,052M 2019 REVENUES
Energy Materials p 17% Iron Ore Metals and Minerals p Canada Sedimentary Basin CN | 2020 INVESTOR FACT BOOK UPDATE 09 Business unit overview and market drivers p 27% Minerals 26% KEY FACTSCOMMODITIESMARKET DRIVERS • CN serves 10 aluminum smelters,METALS AND MINERALS • Manufacturing production more than any other railroad in • Steel, non-ferrous ores and base(e.g., automobiles, railcars, North Americametals, construction materials,heavy equipment, aerospace) • CN is the top mover of aluminum,machinery, railway equipment and • Non-residential construction activity iron ore and base metal ore in large loads• Government spending on North AmericaENERGY MATERIALS infrastructure projects • CN directly serves all the top shale• Frac sand and pipe • World demand for ores and metals plays in Canada and in the WesternIRON ORE• Oil and gas production Metrics REVENUESCARLOADSRTMs AVERAGE LENGTH ($ millions)(thousands)(millions)OF HAUL (miles) 1,689 1,643995 1,030 1,00827,938 27,993 339 336 20,233 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 2019 vs. 2015 CAGR +3.4% +3.3% +3.9% +0.6% 307 313 315 21,828 25,449 886 807 1,523 1,437 1,218 2019 COMMODIT Y BREAKDOWN (% of revenues) p 30% Metals$1, 643M 2019 REVENUES
Markets Forest Products to the housing market wood products, timber matsindustrial activity 10CN | 2020 INVESTOR FACT BOOK UPDATE Business unit overview and market drivers p 48% Pulp and Paper KEY FACTSCOMMODITIESMARKET DRIVERS • Largest rail carrier of forest productsLUMBER & PANELSLUMBER & PANELS in North America• Lumber, oriented strand board • Residential construction, • Nearly 10% of total CN revenue tied panels, plywood, siding, engineered repair and remodeling activity, • Upgraded and right sized fleet of overPULP & PAPER PULP & PAPER 20,000 premium cars• Woodpulp, newsprint, printing • Global consumption of pulp, paper, paper, logs, wood chips,tissue and packaging wood pellets, clay Metrics 1,728 1,797 1,788 418 29,918 REVENUESCARLOADSRTMs AVERAGE LENGTH ($ millions)(thousands)(millions)OF HAUL (miles) 1,886 1,808 441 440 424 30,097 31,401 30,510810 836 840 839 841 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 2019 vs. 2015 CAGR +1.1% - 4.0% -2.5% +0.9% 27,187 375 2019 COMMODIT Y BREAKDOWN (% of revenues) p 52% Lumber and Panels$1,808M 2019 REVENUES
U.S. Coal – Export p 19% U.S. Coal – Domestic Coal p tons of coal every year • Overall, coal represents 4% of CN revenues CN | 2020 INVESTOR FACT BOOK UPDATE 11 Business unit overview and market drivers p 22% Petroleum Coke 19% KEY FACTSCOMMODITIESMARKET DRIVERS • Canadian coal consists of both • Thermal grades of bituminous coal• Price of natural gas thermal and metallurgical coaland metallurgical coal• Weather • U.S. coal is 100% thermal coal• Petroleum coke• Environmental regulations • CN moves an average of 38 million • Global supply/demand conditions • Steel production • Power consumption Metrics REVENUESCARLOADSRTMs AVERAGE LENGTH ($ millions)(thousands)(millions)OF HAUL (miles) 661 65843817,927 17,653464 470 333335 292 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 2019 vs. 2015 CAGR +1.8% - 6.5% +2.6% +10.4% 435 317 15,956 14,539 11,032 346 303 612 535 434 2019 COMMODIT Y BREAKDOWN (% of revenues) p 40% Canadian Coal – Export$658M 2019 REVENUES
U.S. Grain – Domestic 6% U.S. Grain – Exports p Markets Grain and Fertilizers p is concentrated in Illinois, Iowa, seed and canola products, soybeanscrops and crop yield, size and quality • CN competes directly with bargesFERTILIZER market conditions phosphate fertilizers, anhydrous• Input prices, demand, government 2,071 2,098 12CN | 2020 INVESTOR FACT BOOK UPDATE Business unit overview and market drivers p 13% Canadian Grain – Commercial 19% p 10% Fertilizers – Other KEY FACTSCOMMODITIESMARKET DRIVERS • Regulated Canadian grain accountsGRAIN GRAIN for roughly 7% of CN’s total revenue• Wheat, oats, barley, peas, corn,• Weather conditions, seeded and • CN’s U.S. grain origination franchiseethanol, dried distillers grain, canolaharvested acreage, mix of grain Wisconsin and Michigan and soybean productsof individual crops, international on the Mississippi River in the U.S.