oN ESSENTIAL.ESSENTIAL. 20202020 ANNUALannual REPORTreport nageExcept Sirwhere otherwiseon lir loamindicated, lot rinowctudiairmriluoall financial information renedon•reflected in this obcomo•document Om. is expressedrm. in ClmoeioCanadian dollarsobihoo wevickSevoand determined on dorthe burrbasis of Ladiora•United States in NONnSilgenerally acceptedWMIN =NW,accounting raw*principleslag (GAAP). Ala CeCertainnt Otnrirtistatements loductedincluded bin IMOthis wardannual rereportpot conetliaercrocrdixiargconstitute “forward‑looking tantestatements” oillEwithin ththe rrooirgmeaning Nof Frthe Liainia•United States in PISSPrivate Securities Nadia Ligrile•PAr.Litigation Reform ActActe of 1995tlfdordkr and under de•Ccroxbr Canadian ruckdkiesecurities laws.tons ayBy tisktheir nature, boord-boldroforward‑looking Karst'statements IrinvolveWIN Irisks, he. uncertaintiesWCNIOIrtIN coteand assumptions. kopIon.. 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Accordingly,tape realreaders umare odderadvised MOOnot to rin•place krok•undue ranCONreliance on rnarcgochirgforward‑looking otarreto.statements. impaexoImportant Uhl risk roamfactors dotthat couldwaif Mootaffect Owthe ramod-lochiroforward‑looking statements iracticbdinclude, but taw are rctnot kraallimited Oxto, the*gown:kr duration coand et' effects orthoof the COVID‑19COM-19 Fordonepandemic; progeneral NA wareconomic cot codand Winnbusinessmistime. conditions, potato* particularly bin Frthe ecocontext ton eftof the C0110-19COVID‑19 Forthodcpandemic; hiindustry OA I/7 onottloccompetition; bbtlm,inflation, earncurrency Noand, Mtinterest nigrate nunwOnfluctuations;, C ohnONchanges in NSfuel P/W.:prices; blegislative INNIN Wand/orolin •regulatory W. douNornontedevelopments; ownpionocompliance with WNWenvironmental NW W IONlaws anandd regulations;oo *do , octioactions, • brewby regulators; bait borneincreases in maintenancewirtwonn ondand morallyoperating costs;b: Posecurity OS *V Freonthreats; n•PICVreliance mon bootechnology ft , adand Erbrelated d cybersecurityv./flaky rimicrisk; rahtrade restrictions or odesother changeson to irarrctiondinternational rodtrade onoarrangements; pawn Wowmattransportation ofdbcocrtbou hazardous itoarialcmaterials; MONAvarious events,westkis which coalcould dodisrupt god operations,cpueion.. lonalacincluding illegal cd bbnodnblockades of rarail olinrinnetworks CoandCo dcoa MINAnatural eventsOno IP ▪such ds as innsevere mootweather, uk *molt-droughts, boLloodofires, floods andd earthquakes;ecllo.ohn: climatedim dimchange; or atomlabour monegotiationsp cedars andcrui clowdolorriordisruptions; environmental moo tol **aclaims; uncertainties dof investigations, plocadrgproceedings • oor• otherdhow Maotypes dof ddrrouclaims ogdand Megotlxvlitigation;WJ Moorisks ordand BSIliabilities cdoirgarising from denanurderailments; te timingfr et aidand mnercompletion dof cupidcapital Norprograms; ror VWand itsother anorisks Moledetailed Otrtni from WEItime to thtimen I.in rigor.,reports Nedfiled by CN Nthwith MANIONsecurities MgregulatorsRON in CaWoondCanada and the UAWUnited SOM.States. RemoReference CM doJdshould be Wd•made blb.opwto “Management’s o n ISONIDiscussion andd 141Analysis”0104. inin MOCN’s wiredOWannual and Kelminterim own.reports, AnAnnualyl WronicoInformation Form VWand rbnForm LO40‑F,-F filed Nthwith CanadianComecon codand 11Z.•U.S. securities motive • mgregulatorsmiR• codand ooSceleavailable on CMonba•CN’s website tonawcf.icr(www.cn.ca), for odesa description ofd majoroior rhriskII roam. factors. rbmodbolbpForward‑looking etastatements Linn/a reflect 19information tannin, was Ofof the04 • dindate mon whichwies Us,they arecm notmade. MooingCN assumes nOno ~Orobligation to 1ptbbupdate nor TINrevise bread-forward‑looking boldrg •statements nrrrorti aSIMrareto reflect future WWdevents, papachanges bdcrrbcw.pdo.pwin circumstances, or changes in ato.krde•beliefs, unless • netbrdrequired by oppicobleapplicable no.rthiesecurities tolaws.n. loIn *moatthe event CMCN dondoes addupdate on,any broadforward‑looking-Wry eV:tatstatement, roino inference, lowc• •should lod13 be nodemade Octthat CMCN willoM MAOmake WOWadditional, cd %%IMMOupdates oil+with INrespect pun spotto that statement,STORM rt nktricrelated, nomatters, Ofor Onany ithorother icrwcreixiaroforward‑looking •statement. ton t Asth usedwrd horolComporreorherein, “Company” or “CN”CM rein refers to Corodo.Canadian WardNational Pram.Railway Caw,Company codand, asau Usthe colcontext limo MOM.requires, bits whollyd Oh Omowned, old owsubsidiaries. bpldbrin.
111401019•APHYphotography PROUTfront COPIERcover ini0T01photo: FEW(except N. T OPwhere INEJ nniindicated):I WEN.' SONSasha CP GROW Goodwin, UndoHostler, AinsAlpha 0 PMPresse: PE banSurrey, MCBC rtinC4Pascale ElwoodSimard CooDan CiaCallis 'wonphoto Oilon rilINT1right: llwortinonTrevor Hagan Me4cninBenjamin DvDunn, rn. CO.Carman, nli is hholding Ocirla aCP MN new ito•Somobile ***dotdevice that blaresimproves dosdata wailquality, &only/woofSteve Leonard Mpghelps to bett•better palpinpoint p*togo• areas ixfor rope*repair oafand reamreduces ourop uodrogorortdenvironmental leapt&footprint. SaortNtecaStuart McCall Mc•Old.CICMontreal, QC TABLETABLE OF OF CONTENTS
II MessageMeaa ge fromfrcm Robert PooePace
IV Messagehiemage from JJ RuedRuest
VI 2020 -– A YecrYear LikeUle No Other
VIII llwricThank You'eau
X HighlightshigNiahts
XII Going AboveAbase oand rid BeyondBernd to DaherDeliver Freight
XVII Buildingarikling forfcro a Sustainable FutureRAI"
XXIV BoardBond of DirectorsEXiectors
XXV Select SeniorSalim OfficersOffices
XXVIII ShareholderShmehdder aidand InvestorMesta. Info-mai:IanInformation
FINANCIAL SECTIONSECTION
1 SdecteclSelected RcaroadRailroad Statistics –- mcuditedunaudited
2 Management’sMtnagernentS Discussion[Micmac++ adand /mar*Analysis
58 Management’siwirnagementS Report oncn Internal ControlContra] overcue+ FinancialRnancial RerxrangReporting
59 ReportRep crt ofof independentIndependent RegisteredFlealitenx1 PllblcPublic AccowitingAccounting Firm
62 ConsoldotedFlnandolConsolidated Financial StuStatementsrents
66 Notes to the ConscaConsolidated do bed Financial StatementsStatements
CMcn 2020 AMMUALannual REPORTreport Ii MESSAGE FROM ROBERTROBERT PACEPACE ari
2020 was a year that tested us inin every sense. DespiteDespite the Extraordinaryextraordinary challenges, CN railroaders focused relentlesslyrelentlessly on their missionmission to deliver the essential goods people rely aton every day. II am Extremelyextremely proud of what they accomplished, and grateful fixfor their commitment. II am also sincerely thankful to our customers, partnerpartners, % and shareholders whose ccnfidenceconfidence and collaboration mademade itit possiblepossible for 04CN to provide our essential services,services.
SETTING AMBITIOUS GOALS EMBEDDINGEMBEDDING EMERGINGEMERGING FORFOR SI/STAINABILITYSUSTAINABILITY BESTBEST PRACTICESPRACTICES
II Peahave WClong banbeen NOS inspired WolrboManwtlondby our transformational alCN opiateoperates "RM..within aratMcienttoor adjacent to nerlynearly 200 merereserve jOWneyjourney t,that [big began gm with CMCN’s primtine:1mprivatization 25 lipcnyears ORoago kincivormontlands of more thanthin 110110 FkotRatkeeFirst Nations and PRYMétis Pintoterritories doe Inin anandd by the potential owour Uwefuture hake.holds. CMCN’s evolution sighteight provinces.palmed ToTo trendstrengthen them allour nekolnrelationsI eelwith IrdIndigenous aura bornfrom onan ardentinefficient dowarrortcrockedgovernment‑owned Swayrailway aointo a cocommunities, man CN hoehas cratedcreated the CN IndigenousM atom Adder?Advisory locel,lean, sustainabledateable *nob*enabler orof bodetrade lyis nothing torteshort of CoCouncilPa IAq,(IAC), antel Independentindependent bodycompliedbody comprised ofcit IntlIndigenous WW1 nremarkable.otncokoblulato As we looklook forward to the numnext greatmot chapter Nleadersodes 'tornfrom avowacross Cando.Canada. The IAC buildsWide onuntie the ▪in oour tr CoCompany’s ming' Coy,history, weea orsare Irrearmotalimplementing new totraiotkeifoundation otof the OVCN AboighofAboriginal Vision oand rd hoehas a microdotsmandate tob) iwatotonwtotenvironmental, 'oddsocial aband omiracegovernance (ESG) MaoinitiativesPot odds,advise CMCN’s RooBoard re oand rd maculaeexecutives orion aweissues othereither CN orthor the • thotwnthat will nitnromereinforce CN’s PPMstatus owas ao Soderleader mooamong nd IAC Weebelieve meare Minnrelevant tOto CN, etchsuch ascm diversityIona andcod Inchdion.inclusion. North AmericanAmman ClowClass I rerailroads Imo de codand OCTOPIacross the *Maentire A second kWkey anentelement Orof phewour new 136ESG nornrnitrneracommitments trorentotiontransportation sector.mkt. 0Our Le Noglonger‑term se=em nodgoal leis b)to be otterat the Nis cman odytootyadvisory mapvote by Matshareholders olden on the CanalCompany’smil loadingleading edge orof global°to I 133ESG beetbest practices.Fedi ora ClitinClimate ActionAnon palPlan b)to tOk•take daceplace motheach yeaOtplyear at our AnnualAreal CN hoehas Immoalways leftkept oa romafocus ooon the future,tuba len*not just the SadGeneral PardonMeeting (AGM).USrb. ThUThis Initiativeinitiative cocomplements mclerroca etaCN’s Ineentpresent. OurOleo goals ode oreare Inin loopingkeeping with allour PeronresponsibilityRay to Ionlong‑standing trite re*g codand robustrobot Irmaclimate chcod•change disclosuresdodo dew oralof our idall the wilco,various Postakeholders leholdon who rely on ugus to continuocontinue to anomilogreenhouse gasgag (ERG(GHG) *Sonoemissions and owismowimporour year‑over‑year eevolve,wers, Morin,modernize, and lead Wethis CompanyCocnpayi forwardNoma owover Pprogressorn= to reduce owour 046GHG iwnleilemissions ono Inanity.intensity. We banebelieve the actnext 2:625 wayyears andcod !moodbeyond. It leis Inin Nothis evolvingeroldna context OMNIgiving IhtelehOkiereshareholders felan advisoryOdvIlOgY v001vote Onon 0170hOteour Climate ActionAnon [hetthat the CN Boardgoadrrnedd.elvely moved decisively tOto putlnput in placedoom nownew ElmPlan pmildoeprovides atoma strong maremeasure of occoaccountability inlay adoand a rnoaemiemeasures to areensure the CoinpalyCompany Nis wellw4 motionedpositioned to rmrdobsmandate to boratecontinue makingWeird Ionprogress Ma Inin [Nodalthis vital endear.endeavour. roommeet complex challenges.choleroid CoactheOver the 2:625 woreyears sinceeirce pawprivatization, dation, ateCN’s goadBoard hasMN
cornealcontinued to odastrive to Indimplement wort gownmagovernance policiesPahl., that
reflect eradndevolving best‑in‑classb=tlh-*n practices.reo Wad OwOur new moomeasures era
Induceinclude oa cocommitment MITIbnntn to RooBoard nil cidiversity hanky wiwtetywhereby otat Natleast
Felib50% ofor the Indeardertindependent directorsfl ea come from damediverse
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areCN’s COcorporate rplrOte fernerniragovernance ppolicies LIN bxto: reduce the bootyboard Mnsize to 1010 Inindependent apeman t Inmandirectors phdplus the CECtCEO; areensure [hotelthat all (erector,directors Oreare IllbeeCtsubject b)to 0a 14-y•Cc14‑year baretenure lablimit by
IIii cnCN 2022020 0 annualANNUAL REPORTreport As we look forward to the next great chapter in our
Company’sCompany's history, removing the current grandfathering provision; lowering the retirement age for directors from 75 to 72; and, changing the wewe are implementing policy on overover‑boarding-boarding to permit directors to serve on a maximum of three public boards, including CN. new environmental, We at CN recognize the importance of consistent engagement with all our stakeholders, including our social and governance shareholders, and we encourage open and meaningful social and governance dialogue and the exchange of ideas. We are grateful for the initiatives that willwill input that has helped inform these new ESG measures. reinforce CN’sCN's status A HEARTFELT FAREWELL AND THANKS These new governance measures are integral elements of as a leader among our strategy to ensure CN’sCN's sustained success in the future and have the Board’sBoard's unanimous support. To facilitate North American the new governance practices, five directors have advised North American that they will not stand for re-electionre‑election at the upcoming AGM. These are: Donald Carty, Maureen Kempston Darkes, Class I railroads and Gordon Giffin, Edith Holiday and Denis Losier. On behalf of the entire CN family, I want to thank these across the entire distinguished directors for their wisdom, expertise and the careful oversight they have contributed to CN’sCN's success as it transportation sector."sector.” has grown and prospered. The Company is deeply indebted to them and will pay them proper tribute at the AGM. I want to express my appreciation to two new directors who have agreed to be nominated in our proxy circular and, together with Margaret McKenzie who joined our Board last fall, bring the Board to 10 independent directors and the CEO. CN takes pride in the essential role we play in the economy. I, along with the other members of CN’sCN's Board, the Company'sCompany’s executive team, and all employees, also view our commitment to sustainable business practices as essential to our long‑termlong-term competitiveness and our ability to continue to flourish together with our customers, communities, Indigenous partners, shareholders and many other important stakeholders.
Robert Pace,Pace, D.COMd.comm., M., C.M.c.m. Chair of the Board
CNcn 2020 ANNUALannual REPORTreport IIIiii MESSAGE FROM JJJJ RUESTRUEST
InaIn a year of global change and adjustmentadjustment, chiCN =timedcontinued to invest, grow,grow, and deploy imiosatininnovative technologies that helped ensure the safe and effective movanaltmovement of our alonecustomers’ goods toto market,market. withWith the extraordinarytactraccdinau support of curour dedicated1nmdedicated team of essential railroadeis,railroaders, asas wellwen as our supply chain partneripartners and custumem,customers, we tackled the difficult challenges challenges of of the the global pandemic head on,on. We took the necessary steps to putectprotect allall of our employees, thethe communities inin which weeperswe operate, asas well as the employees ofof ourour customers, vendors, andand partners in xi:sponsetoresponse to CO=COVID‑19.S.
The pinpast yawbroughtyear brought new perspecthesperspectives mto the word BonaDaniel Ftilfta,Paulusse, ValerieWide asEllis adand ToolYoan IkMorneau. rwao.T There here arewe at]“essential.” at' At 0J,CN, we%ern hawhave always taken owour nosponalresponsibility AY fewwormfew worse cIrmonsbmcescircumstances Inin myany merailroader’s oder% Mklife ththanen to as onan memessential dot mowmover orof ththee eowtothyeconomy midand smoblenofenabler of Padstrade loselose oa co‑worker.co-wetter. My deepestteepee cardamomcondolences nogo out to ththee wryvery mil*seriously. cWho CN is a dtovital I inklink Inin the gipbolglobal economyeconomy. Arranfamilies, friends, and coco‑workers -worlenv of Wsthese idvalued pod anandd QsOur customerstheorem and rep*supply chain pwthere,partners, opas reelwell aas Ni.the thdearlye rty missed cotcolleagues. WORM*. MAt CN, safety leis *noresimply ththee public, rerelyly on ueus to deerdeliver ththee attarcritical goodsgeoids they need netmost importantn1Witttht ['Mootaspect of cajole.our jobs. ItIt metremeans netthat we metmust granevery doe.day. Otters:IolaOur employees’ commItmernocommitment to fulfillingfolfMna theirthe reenterrelentlessly workpep rk to Improveimprove thethe safety of mrour people and rowanresponsibilities Wades roserose to notnew 'weelevels Inin 2020ontO2020 and I miltwant to ovoidavoid exlisuch pa*tragic bvIdentpincidents. This Isis asour umuncompromising compromag thank eon)everyonens forr their areacontribution balks. Inin playing onan essentialword al cocommitment nsmItment b)to thethe heathhealth and safety of otrenclowse,our employees, ththee rolerole Inin lowingkeeping the economy Framingmoving clserltedespite the papandemic. odernic. commutescommunities Inin which we operaoperate, Os, ['andrend thethe curltheecustomers wetee mra.serve. WoeWe wOwill continue toco beetinvest Inin oarour IMP*people, MOinfrastructure,IS A [notgreat sampleexample of Wilethis is the rnmennentmovement of grain. FanFrom and WOtechnology robe net until CE wwe altoattain In asour goal &beingof being ththee Armfarm to Mb*table, Inviteeit takes a lotlot of pm*people to movemove thlsthis 'educiblevaluable wsafestorse rerailroad Small Inin NorthNorth AmericcaAmerica. IthIt is only wUwith imwaverbgunwavering •commodity. rnmoolty We wouldwoukl Melike to thalkthank farnersdifarmers, grain min Pedrodedication don b)to safetyvasty that sowe amcan honotrhonour arour colleagues. tocompanies, mPa Net elevatortenon staff,toff, port workers,wailers, as selwell as otrour own CMCN torailroaders, Rea dee, krfor oa Imlandmark dneek mirthyear in which CMCN weset record,records for CamCanadian CAO bacbulk fionnIPmelmgrain shipments forfce10 10 conmathreconsecutive InIVESTINOINVESTING FOR TOMORROW months,months. In 2020, CN dependdelivered Mil33 milliontam methmetric c totonnes nom orof Rol=Railroading cing Yinis an tosseints.W.asset‑intensive bursabusiness. WsWe annual'?annually Canadiannal km 0grain mil Inin both happenhoppers and contolcontainers, nem which his CA Irmainvest aapproximately pproakno dly 20%20% of CANCN’s meowsrevenues to support IBA15% Woemore lilathan, the plrAoprevious us marrecord nthset in 2018. ththee lasafety MY of ouroar networknetwork, SnOrrneimprove orsour Nlldewyefficiency andcrod naves,resilience, and owenable Ue Einetth.growth. InIn MOO,2020, therthedespite thethe Reafinancial nclo I A TRIBUTE TO OUR PEOPLEPEOPLE krpoimpacts ate &theof the glob:11global Foment, pandemic, wwe helloheld our pm- cocapital pith budget rolfairly dy toosteady dy midand randinvested $29$2.9 Monbillion bockback Ininto to KospkgKeeping oour nanotrains nook.°running gosafely rolyor4.ftisody and efficiently Mit24/7 is oa ththee thbusiness.rees PewBeyond re Ni.the opmetartoapproximately bey $1.6 Monbillion weea teteamen *Meteffort, from myour conductorscon ducton and tolocomotive ono the endengineersnen Impedeinvested toCo thmaintainin then ththee bogiebasic ROWintegrity ty orof ththee network, who operate otrtrolmour trains, the ien0theettnnengineering adand methmechanical wird we alsooho coracontinued ued to rentinvest Inin trtrackoth anandd 5nyard ni occooltYcapacity people who rnalnbenmaintain °WM*,our tracks meand tonnarolling eln,tooarstock, to our mhoenhancements, moments, memainly ktly Inin Western COCanada; meth lein new, more ethettleraoperations folks le Mewho !opuskeep us ofall persafe anandd on acwddaschedule. thfuel‑efficienteleMdert Imonetherlocomotives; htin net,new, Nonsnhigher‑capacity-co platy groingrain SodsSadly, Inin 2020 adand gooeyearly 202I,2021, we apedexperienced ce4 the hopper oncars; and Inin technologiesteem dog es that supixetsupport sof•IYsafety heattneaheart‑breaking line kegloss of rowfour of owour mhocolleagues: gum JoJasvinder Khde R Riar, anandd efAcAncyefficiency.