• Potash, ammonia nitrate, urea,FERTILIZER ammonia, ammonium sulphate,policies, international competitive liquid fertilizers issues Metrics 831 865 REVENUESCARLOADSRTMs AVERAGE LENGTH ($ millions)(thousands)(millions)OF HAUL (miles) 2,357 2,392607 602 619 632 61956,123 57,819 55,597905 905 887 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 2019 vs. 2015 CAGR +3.7% +0.5% +2.7% +1.6% 50,001 51,485 2,214 2019 COMMODIT Y BREAKDOWN (% of revenues) p 42% Canadian Grain – Regulated$2,392M p 10% Fertilizers – Potash2019 REVENUES
Intermodal trucking companiesand consumer products for wholesale CN | 2020 INVESTOR FACT BOOK UPDATE 13 Business unit overview and market drivers p 32% Domestic KEY FACTSCOMMODITIESMARKET DRIVERS • Supply chain collaboration INTERNATIONAL • North American economy and agreements with key ports • Import and export containerized traffic consumer spending • CargoCool® has one of Canada’sDOMESTIC • Global trade patterns largest reefer fleets • Consumer products for large retailers• North American industrial • CNTL is one of Canada’s largest• Raw materials, manufactured goodsproduction • Full membership in Equipment trucking and logistics clients Management Pool (EMP) • Dedicated customer service desk Metrics 2,514 REVENUESCARLOADSRTMs AVERAGE LENGTH ($ millions)(thousands)(millions)OF HAUL (miles) 3,787 2,634 2,618 59,356 60,120 58,344 1,822 1,841 1,848 1,826 1,816 3,200 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 2019 vs. 2015 CAGR +6.9% +4.1% +2.8% -0.1% 52,144 53,056 2,232 2,163 3,465 2,896 2,846 2019 COMMODIT Y BREAKDOWN (% of revenues) p 68% International$3,787M 2019 REVENUES
Markets Automotive 14CN | 2020 INVESTOR FACT BOOK UPDATE Business unit overview and market drivers p 7% Auto Parts KEY FACTSCOMMODITIESMARKET DRIVERS • 2.3 million finished vehicles• Finished vehicles• Automotive production and sales in handled annually • Auto parts North America • 18 automotive compound facilities • Global and North American • Originating 16 North Americanautomotive sales vehicle assembly plants and ports • Consumer confidence and • 5,900 multi-level railcars in CN’s fleet disposable income • Average age of vehicles in North America • Price of fuel Metrics 730 REVENUESCARLOADSRTMs AVERAGE LENGTH ($ millions)(thousands)(millions)OF HAUL (miles) 825 830 858261 268 263 2694,257766802 762 3,735 2015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 20192015 2016 2017 2018 2019 2019 vs. 2015 CAGR +4.5% +2.8% +1.1% - 0.8% 741 3,581 3,725 3,884 241 759 719 2019 COMMODIT Y BREAKDOWN (% of revenues) p 93% Finished Vehicles$858M 2019 REVENUES
Quarterly Consolidated Statements of Income Unaudited ($ millions, unless otherwise indicated) 20182019 Q1Q2Q3Q4YearQ1Q2Q3Q4Year CN | 2020 INVESTOR FACT BOOK UPDATE 15 REVENUES 3,194 3,631 3,688 3,808 14,321 3,544 3,959 3,830 3,584 14,917 OPERATING EXPENSES Labor and fringe benefits Purchased services and material Fuel Depreciation and amortization Equipment rents Casualty and other 7146487077912,860 7986816947492,922 4814784855271,971 5585715525862,267 3934364374661,732 3984423914061,637 3233303303461,329 4403633723871,562 113112127115467 114104114112444 140108110111469 15611694126492 Total operating expenses2,164 2,112 2,196 2,356 8,828 2,464 2,277 2,217 2,366 9,324 Operating income 1,030 1,519 1,492 1,452 5,493 1,080 1,682 1,613 1,218 5,593 Interest expense Other components of net periodic benefit income Other income (122)(124)(121)(122)(489) (131)(136)(135)(136)(538) 77767673302 80838177321 62294893376 22326253 Income before income taxes991 1,700 1,495 1,496 5,682 1,031 1,652 1,585 1,161 5,429 Income tax recovery (expense) (250)(390)(361)(353)(1,354) (245)(290)(390)(288)(1,213) Net income741 1,310 1,134 1,143 4,328 786 1,362 1,195 873 4,216 Operating ratio67.8% 58.2% 59.5% 61.9% 61.6% 69.5% 57.5% 57.9% 66.0% 62.5% EARNINGS PER SHARE ($) Basic1.001.781.551.575.89 1.081.891.661.225.85 Diluted1.001.771.541.565.87 1.081.881.661.225.83 WEIGHTED AVERAGE NUMBER OF SHARES (millions) Basic741.2736.0732.7728.4734.5 725.2721.8718.2715.2720.1 Diluted744.2739.1736.2731.3737.7 727.7724.5720.9717.4722.6 Dividends declared per share ($)0.45500.45500.45500.45501.8200 0.53750.53750.53750.53752.1500