IYiv cnON 40202020 ANNUALannual REPORTreport At CN, we are creating A VISION FOR THE FUTURE the railroad of the future For more than 100 years, CN has been at the forefront the railroad of the future of innovation. We pioneered the now industryindustry‑standard-standard Precision Scheduled Railroading (PSR) more than by pullingpulling together 20 years ago. Today, we are taking PSR to the next level by layering advanced technology and automation onto as ONE TEAM.”TEAM." every aspect of our operations. We are calling this next generation "Digital“Digital Scheduled Railroading"Railroading” (DSR). A sustainable future also means always considering how our DSR is already paying dividends for safety. We are putting activities affect the environment. Rail transport is part of the powerful sensor and AIAl technology into automated track climate change solution, and CN continues to be an active inspection railcars that run on regular trains. As a result, leader through our actions and transparency. CN has been in 2020, we were able to inspect 20 times more track than making robust annual climate change disclosures for more ever before. than a decade. In 2020, CN also became a supporter of the DSR is also changing how we inspect our railcar fleet. Task Force on Climate‑relatedClimate-related Financial Disclosures (TCFD) Our seven new automated inspection portals feature and we issued our first stand-alonestand‑alone TCFD report, a first in ultraultra‑high‑definition-high-definition cameras that can detect defects not the North American rail sector. Also in 2020, CN’sCN's actions visible to the human eye as a train travels at track speed to reduce emissions, mitigate climate risks and develop through the portal. the low‑carbonlow-carbon economy resulted in CN being one of only three Canadian companies listed on CDP’sCDP's global Climate In 2020, CN launched an ever-expandingever‑expanding suite of digital A List. As a Company, we are enormously proud of these application programming interfaces (APIs), that allow world‑wideworld-wide recognitions of our sustainability efforts. CN customers to seamlessly connect with CN to track and trace their shipments using real-timereal‑time GPS technology, CN has a strong track record of fuel and carbon efficiency, signalling a new era of innovation and supply chain visibility and we have improved locomotive emissions intensity by aimed at helping our customers win in their markets. 40% since 1993. Today, CN remains the North American rail industry leader, consuming approximately15%approximately 15% less locomotive fuel per gross ton mile than the average of our Class I peers. CREATING A SUSTAINABLE FUTURE In fact, we delivered our best fuel efficiency ever in 2020 — At CN, we are creating the railroad of the future by pulling 4% better than the previous record set in 2019 — which together as ONE TEAM. We empower our people to make avoided approximately 275,000 tonnes of CO2 emissions. decisions, and we ask for and listen to their viewpoints. At CN, our vision is to be the safest and most carboncarbon‑efficient,-efficient, We are continuing to push toward increasing inclusion operationally effective, and customercustomer‑centric-centric railroad in and diversity in our teams and ensuring equity. We all North America. That is our business — an essential business. obtain stronger results from a wider range of insights and We will accomplish it by attracting and retaining a diverse perspectives, and we all have a role to play in creating an team of committed and talented railroaders. The best in the inclusive workplace where every CN employee can be their business; essential in all they do. authentic self. In closing, I would like to thank our customers and In 2020, CN was listed on the Dow Jones Sustainability stakeholders for their valued support. I am optimistic about World Index for the ninth consecutive year and in CN'sCN’s future, about our ability to embrace change and come January 2021, we were ranked 10th10th in the world on the out stronger, and about the entire team’steam's determination to Corporate Knights 2021 Global 100100 Index of the most not only succeed, but to innovate and lead for many years sustainable companies. to come.
JJ Ruest President and Chief ExecutiueExecutive Officer
CNcn 2020 ANNUALannual REPORTreport Vv 2020 -– A YEARYEAR LIKELIKE NONO OTHER
The magnitude of disruption the pandemic has wrought on economies, societies, families, waitersworkers and companies is almost incalculable.inralrulable. AtAt CN, CN, our employees rose to the pandemic challenge. They persevered in the vital 'vierole of moving a vast array of goods andand materials, while quickly adapting to strict pandemic protocols to keep each other, and our communities and customers, safe.
CN took all necessary steps to protect our employees, communities, and stakeholders in response to COVID‑19. Ryan Trithardt, Conductor vi cn 2020 annual report Surrey, BC The wegtolta•precipitous lapindrop in Patnavolumes loin the firstAthol/of half of 2020 woewas Wandfollowed byoby a robotrobust buttut nutuneven orborebound mod bin the bockback holthalf. ItIt took 'norm°enormous ut effortsdints to (glutadjust the ctgobernumber oof crn,crews, “The most important thing is to maintain a positive attitude!” (locomotivescomet] we meand armrailcars toto meet the !clothvolatile mownrecovery oof r Shena Coleman, ragmany orof oour tr cutocustomers’ min( Applysupply choke.chains. Ewe,Even then, loclubYindustry Transportation Manager demodemand cod and bagtraffic c pattern,patterns (Iddid octnot mom"necessarily Fennreturn Geismar, LA Photo provided by to .“normal.”rio mot' Through the (iodationdedication of oisour endwise,employees and Shena Coleman thou,those orotgcutahere,of our customers, wew (trolopecldeveloped new ouppkisupply didchains no and bonprtotkntransportation option.options. WhloWhile the Impactimpact of CCNID-19COVID‑19 continues to MOMcreate deep Cchallenges, et, there aeare talesstories orof ClnioOne of thethe ampoule.companies wevo landsourced hoisopropyl OW 0alcohol la)hol ?rpmfrom earsilver 'nomlinings and rekcient1011reinvention boonthat are ohoalso begbeing toldtold. wpgwas owour Marcustomer, my RegoRecochem diem InaInc. WNWWhile Oathey wnwere inundatedWee tee wthwith requeottrequests fortr[hle this macescarce reran%resource, Owithey pbrktrrlprioritized CN OAas LumeenLUMBER °alarmDEMAND nETWIT--.1f2.RETURNS oa path.partner midand ripplersupplier orof 011an 'IessentialWO 01 easeservice tOto OWITLthem.
011One• suchWI Srsilver Kglining Int*is the Minirevival orof theVie Unitelumber bxlittEYindustry ArrrodArmed withWth 50,000 Rimliters (tEl,000(13,000 USD0101AUS gallons) Orof 1isopropyl100WITI hiin WiesenWestern Cab,*Canada, which larvabefore thetho WES*pandemic had 01,01104alcohol, cmas wokwell atas industrialcocked* quantities orof dry wipes,Wpm, the CN pesoseen oa *Nsignificantiko rt (tointrodownturn Inin dermaldemand followedgland INby amill beamteam mootedcreated ourOLr owown Maesupplies orof (110disinfecting a /a kin %Outwipes. *antclosures. WithWet 1. so rawmany people reworking ling from home and llian4Thanks ato ropartners two Malike Recochen,Recochem, thisthlele is Jutjust oone he exampleward • with Ontodiscretionary, ay woodspending kg on two*travel catand 'MOROentertainment broil* orof the brit:impressive11n work orour ONE TEAM hahas dodone no cksIlladuring ththee •on hold, thethe rwwctla.renovation mamarket rl•Pt twIl'enbIdbenefited and Oliothe demanddermal porkpandemic asto adapt do rtb) to algaadverse calcitic'',conditions midand lampkeep ththe • Fafor CanCanadian don kkotOgreunedlumber reversed boo&trend. bTo hcalhandle 4 the wow.surge, economy Fomoving.rma, CN took nacrerailcars out of Seamstorage, Wooedleased to0more tO natalrailcars [0to esupplementupplemen ownour fleetrat ad,and, hin CanberDecember 202Ct2020, wwe otattainedtot kW CN EMPLOYEESEMPLOYEES DELIVERINGDELIVERING atan all‑timecatnip nerdrecord Nthhigh Icefor ksobtrlumber Ohtoolotashipments. THE ESSENTIALSESSENTIALS
ThemThere anomalyare many akinunsung heroheroes et wat&iaptworking to provide Vdo Illnressential10 CN CUSTOMER HELPS USUS DELIVERDELIVER MIrail nateservice duneduring ththee PONdmiTIpandemic. a 71wThey onare mantle,members of owour ThThroughoutroughout the Patinapandemic, CN howhas easedworked lathwith cowour ONE TEAM who onoare machomaking woes:JIMvaluable coottbutkow.contributions, big *employeesFriday**, to onusensure oa sohsafe and hyglrtkhygienic work*workplace 00 g0so anandd nooksmall, to help CN delverdeliver fortor owour customers.gearbox NonHere lois one they concan do theirthoklobo jobs orof howlkeeping tit our customersOWtOtooro nowityrunning. Omni*example orof ntrei:many: 9wooShena CoSoon.Coleman, Transportationto roporation 'brmManager, MAs moontiolessential efothontaxworkers, our amown supplytun* chinochains howhave to b.be Gotwww,Geismar, LA. ShimShena howhas domotOOTOteddemonstrated Constrong looleadership der0412 S.strong to offectkoolyeffectively cloyplay ourow cdtkoIcritical Foierole Inin owour mamma'customers’ dungduring ththee POpandemic radii* to Impkeep the trtrainsoko rumbarunning atMoyyadat Mays Yard Kakisupply chochains. [0to deardeliver IMOhealthcare Omre products, (rade,groceries oand cod Otherother eeleentION.essentials.
TIMThe CN pornteam ratedrealized artyearly Inin the pinion*pandemic VIthat at oour W MerA0regular r Toe“I’ve hodhad rto0 Andfind wWwways r0to rideremain Onntpresent andd 000100:1•accessible ragwhile le weanvendors orof sosanitizer other moymay (sottonot be olioable MIto hewkeep up with the oboor4naobserving the 0guidelines *Slow Orof PIW000physical1 ddistancing,” latrave sousays 9woo.Shena. ktreateclincreased dech(nddemand duedw to Ni.hthe antrastrong MApull from thethe metamedical "To“To thattho tend, end, I’vesat andused bland°technology fly a good (tool,deal, coupled with GOcommunity minty aidand peatysociety algae,Theat large. The anthersanitizer oupplysupply rhochain lo common Vatsense. The TOmost et Imp)importantrnt thingthing Inois to manmaintain Win wolwas hin )eOP:othcjeopardy, but Mwhilrunning out Orof [NMthese pedal,products wasvno not oa putty.,positive attitude(attitude! JuneJust as otgotNItynegativity leis contagion,contagious, so •an 01:00noption. OudanOur team (41.quickly1 Orly deckleddecided to securewan the pmductsproducts oare re GOMMpositive *lavibes. lmI’m PTOproud UP orof hhow ow macromanagement ran hookhas nneededeeciod to make otkour umown easanitizer other coldand sagsanitizingUlna wipe,wipes Irofor r glovedallowed me the froodomfreedom to omitassert mypekhmyself in ththisU tole,role, ascm our employees, MIPICIONYespecially d...those WOrkbvworking blin ththee fleidfield 174and wellwog ogas mothrobodmotivated momme to wowgrow, Stn.learn, catand leadWad *Antduring thisthU brideinside the cabsto orof oour tr locomotives. chantchallenging Int tine'time.”
CMcn 20402020 annualANNUAL REPORTreport VIIvii 1111114.
Maxime Desrosiers, Assistant Track Supervisor Peter Temitope Akinriyibi, Electrician Montreal, QC Winnipeg, MB
Mark Vinzon, Conductor Winnipeg, MB THANK YOUYOU
Hope Patrick, Labourer, Moving Units Yard Winnipeg, MB 4
Wayne Meddaugh, Foreman, Signals Stevens Point, WI
There is much talk of heroes these days, and deservedly so, especially healthcare providers, teachers, and the many other frontline workers, JulieWe Rutherford, Engine HKURYOidHostler Yard whom we wish to thank wholeheartedly. WeWe would rsiliTnnipg,Winnipeg, MB also like to thank our own frontline workers, Jonathan Côté, Conductor the deeply dedicated CNers who keep the Lévis, QC railway running, no matter what. We thank them for their exemplary service and professionalism, and for keeping the economy moving.
James C. Jackson, Mechanical Supervisor Fond du Lac, WI Hay River Fort Nelson HIGHLIGHTS Prince Rupert Fort McMurray
Revenues Prince George
$ Edmonton Sept-Îles Saskatoon $13.8B Kamloops 13.8B Baie-Comeau 2020 revenues declined $11$1.1 billion, or 7%, compared to 2019. Matane Calgary Vancouver Winnipeg Hearst Moncton Regina Earnings Thunder Bay Quebec Halifax Saint John $ DILUTED Montreal $5.00 Sault 5.00 EPS Duluth Ste. Marie Stevens Chippewa Falls Point Green $ ADJUSTED Minneapolis/St. Paul Bay Milton Toronto .31 Arcadia Sarnia Buffalo 1 5.315 DILUTED EPS'EPS Fond du Lac Detroit Diluted earnings per share (EPS) decreased 14% compared to 2019; Conneaut 2019; Sioux City adjusted diluted EPS'EPS1 decreased 8%. Joliet Toledo Pittsburgh Omaha East Peoria Chicago Investing for the Future Springfield Indianapolis Investing for the Future Decatur East St. Louis
$ CAPITAL 2.9B.9B EXPENDITURES Supporting the safety and flfluidityuidity of our network. Memphis Record Fuel Efficiency inin 2020 40/ mi IMPROVEMENT IN Jackson %ViO LOCOMOTIVE FUEL EFFICIENCY IN 2020 vs. 2019 Gulfport Mobile 4 Baton Rouge Pascagoula ~275K-275K tonnes of CO,CO2 emissions avoided and almost $60 million in savings. New Orleans
'See1 See the section entitled Adjusted performancemeasuresperformance measures in the MD&A for an explanation of this non-GAAPnon‑GAAP measure.
xX cnCN 2020 ANNUALannual REPORTreport Hay River Fort Nelson Prince Rupert
Fort McMurray
Prince George
Edmonton SeptSept-Îles-Ties
Kamloops Saskatoon BuieBaie-Comeau-Comeau a Matane Calgary Vancouver Winnipeg a Hearst Moncton Regina Thunder Bay Quebec Halifax
Montreal Saint John Sault Duluth Ste. Marie Stevens Chippewa Falls Point Green MinneapoliS/St.Minneapolis/St. Paul Bay Milton Toronto Arcade:Arcadia Sarnia Buffalo Fond du Lac Detroit Conneaut Sioux City Joliet Toledo Pittsburgh Omaha d East Peoria Chicago
SpriSpringfield Indianapolis Decatur East St. LOWLouis
Memphisphi
CN main lines Jocks°Jackson Secondary and feeder lines Shortline partners Gulfport Mobile Baton Rouge 0 Ports served by CN Pascagoulaascogaula _ ( NewOrleansNew Orleans
CNcn 2020 ANNUALannual REPORTreport XIxi GOING ABOVE AND BEYOND TO DELIVERDELIVER FREIGHT
TramportationieblisimTransportation is “mission critical'critical” for both businesses and people, hemfrom supportingsupporting cocommoditymmodity extraction and mamffachuingplocessesmanufacturing processes to helpinghdpinget get finishedfinhhed goods goods or ontob store store shelve.CN, shelves. CN, with with our our unique unique trawc.inevtalread,transcontinental reach, playsplaya a vital rorolele in these supply Chaimchains.
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. Terrace, BC xii cn 2020 annual report Photo by Eric Demski, CN Drone Operations Supervisor Atth.At the °atmoutbreak k oof the popandemic, riding; din,demand rid rcefor CPACN’s servicesoinIcoo dropped olorattitsignificantly, withwth the moodsecond quarterquota roglawIngregistering the notmost proricannodpronounced Saradecline. MootMost nominalcommodity kV Ellogroups winwere moody*negatively Impactedimpacted to invarying ging dondegrees,rot 'aptexcept rcefor owlagri‑food-food ti.a(e.g. bolebulk anandd proprocessed cad grobgrain otdand Writrefrigerated in bat Orogroceries). oat:. CN Karoorailroaders don oadapted dopted giddyquickly to Iwokeep conwrionconsumers otodoodstocked wthwith boobbasic goodsgoo do arolike badfood, MYfuel and taloatoiletries of aso odawell ascm calmcritical naiadmedical awaresupplies aidand piano!personal proprotective dal In 2020, CN set records for Canadian grain movement for 10 consecutive months beginning in March. oequipmentcticrnort rcefor ththee frontlinetontine wokenworkers Spruce Grove, AB totdtigbattling ttiothe padrtpandemic. WhinWhen oour Matraffic intornovolumes (Waneddeclined Inin WaalMarch otdand 44April, meterather thanthcr awingstoring taxahopper cotcars, wNchwhich anionstrengthens thin asour CN oalso to witset oa noonrecord bin locornothmelocomotives midand cocars re bin Farail Psort, yards, the Ionalong‑term torrocompittramorconoo competitiveness, encourages CoopenborDecember 2020 of 53,000 bar*barrels Dotraditional olbnd oppoapproach ocli whomwhen maniaequipment manor*economic ranowyrecovery throughtame h Yobjob Wof propopropane nO mrimportfor export nounfrom *toAltaGas’ ero his k4,idle, wetoo strategicallybo coley rnaoalmoved themthin creationtica Inin the nomanufacturing nub ctang sector MariRidley MindIsland FtoporPropane Exportt Tema!Terminal mob..to sites whorewhere ththeyey wouldwotM tobe nowtneeded anandd bolohelps itus coot]continue nuo to rootmeet the blin Rho.Prince Rip.rtRupert, RC.BC. AAs other mootmost oas dothe IqOeconomy norny rooporiod.reopened. ThisThlo growlinggrowing neatneeds orof grainrob tofarmers. not cocommodities moot* mombegan to rocaorrecover bin mornmassive loolabollogistical exerciseoarcloo waswog nachomade the mooredsecond hahalf, orof 20202020, wowe wattsstarted 2020 wogwas oa katlandmarkmak Y.orbryear for scareasier by orour mootrecent investmentsrroparrionts hphandling rang Woehigher volumescoin". &maof many fly DIbringingNOV unprecedentedwoad onted oamounts moults orof Inin 'Snot“Smart Nowak'Network” Pianotechnology, logy, ancri cocommodity nornootY groups,OrouPt mto oa petpoint othwhere, monessential tiol CantonCanadian 0rograin In to to0market. &It taffyintegrated bid cidigitalIMO scenariowatt colanalysis olyilo in ththe • lasttoed+ three nolo month,months orof 2020, weook CN witset nocordorecords for CoCanadian nal col (yobgrain anandd oinulotionsimulation totoolol thothat t mobilmodels o nobtrain worewere ihshipping ri record alkalisvolumes of ✓movementoyaimont bfor r 10 coconsecutive roicuthro nontt•months maownonnmovements to Orinimprove Multiinsight t on bombelumber aidand containerizedcon [droned prodproductsunto to betbeginning Imba Inin linkMarch. InIn OcbobrotOctober, CN network cocapacity, po dtt cotcost aidand nutletfluidity. mootmeet portpent‑up-up comaeconsumer demo*demand, oand rid Itset colan all‑timeoff-Ono u.supplyy Cliolnchain roanrecord for TitoThis Ininnovative now d. wooapproach ooh helped us mootmost oother thor connocitioocommodities orp0000dsurpassed CoCanadian rod rtograin ki Faintmovement bYby 'Natshipping oldadd awaycapacity Inin ththee rigright ht plow,places so dtheir 2019 rowelfourth quoquarter MO atriavolumes (withtee owover a3.27 27 ranmillion nitricmetric totonnes nro. PPM(MMT) we couldwid hohandlemt. ochrevolume amp,surges whomwhen the nonotable tott• NE01121011exception ammoof some onenTienergy Morin.of grain. Owen,Overall, CN clawedclosed MO2020 they cocameny andcal inensure on storeto no oholuposhelves anandd outoautomotive mato sectors).wears/. wthwith ovorover 92144T32 MMT orof CondonCanadian grograin ✓remainedorndriod otociod.stocked. oshippedhippod dovia tabcarload, od, exceedingwowing asour TitoThis mammy,recovery, thoughthough Mtnot VWyet WsWe ohoalso ms/Smade OrnlootrYtemporary oadjustments clAbriora bootbest yewyear ever (2016(2018) by 4.Z4.25 PriorMMT, COcomplete, mole, wagwas =Nealachieved Hthwith CN to orour worn,workforceroo to nxtchmatch cutocustomer nor or 1596.15%. CoContainerized ntotiorbod graingrail 'Nona°shipments moodyrapidly adoptingadapting moonresource lealevels tOto demodemand. rid. w.We roostregret thesethis actionsaction, worewere *atdirect itofrom rn Western ColoCanada do ohoalso hothit notchmatch cultOroortcustomers’ nowincreasing ion dOrIXolddemand mowynecessary aidand inare working hohardof mto nonrecord rd trotlevels Inin 2020, wthwith CN mooingmoving by bringing ofra arrollogour rolling 'lockstock boltback amcreate the coralconditions tiono foforra a MAfull Fawnreturn wowover 1.41.25 IsirrtMMT, bin caladdition tiOn to involumesknee Omon itsline, adand by oralgraduallyoak nicantrecalling to week.work. TOWThis haghas Includedincluded mobtomaintaining hint oshippedblopod frofrom rn FranEastern ColoCanada. do. TheseThose Wagfurloughedhod Dotrain In coland d ongiengine no nowtcrews, our capitalcoptrd Iinvestment nmparront portonprogram *aclose moorecord rd ggrain rob oblionootsshipments cocontributed artutod all thetho whlowhile mooingensuring theythey cordcompletedMod to prinpatipre‑pandemicor* tadlevels. • InIn oddean.addition, to bliKingkeeping thethe worldwaid Idfed cluingduring their requiredrequired sosafety lay Dotraining holm prior to Inin July, we orderordered 1.1,500500 new gringrain the poolingpandemic. a treturningOttookla totO work.
CMcn 2020 ANNUALannual REPORTreport XIIIxiii $440$440M$440M $210M$210M $125M$125M125 $140M$140M140 , $420M$420M I $265M$265M
$45M$45M $25M $95M$95M $25M In 2020, CN committed $55M$55M In 2020, CN committed $25M$25M $10M$10M $140M$140M $20M$20M20 $10M$10M $5M$5M $35M$35M5M $2.9B $60M$60M6 $ 2020 investments, in C$ and 2.9B $0.5M0.5 US$, for Canada and the $0.5M $70M$70M0 ' United States, respectively, in capital excluding rolling stock. investments for a strong network and to enable safe and reliable supply chains.
THE INVESTMENTS BEHIND THE RESULTS Moving large volumes of grain, propane, lumber and • Major yard capacity expansion projects in key locations, containers, while keeping pace with the recovery of which extended yard tracks for greater throughput. other commodity groups, was a result of the cancan‑do-do • New spillway bridge on the McComb Subdivision near attitude of our people supported by the investment New Orleans, LA, bringing greater reliability and safety to of over $10 billion in capital over the last three years, this challenging location. which also kept our network well maintained, safe and robust. • Acquisition of the last 41 units of our 2017 purchase of 260 new highhigh‑horsepower-horsepower and fuel‑efficientfuel-efficient locomotives. Highlights of our 2020 capacity enhancement investments included: • Took delivery of 1,009 of the 1,500 highhigh‑capacity-capacity grain hopper cars purchased in 2020, bringing the total number • Three long siding additions on the of new cars in-servicein‑service since 2018 to 2,009. EdmontonEdmonton‑to‑Prince-to-Prince Rupert corridor for increased capacity to/from the Port of Prince Rupert. • Acquisition of autonomous track inspection cars for greater safety and track time efficiency. • MultiMulti‑year-year capacity enhancements in both the Vancouver and Prince Rupert areas, matching new port terminal • Acquisition of 41 additional air distribution cars, for a total capacity and enabling greater throughput. of 101 since 2019, for more reliable train operations during cold winter weather. • Continuing to double track sections of our Western Canadian network, bringing the total to 140 miles of new • Replacing approximately 445 miles of rail and double track completed since 2018. 1.6 million rail ties.
XIVxiv cnN 2020 ANNUALannual REPORTreport ThThee MMilton Mor bxLogistics Ma PubHub wiwill Schenaddress theter need wed ro.for hiinland bal terminals,termii. eRrOalessential browto move coltdrcontainers um fanfrom CalCanadian &bin patports ento urban bon mumareas.
INVESTINGINVESTING FOR GROWTH WangMoving ohlairawingahead requires taking oa sod&strategic oapproach pwooch mto cocapital Ow I iromobnindinvestments that wowe ipponexpect willWt 114fuel Nanfuture growth. kande,Examples etchof such kwtowdinvestments mOd•made orOr WWIadvancedrad Indainclude: NeinMilton UNLogisticsbra HubHub — An karma:lelintermodal Foleyfacility thinthat wEwill arellathellstrengthen the nOnational tiOne I ILVElysupply chichain o and clawallow CN totO addingaddress blamedincreased d•nXriddemand hin the erlealerGreater Torontoon aidand WarnHamilton AreaAreo through the nodalmodal Metshift orof good,goods Remfrom Ionlong‑haul ee/ [Twicetrucks to rollrail. On krJanuary umir 221,1 22021,024 th•the federalWWI Oviernmentgovernment oapproved waved ththe • projectvalet eutfectsubject to compliancecomparam with cowlconditions done nelotinarelating MIto the *whoenvironment oned andd COred0Oconsultation On with IIndigenous Nig plow romapeoples, among others. New Richmondtietwnen el Tennis!Terminal — lheThe nr•new multipteweemultipurpose Nayfacility inin NowNew 11Richmond,canons* WI, willWI lodUcieinclude Onan OUI0automotive ITO tho COcompound mine, d firfor Mfinished *held webvehicles Wee and Onan ideroXodolintermodal bemgnoterminal I tOto eenr•serve Mimeoshippers adand noc•Nenreceivers elin the metrometropolitan pot)n mooarea orof PertPort 4tMnwof Prince raleRupert — Exclusivelylair* eeroedserved by CH,CN, No this PoirroopoieMinneapolis and SoSaint ht Prcul,14J.Paul, MN. northomnorthern Fedoop-watorBC deep‑water portvet Pin offers thothe *atiltshortest FPSroute bilitOroto/from AelaAsia. ItbakedIt benefits fromfrOm QJ.CN’s lowarourainvestments hin boalong Ile..Mobile UNLogistics Wee PeaPark — The NOhigh‑tech-tech rocEtyfacility Inin nsidingsal longalong wour FEdmonton‑to‑Prince droOnt0 n-to -Prince RupertRupert corridor, pow*Mobile, AL, willWI etudeinclude oa hdlgfacility krboRMnafor bagging and wNchwhich iemetionaldexperienced 'titbitfurther growth Inin 2021)2020 deeddespite be the cocontainerizing ^Unahlrg Pkwticplastic pledpellets with ancm annual coOdciticapacity parda.rtFpandemic. lhoThe ocicRionaddition 01E4000of 18,000 Nietofeet of, double bocktrack orof 25,000 twenty‑foottwenty-foot *mawequivalent Lent Miteunits (TEUd(TEUs) adand willwE COcontinued otiolied Inin 2:1202020 neCrnear PoPortrt EdWItli,Edward, PC,BC, mto hamincrease paprovide *Om meaner,customers with ortootaextensive glowerexport cop/citycapacity MIto (loamaccess neiwerknetwork COcapacity Po nitY blin supporteupixet of theiRldieithe Ridley WoodIsland and Ms%Asian, LottoLatin Anwical,American, andwad BrownEuropean onk•temarkets without IPDP World Minh*terminals. ThThe. Fairview TerminalTorrid connector roodroad walliwungwarehousing cocosts ete orniquiringor requiring doutldouble • laidhandling.Ing nwooineremains on schedule. likwNew MwrMeinNeneAtlantic Intermodal Owl leService — In collocollaboration tem [inn with 97t11 1771 1", r17"-71 7 CN’s network of the HOW=Halifax PoPort rt 1400Authority, rity, stakeholders,adeell0 Idea, OCOCelocean cmlcarriersR. midand cuitocustomers, room, CN beambegan MIto offietoffer, owas orof KlyMay 22020,020. Ingo:04integrated lobliTradolintermodal 101dOnesolutions ththrough oxioh owl's:re:tooour Moncton IndYard aimed otat nedudnareducing short‑hauldo orthad truddngtrucking Inin HalHalifax. 7This hie new irk,service 19,50019,500 *Idrives We !cluevalue caland rupposupports Me growth in the Atlanticfrantic regionregion. lheThe PortPort 0of I HoHalifax lin Iis • Maheranother Chl-wolurrepOrtCN‑exclusive port with OROgreat t routeroute milesmiles ofof track POpotential Mita krfor growth. aspans-, a Canada andand thethe lendProjectest WinnLaurentia — CN, NutchleonHutchison PoPortsrte aidand the PoPortrta of Qtt.cQuebec aare re workingwailrg tagtogether other to pioneer a new Iintermodal nownocia I UnitedUnited States; States; thethe only container terminal.termini. IThis hie new, etotrof-thstate‑of‑the‑art tort rocEtyfacility his rotset to banebecome oa cocornerstone mentors.' orof the cie*Pdeep‑water,-wober, year‑roundWern‘rici railroadconnectingrailroad connecting Canada'Canada’s portport. TheThe new tentterminal d witwill b.be exclusivelywoahroly monistserved by CN, .Rhwith Eastern andand Western SKIL:odddedicated platypriority babetrains to ChicoChicago, go, DetroitDetroit oand nd ToroToronto. nto. lheThe opening his scheduledwhich'.d fOr2024,for 2024, biters*,but remains abjectsubject to coasts withwith the U.S.U.S. South. South. read°regulatory torY approvals.Provoie.
cn 2020 ANNUALannual REPORTreport XVxv AUTOMATION, DIGITALIZATIONDIGITALIZATION AND DATADATA ARE STRATEGIC DRIVERSDRIVERS OF VALUE
OJCN his moving Itofrom m FiecnIonPrecision Scheduled RolroodInaRailroading P5R7(PSR) to Clot°Digital SciinduledScheduled RdnwdigRailroading p9?4(DSR) with Wantedadvanced Intimationinformation beqinotechnologies, login coandb oa roanfocus on bolobalancing nag orraloyeaemployee, quipcustomer roir andcob Mlaelddrlw.d.shareholder needs adand CN’s Automated Track Inspection Program significantly increases track inspection frequency, quality and reliability. obloctineobjectives Withwith costCOe efficiency. C6RDSR Winnipeg, MB bold.builds on the ningdeeprinciples eetotiestablished ed by FSFPSR while taroleveraging Bina cannedadvanced and neinintegrated, ted tontechnologyn* irt0 to kith.further bona..benefits, byttlixinaincluding namedincreased FOXYsafety with FRCPTC Inin the UnbdUnited Stone.States. The IITOONI0122improve operations,200000, Pantysafety adand eineease orof adand reduced coatcosts. An mini*example orof PedalFederal FolioedRailroad AdmInlitrolionAdministration (FlOA1(FRA) dodoing Ina bailbusiness. DSRDSR alwill be ouppatedsupported some dimedegree orof tatoautomation motion leolies with ohoalso aapproved pproaed aridand (trifledcertified 01.CN’s INby modemmodern ontodigitalI doplatforms Warne Withwith OW.open, RevsPositive innTrain Control Pt,(PTC) Inin oour tr FTCPTC ivfltsystem. raleflexible adand .Wob4scalable ordatectinaarchitectures, •U.S. operations.oporotlo ne. ThisThlo Winotechnology logy is whinwhich HIwill transformtrineform oand od modernmodernize CotoData Ivis mothanother or Impqruntimportant strategictote* (newtdesigned to pratprevent anvilcertain aaccidents cddentv 01.CN’s Minntechnology 0100Y lolandscape, onto p, adand omitasset. NewNew Mrtechnology ology pitoplatforms min nowitInaresulting from hirnonerrochuman error, ouchsuch tothus wool*enable bettorbetter coordinationcooRaab , onandd hoharness roan nnldr.real‑time data,dot, flempoweringowering cnas inionpeedoverspeed dominion.derailments. The cocollaboration ictorotlo n with matononcustomers adand the whole .preysupply chokechain to maremake eonsystem toncan Intl*initiate te oa Maw**full‑service Fortran.partners. ThThish antstrategic e& delqinmentdeployment Orof faster, bettie-inkirriodbetter‑informed decnicao.decisions. trainbrake on:Moodieapplication, to Spastop a Dintrain Vif tednology—technology — QJenureddwrdvdaeCN’s next driver of value inIn MienMarch MOO,2020, OJCN ruinedlaunched t.its ththee (222Ncrew donordoes not t Wkstake action.aka InIn — his 2022well Lrldencyunderway. notfirst suiteouts of nafive dintoldigital oPPloOtlinapplication Ileante2020,December 2020, we vuoninflaysuccessfully 1:programming20012EnrnbrI kadointerfaces 010 Ginel.(APIs), OJCN tamebelieves that colan outooxtedautomated completed the atfederally required allowingmin El manncustomers to COreleaconnect roirail narknetwork lois WYforCNkey for CN to keopkeep Interpol"interoperability ley Marnatesting we.with Waal*tenant eionleielyseamlessly Pawithth OJCN kerne:korafor “track and ma•inflmoving the economiceconomy. ItIt ovEwill notransform neinn whorailroads 042200 so they111Y cocann reoperatepro tone PTC Donetrace” elan;shipment Infamotion,information, nixingincluding Namoperations tan cadand lingbring significantvlarailoo on 01.CN’s 9535 subdivisionsvutohilelore equipped nestimatedtirricted timetine of ariaarrival rdand CFSGPS (cod*location n — oa roirail 'reentryindustry intfirst.
lixandHandheld dramdevices o1also Overallowed uskW IDto OJCN his olioalso *Nangdigitizing paprocesses opine alinedaimed eVerrs#1communicateIIX4g kirCritiptbrinformation rand d paid*provide otat improvingtrartraig ppproductivity, Whit% ndudrelreducing functions2.1101.0 • bto keephump krfrontline Noffinworkers umout of cooncosts adand notemore OCCISMIYaccurately COcapturing Mt.Ina PhINWPshared MOMspaces 0.•290during d.the pontrt.pandemic. nen0012220e.Brandon Pietka, Car oiedocioMechanic 111•111.04.revenues. bTo date,dud, wwe **VWdeployed ONIrover Cana+Gary, IN 10,C0010,000 handheldcricinkl darndevices to trtrainain crewsgreen coldand 950850 more to coredcar and locomotionlocomotive radiomechanics. nice In 20202020, ovewe bawdfocused on *thingdigitizing wortsreports onand dodocumentation arida:10n for cnneecrews, altocustomers, more,o and rid rnedmIcalmechanical woework adand ended ththee yeayear math with maremore Owthan n 70 mainprocess °Menotti'',automations to *ninoneliminate npetitreorepetitive Mks.tasks. InIn cattailaddition to hawedincreased eilicacleaefficiencies, Corothese *Maiddigitized pasprocesses !Snenhanced Katysafety by Swingallowing ugus to deploydodgy OPOCCIOnneapplications eonhiearly in the padpandemic,— to commandcommunicate Inkemotloinformation n *tagvirtually, adand to Inelqkeep frontlinefrOntIne wareworkers oatout orof *awlshared paspaces. On ththeeersirortmnINI environmental frontfront, *amsince JulyJay 2020, weYe howhave wadsaved oarover 6 allmillion pages orof papaper yr with Casethese deacondevices.
ZVIxvi cnCM 2020 ANNUALannual REPORTreport BUILDINGBUILDING FORFOR A SUSTAINABLESUSTAINABLE FUTUREFUTURE
In the 25 years sincesince CNCN was privatized, itsits suixessessuccesses have beatbeen widely recognized. The CompanyCompany hashas prospexedprospered acconlinglyaccordingly. But thethe expectations ofof our stakeholdersstakeholders axeare evolving,evolving, andand CNCN is determineddetermined into maintain its leadership position inin the yearsyears that lie ahead.ahead. That means not just moving ourour cusinmersecustomers’ goodsgoods safelysafely andand efficiently, but but doing doing it it in in an an enviromnentallyrespaisibleenvironmentally responsible manner. It means attractingattracting, developingdeveloping and xetainingretaining diversediverse talent.talent. It meansmeans helpingInhelping to make the comnramitiescommunities wewe eerieserve saxsafer andand atm:roger,stronger, andand itit meansmeans setting setting impeccable ethicalethical standards.standards. CNCN will will be guidedguided byaby a simple maxim: howhow wewe deliver successsuccess isis just asas importantimportant asas what wewe achieve. ForFor CN, this isis embodied byby Delivering Responsib/yResponsibly.