Financials Quarterly Consolidated Balance Sheets Unaudited ($ millions) 20182019 Q1Q2Q3Q4Q1Q2Q3Q4 1) The Company adopted Accounting Standards Update (ASU) 2016-02: Leases and related amendments (Topic 842) in the first quarter of 2019 using a modified retrospective approach with a cumulative-effect adjustment to Retained earnings recognized on January 1, 2019, with no restatement of comparative period financial information. The Company now includes Operating lease right-of-use assets and Operating lease liabilities on the Consolidated Balance Sheet. See Note 2 – Recent Accounting Pronouncements in the Company’s 2019 Annual Consolidated Financial Statements available on CN's website, www.cn.ca/investors, for additional information. 16CN | 2020 INVESTOR FACT BOOK UPDATE ASSETS Current assets Cash and cash equivalents Restricted cash and cash equivalents Accounts receivable Material and supplies Other current assets 242394317266 33912825864 483485492493 480484524524 1,0391,0781,1271,169 1,2491,2751,2421,213 521558563557 656652608611 396327262243 304325428418 Total current assets2,681 2,842 2,761 2,728 3,028 2,864 3,060 2,830 Properties Operating lease right-of-use assets1) Pension asset Intangible and other assets 34,69535,47935,88037,773 –––– 38,04438,53439,34939,669 583562554520 1,1121,2161,304446 601694784336 270268264267 353348349429 Total assets38,758 39,805 40,209 41,214 42,609 43,002 44,096 43,784 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable and other Current portion of long-term debt 1,8071,9721,9962,316 2,2752,2852,1272,357 2,5552,4581,8231,184 1,7411,8422,1811,930 Total current liabilities 4,362 4,430 3,819 3,500 4,016 4,127 4,308 4,287 Deferred income taxes Other liabilities and deferred credits Pension and other postretirement benefits Long-term debt Operating lease liabilities1) SHAREHOLDERS’ EQUITY Common shares Common shares in Share Trusts Additional paid-in capital Accumulated other comprehensive loss Retained earnings 7,1527,3207,4577,480 7,5697,6197,9417,844 598566556501 678657657634 701704700707 701698699733 9,3579,41610,07111,385 11,69211,51211,58711,866 –––– 425407404379 3,5893,6293,6243,634 3,6533,6613,6553,650 (137)(137)(137)(175) (139)(149)(156)(163) 406393401408 382390393403 (2,615)(2,467)(2,534)(2,849) (2,950)(3,047)(2,947)(3,483) 15,34515,95116,25216,623 16,58217,12717,55517,634 Total shareholders’ equity16,58817,36917,60617,641 17,52817,98218,50018,041 Total liabilities and shareholders' equity 38,758 39,805 40,209 41,214 42,609 43,002 44,096 43,784
Quarterly Consolidated Statements of Cash Flows Unaudited ($ millions) 20182019 Q1Q2Q3Q4YearQ1Q2Q3Q4Year 1) In the first quarter of 2019, the Company began presenting Pension income and funding as a separate line on the Consolidated Statements of Cash Flows. Previously, Pension income and funding was included in Other operating activities, net. Comparative figures have been adjusted to conform to the current presentation. CN | 2020 INVESTOR FACT BOOK UPDATE 17 OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income taxes Pension income and funding1) Gain on disposal of property Changes in operating assets and liabilities: Accounts receivable Material and supplies Accounts payable and other Other current assets Other operating activities, net1) 7411,3101,1341,1434,328 7861,3621,1958734,216 3233303303461,329 4403633723871,562 115114172126527 1009528490569 (68)(52)(36)(53)(209) (115)(53)(50)(70)(288) –(223)(36)(79)(338) ––––– (34)(26)(57)26(91) (28)(41)4220(7) (96)(33)(4)13(120) (110)2039(9)(60) (201)216(30)394379 (387)(67)(210)166(498) (25)1858(37)14 6(7)(19)255 –28333899 305443936424 Net cash provided by operating activities755 1,682 1,564 1,917 5,918 997 1,716 1,692 1,518 5,923 INVESTING ACTIVITIES Property additions Acquisitions, net of cash acquired Disposal of property Other investing activities, net (425)(840)(1,002)(1,264)(3,531) (703)(1,183)(961)(1,018)(3,865) ––––– (167)––(92)(259) –15440–194 ––––– (8)(22)(17)(20)(67) (8)(20)(31)(7)(66) Net cash used in investing activities(433) (708) (979) (1,284) (3,404) (878) (1,203) (992) (1,117) (4,190)