At CN, we continue to Deliver Responsibly for a sustainable future. Red Pass, BC Photo by Tim Stevens, CN Lubricator Maintainer CMcn 2020 AMI11141annual RE1report , 0121" XVIIxvii • frEveryeffellemenne CN employee is andtedtemocommitted to an Intkont-cetia-frmincident‑ and injury‑free wallaworkplace. OwOur matermenumber one platypriority I.is en*to train serour nein.workforce mon IlkLife Oletele•leCritical Rules so we aall mengo home loin.wensafely, every singleca Msday. GayGreg eineBanks, ONI WinWork EdonEquipment Svp...n.Supervisor cif vanotmVaughan,, ON
the totop p canecauses orof Weirdincidents oneand 'Mae,injuries, and on WeetrYbaidentifying Indand mannareviewing aresafe mrkproaehen,work procedures, Donnatraining wanemployeesau to be manaware orof their 'wouldsurroundings loge oneand recognizerecognize Paterapotential I at-dohworkat‑risk work Exaction,practices, oraland teaching erraloyeeeemployees how to Meadeprovide constructivecoretructhe feedback to poempeers.
arOur ireLife Criticaltoiled AlaRules droaim to *robedembed asafety rely Utterfurther MmthroughoutLOUR the an,organization.mina [Ion ThTheyey beeidentify tleir day‑to‑daydin-to-110Y caddiesactivities with the potential MIto comecause sadaserious hornharm, mimeor loss of Mtlife. These runerules oreare baseddeed on patpast Weirdincidents maland arewe ddesignedeelarual to hhelp p eraseensure they do notnot homehappen, apob.again. FlarYEvery CPJCN wadedsupports the UMWUnited Notion'.Nation’s &atonableSustainable numbDevelopment moat ierranneemployee his taughttomht to inunderstand derettnd adand follow thenthese NW,rules, GooleGoals andand leis ronalrgfocusing mon those anareas Macewhere we tiarabelieve we anandd b)to Mareensure their peenpeers do the NKr*.same. coocan hamhave the anodegreatest Impact impact — anat.Climate Action, ImoInnovation ..etl bIn 2020, CN oleoalso Introducedintroduced oa rawnew Katysafety leadembnleadership anandd IntroInfrastructure, uvula Decent Work anandd Economic Growt,Growth, Donlontraining Programprogram [hathat t Modesteaches erranyeeeemployees the Immure,.importance WadSustainable node MeeCities anandd Cororrentne,Communities, anandd Gender FEquality. 0,.d orof mondialcontrolling opalineexposures to r$crisk, and mon developingdreebpaai the CN glarealigns with gglobal bbd beetbest moan,practice Pato&sustainability My recedingreporting attitudeattitudes oraland behavior,behaviours required keafor a easafe efOrkElOCILworkplace. formwork,frameworks to menensure tantransparencyipmeray anandd coconsistency rid ode oir CN his oleoalso 4WDleveraging Bing Menew teem*technology or to drheidrive ImpiVAKIimproved bin connencotinocommunicating deour Womanperformance op to stakeholders.to lobo kale. ✓safetyariety petperformance. manor. For nen*,example, (NCN his Intoaminstalling pewqrfulpowerful OmOur earnsustainabilityhotly perforaxnamperformance himhas coracontinued ued to momearn Meersensor 0and nti 0artificial rtlicipl Iintelligence MORONIC, (AI)Val doletech riteinto alternatedautomated the Corry:owCompany oa dogeplace groomamong the mrldliworld’s bedbest. bIn 2020, bucktrack harioctioninspection oncars patiopositioned rod Inin naregular Like DIMtrains, enetenabling34/ 1 CN wogwas op*again lobedlisted on the Dow MomJones &rSustainability Inabaty track Moode.,inspections oat t nomadnormal track speed. bIn 2020, usinga 0 World bed,Index, anandd bin JawJanuary ry 2)21,2021, we nalranked 110th0th on the M,this mawnew autonomousLaneea uhelincil technology, CN Inepecteciinspected needynearly COMOROCorporate KnighteKnights 2021 0(401100Global 100 locherIndex orof the rootmost 875,000375,000 ranmiles orof Doc&track, with onsome orof manyour key cocorridors rrldon afloat.sustainable congacompanies. ilea. flreceivingag up to 20 Ontotimes monomore Irerealorieinspections dathanl withyity, Menuprevious, nethodobemethodologies. SAFETYET 7 AI Mamatechnology !MY leis oleoalso changingtea mato how CMCN inspects impede bits rolcorrailcar SaSafety lay is oa onecore value%due otCNat CN that nke,guides ourtr actionactions °crowacross fleetfleet. Ultro-hnh-deoltlooUltra‑high‑definition careencameras bin meowour new outmodedautomated diethe Wits'sbusiness. NothingWelke) IIis rodemore harentimportant to CN thanthai rarerunning kei IrePednoinspection POportals Mb COpttrecapture 0a £160'360° Newview Moof a bobtrain gease Itit Mel,travels oa moresafe rtaroarailroad. d. We theestrive to edemasafeguard rd oteednYne,our employees, tirothrough ugh oat t mannalnormal track epee&speed. Thishie method orof Idearailcar meets,assets, wantcustomers’ goods,gouda renhbomIngneighbouring cocommunities, mmtrae, and mainmaintenance, bin VMa Urnusing mitChlrorleardnOmachine‑learning Okialgorithms, atom, roma,improves the OrrAWSTIOntenvironment — Ohalways.irrrit OwOur (yoga)goal is to be the ideasafest kePeCtnoinspection quaquality, It% freemen;frequency, gadand rola..railcar derreliability. bIn 2020, ragrailroad rood bin North AmericoAmerica by culcultivating the that onan unwavering wring QJCN buatbuilt on bits 20e92019 Monfield aidtrial tvby embinahlextending *ertenalgorithm Katysafety cubesculture anandd babainvesting bin techoolonytechnology andand Infroaructweinfrastructure drabdevelopment. wort OaOnce completed, themthese onalgorithms adhere witwill to anensure the asafety hey ofor owour mrcloYeeeemployees anandd opentlmIoperations. batelocate dedidedefects with sozero hewnhuman loteroctloo,interaction, androd mochaproduce (doautomatically modally Dewygenerated bet work Orlinorders nrfor torcar repair. ChlyCN’s Levorridouncompromising al On commitment to safetya flay his mnerlArnedunderpinned by blob&training, lealeadership, Mahn, anandd technology. OwOur LoceikgLooking Out RothBoth thee,these Meal:Woreinnovations elin atdnaautomation [Ion — the track Fin0d1OdeFor Each Other paprogram gran leis errkey to OhCN’s safety cultistculture. 'tieIt is ao Inerectlooinspection nacrerailcars oraland robtrain binspection ipedlor, paw,portals — knowincrease AOvital Fordedmindset that *raglanemployees oreare taughttomhtmdeea,00dledd and encouraged to bepectIoninspection frequency oraland qualityquaky andand playcloy ormaredan essential rolerole Ingot*integrate dointo dailyOak practice toto areensure everyonevenom Bongoes homehome bin poreletb0preventing 'odder°.incidents. The goal leis to reameventually ey .reineliminate scalysafely otat the end orof the doday. y ItIt leis oa pea-to-peorpeer‑to‑peer pogromprogram the rtekrisk orof Nymanhuman error aidand meuse otroaedour skilled enaloyeeeemployees to that &cumfocuses on robingraising coonmeeawareness moonamong alall erraloyee,employees or,on repairrepair defects rather Onthan, searchworth ðers.for them.
XVIIIxviii cnCN 20202020 ANNUALannual REPORTreport Our relentlessrelentless lbcusfocus onon safetysafety hashas resultedresulted inin bothboth ourour FAAFRA personal injuryinjury andand train accidentaccident ratios improvingimproving by
PANDEMIC RESPONSEP 15%..18%, and CNPWPredCN triggered tIPPOIits pandemic ndirric navesresponse 15% 18%, early,Illy, Patine putting blphain place menmeasures to respectively.respectively. Irtubtprotect the Mothhealth crldand wheysafety crowof our employees, and th•the cocommunities ', inmate, Inin %Abb..*which we opine*operate. VSWe iiiiibtatociestablished a CINIb4bbiCCNID-15dedicated COVID‑191 bcrn,team, deploying our medicalfiblitoffoncloccupotkai staff and occupational health department,,ad and puntproviding % inlaysemployees *camaccess to hoolhealth th ondand wilwellness Yaw mooresources, wow hadnilincluding bienlocbn,telemedicine, CP4 CN’s BiciwupEmployee and FOrnivFamily M.armsAssistance RoomProgram, n as well 0111bnbilas mental hifithhealth tip,tips andnd resources. CN Raifully alaligned grad with guldoguidance nop Atmfrom the WaldWorld RoothHealth 0Organization, Feat° don, as well asas proacial,nondprovincial, state and &d..federal aRMtaaW.authorities. We rritdcbodrestricted dirnOcaotromil,inatiedemployee travel, enabled work from lanehome fiforn 0employees1110ovia notnot requiscirequired enon ilte,site, amplifiedmcnd d.aarlgcleaning mamaregimes Inin 4Ytocador.,radrall locations, implemented aid strict Iftvicolphysical 'Atom:bigdistancing rimmingmeasures coldand andensured frofrontline nalia wedgesworkers «wewere iquipsociequipped with bigthe opyropiaappropriate PrIOpersonal nal proem:Soprotective scidpnortequipment. bIn bbbon,addition, owe crews that raidedneeded toto portperform, nn molten*maintenancera oror coconstruction nanction work knableithelrbtwoctiongidthlimited their interactions with katlocal =Innis*communities OF thrOUghthrough ause ofof Wttratcominrdwdmaadyoodelectronic communication and food cadand gogoods ode chaerydelivery ardour.services. AIAll thatthese mnuminameasures will b•be robe:trodmaintained Y12021,in 2021, bin con°compliance kola idthwith pubicpublic bahhealth ntbarbgauthorities’ *Pahadirectives.
Ensuring the safety and integrity of our tracks is a daily task at CN. Jean‑Jacques Gionet, Track Supervisor Halifax, NS
CMcn 2020 ANNUAL.annual REPORTreport XIxix X CN'sCN’s teamteam isis composedcomposed ofof approximatelyapproximately n424,000 000 talented railroaders,railroaders, PEOPLEPEOPLE allall dedicated to rkeeping OhCN’s pool* people anare owour ontogreatest twt nowtasset. They powwowpower our success.exzeget LookingLooking °hood,ahead, wew. willta roamfocus on attractko3attracting Indiverse MINKtalent, our service flut_fluid and dokolodnodeveloping theirtholr yeaskills, meiand poolingproviding the wortsort orof Ininclusive &aloe wortclocoworkplace that wEwill rw.ensure doorthey Myfully Ingrateintegrate and nwnolnremain noas the economy moving.moving. wvaluedailed CN employees.trnp4owook CN aaspires odno to howhave a workforcewoo deo too diotnAoaothat reflects doothe dkocoltydiversity orof duothe communitiesOwntntwano Inin whichwNdl weea Ocetobe.operate. We howhave easet a [Meettarget to Methattain, by 2022,2022, andcold thereafterdoontorter moIntoln,maintain, an wexecutiveolatkok mcnagetnottmanagement Nomteam elin which at hoot80%cololeast 30% are women:Mbwomen. This tatarget toot alonealigns wthwith ourcadet* pledge boto acceleratetleCeeNtibe th•the adaadvancement, C.aerK ofOr ee)women nee elin budsbusiness, owas setwet eluteout in, the CoCatalyst tolyotAmord Accord 20222022, to whichwNdl CN ban*became a elgeOblefsignatory ▪in 2020.2020.
RtoultvResults anare whetwhat niwill I nattymatter- hin dothe yosnyears ato come.Way_ We wEwill do monmore to elensureRol an bwininclusive enekehmottenvironment acrossete PI MRrace, Meet*gender, tolgtoereligion and khentlticidentity. We anare ontetateecicommitted MIto ovacreating dno a cuttwoculture whoawhere drhnonnodifference his wolundvalued and wowe aare totingtaking coconcrete no** action to MCCsupport rt thatcottehltneetthat commitment, including Ircrectingincreasing outreach to employeestrnpkottoo — rewe know lait is otalvital to rectalisten — midand creatingcrwo the Emit:kyleEmployee RowersResource egoGroups ta whomwhere ✓employeesainy... ratwith *tawsimilar boolynxwodobackgrounds aand/or radio r balladinterests aelcan flgatheratlet* to shareAna. Idealideas. elIn 213(20,2020, wewoo appolnbodappointed a DinarDirector orof Elworolty,Diversity, Equity Equity and Insktolon.Inclusion.
InIn Fobrucry2021,CNFebruary 2021, CN ohoalso announcedwinowood dothe matt:0creation ofor an kidIndigenouslgorsour AddroryCarciAdvisory Council 0.(IAC),04. man Indocondwitindependent body oornplondcomprised of IndloentelIndigenous Woe,peoples teemfrom aaowacross thedo ▪country. teley.lhe The IACtiIAC’s mandatomandate leis to poradaprovide °dilaadvice to dothe Neathighest halevels orof almaCN management nagonwt on anytimeany issue the IIAC AC or CN mcoxigettortmanagement downdeems *owrelevant it to CN, bxixingincluding rokokosontntreinforcement orof Wonkydiversity and bwiwkoninclusion lein owour NotkdOehworkplace.
CN is committed to the advancement of women within our teams. Having a diverse workforce that reflects the fabric of the communities we serve and the various stakeholders we work with is important. Vanessa Burzynski, Labourer, Moving Units Yard Winnipeg, MB
YYxx cnCN RORO2020 ANNUALannual REPORTreport MovingMoving goods byby railrail instead instead of truck isis Protecting and restoring natural ecosystems is part of the way CN conducts its business. Trimble, TN 4x4× Photo by Eric Graf, CN Labourer more fuel ENVIRONMENTENVIRONMENT efficientIh`-a` -21< 9.-, c CgricogreisitetctrCN recognizes that our cfrnaclimate We is dimein&changing, anandd thathat [buil businesses aim nutmust not merelyrank adaptadapt, theynutthey must be patpart ofor the woke°solution. n. 0Our is goal leis to conduct owour owedoneoperations and with minimal endronmentolenvironmental impactImp:laced and to playploy a Fabian:hesubstantive role inIn the tratransition akin to a Incartonlower carbon woneconomy, arm coconserving reining rumbaresources, protecting and restoringnew rim ,cirj 71'1,46reduces icilin275 GHG{."„ru ratednatural ecoriebienetaecosystems, and ail aadvancing dei nag the *wilycircular eanornicleconomy. This hie isle whyGNwhy CN supportsrumen cifFr.lcrihtm the PaleParis Agreement and aimaligns tiits strategiesexabigiee and target.targets wthwith anat.climate science.wiliece emissions by CN haohas a tongstrong track nandrecord oft*of fuel andmil carbonco rb:in efficiency,d7ldeawtcand and hahas improvedWowed lacanothelocomotive wanemissions kitenvitybyintensity by apptairnatehriii)%approximately 40% since 1993.1993. Toto [h.this dinday, CN reranremains the North Any/banAmerican railr industrybwkeirY 1leader,03der, coconsumingnning raaaNYroughly 115%596. 1less••• lacanothelocomotive frfuelrel pcper grossgrow tanton mileMinh" than, the averagevine andof its ClowClass I rationrailway peatpeers. 75%. trormingLeveraging mlrail forkettle the long haulhad Ngsignificantly aka ndy reducesrum (alpGHG emissions.ennui° re. bIn 2020, CN banebecame an ofibloiofficial oupixetersupporter orof the ToikTask ForceFace on 0Climate‑related Inate-nil add RoundelFinancial DielowneDisclosures MFG,(TCFD) miland wogwas the fintNorthfirst North AmelanAmerican railroadrota ail to molerelease a etastand‑alone r4-do no TCF0TCFD report.repwt arsCN’s action,actions to reduce errant,emissions, matigabimitigate tirmabiclimate rigarisks andmil Sulk*develop the lowlow‑carbon-co kon economywino Yreafld resulted inti CN being one orof arayonly tinethree CoCanadian nada corncibleicompanies Sadlisted on COP%CDP’s 20202020 prestigiousmeth* ui ClimateMoats A List.Lk In FebruaryRibrucry2021,CN 2021, CN announcednomad twrit will holdhoki a.odbra vote by shareholderswhireholciere each piayear r at idits ARMAGM on Ni.the COmpavieCompany’s ClimateOhr WO Action PimPlan. ThleThis initiativeb t corraermeacomplements CNtiCN’s bniritalong‑standing acing miland robustrebus tdined climate Gagechange disclosures,dodo am, ourtr pibicpublic reportingrepwting orof airour aleGHG wankemissions, acedand 0our ir antil3strategy 'go to reduce (346GHG emissionsrenhebn earrellY,intensity, asCO weewell COas Oltour wyear‑over‑yearo mina' progress.menial. CPJCN employeeemployees weare aactively ctiay engaged in owour witinateysustainability erraticefforts, nailingfinding Wconcreteen* welreways tOto reduce energy aleuse at keykr/ yardsyaxig by roughlyrough)/ fl35% owover the witpast decade andmil Sectdivert cixtrairnatebirapproximately 90%9amwaits90% of our waste from landfillslaid fag through rockinernicidearewreduce‑reuse‑recycle‑renew programs.mein. CN leis corninittelcommitted to protecting bioliervitybiodiversity and rammanaging %big the loadland in the Kirke,various beatenhabitats through Mierwhich OWour Weaknetwork are,runs, includingIncluding ha:lonanational Pahl(parks, forests,roiled, prairiesmildew adand wetkricitwetlands. arOur EcoeornedonoEcoConnexions programprogrErn contrbiteecontributes to biodiversitytiocOvnitir byby.RAoktrg supporting TONmass aeFaaeebxlmreforestation bin tilethe corm-mit*,communities andmil FirstRiot NatfloNations along owour asrail lines.tot
cn 2020 annual report xxi Since 2012, CN andand our partners inin Canada andand the U.S. havehave planted over
2 millmillionon COMCOMMUNITIES trees, MtPratoCN strives to boobe a good mightoKneighbour, avothigcreating socio-ramsocio‑economic mac trees, bloatbenefits crdand investinghvaputrig to maksmake cocommunities nix., Itin Sorg's'stronger wadand making CN oneone ofof pin,safer, win.while ongogbligengaging 0m0[okt0Sntoour stakeholders to buildbAd ktttirglasting olidtionelarelationships. OstiaOver the pastrot oonttnt,century, cmCN hostmonhas been onan the leading private inimportantvemnpatorthenx.iyiewto,,,,cnci part of the many cities, towns, and Indigenousbxigimw. COcommunities mute. OGIVIIIacross our network.nave At QJrCN is impeckeyespecially proud nonnon‑forestry-forestry treetree planters. •of its Progressiveft eniekvnathxd Aboriginal Relationsdone PawnBronze Level arra'certification don tornfrom th•the CalaCanadian cim CadCouncil Ikefor Atm'Aboriginal ghxd &limaBusiness for r olrour GpnrrarrratowaMrgcommitment to working with IIndigenous nag*flout anCN isn engagedr opoici min 0Delivering i•pra•O Responsiblyarmiail communitiesrniThlratille cnciand tawsbusinesses. andd tiin *the ads fight togrAra against tanctsclimate davit,:change. 01.11.••CN, Tree One*Canada origilngric,and America Min SeatBloom AlAt CN,CN, ausafe h practices do onot °Mop stop wewith, axour ow'own •employees,111005.14, howhave Porta!planted two 'Alanmillion o.wtrees o•as wetpart i"?of nor do thowatopthey stop Ordrat the limitknat oralof our pTrlw..premises. SSafetyty rindsextends airantirortlogioour commitment to greener coemigise.communities. to oour IN COcontractors, ntrElan, Witornorcustomer Mgsites 0and rad ththe • C.:11communities11•1 in n . Winnipeg,*WPM MB 114 Bray sty,© Tree CbootbCanada which rewe opleolbkoperate. Every 'MOSyear, iabitewe take steps teto Wileenhance la the anninCyemergency 17preparedness11111XMINIIIM of communities alongalong •our network.niltm dr. ForFora example, 111:40,al an Invortzntimportant component of arCN’sg work isinuccong supporting 7RANSCAERTRANSCAER•® fronoatOtiOn(Transportation igadtiliblin:1111%LonCommunityo rrnrity AimAwareness MINIM miland &nowEmergency Response),* , an CCoutreach effort to train community emergency personnel situated near rail lines where dangerous goods are bytransported. notated. NIn 2D2D,2020, (WPMdespite Ibacilli:loslimitations imposedblIcond Wby etaCO=49the COVID‑19 widen*pandemic, 01CN participatedprtidrotssi inN Iwonearly rtY ISO130 TRWCAERTRANSCAER owirti,titiavalticoltroblivevents, bringing critical training to onoalmost lit 2,100 coparticipants. itkipmat W•We ohoalso soearned mod th•the prestigiouspmeWoug 7A1NSCAERNotkmolTRANSCAER National AchiAchievement owlet ArcAward rd from thethe AmodartAmerican ChipatryChemistry CoCouncil Lad afor r the 12th12th conecutkaconsecutive yamyear. WCN 4employees4nOvomig ohoalso makemole hhundreds ur dors ofof insingeongpresentations mow&annually, a)talking to thouKridethousands orchadomof children 0and adults at othschools ode oand cormcommunity-sulky ownevents inkt CoCanada nod° Ondand SOILthe U.S., atpespecially, do, v &ngduring RolRail SoSafety Fey Wee,Week, °toutabout thothe Impytmesimportance of • rail goritysafety midand the dodangers nein &wilingof walking orplpyfrgonor playing on or nearrow ramytrorailway tracks. ckt toIn Ma2020, croon,of course, thatthese mainlymolly tootook k thethe fiformrm obatuolof virtual soiletYsafety ridothilcinitiatives.
xxii cn 2020 annual report •CN entiam.employees torestand tambefore lonam:44••locomotives point&painted intoin the swimliveries clanof the rimfive camonrailroads *ixthat bow•Jcirhave joined airour atmteam dnasince Fprivatizationrierciecticr 25 'Nagoyayears ago. motrod.00Montreal, QC
GOVEDEIPGOVERNANCE,EICE We inare commandcommitted to dothe hhighest[toot itaxiadestandards orof amp,corporaterata gobrornimaxgovernance, withW d. aan emphasisonchabie on engagement andd tratransparency. narennolcil How ow wewo Sasdeliver mom,success flatis just auas Irmoimportantnot obas what we achieve.widow lhonbronxTherefore, w.we work dgoondydiligently dto ixingbring integrityty and excellencewawa into ranthingeverything wowe do. AuAs a ColadaCanadian, reporting limyissuer with obasitiosecurities goodlisted on thothe Toronb)Toronto StackEesigoStock Exchange (1(TSX).53.4 anandddo the NowNew ‘1)rkYork StECICEnrifioStock Exchange re(NYSE),jE1l alarmCN ensures itvaxpixaits corporate bp gobrorninxigovernance Irapractices cite, cocomply rnbly with dothe high**highest CN his proud orof dolpdrW.bd..na.wtraddbykTBoadorthe leadership demonstrated by its Board of itaxlirdestandards and nAiorules adobtidadopted by thedo CoCanadian nada Swat*,Securities CinictoDirectors rebid with th nowtrespect to dhervitydiversity aand nd I.is a proud elmsignatory awry AdrnbliitratorxAdministrators, applicableapplcotbe porieloroprovisions orof diothe US.U.S. to thothe CoCatalyst talyetAccord Accord 2022. EaEarlier riir [hiethis yea;year, dothe FordBoard bitset ScotaregyktSarbanes‑Oxley Act or2002andof 2002 and mindrelated nig,rules orof thedo US.U.S. a nownew [ogre[target thathat t aat tiosot50%or least 50% of dithe • indopwodortindependent cfrocbmdirectors Sabo,Securities and EchoExchange ngo CorseCommission. nn CNYCN is mowrptildexempted wgwill gyrocome from Ondiverse grangroups, bximingincluding god.gender conicparity. from complying withth rnirrymany orof the NersENYSE corporate PoutBest rimepractices inare owevolving Ping in Canada and thedo USUnited W StabioStates goxonxmcogovernance °Amrules, palledprovided it cordcomplies ha with CanadaCanadian, with nowtMIrespect to dothe tosize orof cormcorporate rata bard.,boards, thedo Winntenure orof goxonxmomgovernance rocf.iinbrnora.requirements. EbcobtExcept owas Firmasummarized rind on owour cinictorxdirectors, thedo nitinbrnortretirement agoage orof In:tore directors and dothe rerannumber orof web**website at www.cn.ca/governancetinintayarnowncmax, CN’s gammanomgovernance boat.boards a cinntredirector eiboukishould armserve on. RiAbctingReflecting thesedal evolvingetching maks,practices comply with the NYSEthSE cawcorporate rata wormgovernance, ol Mode,trends, CMCN’s BoatBoard of DiniaoreDirectors iis updoupdating [Mg Idits amp:tadcorporate nAiorules inin atall Aprsignificant omit nowt*.respects. goxonxmcogovernance popoliciesIS. Weto: ConantConsistent with ththee belieftoWthot that othkolethical conduct gooegoes •• RiduomReduce the boardtoo rd vialsize to 10 indopondwtindependent director,directors pk•plus briondbeyond cornutramcompliance and rook*,resides in a obrnpahonflcomprehensive dothe CECtCEO; governsgovernance adbee,culture, CNW cobgehowpublishes anandd glebeenforces toits CorpxottGounnctCorporate Governance Kw*Manual, CocirorguthattCode of Business ConductConduct, •• EwaEnsure theta'that all cirocbredirectors anare autfactsubject to a 1414‑year-or tenureWin Art-CarupbalAnti‑Corruption Fbilqs.SuppWrCocirPolicy, Supplier Code oftorductof Conduct and arialimit by ,removingnwvhg thedo owletcurrent gragrandfathering ndrothodng pro.4orcprovision; NinoHuman ROMRights Raw. Policy. WeWs alooalso maintain wealseveral method,methods •• LonLower thetho nitinbrnortretirement agoage rorfor director,directors rrornfrom 7575 MIto TZ72; foefor onemployees1010a , modand third Fort*,parties to aanonymously nonyrnoubly nowtreport °conningaccounting,,a auditing biting aidand edit/coolantother concerns. •• amigoChange thothe rawpolicy on owover‑boarding-beading to pwrntpermit directorscirocbre to ▪serve oon a womanmaximum of threethroe p.iblcboardb,public boards, bxiacingincluding W.CN. These nownew gowngovernance moo moomeasures ono anare Ismunanimously 'mourn Randsupported by thedo Pard.liwirBoard. They willWI Wkstake dicta,effect as orof dothe AVIApril MO2021 ACM.AGM. Our approodlapproach to eubtainotEtylosustainability is apedaligned withWd. mnodwnlinternational itaxlirdxstandards, including thedo USWUnited hiadonNations • Global CompostCompact a.anddS.ritabbablo Sustainable ilrekiornortedookDevelopment Goals, thet. (NowGlobal ReratineReporting wInitiative, esta, thet. SuittSustainability atm ty AccantinnAccounting SbrodStandardscr. Boat,Board, dothe *,Worldfay PalkBank Wait/Mobility GookGoals, and thothe TookTask Force 50% on Climate‑relatedanato-nblobid RnoFinancial WI CIDisclosures. &mom ThaiThese afixteisof independentisrit directorsdirectors 0expectations:11,4CtOtking anare Integratedintegrated Intointo oour lr fkr•five altosustainability bleary Ianpillars: Bwironnent,SorotisEnvironment, Safety, Pool*People, ComenmitinCommunities, toto be womenwomen andd Gown°Governance. not
cn 2020 annual report XXIIIxxiii BOARD OF DIRECTORS As at March 9,9,2021 2021
Robert Pace, dD.. COMM.,comm., C.M.c.m. V. Maureen Kempston Darkes, Chair of the Board O.C.,o.c., dD.. COMM.,comm., LL.D.ll.d. COMMITTEES: Canadian National Railway Company Retired Group Vice‑PresidentVice-President 1 Audit President and Chief Executive Officer General Motors Corporation 2 Finance and President The Pace Group 3 Corporate governance COMMITTEES:committees: 3, 44*,*, 5, 7 GM Latin America, and nominating Africa and Middle East 4 Donations and sponsorships COMMITTEES:committees: 1, 2, 77*,*, 8 JeanJean‑Jacques-Jacques Ruest 5 Environment, safety and security President and Chief Executive Officer 6 Human resources and compensation Canadian National Railway Company The Honourable Denis Losier, 7 Strategic planning pP.C.,c LL.D.,ll d C.M.c m COMMITTEES:committees: 4, 8 . ., . ., . . 8 Pension and investment Retired President and * Denotes chair of the committee Chief Executive Officer Denotes chair of the committee Shauneen Bruder Assumption Life Retired Executive COMMITTEES:committees: 2, 4, 7, 8 ViceVice‑President,-President, Operations Royal Bank of Canada The Honourable Kevin G. Lynch, COMMITTEES:committees: 11*,*, 4, 5, 6 pP.C.,.c., O.C.,o.c., phPH.D,.d, LL.D.ll.d. Retired ViceVice‑Chair-Chair Donald J. Carty, O.C.,o.c., LL.D.ll.d. BMO Financial Group Retired Chairman and COMMITTEES:committees: 1, 3, 66*,*, 7, 8 Chief Executive Officer American Airlines Margaret A. McKenzie COMMITTEES:committees: 1, 5, 6, 7, 8 Founder and former Chief Financial Officer Ambassador Gordon D. Giffin Range Royalty Management Ltd. Ambassador Gordon D. Giffin COMMITTEES:committees: 2, 3, 5, 6, 7 Partner Dentons U.S. LLP COMMITTEES:committees: 2*,2*, 4, 5, 8 James E. O’ConnorO'Connor Retired Chairman and CEO Republic Services, Inc. Julie Godin COMMITTEES:committees: 1, 2, 3, 5 Co‑ChairCo-Chair of the Board, Executive ViceVice‑President,-President, Strategic Planning Robert L. Phillips and Corporate Development President CGI Inc. R.L. Phillips Investments Inc. COMMITTEES:committees: 2, 3, 6, 7 COMMITTEES:committees: 2, 33*,*, 5, 6
Edith E. Holiday Laura Stein Former General Counsel, Executive Vice President, United States Treasury Department Corporate & Legal Affairs and Secretary of the Cabinet and General Counsel The White House Mondelez International COMMITTEES:committees: 1, 2, 4, 88** COMMITTEES:committees: 1, 2, 5*,5*, 6
XXIVxxiv cnCN 2020 ANNUALannual REPORTreport SELECT SENIORSENIOR OFFICERS LirtitthAs at March ISOM9, 2021
It
- 1II t 'sr fag_ .redi Az Jeleal-latqualJean‑Jacques RantRuest GhislainObit ErgrallHoule BabertRobert InReilly scient SlatSean PitaFinn RMNntadPresident and Executiveamcutter Vice-PredVice‑President diet RaeutlwExecutive Vice‑President PeocutterExecutive Vre-PredVice‑President diet CaChief WE Executive meatier CiOfficerMar adand ChleRnaChief Financial rola I Officer adand OWChief Operating CawOfficer Corporate ServicesSend am adand Chiefchwupoi Legal cawOfficer ee's Th
•
DardraqueDominique DeldeadlintMalenfant 10/1101James eldralCairns 13C0)thli.Dorothea DataKlein DORIDoug PECTICald.d. McDonald EmpathyExecutive eice4:teekrnetVice‑President SselorSenior alcm-TheekisetVice‑President SonoSenior reice-Fteeldra Vice‑President t SeteSenior alarTheekiretVice‑President, andd ChitChief larcerootionInformation FaRail Centric SupytySupply aotiChain ceidaknOrreiand Chief Human CramOffice ofW the FroldeetPresident andd Technology CramOfficer RIMOResources MOM dearOfficer adand CEO.Sa.d,ICEO, Special RolledProjects
KCKeith BinReardon noutia7h=Doug Ryhorchuk NaarJanet ThDrysdaleayettille "braMarlene ParkaPuffer SonoSenior rVice-Fteekira Vice‑President t SenaSenior Vice‑Presidentka-Preekiset eice-PrrekientVice‑President Peek**President and CoConsumer mere RDProduct cect Network ClinicOperations re RnaFinancial ndo I FIcrednpPlanning ChiefOeer FeeatNeExecutive OffloorOfficer STOWSupply ChoChain In CN InvotrnentInvestment DvWonDivision
Paul Butcher Vice‑President Investor Relations
CMcn 2020 ANNUALannual REPORTreport xxv A CN engine with five locomotives representing 1ftthe railwaysw•Ing dot.o..0dmgovt•or,..that have joined our team since c.01our privatization,, 23255 1.x.years ago. Each one features d.the cabr.NF.crgatl.FAR.Ap.d.Mcolours of the railway at the time it merged with CNCWo• as well as the kpologo qw*ftcr•o1•43specially created to cc*commemorate *•the pm.quarter, acentury MP, ewore.of our IPO. rk..From, 101.10Cleft to right: OC.A0,15Th...... s0k=n4BC Rail; Grand Trunk Western; CN; Illinois CoCentral; tot VAcore.C.PotWisconsin Central; and Elgin, Joliet & Esmarn.Eastern.
SHAREHOLDERSHAREHOLDER AND INVESTORINVESTOR INFORMATION
Annual meeting Shareholder services The annual meeting of shareholders will be held online via Shareholders having inquiries concerning their shares, webcast at 10:00 a.m. (EDT) on April 27, 2021. wishing to obtain information about CN, or to receive dividends by direct deposit or in U.S. dollars may obtain Please refer to www.cn.ca for meeting details. detailed information by communicating with: Annual imormationinformation ?armform Computershare Trust Company of Canada Shareholder Services The annual information form 100100 University Avenue, 8th Floor may be obtained by writing to: Toronto, ON, Canada M5JCanada M5J 2Y1 The Corporate Secretary Telephone:1-800-564-6253Telephone: 1‑800‑564‑6253 Canadian National Railway Company www.investorcentre.com 935 de La GauchetièreGauchetiere Street West Montreal, QC, Canada H3BCanada H3B 2M9 Stock excharlytmexchanges It is also available on CN'sCN’s website (www.cn.ca). CN common shares are listed on the Toronto and New York stock exchanges. Transfer agent and registrar Ticker symbols: Computershare Trust Company of Canada CNR Toronto Stock Exchange Offices in Canada: CNI New York Stock Exchange Montreal, Quebec Toronto, Ontario InvestorInvestor relations Calgary, Alberta Paul Butcher Vancouver, British Columbia ViceVice‑President,-President, Investor Relations Telephone:Telephone:1-800-564-6253 1‑800‑564‑6253 Telephone: 514-399-0052514‑399‑0052 www.investorcentre.com Head office CoCo‑transfer-transfer agent and coco‑registrar-registrar Canadian National Railway Company Computershare Trust Company N.A. 935 de La GauchetièreGauchetiere Street West Att: Stock Transfer Department Montreal, QC, Canada H3BCanada H3B 2M9 Overnight Mail Delivery: P.O. Box 8100 462 South 4th Street, Louisville, KY, United States 40202 Montreal, QC, Canada H3CCanada H3C 3N4
Regular Mail Delivery: P.O. Box 505005, Louisville, KY, United States 40233-500540233‑5005
Telephone: 1-800-962-42841‑800‑962‑4284 Chin Veronica Veronica Chin Veronica
DESIGN: design:
XXVIIIxxviii cnCN 2020 ANNUALannual REPORTreport Selected)181/@10(-58>;-0)@-@5?@5/? A:-A05@10 Railroad Statistics - unaudited
2020 2019 2018 Financial 5:-:/5-891-?A>1? measures Key!5"%* * % (,!."+.) * !%* financial performance indicators % 0+./ (1) Total,@E2=C6G6?F6D revenues ($;7::7=6 income;7::7=6 operating income ($;7::7=6 income ($;7::7=6 net income ($;7::7=-@5;:-891-?A>1? measures (5) Statistical0 0%/0% (+,!. 0%*# operating data 0 C@DDE@?>:=6D ,%DGross ton miles (GTMs);7::7=:=6D*,%D ton miles (RTMs);7::7=:=6D miles (includes7<1:C23A/A=@J66D (end3<2=4G3/@ of year) 24,381 25,975 25,720 Employees >A=@J66D/D3@/534=@B63G3/@ (average for the year) 23,786 26,733 25,423 Key!5+,!. 0%*#)! /1.!/ operating measures Freight C6:89EC6G6?F6A6C*,% revenue per RTM (cents)13
(1) Amounts;=C
$ G ??F2=*6A@CE2020 Annual Report 1 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis
Contents;:@1:@?
BusinessA?5:1??<>;2581 profile 3 Corporate;><;>-@1;>3-:5F-@5;: organization 3 Strategy)@>-@13E;B1>B51C overview 4 Forward ;>C->0 8;;75:3?@-@191:@?-looking statements 9 2020 5:-:/5-8;A@8;;7 Financial outlook 10 Financial 5:-:/5-845348534@? highlights 10 2020 /;9<->10@; compared to 2019 10 Operating%<1>-@5:345348534@? highlights 11 Non-GAAP$;: &91-?A>1? measures 11 Adjusted06A?@10<1>2;>9-:/191-?A>1? performance measures 12 ROIC(% -:0-06A?@10(% and adjusted ROIC 14 Constant;:?@-:@/A>>1:/E currency 15 Revenues(1B1:A1? 15 Operating%<1>-@5:31D<1:?1? expenses 20 Other%@41>5:/;91-:01D<1:?1? income and expenses 21 2019 /;9<->10@; compared to 2018 22 Summary)A99->E;2=A->@1>8E25:-:/5-80-@- of quarterly financial data 27 Summary)A99->E;22;A>@4=A->@1> of fourth quarter 2020 27 Financial 5:-:/5-8<;?5@5;: position 28 Liquidity"5=A505@E-:0/-<5@-8>1?;A>/1? and capital resources 29 Off%22.-8-:/1?411@->>-:3191:@? balance sheet arrangements 37 Outstanding%A@?@-:05:3?4->10-@- share data 37 Financial 5:-:/5-85:?@>A91:@? instruments 37 Recent(1/1:@-//;A:@5:3<>;:;A:/191:@? accounting pronouncements 39 Critical>5@5/-8-//;A:@5:31?@59-@1? accounting estimates 40 BusinessA?5:1??>5?7? risks 48 Controls;:@>;8?-:0<>;/10A>1? and procedures 57
2 $ G ??F2=*6A@CE2020 Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis
This,9:D%2?286>6?ED :D4FDD:@?2?5?2=JD:D% 52E65 63CF2CJR C6=2E6DE@E964@?D@=:52E657:?2?4:2=A@D:E:@?2?5C6DF=ED@7 Managements Discussion and Analysis (MD&A) dated February 1, 2021, relates to the consolidated financial position and results of operations@A6C2E:@?D@72?25:2?&2E:@?2=*2:=H2J@>A2?J E@86E96CH:E9:EDH9@==J @H?65DF3D:5:2C:6D 4@==64E:G6=J&@CE96@>A2?J 2?5D9@F=5 of Canadian National Railway Company, together with its wholly-owned subsidiaries, collectively "CN" or the "Company," and should 36C625:?4@?;F?4E:@?H:E9E96@>A2?JDbe read in conjunction with the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED2?5&@E6DE96C6E@ ==7:?2?4:2=:?7@C>2E:@?Annual Consolidated Financial Statements and Notes thereto. All financial information reflectedC67=64E6596C6:?:D6IAC6DD65:?2?25:2?5@==2CD2?5AC6A2C65:?244@C52?46H:E9-?:E65+E2E6D86?6C2==J2446AE65244@F?E:?8AC:?4:A=6D herein is expressed in Canadian dollars and prepared in accordance with United States generally accepted accounting principles (GAAP), ( F?=6DD@E96CH:D6?@E65 unless otherwise noted. &D4@>>@?D92C6D2C6=:DE65@?E96,@C@?E@2?5&6H1@C<DE@4<6I492?86D 55:E:@?2=:?7@C>2E:@?23@FE&7:=65H:E92?25:2?CN's common shares are listed on the Toronto and New York stock exchanges. Additional information about CN filed with Canadian securitiesD64FC:E:6DC68F=2E@CJ2FE9@C:E:6D2?5E96-?:E65+E2E6D+64FC:E:6D2?5 I492?86@>>:DD:@?+ :?4=F5:?8E96@>A2?JD regulatory authorities and the United States Securities and Exchange Commission (SEC), including the Company's 2020 ??F2=Annual Information!?7@C>2E:@? @C>2?5 @C> >2J367@F?5@?=:?6@?+ *2EHHH D652C 4@> Form and Form 40-F, may be found online on SEDAR at www.sedar.com, @?E96+ DH63D:E62EHHH D64 8@G on the SEC's website at www.sec.govE9C@F89 * 2?5 through EDGAR, and on@?E96@>A2?JDH63D:E62EHHH 4? 42 the Company's website at www.cn.ca :?E96!?G6DE@CDD64E:@? (C:?E654@A:6D@7DF495@4F>6?ED>2J36@3E2:?653J4@?E24E:?8&Din the Investors section. Printed copies of such documents may be obtained by contacting CN's @CA@C2E6+64C6E2CJD'77:46 Corporate Secretary's Office.