Financials Quarterly Consolidated Statements of Cash Flows (cont.) Unaudited ($ millions) 20182019 Q1Q2Q3Q4YearQ1Q2Q3Q4Year 18CN | 2020 INVESTOR FACT BOOK UPDATE FINANCING ACTIVITIES Issuance of debt Repayment of debt Change in commercial paper, net Settlement of foreign exchange forward contracts on debt Issuance of common shares for stock options exercised Withholding taxes remitted on the net settlement of equity settled awards Repurchase of common shares Purchase of common shares for settlement of equity settled awards Purchase of common shares by Share Trusts Dividends paid Acquisitions, additional cash consideration 1,286–1,1378453,268 790–1507131,653 (431)(600)(991)(371)(2,393) (5)(35)(58)(304)(402) (25)45121(348)99 (14)135202(182)141 (12)19311553 87(8)(5)2 8511727103 322491277 (34)(12)(3)(2)(51) (52)(4)(4)(1)(61) (615)(385)(521)(479)(2,000) (419)(445)(399)(437)(1,700) –(12)(3)(1)(16) (1)(5)(4)(1)(11) –––(38)(38) (9)(10)(7)(7)(33) (336)(334)(332)(331)(1,333) (389)(387)(385)(383)(1,544) ––––– ––(25)–(25) Net cash used in financing activities(159) (822) (644) (683) (2,308) (59) (720) (529) (595) (1,903) Effect of foreign exchange fluctuations on cash, cash equivalents, restricted cash, and restricted cash equivalents92(11)–– ––(1)–(1) Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 172 154 (70) (50) 206 60 (207) 170 (194) (171) 553725879809553 759819612782759 Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period 725 879 809 759 759 819 612 782 588 588 Cash and cash equivalents, end of period Restricted cash and cash equivalents, end of period 242394317266266 3391282586464 483485492493493 480484524524524 Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period 725 879 809 759 759 819 612 782 588 588 SUPPLEMENTAL CASH FLOW INFORMATION Interest paid(140)(95)(164)(89)(488) (151)(91)(191)(88)(521) Income taxes paid(275)(179)(215)(107)(776) (242)(249)(153)(178)(822)
Quarterly Financial and Statistical Data Unaudited 20182019 Q1Q2Q3Q4YearQ1Q2Q3Q4Year 1) Based on Federal Railroad Administration (FRA) reporting criteria. Statistical operating data, key operating measures and safety indicators are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available. As such, certain of the comparative data have been restated. Definitions of these indicators are provided on our website, www.cn.ca/glossary. CN | 2020 INVESTOR FACT BOOK UPDATE 19 REVENUES ($ millions) Petroleum and chemicals Metals and minerals Forest products Coal Grain and fertilizers Intermodal Automotive 5646166658152,660 7357757887543,052 3884474573971,689 4214404253571,643 4224905084661,886 4564874504151,808 142175169175661 163177168150658 5395915686592,357 5776415526222,392 8148638978913,465 8509921,0189273,787 197236199198830 211247217183858 Total freight revenues Other revenues 3,066 3,418 3,463 3,601 13,548 3,413 3,759 3,618 3,408 14,198 128213225207773 131200212176719 Total revenues 3,194 3,631 3,688 3,808 14,321 3,544 3,959 3,830 3,584 14,917 STATISTICAL OPERATING DATA Gross ton miles (GTMs) (millions) Revenue ton miles (RTMs) (millions) Carloads (thousands) Route miles (includes Canada and the U.S.) Employees (end of period) Employees (average for the period) 113,040 123,540 123,042 130,792 490,414 115,859 127,606 124,410 115,015 482,890 57,18563,02161,64266,535 248,383 59,06764,32960,84957,709 241,954 1,4081,5061,5251,5375,976 1,4181,5381,5311,4255,912 19,50019,50019,50019,50019,500 19,50019,50019,50019,50019,500 24,81225,65426,14325,72025,720 27,11927,21527,29025,97525,975 24,46725,27525,90526,04725,423 26,02427,11627,26926,52426,733 KEY OPERATING MEASURES Freight revenue per RTM (cents) Freight revenue per carload ($) GTMs per average number of employees (thousands) Operating expenses per GTM (cents) Labor and fringe benefits expense per GTM (cents) Diesel fuel consumed (US gallons in millions) Average fuel price ($/US gallon) GTMs per US gallon of fuel consumed 5.365.425.625.415.45 5.785.845.955.915.87 2,1782,2702,2712,3432,267 2.4072,4442,3632,3922,402 4,6204,8884,7505,02119,290 4.4524,7064,5624,33618,063 1.911.711.781.801.80 2.131.781.782.061.93 0.630.520.570.600.58 0.690.530.560.650.61 112.8113.7113.4122.8462.7 117.5114.9110.1108.9451.4 3.163.373.423.353.32 3.043.313.053.273.17 1,0021,0871,0851,0651,060 9861,1111,1301,0561,070 SAFETY INDICATORS1) Injury frequency rate (per 200,000 person hours) Accident rate (per million train miles) 2.131.611.651.931.83 2.241.772.091.801.98 2.172.481.901.562.02 2.801.411.751.762.11
adjusted performance measures, which these items are necessarily non-recurring. income, adjusted earnings per share, in its results that management believes operating ratio are useful measures of reconciliation of net income and earnings business operations, to set performance period comparisons, as they exclude items specified, to the adjusted performance performance. The exclusion of such CN’s normal day-to-day operations and Financials Non-GAAP Measures This document makes reference to non-GAAP measures that do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. From management’s perspective, these non-GAAP measures are useful measures of performance and provide investors with supplementary information to assess the Company’s 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 measurescould distort the analysis of trends in income and expense items in these Management believes that adjusted net business performance. Management usesmeasures does not, however, imply that adjusted operating income and adjustedexclude certain income and expense itemsThe following table provides a performance that can facilitate period-to-are not reflective of CN’s underlyingper share, as reported for the periods that do not necessarily arise as part of goals and as a means to measure CN’smeasures presented herein: Unaudited ($ millions, except per share data) Year ended December 3120152016201720182019 1) The tax effect of adjustments reflects tax law and rate enactments, as well as tax rates in the applicable jurisdiction and the nature of the item for tax purposes. 20CN | 2020 INVESTOR FACT BOOK UPDATE Net income Adjustments: Operating expenses Other income Income tax expense (recovery)1) 3,538 3,640 5,484 4,328 4,216 –––27 115 –(76)–(338) – 4217(1,706)39 (142) Adjusted net income3,580 3,581 3,778 4,056 4,189 Basic earnings per share Impact of adjustments, per share 4.42 4.69 7.28 5.89 5.85 0.05(0.08)(2.26)(0.37) (0.04) Adjusted basic earnings per share4.47 4.61 5.02 5.52 5.81 Diluted earnings per share Impact of adjustments, per share 4.39 4.67 7.24 5.87 5.83 0.05(0.08)(2.25)(0.37) (0.03) Adjusted diluted earnings per share4.44 4.59 4.99 5.50 5.80
corporate income tax rate; and the Company reported adjusted net tax recovery of $1,764 million ($2.33 The following table provides a reconciliation of operating income and operating ratio, as reported for the periods specified, to the adjusted performance measures presented herein: Unaudited ($ millions, except percentage) Year ended December 3120152016201720182019 1) Operating ratio is defined as operating expenses as a percentage of revenues. For the year ended December 31, 2015, For the year ended December 31, 2017, • in the third quarter, a deferred income the Company reported adjusted net the Company reported adjusted net tax expense of $31 million ($0.04 per income of $3,580 million, or $4.44 perincome of $3,778 million, or $4.99 diluted share) resulting from the diluted share, which excludes a deferredper diluted share, which excludes aenactment of a higher state corporate income tax expense of $42 million ($0.05net deferred income tax recovery of income tax rate; per diluted share) in the second quarter,$1,706 million ($2.25 per diluted share• in the second quarter, a deferred resulting from the enactment of a higheror $2.26 per basic share) consisting of income tax recovery of $18 million provincial corporate income tax rate.the following: ($0.02 per diluted share) resulting from For the year ended December 31, 2016, • in the fourth quarter, a deferred incomethe enactment of a lower provincial income of $3,581 million, or $4.59 perper diluted share or $2.34 per basic• in the first quarter, a deferred income diluted share, which excludes a gain on share) resulting from the enactment of tax recovery of $5 million ($0.01 per disposal of track leading into Montreal’sa lower U.S. federal corporate incomediluted share) resulting from the Central Station, together with the railtax rate due to the Tax Cuts and Jobsenactment of a lower provincial fixtures, of $76 million, or $66 million Act and a deferred income tax expensecorporate income tax rate. after-tax ($0.09 per diluted share) in the of $50 million ($0.07 per diluted share) fourth quarter, and a deferred income taxresulting from the enactment of higher expense of $7 million ($0.01 per diluted provincial corporate income tax rates; share) in the second quarter, resulting from the enactment of a higher provincial corporate income tax rate. CN | 2020 INVESTOR FACT BOOK UPDATE 21 Operating income Adjustment: Operating expenses 5,155 5,032 5,243 5,493 5,593 –––27 115 Adjusted operating income5,155 5,032 5,243 5,520 5,708 Operating ratio1) Impact of adjustment 59.1% 58.2% 59.8% 61.6% 62.5% –––(0.1)-pts (0.8)-pts Adjusted operating ratio 59.1% 58.2% 59.8% 61.5% 61.7%
per diluted share, which excludes of property located in Montreal, the Company reported adjusted net severance costs related to a workforce Spurs”) of $36 million, or $32 million diluted share, which excludes employee $23 million after-tax ($0.03 per diluted related to a workforce reduction program in the second quarter, a gain on transfer • income tax recovery of $112 million ($0.15 ($0.03 per diluted share) in the fourth passenger rail facilities in Montreal, in the second quarter, resulting from the of $338 million, or $292 million after-tax related railway operating agreements income tax rate; the following: • in the fourth quarter, a gain previously of $184 million, or $156 million after-tax ($0.21 per diluted share), and or $62 million after-tax ($0.09 per diluted Calgary, Alberta, excluding the rail segment of the Guelph subdivision previously capitalized for a PTC back of $39 million, or $34 million after-tax Kitchener, Ontario, together with the of a replacement system. between net cash provided by operating operating activities as reported to free is a useful measure of liquidity as it activities, adjusted for the impact of generate cash for debt obligations and for Financials Non-GAAP Measures (cont.) Adjusted performance $79 million, or $70 million after-taxFor the year ended December 31, 2019, measures (cont.)($0.10 per diluted share);the Company reported adjusted net For the year ended December 31, 2018, • in the third quarter, a gain on disposal income of $4,189 million, or $5.80 income of $4,056 million, or $5.50 per Quebec (the “Doney and St-Francois employee termination benefits and termination benefits and severance costs after-tax ($0.04 per diluted share); and reduction program of $31 million, or of $27 million, or $20 million after-taxof the Company’s finance lease in the share) in the fourth quarter; a deferred quarter and gains on disposal of propertyQuebec, together with its interests in per diluted share or $0.16 per basic share) ($0.40 per diluted share), consisting of (the “Central Station Railway Lease”),enactment of a lower provincial corporate and a depreciation expense of $84 million, deferred on the 2014 disposal of aa gain on disposal of land located in share) in the first quarter, related to costs located between Georgetown andfixtures (the “Calgary Industrial Lead”),office system following the deployment rail fixtures and certain passenger($0.05 per diluted share). agreements (the “Guelph”), of Free cash flow opportunities. The Company defines itsThe following