RosinessA?5:1??<>;2581 profile
&:D6?82865:?E96C2:=2?5C6=2E65EC2?DA@CE2E:@?3FD:?6DD &D?6EH@C<@7CN is engaged in the rail and related transportation business. CN's network of 19,500 C@FE6>:=6D@7EC24<DA2?D2?2522?5E96-?:E65+E2E6Droute miles of track spans Canada and the United States of@7>6C:42- + E96@?=JC2:=C@254@??64E:?82?252D 2DE6C?2?5/6DE6C?4@2DEDH:E9E96- + +@FE9 &D6IE6?D:G6?6EH@C<2?5677:4:6?E America (U.S.); the only railroad connecting Canada's Eastern and Western coasts with the U.S. South. CN's extensive network and efficient connections4@??64E:@?DE@2===2DD to all Class I C2:=C@25DAC@G:56&4FDE@>6CD2446DDE@2?252 E96- + 2?5%6I:4@ DD6?E:2=E@E9664@?@>J E@E964FDE@>6CD railroads provide CN customers access to Canada, the U.S. and Mexico. Essential to the economy, to the customers, and2?5E@E964@>>F?:E:6D:ED6CG6D &D276=JEC2?DA@CED>@C6E92? to the communities it serves, CN safely transports more than 300 >:==:@?E@?D@742C8@ D6CG:?86IA@CE6CD :>A@CE6CD C6E2:=6CD 72C>6CD2?5million tons of cargo, serving exporters, importers, retailers, farmers and manufacturers.>2?F724EFC6CD &2?5:ED277:=:2E6D92G6366?4@?EC:3FE:?8E@4@>>F?:EJAC@DA6C:EJ2?5DFDE2:?23=6EC256D:?46 &:D4@>>:EE65E@ CN and its affiliates have been contributing to community prosperity and sustainable trade since 1919. CN is committed to AC@8C2>DDFAA@CE:?8D@4:2=C6DA@?D:3:=:EJ2?56?G:C@?>6?E2=DE6H2C5D9:A programs supporting social responsibility and environmental stewardship. &D7C6:89EC6G6?F6D2C656C:G657C@>D6G6?4@>>@5:EJ8C@FADC6AC6D6?E:?825:G6CD:7:652?532=2?465A@CE7@=:@@78@@5DEC2?DA@CE65CN's freight revenues are derived from seven commodity groups representing a diversified and balanced portfolio of goods transported 36EH66?2H:56C2?86@7@C:8:?D2?556DE:?2E:@?D ,9:DAC@5F4E2?586@8C2A9:45:G6CD:EJ36EE6CA@D:E:@?DE96@>A2?JE@724664@?@>:4between a wide range of origins and destinations. This product and geographic diversity better positions the Company to face economic 7=F4EF2E:@?D2?56?92?46D:EDA@E6?E:2=7@C8C@HE9@AA@CEF?:E:6D @CE96J62C6?565 646>36C &D=2C86DE4@>>@5:EJ8C@FAfluctuations and enhances its potential for growth opportunities. For the year ended December 31, 2020, CN's largest commodity group accounted244@F?E657@C for 27%@7E@E2=C6G6?F6D C@>286@8C2A9:4DE2?5A@:?E of total revenues. From a geographic standpoint, 16%@7C6G6?F6DC6=2E6E@- + 5@>6DE:4EC277:4 of revenues relate to U.S. domestic traffic, 31%EC2?D3@C56CEC277:4 transborder traffic, 17%2?25:2?5@>6DE:4EC277:42?5 Canadian domestic traffic and 36%@G6CD62DEC277:4 ,96@>A2?J:DE96@C:8:?2E:?842CC:6C7@C@G6C overseas traffic. The Company is the originating carrier for over 85%, 2?5E96@C:8:?2E:?82?5 and the originating and terminatingE6C>:?2E:?842CC:6C7@C@G6C carrier for over 65%, @7EC277:4>@G:?82=@?8:ED?6EH@C< H9:492==@HD:E3@E9E@42A:E2=:K6@?D6CG:4625G2?E286D2?53F:=5@? of traffic moving along its network, which allows it both to capitalize on service advantages and build on opportunities@AA@CEF?:E:6DE@677:4:6?E=JFD62DD6ED to efficiently use assets.
Corporate;><;>-@1;>3-:5F-@5;: organization
The,96@>A2?J>2?286D:EDC2:=@A6C2E:@?D:?2?2522?5E96- + 2D@?63FD:?6DDD68>6?E :?2?4:2=:?7@C>2E:@?C6A@CE652EE9:D=6G6= DF492D Company manages its rail operations in Canada and the U.S. as one business segment. Financial information reported at this level, such as revenues,C6G6?F6D @A6C2E:?8:?4@>62?542D97=@H7C@>@A6C2E:@?D :DFD653JE96@>A2?JD4@CA@C2E6>2?286>6?E:?6G2=F2E:?87:?2?4:2=2?5 operating income and cash flow from operations, is used by the Company's corporate management in evaluating financial and operational@A6C2E:@?2=A6C7@C>2?462?52==@42E:?8C6D@FC46D24C@DD&D?6EH@C< ,96@>A2?JDDEC2E68:4:?:E:2E:G6D2C656G6=@A652?5>2?2865 performance and allocating resources across CN's network. The Company's strategic initiatives are developed and managed centrally46?EC2==J3J4@CA@C2E6>2?286>6?E2?52C64@>>F?:42E65E@:EDC68:@?2=24E:G:EJ46?E6CDE96/6DE6C?*68:@?2?5 2DE6C?*68:@? H9@D6C@=6 by corporate management and are communicated to its regional activity centers (the Western Region and Eastern Region), whose role is:DE@>2?286E9652J E@ 52JD6CG:46C6BF:C6>6?ED@7E96:CC6DA64E:G6E6CC:E@C:6D 4@?EC@=5:C64E4@DED:?4FCC65=@42==J 2?56I64FE6E96DEC2E68J to manage the day-to-day service requirements of their respective territories, control direct costs incurred locally, and execute the strategy and2?5@A6C2E:?8A=2?6DE23=:D9653J4@CA@C2E6>2?286>6?E operating plan established by corporate management. See+66 Note$=B3I(35;3
$ G ??F2=*6A@CE2020 Annual Report 3 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis
Strategy)@>-@13E;B1>B51C overview
&D3FD:?6DDDEC2E68J:D2?49@C65@?E964@?E:?F@FDAFCDF:E@7CN's business strategy is anchored on the continuous pursuit of %>3@/B7=>:E>6?EE@D276EJ2?5 an unwavering commitment to safety and sustainability,DFDE2:?23:=:EJ 2?5E9656G6=@A>6?E@72D@=:5E62>@7>@E:G2E652?54@>A6E6?EC2:=C@256CD &D8@2=:DE@56=:G6CG2=F23=6EC2?DA@CE2E:@? and the development of a solid team of motivated and competent railroaders. CN's goal is to deliver valuable transportation servicesD6CG:46D7@C:ED4FDE@>6CD2?5E@8C@HE963FD:?6DD2E2=@H:?4C6>6?E2=4@DE 4=62CDEC2E68:4286?52 5C:G6?3J24@>>:E>6?EE@:??@G2E:@? for its customers and to grow the business at a low incremental cost. A clear strategic agenda, driven by a commitment to innovation, AC@5F4E:G:EJ :>AC@G:?8DFAA=J492:?DE9C@F894@==23@C2E:@? A@E6?E:2=24BF:D:E:@?D2?5@E96C@AA@CEF?:E:6D CF??:?8EC2:?DD276=J 2?5>:?:>:K:?8productivity, improving supply chains through collaboration, potential acquisitions and other opportunities, running trains safely, and minimizing environmental6?G:C@?>6?E2=:>A24E 5C:G6DE96@>A2?JD677@CEDE@4C62E6G2=F67@C4FDE@>6CD &E96C63J4C62E6DG2=F67@C:EDD92C69@=56CD3JDEC:G:?87@C impact, drives the Company's efforts to create value for customers. CN thereby creates value for its shareholders by striving for sustainableDFDE2:?23=67:?2?4:2=A6C7@C>2?46E9C@F89AC@7:E23=6E@A =:?68C@HE9 256BF2E67C6642D97=@H2?5C6EFC?@?:?G6DE6542A:E2= &:D2=D@7@4FD65 financial performance through profitable top-line growth, adequate free cash flow and return on invested capital. CN is also focused on@?C6EFC?:?8G2=F6E@D92C69@=56CDE9C@F895:G:56?5A2J>6?ED2?5D92C6C6AFC492D6D returning value to shareholders through dividend payments and share repurchases. &DDF446DD2?5=@?8 E6C>64@?@>:4G:23:=:EJ56A6?5@?E96AC6D6?46@72DFAA@CE:G6C68F=2E@CJ2?5A@=:4J6?G:C@?>6?EE92E5C:G6DCN's success and long-term economic viability depend on the presence of a supportive regulatory and policy environment that drives investment:?G6DE>6?E2?5:??@G2E:@? &DDF446DD2=D@56A6?5D@?2DEC62>@742A:E2=:?G6DE>6?EDE92EDFAA@CED:ED3FD:?6DDDEC2E68J ,96D6 and innovation. CN's success also depends on a stream of capital investments that supports its business strategy. These investments:?G6DE>6?ED4@G6C2H:56C2?86@72C62D 7C@>EC24<:?7C2DECF4EFC62?5C@==:?8DE@4< E@:?7@C>2E:@?2?5@A6C2E:?8E649?@=@8:6D 2DH6==2D@E96C cover a wide range of areas, from track infrastructure and rolling stock, to information and operating technologies, as well as other equipment6BF:A>6?E2?52DD6EDE92E:>AC@G6E96D276EJ 677:4:6?4J2?5C6=:23:=:EJ@7&DD6CG:46@776C:?8 !?G6DE>6?ED:?EC24<:?7C2DECF4EFC66?92?46E96 and assets that improve the safety, efficiency and reliability of CN's service offering. Investments in track infrastructure enhance the AC@5F4E:G:EJ2?5:?E68C:EJ@7E96A=2?E :?4C62D6E9642A24:EJ2?5E967=F:5:EJ@7E96?6EH@C< AC@>@E6D6CG:466I46==6?46 2?5DFAA@CE8C@HE92Eproductivity and integrity of the plant, increase the capacity and the fluidity of the network, promote service excellence, and support growth at low=@H:?4C6>6?E2=4@DE ,9624BF:D:E:@?@7?6H=@4@>@E:G6D2?5C2:=42CD86?6C2E6DD6G6C2=<6J36?67:ED &6H=@4@>@E:G6D:?4C62D642A24:EJ 7F6= incremental cost. The acquisition of new locomotives and railcars generates several key benefits. New locomotives increase capacity, fuel AC@5F4E:G:EJ2?5677:4:6?4J 2?5:>AC@G6E96C6=:23:=:EJ@7D6CG:46 $@4@>@E:G6D6BF:AA65H:E95:DEC:3FE65A@H6C2==@H7@C8C62E6CAC@5F4E:G:EJ@7productivity and efficiency, and improve the reliability of service. Locomotives equipped with distributed power allow for greater productivity of trains,EC2:?D A2CE:4F=2C=J:?4@=5H62E96C H9:=6:>AC@G:?8EC2:?92?5=:?82?5D276EJ ,2C86E65C2:=42C24BF:D:E:@?D2:>E@E2A8C@HE9@AA@CEF?:E:6D particularly in cold weather, while improving train handling and safety. Targeted railcar acquisitions aim to tap growth opportunities, complementing4@>A=6>6?E:?8E967=66E@7AC:G2E6=J@H?65C2:=42CDE92EEC2G6CD6&D?6EH@C< &:D2=D@:?G6DE:?8:? 2?556A=@J:?8 25G2?465E649?@=@8J & the fleet of privately owned railcars that traverse CN's network. CN is also investing in, and deploying, advanced technology. CN A:@?66C65D4965F=65C2:=C@25:?82?5:EDG:D:@?:DE@36E967:CDEC2:=C@25E@E2<6:EE@E96?6IE=6G6= FD:?825G2?465E649?@=@8J2D25C:G6C7@Cpioneered scheduled railroading and its vision is to be the first railroad to take it to the next level, using advanced technology as a driver for safetyD276EJ2DH6==2D4FDE@>6C2?5D92C69@=56CG2=F6 as well as customer and shareholder value.
COVID-19%, <-:0195/ pandemic The,96'.! A2?56>:492D?646DD:E2E658@G6C?>6?ED 3FD:?6DD6D2?54@>>F?:E:6DE@E2<66IEC2@C5:?2CJ24E:@?DE@>:E:82E6E964@?E28:@? COVID-19 pandemic has necessitated governments, businesses and communities to take extraordinary actions to mitigate the contagion, resultingC6DF=E:?8:?F?AC64656?E65F?46CE2:?EJ2C:D:?87C@>2D6G6C664@?@>:44@?EC24E:@? FC:?8E967:CDEH2G6@7E96A2?56>:4 8@G6C?>6?E in unprecedented uncertainty arising from a severe economic contraction. During the first wave of the pandemic, government- mandated>2?52E65H:56DAC6254=@DFC6D@7?@? 6DD6?E:2=3FD:?6DD6DD:8?:7:42?E=J4FC3654FDE@>6C56>2?57@CEC2?DA@CE2E:@?D6CG:46D @==@H:?8E9:D widespread closures of non-essential businesses significantly curbed customer demand for transportation services. Following this 7:CDEH2G6 8@G6C?>6?ED8C25F2==JC6@A6?65>@DE2C62D@7E9664@?@>J H:E9D@>6D68>6?ED@7E9664@?@>JDF3D6BF6?E=J6IA6C:6?4:?82first wave, governments gradually reopened most areas of the economy, with some segments of the economy subsequently experiencing a recoveryC64@G6CJ:?E96D64@?592=7@7E96J62C D64@?5H2G6@7'.! 42D6D3682?:?=2E6 2?5D@>68@G6C?>6?ED>2?52E653FD:?6DD in the second half of the year. A second wave of COVID-19 cases began in late 2020 and some governments mandated business closures4=@DFC6D2?5@E96CC6DEC:4E:@?D282:? :?255:E:@?E@4@?E:?F65D@4:2=5:DE2?4:?8>62DFC6D ,967@4FD7@C&92D366?@??:>3=J25;FDE:?8E@E96 and other restrictions again, in addition to continued social distancing measures. The focus for CN has been on nimbly adjusting to the A2CE:2=64@?@>:4D9FE5@H? 2?5C6>2:?:?82=6CEE@A@E6?E:2=7FCE96CC6DEC:4E:G6>62DFC6D 2DH6==2DE969:89=6G6=@7F?46CE2:?EJH:E9C6DA64EE@partial economic shutdown, and remaining alert to potential further restrictive measures, as well as the high level of uncertainty with respect to theE9656>2?56?G:C@?>6?E D2?6DD6?E:2=D6CG:46AC@G:56C &4@?E:?F65E@6I64FE6:ED3FD:?6DD4@?E:?F:EJA=2?DE@<66A6>A=@J66DD2762?5 demand environment. As an essential service provider, CN continued to execute its business continuity plans to keep employees safe and 56=:G6C7@C:ED4FDE@>6CD E9664@?@>J2?5E964@>>F?:E:6D:?H9:49:E@A6C2E6D 56>@?DEC2E:?8:ED<6JC@=6:?E96:?E68C2E658=@32=DFAA=Jdeliver for its customers, the economy and the communities in which it operates, demonstrating its key role in the integrated global supply chain.492:? AsD&:DA2CE@72?:?E68C2E658=@32=DFAA=J492:? E96:>A24E@7E96'.! A2?56>:4@?2DA64ED@7E96DFAA=J492:? :?4=F5:?8@462? CN is part of an integrated global supply chain, the impact of the COVID-19 pandemic on aspects of the supply chain, including ocean carriers,42CC:6CD A@CED E6C>:?2=D ECF4<:?87:C>D 2?5@E96CC2:=C@25D 92D24@?D6BF6?E:>A24E@?E96@>A2?JOD@A6C2E:@?D ports, terminals, trucking firms, and other railroads, has a consequent impact on the Company's operations. Starting+E2CE:?8:?=2E6%2C49 E96DAC625@7E96'.! A2?56>:4C6DF=E65:?D:8?:7:42?E=JH62<6C56>2?57@C7C6:89EEC2?DA@CE2E:@? in late March 2020, the spread of the COVID-19 pandemic resulted in significantly weaker demand for freight transportation services.D6CG:46D FC:?8E96D64@?592=7@7E96J62C 56>2?5A2CE:2==JC64@G6C65 H:E9D6BF6?E:2=:>AC@G6>6?ED:?G@=F>6DC6=2E:G6E@E96:?:E:2=564=:?6 During the second half of the year, demand partially recovered, with sequential improvements in volumes relative to the initial decline in:?E96D64@?5BF2CE6C JE967@FCE9BF2CE6C 56>2?57@CD@>64@>>@5:E:6D925C64@G6C652E@C23@G6AC6 A2?56>:4=6G6=D :?4=F5:?8 the second quarter. By the fourth quarter, demand for some commodities had recovered at or above pre-pandemic levels, including intermodal,:?E6C>@52= 5C:G6?3J2D9:7E:?4@?DF>6CDA6?5:?87C@>D6CG:46DE@8@@5D H9:49&H2DH6== A@D:E:@?65E@42A:E2=:K6@? =6G6C28:?8E96 driven by a shift in consumer spending from services to goods, which CN was well-positioned to capitalize on, leveraging the acquisitions24BF:D:E:@?D@7 of TransX,C2?D02?5 and H&R; *2?57@C6DEAC@5F4ED C67=64E:?8DEC@?856>2?57@C=F>36C2?5A2?6=DFD65:?9@>6C6?@G2E:@?D2?5 and forest products, reflecting strong demand for lumber and panels used in home renovations and construction4@?DECF4E:@?@7?6H9@>6D ,9656>2?57@C=6DD64@?@>:42==J D6?D:E:G6AC@5F4ED DF492D6IA@CE8C2:?2?576CE:=:K6CD4@?E:?F65E@C6>2:? of new homes. The demand for less economically-sensitive products, such as export grain and fertilizers continued to remain A@D:E:G64@>A2C65E@=2DEJ62C ,9656>2?57@C@E96C4@>>@5:E:6DE92E&EC2?DA@CEDC6>2:?6536=@HAC6 A2?56>:4=6G6=D:?4=F5:?87:?:D965positive compared to last year. The demand for other commodities that CN transports remained below pre-pandemic levels including finished vehiclesG69:4=6D2?5A2CED AF=A2?5A2A6C >6E2=D2?5>:?6C2=D A=2DE:4D 496>:42=D2?56?6C8JC6=2E654@>>@5:E:6D:?4=F5:?8A6EC@=6F>4CF56 C67:?65 and parts, pulp and paper, metals and minerals, plastics, chemicals and energy related commodities including petroleum crude, refined A6EC@=6F>AC@5F4ED2?57C24D2?5 petroleum products and frac sand.
4 $ G ??F2=*6A@CE2020 Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis
In!?C6DA@?D6E@E96C2A:5A2CE:2=64@?@>:4D9FE5@H?7246562C=:6C:?E96J62C &F?56CE@@<G2C:@FD24E:@?DE@BF:4<=J252AE D:8?:7:42?E=J response to the rapid partial economic shutdown faced earlier in the year, CN undertook various actions to quickly adapt significantly increasing:?4C62D:?8:ED=:BF:5:EJ2DH6==2D6?92?4:?8:ED@G6C2==7:?2?4:2=2?5@A6C2E:@?2=C6D:=:6?46 its liquidity as well as enhancing its overall financial and operational resilience: P• &25;FDE65:EDC6D@FC46D2?54@DEDE@2=:8?H:E9E96C2A:52?5D:8?:7:42?EC65F4E:@?:?56>2?57@CC2:=EC2?DA@CE2E:@?D6CG:46D :?4=F5:?8CN adjusted its resources and costs to align with the rapid and significant reduction in demand for rail transportation services, including temporarilyE6>A@C2C:=JDE@C:?8=@4@>@E:G6D2?5C2:=42CD 2DH6==2DC65F4:?896254@F?E 2?5C2E:@?2=:K:?846CE2:?=@42=J2C5D2?5>6492?:42=D9@AD storing locomotives and railcars, as well as reducing headcount, and rationalizing certain local yards and mechanical shops; P• In !?E96D64@?592=7@7E96J62C &25565C6D@FC46D324<:?E@E963FD:?6DD2DG@=F>6D3682?C64@G6C:?8 the second half of the year, CN added resources back into the business as volumes began recovering; P• In !?=:89E@72?E:4:A2E65=@H6CG@=F>6D7@CE96J62C E96 42A:E2=6IA6?5:EFC6AC@8C2>H2DC65F465:?E967:CDEBF2CE6C3J2?6E2>@F?E@7 light of anticipated lower volumes for the year, the 2020 capital expenditure program was reduced in the first quarter by a net amount of $0.1 3:==:@?7C@> 3:==:@?E@ 3:==:@? billion from $3.0 billion to $2.9 billion; P• &A2FD65:EDD92C6C6AFC492D6D36EH66?E966?5@7%2C49 2?5"2?F2CJ 5F6E@E9664@?@>:44:C4F>DE2?46D2?5CN paused its share repurchases between the end of March 2020 and January 2021 due to the economic circumstances; and P• &D64FC65CN secured $390 >:==:@?@7@?6 J62CDFAA=6>6?E2CJC6G@=G:?84C65:E724:=:E:6D 4=@D652D64@?5EC2?496@72G2C:23=6C2E6 J62CE6C>=@2?million of one-year supplementary revolving credit facilities, closed a second tranche of a variable rate, 20-year term loan 7@C-+for US$310 >:==:@?2?5:DDF65-+million and issued US$600 >:==:@? J62Cmillion 30-year 2.45%&@E6D:?E96- + 563E42A:E2=>2C<6ED Notes in the U.S. debt capital markets.
Balancing-8-:/5:3%<1>-@5;:-8-:0)1>B5/1D/1881:/1 "Operational and Service Excellence" The,9632D:45C:G6C@7E96@>A2?JD3FD:?6DD:D56>2?57@CC6=:23=6 677:4:6?E 2?54@DE67764E:G6EC2?DA@CE2E:@?7@C4FDE@>6CD DDF49 E96 basic driver of the Company's business is demand for reliable, efficient, and cost effective transportation for customers. As such, the @>A2?JD7@4FD:DE96AFCDF:E@7Company's focus is the pursuit of %>3@/B7=6CD to customers. &@A6C2E6DH:E92>:?5D6EE92E5C:G6D4@DE677:4:6?4J2?52DD6EFE:=:K2E:@? ,92E>:?5D6E7=@HD?2EFC2==J7C@>&DCN operates with a mindset that drives cost efficiency and asset utilization. That mindset flows naturally from CN's Scheduled(1632C:32'/7:@=/27<5 Railroading model,>@56= H9:497@4FD6D@?:>AC@G:?86G6CJAC@46DDE92E27764ED56=:G6CJ@74FDE@>6CD8@@5D !E:D29:89=J5:D4:A=:?65AC@46DDH96C63J& which focuses on improving every process that affects delivery of customers' goods. It is a highly disciplined process whereby CN manages>2?286D2==2DA64ED@7C2:=C@25@A6C2E:@?DE@>66E4FDE@>6C4@>>:E>6?ED677:4:6?E=J2?5AC@7:E23=J ,9:D42==D7@CE96C6=6?E=6DD>62DFC6>6?E all aspects of railroad operations to meet customer commitments efficiently and profitably. This calls for the relentless measurement of@7C6DF=ED2?5E96FD6@7DF49C6DF=EDE@86?6C2E67FCE96C6I64FE:@?:>AC@G6>6?ED:?E96D6CG:46AC@G:565E@4FDE@>6CD ,96@>A2?JD results and the use of such results to generate further execution improvements in the service provided to customers. The Company's continuous4@?E:?F@FDD62C497@C677:4:6?4J:D36DE42AEFC65:?:EDA6C7@C>2?46244@C5:?8E@<6J@A6C2E:?8>6EC:4DDF492DEC2:?H6:89E EC2:?=6?8E9 search for efficiency is best captured in its performance according to key operating metrics such as train weight, train length, throughE9C@F89?6EH@C<EC2:?DA665 7F6=677:4:6?4J E9C@F895H6==2?542CG6=@4:EJ ==2C62EE9646?E6C@729:89=JAC@5F4E:G62?57=F:5C2:=C@25 network train speed, fuel efficiency, through dwell and car velocity. All are at the center of a highly productive and fluid railroad operation,@A6C2E:@? C6BF:C:?852:=J6?8286>6?E:?E967:6=5 ,96@>A2?JH@C
CN's$?2;/A?;:?A?@-5:-.585@E focus on sustainability Sustainability+FDE2:?23:=:EJ:D2EE96962CE@79@HE96@>A2?J:D3F:=5:?87@CE967FEFC6&42==DE9:D is at the heart of how the Company is building for the future; CN calls this Delivering 3:7D3@7<5'3A>=
An *1*3 2!.%*# +))%0)!*00+/ "!05 unwavering commitment to safety &:D4@>>:EE65E@E96D276EJ@7:ED6>A=@J66D E964@>>F?:E:6D:?H9:49:E@A6C2E6D2?5E966?G:C@?>6?E +276EJ4@?D4:@FD?6DDA6C>62E6DCN is committed to the safety of its employees, the communities in which it operates and the environment. Safety consciousness permeates every6G6CJ2DA64E@7&D@A6C2E:@?D ,96@>A2?JD=@?8 E6C>D276EJ:>AC@G6>6?E:D5C:G6?3J4@?E:?F65D:8?:7:42?E:?G6DE>6?ED:?:?7C2DECF4EFC6 aspect of CN's operations. The Company's long-term safety improvement is driven by continued significant investments in infrastructure, rigorousC:8@C@FDD276EJAC@46DD6D2?527@4FD@?6>A=@J66EC2:?:?82?5D276EJ2H2C6?6DD &4@?E:?F6DE@DEC6?8E96?:EDD276EJ4F=EFC63J:?G6DE:?8 safety processes and a focus on employee training and safety awareness. CN continues to strengthen its safety culture by investing significantlyD:8?:7:42?E=J:?EC2:?:?8 4@249:?8 C64@8?:E:@?2?56>A=@J66:?G@=G6>6?E:?:E:2E:G6D !?+6AE6>36C &6DE23=:D9652?6H4@?5F4E@C in training, coaching, recognition and employee involvement initiatives. In September 2020, CN established a new conductor trainingEC2:?:?84FCC:4F=F>H:E92DEC@?86>A92D:D@?4@>>:E>6?EE@D276EJ 55:E:@?2==J :? &AC@G:5652J62C=@?8D276EJ=6256CD9:AAC@8C2> curriculum with a strong emphasis on commitment to safety. Additionally, in 2020, CN provided a year long safety leadership program toE@@G6C @7:ED=6256CD:?@A6C2E:?87F?4E:@?D H:E9A=2?DE@AC@G:56E96EC2:?:?8E@2?@E96C :? over 300 of its leaders in operating functions, with plans to provide the training to another 250 in 2021.
$ G ??F2=*6A@CE2020 Annual Report 5 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis
In!?C6DA@?D6E@E96'.! A2?56>:4 &56A=@J65:ED>F=E: A92D6(2?56>:4(=2?:?%2C492?54@?E:?F65E@:?DE:EFE6G2C:@FD>62DFC6D response to the COVID-19 pandemic, CN deployed its multi-phase Pandemic Plan in March and continued to institute various measures toE@AC@E64E:ED6>A=@J66D 4FDE@>6CD 2?5E964@>>F?:E:6D:?H9:49&@A6C2E6D protect its employees, customers, and the communities in which CN operates: P• &D>65:42=E62>2?5@44FA2E:@?2=962=E9CN's medical team and occupational health56A2CE>6?E H9@2C6>6>36CD@7E96DD@4:2E:@?@7>6C:42?*2:=C@25D department, who are members of the Association of American Railroads Health 62=E9@>>:EE66 Committee, have92G6A=2J652A:G@E2=C@=6:?&DA2?56>:4A=2??:?8 E2<:?85:C64E:@?7C@>E96/@C=5 played a pivotal role in CN's pandemic planning, taking direction from the World Health 62=E9'C82?:K2E:@? 2DH6==2DAC@G:?4:2= DE2E62?5 Organization, as well as provincial, state and 7656C2=2FE9@C:E:6D 2DC6BF:C65 2?5@776C:?836DEAC24E:46DD92C652>@?8DE&@CE9>6C:42?C2:=C@25D federal authorities, as required, and offering best practices shared amongst North American railroads. P• &:>A=6>6?E65AC6G6?E2E:G6>62DFC6DE@6?DFC6E96D276EJ@7:ED6>A=@J66D2?53J6IE6?D:@? @7:ED4FDE@>6CD2?54@>>F?:E:6D ,96D6CN implemented preventative measures to ensure the safety of its employees and by extension, of its customers and communities. These measures>62DFC6D:?4=F5652H@C<7C@>9@>6A@=:4J7@C6>A=@J66D?@EC6BF:C65@?D:E6 C6DEC:4E:@?@76>A=@J66EC2G6= D@4:2=5:DE2?4:?8>62DFC6D included a work from home policy for employees not required on site, restriction of employee travel, social distancing measures at2E&=@42E:@?D D68C682E:?8>:DD:@?4C:E:42=C2:=EC277:44@?EC@=6>A=@J66D 2?52>A=:7J:?84=62?:?8C68:>6?D@?EC2:?D :?E6C>:?2=D :?4C6H CN locations, segregating mission critical rail traffic control employees, and amplifying cleaning regimens on trains, in terminals, in crew accommodation244@>>@52E:@?724:=:E:6D 2?5:?@77:46D facilities, and in offices. P• Understanding -?56CDE2?5:?8E96:>A@CE2?46@7E:>6=J2?5C6=:23=6:?7@C>2E:@? &:?4C62D656>A=@J664@>>F?:42E:@?D3JAC@G:5:?87C6BF6?EFA52E6D the importance of timely and reliable information, CN increased employee communications by providing frequent updates on@?E96DE2E6@7E96@>A2?JOD@A6C2E:@?D 2DH6==2D6>A=@J66DFAA@CE7@C2?JBF6DE:@?D@C4@?46C?D the state of the Company's operations, as well as employee support for any questions or concerns. P• /:E9@A6C2E:@?DDA2??:?86:89EAC@G:?46D DE2E6D2?5@G6C 4@>>F?:E:6D24C@DDE96@>A2?JD?6EH@C< &4@?E:?F65E@A=2J2?With operations spanning eight provinces, 16 states and over 2,000 communities across the Company's network, CN continued to play an important:>A@CE2?EC@=6:?E964@>>F?:E:6D:?H9:49:E@A6C2E6D &5@?2E65@G6C>:==:@?E@492C:E:6D5:C64E=J@C:?5:C64E=J27764E653JE96 role in the communities in which it operates. CN donated over $1 million to charities directly or indirectly affected by the economic64@?@>:4:>A24ED@7E96A2?56>:4 DF492D7@@532?
Protecting.+0! 0%*#0$!!*2%.+*)!*0"+.#!*!. 0%+*/0+ +)! the environment for generations to come The,96@>A2?JD8@2=:DE@4@?5F4E@A6C2E:@?DH:E9>:?:>2=6?G:C@?>6?E2=:>A24E H9:=6AC@G:5:?84=62?6C >@C6DFDE2:?23=6EC2?DA@CE2E:@? Company's goal is to conduct operations with minimal environmental impact, while providing cleaner, more sustainable transportation servicesD6CG:46DE@4FDE@>6CD /:E92AAC@I:>2E6=J@7&OD5:C64E C66?9@FD6 2D to customers. With approximately 85% of CN's direct Greenhouse Gas (GHG) 6>:DD:@?D86?6C2E657C@>C2:=@A6C2E:@?D &36=:6G6D emissions generated from rail operations, CN believes theE9636DEH2JE@C65F46:ED42C3@?7@@EAC:?E:D3J4@?E:?F@FD=J:>AC@G:?87F6=677:4:6?4J 'G6CE96J62CD E9:D7@4FD92DC6DF=E65:?D:8?:7:42?E best way to reduce its carbon footprint is by continuously improving fuel efficiency. Over the years, this focus has resulted in significant AC@8C6DD:?564@FA=:?8G@=F>68C@HE97C@>42C3@?6>:DD:@?D &:D>2<:?82A@D:E:G64@?EC:3FE:@?:?E967:89E282:?DE4=:>2E6492?863Jprogress in decoupling volume growth from carbon emissions. CN is making a positive contribution in the fight against climate change by offering@776C:?8242C3@?677:4:6?E2?56?G:C@?>6?E2==J7C:6?5=JH2JE@>@G68@@5D a carbon efficient and environmentally friendly way to move goods. AsDA2CE@7E96@>A2?JD4@>AC696?D:G6DFDE2:?23:=:EJ24E:@?A=2?2?5E@4@>A=JH:E9&D6?G:C@?>6?E2=A@=:4J E96@>A2?J6?8286D:? part of the Company's comprehensive sustainability action plan and to comply with CN's environmental policy, the Company engages in a2?F>36C@7:?:E:2E:G6D :?4=F5:?8E96FD6@77F6= 677:4:6?E=@4@>@E:G6D2?5ECF4
Building 1%( %*# /+(% a solid 0! )+". %(.+ team of railroaders !./ &D23:=:EJE@56G6=@AE9636DEC2:=C@256CD:?E96:?5FDECJ92D366?2<6J4@?EC:3FE@CE@E96@>A2?JDDF446DD &C64@8?:K6DE92EH:E9@FEE96CN's ability to develop the best railroaders in the industry has been a key contributor to the Company's success. CN recognizes that without the rightC:89EA6@A=6 ?@>2EE6C9@H8@@52D6CG:46A=2?@C3FD:?6DD>@56=24@>A2?J>2J92G6 :EH:==?@E3623=6E@7F==J6I64FE6 &:DE2<:?8DE6AD people - no matter how good a service plan or business model a company may have - it will not be able to fully execute. CN is taking steps toE@7FCE96C2=:8?:ED3FD:?6DD2?5E2=6?EDEC2E68:6D3JA=24:?828C62E6C6>A92D:D@?E96:56?E:7:42E:@?@7DA64:7:4C@=6D24C@DD2==7F?4E:@?DE92E further align its business and talent strategies by placing a greater emphasis on the identification of specific roles across all functions that 5C:G6E968C62E6DE:>A24EE@E96@>A2?JD3FD:?6DD286?52 2?56?DFC:?8E96C:89EE2=6?E2C6:?E96D64C:E:42=C@=6D ,96@>A2?J4@?E:?F6DE@drive the greatest impact to the Company's business agenda, and ensuring the right talent are in these critical roles. The Company continues to 7@4FD@?9:C:?8E96C:89EA6@A=6 @?3@2C5:?8E96>DF446DD7F==J 96=A:?8E96>3F:=5A@D:E:G6C6=2E:@?D9:ADH:E9E96:C4@==628F6D 2?5DFAA@CE:?8focus on hiring the right people, onboarding them successfully, helping them build positive relationships with their colleagues, and supporting all2==6>A=@J66DE@8C@H2?556G6=@A H9:=6566A6?:?8:ED4@>>:E>6?EE@56G6=@AE2=6?E2?5A=2?7@CE967FEFC6 &2=D@C64@8?:K6DE96 employees to grow and develop, while deepening its commitment to develop talent and plan for the future. CN also recognizes the importance:>A@CE2?46@75:G6CD:EJ2D:EAC@G:56D7@C23C@25C2?86@7DEC6?8E9D A6CDA64E:G6D2?56IA6C:6?46DE92E>2<6D&36EE6C !E96=ADE96@>A2?J of diversity as it provides for a broad range of strengths, perspectives and experiences that makes CN better. It helps the Company attract2EEC24E2?5C6E2:?BF2=:7:65E2=6?E 2?5:E7@DE6CD:??@G2E:@?3J3C:?8:?8E9636DED@=FE:@?DE@E96E23=6 DA2CE@7:EDDEC2E68JE@3F:=52D@=:5 and retain qualified talent, and it fosters innovation by bringing the best solutions to the table. As part of its strategy to build a solid teamE62>@7C2:=C@256CD E96@>A2?J=6G6C286D:EDDE2E6 @7 E96 2CEEC2:?:?8724:=:E:6D:?AC6A2C:?86>A=@J66DE@369:89=JD<:==65 D276EJ4@?D4:@FD of railroaders, the Company leverages its state-of-the-art training facilities in preparing employees to be highly skilled, safety conscious
6 $ G ??F2=*6A@CE2020 Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis and2?54@?7:56?E:?E96:CH@C<6?G:C@?>6?E FCC:4F=27@CE649?:42=EC2:?:?82?5=6256CD9:A56G6=@A>6?E92D366?56D:8?65E@>66EE96=62C?:?8 confident in their work environment. Curricula for technical training and leadership development has been designed to meet the learning needs?665D@7&DC2:=C@256CD 3@E94FCC6?E2?57FEFC6 ,96D6AC@8C2>D2?5:?:E:2E:G6DAC@G:562D@=:5A=2E7@C>7@CE962DD6DD>6?E2?5 of CN's railroaders - both current and future. These programs and initiatives provide a solid platform for the assessment and 56G6=@A>6?E@7E96@>A2?JDE2=6?EA@@= 2?52C6E:89E=J:?E68C2E65H:E9E96@>A2?JD3FD:?6DDDEC2E68J (C@8C6DD>256:?56G6=@A:?8development of the Company's talent pool, and are tightly integrated with the Company's business strategy. Progress made in developing current4FCC6?E2?57FEFC6=6256CDE9C@F89E96@>A2?JD=6256CD9:A56G6=@A>6?EAC@8C2>D:DC6G:6H653JE96 and future leaders through the Company's leadership development programs is reviewed by the Human F>2?*6D@FC46D2?5@>A6?D2E:@? Resources and Compensation @>>:EE66@7E96@2C5@7 :C64E@CD Committee of the Board of Directors.
2020 5348534@? Highlights /9:=6&DC6DF=EDH6C625G6CD6=J:>A24E653JE96'.! A2?56>:4 E96@>A2?J4@?E:?F65E@56=:G6C7@C:ED4FDE@>6CD AC@G:5:?86DD6?E:2=While CN's results were adversely impacted by the COVID-19 pandemic, the Company continued to deliver for its customers, providing essential transportationEC2?DA@CE2E:@?D6CG:46D2?556>@?DEC2E:?8:ED<6JC@=6:?E96:?E68C2E658=@32=DFAA=J492:? JE966?5@7E96J62C E96@>A2?J services and demonstrating its key role in the integrated global supply chain. By the end of the year, the Company 3682?began recoveringC64@G6C:?87C@>A2?56>:4C6=2E6556>2?5564=:?6D2D56>2?57@CD@>64@>>@5:E:6DC64@G6C652E@C23@G6AC6 A2?56>:4=6G6=D:?E967@FCE9 from pandemic related demand declines as demand for some commodities recovered at or above pre-pandemic levels in the fourth BF2CE6C >@DE?@E23=J:?E968C2:?2?576CE:=:K6CD2?5:?E6C>@52=4@>>@5:EJ8C@FAD quarter, most notably in the grain and fertilizers and intermodal commodity groups.