table provides a Management believes that free cash flow free cash flow measure as the differencereconciliation of net cash provided by demonstrates the Company’s ability to activities and net cash used in investingcash flow for the periods specified: discretionary uses such as payment of business acquisitions, if any. dividends, share repurchases and strategic Unaudited ($ millions) Year ended December 3120152016201720182019 1) Relates to the acquisitions of H&R Transport Limited (“H&R”) and the TransX Group of Companies (“TransX”). See Note 3 – Business combinations in the Company’s 2019 Annual Consolidated Financial Statements available on CN’s website, www.cn.ca/investors, for additional information. 22CN | 2020 INVESTOR FACT BOOK UPDATE Net cash provided by operating activities Net cash used in investing activities 5,140 5,202 5,516 5,918 5,923 (2,767)(2,682)(2,738)(3,404) (4,190) Net cash provided before financing activities Adjustment: Acquisitions, net of cash acquired 1) 2,373 2,520 2,778 2,514 1,733 –––– 259 Free cash flow 2,373 2,520 2,778 2,514 1,992
Company calculates the adjusted debt-below, which have been used to debt-to-adjusted earnings before debt divided by adjusted EBITDA. EBITDA multiple: amortization (EBITDA) multiple is a useful Adjusted debt-to-adjusted credit measure because it reflects the The following table provides a EBITDA multiple Company’s ability to service its debt reconciliation of debt and net income Management believes that the adjustedand other long-term obligations. Theto the adjusted measures presented interest, income taxes, depreciation andto-adjusted EBITDA multiple as adjustedcalculate the adjusted debt-to-adjusted Unaudited ($ millions, unless otherwise indicated) As at and for the year ended December 3120152016201720182019 1) The Company adopted Accounting Standards Update 2016-02: Leases and related amendments (Topic 842) in the first quarter of 2019. The Company now includes operating lease liabilities, as defined by Topic 842, in adjusted debt and excludes operating lease cost, as defined by Topic 842, in adjusted EBITDA. Comparative balances previously referred to as present value of operating lease commitments and operating lease expense have not been adjusted and are now referred to as operating lease liabilities and operating lease cost, respectively. See Note 2 – Recent accounting pronouncements in the Company’s 2019 Annual Consolidated Financial Statements available on CN’s website, www.cn.ca/investors, for additional information. CN | 2020 INVESTOR FACT BOOK UPDATE 23 Debt Adjustments: Operating lease liabilities, including current portion1) Pension plans in deficiency 10,427 10,937 10,828 12,569 13,796 607533478579 501 469442455477 521 Adjusted debt 11,503 11,912 11,761 13,625 14,818 Net income Interest expense Income tax expense (recovery) Depreciation and amortization 3,538 3,640 5,484 4,328 4,216 439480481489 538 1,3361,287(395)1,354 1,213 1,1581,2251,2811,329 1,562 EBITDA Adjustments: Other income Other components of net periodic benefit income Operating lease cost1) 6,471 6,632 6,851 7,500 7,529 (47)(95)(12)(376) (53) (111)(280)(315)(302) (321) 204197191218 171 Adjusted EBITDA Adjusted debt-to-adjusted EBITDA multiple (times) 6,517 6,454 6,715 7,040 7,326 1.77 1.85 1.75 1.94 2.02
equivalents, and restricted cash and net income. adjusted ROIC are useful measures of beginning and ending balance over a The Company calculates ROIC as return of net income and adjusted net income to calculates adjusted ROIC as adjusted Return is defined as net income plus well as the calculation of average invested Adjusted return is defined as adjusted net using the Company’s effective tax rate. ROIC and adjusted ROIC: DESIGN: CAPSULE CREATIVE WWW.CAPSULECREATIVE.CA Financials Non-GAAP Measures (cont.) Return on invested capital (ROIC)the sum of total shareholders’ equity,calculated using the Company’s effective and adjusted ROIClong-term debt and current portion tax rate, excluding the tax effect of Management believes ROIC andof long-term debt less cash and cashadjustments used to determine adjusted the efficiency in the use of capital funds.cash equivalents, averaged between the The following table provides a reconciliation divided by average invested capital.twelve-month period. The Companyreturn and adjusted return, respectively, as interest expense after-tax, calculatedreturn divided by average invested capital.capital, which have been used to calculate Average invested capital is defined asincome plus interest expense after-tax, Unaudited ($ millions, except percentage) As at and for the year ended December 3120152016201720182019 1) The effective tax rates from 2015 to 2019 used to calculate the tax on interest expense are 27.4%, 26.1%, 25.8%, 23.8% and 22.3% respectively. Due to the negative effective tax rate reported by the Company in 2017, tax on interest expense for 2017 was calculated using an adjusted effective tax rate. 2) See the section entitled Adjusted performance measures for an explanation of this non-GAAP measure. 3) The adjusted effective tax rates from 2015 to 2019 used to calculated the adjusted tax on interest expense are 26.5%, 26.2%, 25.8%, 24.5% and 24.4% respectively. 24CN | 2020 INVESTOR FACT BOOK UPDATE Net income Interest expense Tax on interest expense 1) 3,5383,6405,4844,328 4,216 439480481489 538 (120)(125)(124)(116) (120) Return 3,857 3,995 5,841 4,701 4,634 Average total shareholders' equity Average long-term debt Average current portion of long-term debt Less: Average cash, cash equivalents, restricted cash and restricted cash equivalents 14,21014,89615,74917,149 17,841 8,4079,2179,09810,067 11,626 9931,4661,7851,632 1,557 (596)(674)(613)(656) (674) Average invested capital 23,014 24,905 26,019 28,192 30,350 ROIC16.8% 16.0% 22.4% 16.7% 15.3% Adjusted net income 2) Interest expense Adjusted tax on interest expense 3) 3,5803,5813,7784,056 4,189 439480481489 538 (116)(126)(124)(120) (131) Adjusted return Average invested capital 3,903 3,935 4,135 4,425 4,596 23,01424,90526,01928,192 30,350 Adjusted ROIC17.0% 15.8% 15.9% 15.7% 15.1%
Lauren Benoit 100 University Avenue, 8 Floor th www.investorcentre.com/service Telephone: 1-800-564-6253 Co-transfer agent Mailing address Attn: Stock Transfer Department 935 de La Gauchetière St. W. 250 Royall Street Montreal, QC H3B 2M9 www.cn.ca/investors P.O. Box 43078 Shareholder and Investor Information Transfer agent and registrar Shareholder servicesInvestor relations ComputershareShareholders with questionsPaul Butcher Trust Company of Canadaconcerning their sharesVice-President, Investor Relations Offices in:should contact:Telephone: 514-399-0052 Montreal, QC; Toronto, ON;ComputershareFax: 514-399-5985 Calgary, AB; Vancouver, BCTrust Company of Canada Telephone: 1-800-564-6253 Shareholder ServicesSenior Manager, Investor Relations Toronto, ON M5J 2Y1Telephone: 514-399-4654 Fax: 514-399-5985 and co-registrarwww.computershare.com Email: investor.relations@cn.ca Computershare Trust Company, N.A. Overnight mail delivery:CN Investor Relations Canton, MA 02021 16th Floor Regular mail delivery: Providence, RI 02940-3078 Telephone: 303-262-0600 or 1-800-962-4284 For the most up-to-date information, including financial results, regulatory filings, annual reports, company presentations, weekly performance metrics and webcasts and events, please visit: www.cn.ca/investors CN | 2020 INVESTOR FACT BOOK UPDATE 25
STAY CONNECTED WITH CN: Photo by CN employee Tim Stevens. “I’m proud that CN is internationally regarded as one of the best-performing transportation companies. To maintain this enviable position, transformational change is underway within our Company. With our focus on diversifying our talent pool, the introduction of new technologies, and the integration of new companies into our supply chain approach, we are well on our way to achieving our mission of connecting customers with the markets that drive their business success.” JJ RUEST President and CEO PICTURED COVER: Intermodal train, Brule, AB facebook.com/CNrailtwitter.com/CNRailway linkedin.com/company/cnwww.cn.ca