Financial%* * % ($%#$(%#$0/ highlights - 2020 +), .! compared 0+ to 2019 8• Revenues*6G6?F6D564C62D653J decreased by $1,098 >:==:@? @Cmillion, or 7%, E@ to $13,819 >:==:@? million. P• 'A6C2E:?86IA6?D6D564C62D653JOperating expenses decreased by $282>:==:@? @C million, or 3%, E@ to $9,042 >:==:@? million. P• 'A6C2E:?8:?4@>6564C62D653JOperating income decreased by $816>:==:@? @C million, or 15%, E@ to $4,777 >:==:@?2?525;FDE65@A6C2E:?8:?4@>6564C62D653J million and adjusted operating income decreased by $445>:==:@? @C million, or 8%, E@ to $5,263 >:==:@? million. (1) P• 'A6C2E:?8C2E:@@7Operating ratio of 65.4%, 2?:?4C62D6@7 A@:?ED2?525;FDE65@A6C2E:?8C2E:@@7 an increase of 2.9 points and adjusted operating ratio of 61.9%, 2?:?4C62D6@7 an increase of 0.2A@:?ED points. (1) P• Net &6E:?4@>6564C62D653J income decreased by $654>:==:@? @C million, or 16%, E@ to $3,562 >:==:@?2?55:=FE6562C?:?8DA6CD92C6564C62D653J million and diluted earnings per share decreased by 14%E@ to $5.00. P• Adjusted 5;FDE65?6E:?4@>6564C62D653J net income decreased by $405 >:==:@? @C million, or 10%, E@ to $3,784 >:==:@?2?525;FDE655:=FE6562C?:?8DA6CD92C6564C62D653J million and adjusted diluted earnings per share decreased by 8%E@ to $5.31 R (1) P• The ,96@>A2?J86?6C2E65C64@C57C6642D97=@H@7 >:==:@? 2 Company generated record free cash flow of $3,227 million, a 62% increase.:?4C62D6 (2) P• ROIC *'!@7 of 12.7%, 2564C62D6@7 a decrease of 2.6A@:?ED points2?525;FDE65*'!@7 and adjusted ROIC of 13.4%, 2564C62D6@7 A@:?ED a decrease of 1.7 points. (3) P• &249:6G65 4@?D64FE:G6>@?E9D@7C64@C52?25:2?8C2:?>@G6>6?ED H9:49C6DF=E65:?C64@C5C6G6?F6D7@CE96J62C7@CE96 C2:?2?5CN achieved 10 consecutive months of record Canadian grain movements, which resulted in record revenues for the year for the Grain and 76CE:=:K6CD4@>>@5:EJ8C@FA fertilizers commodity group. P• An ?2== E:>6C64@C57F6=677:4:6?4J@7 all-time record fuel efficiency of 0.89 -+82==@?D@7=@4@>@E:G67F6=4@?DF>65A6CUS gallons of locomotive fuel consumed per 1,000 gross8C@DDE@?>:=6D ton miles.
(1)LL(33B63A31B7=<=4B67A# 3 Assets //!0/$!( held "+./ (! for sale In!?E96D64@?5BF2CE6C@7 E96@>A2?J4@>>:EE65E@2A=2?2?5:D24E:G6=J>2C<6E:?87@CD2=67@C@? 8@:?8C2:=@A6C2E:@?D 46CE2:??@? 4@C6 the second quarter of 2020, the Company committed to a plan and is actively marketing for sale for on-going rail operations, certain non-core lines=:?6D:?/:D4@?D:? %:49:82?2?5'?E2C:@C6AC6D6?E:?82AAC@I:>2E6=J >:=6D2?592D>6EE964C:E6C:27@C4=2DD:7:42E:@?@7E96C6=2E652DD6ED in Wisconsin, Michigan and Ontario representing approximately 850 miles and has met the criteria for classification of the related assets as2D2DD6ED96=57@CD2=6 44@C5:?8=J 2>:==:@?=@DD>:==:@?27E6C E2IH2DC64@C565E@25;FDEE9642CCJ:?82>@F?E@7E96D6EC24<2?5 assets held for sale. Accordingly, a $486 million loss ($363 million after-tax) was recorded to adjust the carrying amount of these track and roadwayC@25H2J2DD6EDE@E96:C6DE:>2E65D6==:?8AC:46 ,9642CCJ:?82>@F?E@72DD6ED96=57@CD2=6@7 >:==:@?:D:?4=F565:?'E96C4FCC6?E2DD6ED:? assets to their estimated selling price. The carrying amount of assets held for sale of $90 million is included in Other current assets in theE96@?D@=:52E652=2?46+966E2D2E 646>36C ,966DE:>2E65D6==:?8AC:46:D32D65AC:>2C:=J@?5:D4@F?E6542D97=@HAC@;64E:@?D Consolidated Balance Sheet as at December 31, 2020. The estimated selling price is based primarily on discounted cash flow projections. These,96D6AC@;64E:@?D2C632D65@?$6G6=:?AFED@7E9672:CG2=F69:6C2C49J2?5C67=64EE96@>A2?JOD36DE6DE:>2E6@7>2C<6EA2CE:4:A2?EDOAC:4:?8 projections are based on Level 3 inputs of the fair value hierarchy and reflect the Company's best estimate of market participants' pricing of@7E962DD6ED2DH6==2DE9686?6C2=4@?5:E:@?@7E962DD6ED ,96D:8?:7:42?E2DDF>AE:@?D:?E96G2=F2E:@?>@56=:?4=F56AC@;64E6542D97=@HD the assets as well as the general condition of the assets. The significant assumptions in the valuation model include projected cash flows, 5:D4@F?EC2E62?58C@HE9C2E6 4EF2=C6DF=ED4@F=55:776C7C@>E96@>A2?JOD6DE:>2E6D 3FEDF495:776C6?46D2C6?@E6IA64E65E@92G62discount rate and growth rate. Actual results could differ from the Company's estimates, but such differences are not expected to have a material>2E6C:2=:>A24E@?E9672:CG2=F62DD6DD>6?E D2E 646>36C E964C:E6C:27@CE964=2DD:7:42E:@?@72DD6ED96=57@CD2=64@?E:?F65E@36 impact on the fair value assessment. As at December 31, 2020, the criteria for the classification of assets held for sale continued to be met>6E2?5E96C6H2D?@492?86:?E96@>A2?JD42CCJ:?82>@F?E@72DD6ED96=57@CD2=6 and there was no change in the Company's carrying amount of assets held for sale. Reinvestment!%*2!/0)!*0%*0$! 1/%*!// in the business In!? &DA6?E2AAC@I:>2E6=J 3:==:@?:?:ED42A:E2=AC@8C2> H:E9 3:==:@?:?G6DE65E@>2:?E2:?E96D276EJ2?5:?E68C:EJ@7E96?6EH@C< 2020, CN spent approximately $2.9 billion in its capital program, with $1.6 billion invested to maintain the safety and integrity of the network, A2CE:4F=2C=JEC24<:?7C2DECF4EFC6 &D42A:E2=DA6?5:?82=D@:?4=F565 3:==:@?@?DEC2E68:4:?:E:2E:G6DE@:?4C62D642A24:EJ 6?23=68C@HE92?5particularly track infrastructure. CN's capital spending also included $0.8 billion on strategic initiatives to increase capacity, enable growth and improve:>AC@G6?6EH@C<C6D:=:6?4J :?4=F5:?8=:?642A24:EJFA8C256D2?5:?7@C>2E:@?E649?@=@8J:?:E:2E:G6D 3:==:@?@?6BF:A>6?E42A:E2= network resiliency, including line capacity upgrades and information technology initiatives, $0.4 billion on equipment capital expenditures,6IA6?5:EFC6D :?4=F5:?8E9624BF:D:E:@?@7 including the acquisition of 41?6H9:89 9@CD6A@H6C=@4@>@E:G6D2?5 new high-horsepower locomotives and 1,449 ?6H8C2:?9@AA6C42CD 2?5 3:==:@?@? new grain hopper cars, and $0.1 billion on implementation:>A=6>6?E2E:@?@7(@D:E:G6,C2:?@?EC@=(, E96D276EJE649?@=@8JDJDE6>>2?52E653JE96- + @?8C6DD of Positive Train Control (PTC), the safety technology system mandated by the U.S. Congress. $ G ??F2=*6A@CE2020 Annual Report 7 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Acquisitions -1%/%0%+*/ '?On AprilAC:= E96+FC7246,C2?DA@CE2E:@?@2C5+,:DDF65:ED564:D:@?4@?5:E:@?2==J2AAC@G:?8E9624BF:D:E:@?@7E96%2DD6?2C2:==:?6 6, 2020, the Surface Transportation Board (STB) issued its decision conditionally approving the acquisition of the Massena rail line 7C@>+0@CA@C2E:@?+0 H9:49E96@>A2?J2??@F?465:ED28C66>6?EE@AFC492D6@?F8FDE '?"F?6 &2?5+0from CSX Corporation ("CSX"), which the Company announced its agreement to purchase on August 29, 2019. On June 6, 2020, CN and CSX soughtD@F89EC64@?D:56C2E:@?2D<:?8E96+,E@C6>@G6:ED4@?5:E:@?H9:49C6BF:C6DE96A2CE:6DE@AC@A@D62492?86E@E96=:?6D2=628C66>6?E7@CE96 reconsideration asking the STB to remove its condition which requires the parties to propose a change to the line sale agreement for the STB's+,DC6G:6H ,96A6E:E:@?D7@CC64@?D:56C2E:@?C6>2:?A6?5:?87@CE96+,D564:D:@? ,9624BF:D:E:@?C6AC6D6?ED>@C6E92? >:=6D@7EC24< review. The petitions for reconsideration remain pending for the STB's decision. The acquisition represents more than 220 miles of track 36EH66?.2==6J7:6=5 )F6364 2?5/@@52C5 &6H1@C< 2?5H:==2==@H&E@4@?E:?F6E@6IA2?5:ED?6EH@C<2?57@DE6C255:E:@?2=DFAA=J492:?between Valleyfield, Quebec, and Woodard, New York, and will allow CN to continue to expand its network and foster additional supply chain solutions.D@=FE:@?D In!?E967:CDEBF2CE6C@7 E96@>A2?J4@>A=6E65E96AFC492D6AC:462==@42E:@?@7E96%2?:E@3232D65,C2?D0 C@FA@7@>A2?:6D the first quarter of 2020, the Company completed the purchase price allocation of the Manitoba based TransX Group of Companies ("TransX"),C2?D0H9:49H2D24BF:C65@?%2C49 !?E967@FCE9BF2CE6C@7 E9672:CG2=F6@7?6E2DD6ED24BF:C65H2D25;FDE65E@C67=64EE96 which was acquired on March 20, 2019. In the fourth quarter of 2019, the fair value of net assets acquired was adjusted to reflect the settlementD6EE=6>6?E@7H@C<:?842A:E2=2DH6==2D492?86DE@4FCC6?E2?55676CC65:?4@>6E2I32=2?46D ,9624BF:D:E:@?A@D:E:@?D&E@DEC6?8E96?:ED of working capital as well as changes to current and deferred income tax balances. The acquisition positions CN to strengthen its intermodal:?E6C>@52=3FD:?6DD 2?52==@HDE96@>A2?JE@6IA2?542A24:EJ2?57@DE6C255:E:@?2=DFAA=J492:?D@=FE:@?D business, and allows the Company to expand capacity and foster additional supply chain solutions. In!?E967@FCE9BF2CE6C@7 E96@>A2?J4@>A=6E65E96AFC492D6AC:462==@42E:@?@7E96:?E6C>@52=E6>A6C2EFC6 4@?EC@==65 the fourth quarter of 2020, the Company completed the purchase price allocation of the intermodal temperature-controlled transportationEC2?DA@CE2E:@?5:G:D:@?@7E96=36CE2 32D65 division of the Alberta-based H&R *,C2?DA@CE$:>:E65 Transport Limited ("H&R") *H9:49H2D24BF:C65@? 646>36C ,9624BF:D:E:@?A@D:E:@?D which was acquired on December 2, 2019. The acquisition positions &E@6IA2?5:EDAC6D6?46:?>@G:?84FDE@>6C8@@5D3J@776C:?8>@C66?5 E@ 6?5C2:=DFAA=J492:?D@=FE:@?DE@2H:56CC2?86@74FDE@>6CD CN to expand its presence in moving customer goods by offering more end-to-end rail supply chain solutions to a wider range of customers. Shareholder$ .!$+( !..!01.*/ returns The,96@>A2?JC6AFC492D65 >:==:@?@7:ED4@>>@?D92C6D5FC:?8E96J62C C6EFC?:?8 3:==:@?E@:EDD92C69@=56CD &A2FD65:EDD92C6 Company repurchased 3.3 million of its common shares during the year, returning $0.4 billion to its shareholders. CN paused its share repurchasesC6AFC492D6D2EE966?5@7%2C49 5F6E@E9664@?@>:44:C4F>DE2?46DC6DF=E:?87C@> at the end of March 2020 due to the economic circumstances resulting from theE96'.! A2?56>:4 &2=D@:?4C62D65:ED COVID-19 pandemic. CN also increased its BF2CE6C=J5:G:56?5A6CD92C63Jquarterly dividend per share by 7% E@to $0.5750 7C@>from $0.5375 :? in 2019, 67764E:G67@CE967:CDEBF2CE6C@7 effective for the first quarter of 2020, 2?5A2:5 3:==:@?:?5:G:56?5D:? and paid $1.6 billion in dividends in 2020. Sustainability1/0 %* %(%05 disclosures %/ (+/1.!/ * and .! +#*%0%+* recognition The,96@>A2?JDDFDE2:?23:=:EJAC24E:46D62C?65:E2A=246@?E96 @H"@?6D+FDE2:?23:=:EJ/@C=52?5&@CE9>6C:42?!?5:46D 7@CE96 Company's sustainability practices earned it a place on the Dow Jones Sustainability World and North American Indices, for the 9thE9 2?5and 12thE9 consecutive4@?D64FE:G6J62C C6DA64E:G6=J &92D2=D@366?C64@8?:K653J (7@CE96 year, respectively. CN has also been recognized by CDP for the 11thE9 4@?D64FE:G6J62C2?5:D@?6@7@?=JE9C662?25:2?4@>A2?:6Dconsecutive year and is one of only three Canadian companies toE@92G662C?652A@D:E:@?@?E96 have earned a position on the :7;/B3"7ABClimate A List:? &:DE96@?=J2?25:2?4@>A2?J2?5E96@?=J&@CE9>6C:42?C2:=C@25=:DE65:?E96 in 2020. CN is the only Canadian company and the only North American railroad listed in the Transportation,C2?DA@CE2E:@?2?5,C2?DA@CE2E:@?!?7C2DECF4EFC6D64E@C/@C=5!?56I !?255:E:@? &C2?<652>@?8@CA@C2E6#?:89EDO =@32= %@DE and Transportation Infrastructure sector World Index. In addition, CN ranked among Corporate Knights' 2021 Global 100 Most Sustainable+FDE2:?23=6@CA@C2E:@?D:?E96/@C=5 ,96@>A2?JD (*6A@CE ,2D< @C46@?=:>2E6 C6=2E65 :?2?4:2= :D4=@DFC6DC6A@CE DFDE2:?23:=:EJ Corporations in the World. The Company's CDP Report, Task Force on Climate-related Financial Disclosures report, sustainability reportC6A@CE6?E:E=65 entitled "Delivering 3:7D3@7<5'3A>= 2021 A?5:1??;A@8;;7-:0-??A9<@5;:? Business outlook and assumptions For @C E96@>A2?J6IA64ED8C@HE924C@DD2C2?86@74@>>@5:E:6D A2CE:4F=2C=J:?4@2=6IA@CED :?E6C>@52=EC277:4 A6EC@=6F>4CF56 =F>36C 2021, the Company expects growth across a range of commodities, particularly in coal exports, intermodal traffic, petroleum crude, lumber and2?5A2?6=D 7C24D2?5 >6E2=D2?5>:?6C2=D 2DH6==2D=@H6CG@=F>6D@7- + 8C2:?2?5A@E2D9 panels, frac sand, metals and minerals, as well as lower volumes of U.S. grain and potash. Underpinning-?56CA:??:?8E96 the 20213FD:?6DD@FE=@@< E96@>A2?J2DDF>6DE92E&@CE9>6C:42?:?5FDEC:2=AC@5F4E:@?H:==:?4C62D6:?E96>:5D:?8=6 business outlook, the Company assumes that North American industrial production will increase in the mid single- 5:8:EC2?86 @CE96 4C@AJ62C E968C2:?4C@A:?2?252H2D23@G6:EDE9C66 J62C2G6C2862?5E96- + 8C2:?4C@AH2D:?=:?6H:E9:EDdigit range. For the 2020/2021 crop year, the grain crop in Canada was above its three-year average and the U.S. grain crop was in line with its three-yearE9C66 J62C2G6C286 ,96@>A2?J2DDF>6DE92EE96 8C2:?4C@AD:?3@E92?2522?5E96- + H:==36:?=:?6H:E9E96:CC6DA64E:G6 average. The Company assumes that the 2021/2022 grain crops in both Canada and the U.S. will be in line with their respective three-yearE9C66 J62C2G6C286D averages. Future A@A>1B-8A1/>1-@5;: value creation Reinvestment!%*2!/0)!*0%*0$! 1/%*!// in the business In!? 2021, &A=2?DE@:?G6DE2AAC@I:>2E6=J 3:==:@?:?:ED42A:E2=AC@8C2> @7H9:49 3:==:@?:DE2C86E65E@H2C5EC24<2?5C2:=H2J CN plans to invest approximately $3.0 billion in its capital program, of which $1.6 billion is targeted toward track and railway infrastructure:?7C2DECF4EFC6>2:?E6?2?46E@DFAA@CED2762?5677:4:6?E@A6C2E:@?D 7FCE96C 3:==:@?:D6IA64E65E@36DA6?E@?:?:E:2E:G6DE@:?4C62D6 maintenance to support safe and efficient operations. A further $1.2 billion is expected to be spent on initiatives to increase capacity42A24:EJ2?56?23=68C@HE9 DF492DEC24<:?7C2DECF4EFC66IA2?D:@?:?G6DE>6?ED:?J2C5D2?5:?E6C>@52=E6C>:?2=D2?5@?:?7@C>2E:@? and enable growth, such as track infrastructure expansion; investments in yards and intermodal terminals; and on information technologyE649?@=@8JE@:>AC@G6D276EJA6C7@C>2?46 @A6C2E:@?2=677:4:6?4J2?54FDE@>6CD6CG:46 &D6BF:A>6?E42A:E2=6IA6?5:EFC6D2C6E2C86E65 to improve safety performance, operational efficiency and customer service. CN's equipment capital expenditures are targeted at2E $0.2 3:==:@?:? billion in 2021, 2==@H:?8E96@>A2?JE@E2A8C@HE9@AA@CEF?:E:6D2?5:>AC@G6E96BF2=:EJ@7 allowing the Company to tap growth opportunities and improve the quality of theE967=66E !?@C56CE@92?5=66IA64E65EC277:4 fleet. In order to handle expected traffic increase:?4C62D62?5:>AC@G6@A6C2E:@?2=677:4:6?4J &6IA64EDE@E2<656=:G6CJ@7 and improve operational efficiency, CN expects to take delivery of 491?6H8C2:?9@AA6C42CD:?E967:CDEBF2CE6C@7 new grain hopper cars in the first quarter of 2021. Shareholder$ .!$+( !..!01.*/ returns '?"2?F2CJOn January 26, 2021, theE96@>A2?JD@2C5@7 :C64E@CD2AAC@G652?6H&@C>2=@FCD6!DDF6C:5&!E92E2==@HD7@CE96C6AFC492D6@7FA Company's Board of Directors approved a new Normal Course Issuer Bid (NCIB) that allows for the repurchase of up toE@ 14>:==:@?4@>>@?D92C6D36EH66? 63CF2CJR 2?5"2?F2CJR !?255:E:@? @?E92ED2>652J E96@>A2?JD@2C5@7 :C64E@CD million common shares between February 1, 2021 and January 31, 2022. In addition, on that same day, the Company's Board of Directors approved2AAC@G652?:?4C62D6@7E@E96BF2CE6C=J5:G:56?5E@4@>>@?D92C69@=56CD 7C@> an increase of 7% to the quarterly dividend to common shareholders, from $0.5750 A6CD92C6:?per share in 2020 E@to $0.6150 A6CD92C6:? per share in 2021, effective67764E:G67@CE967:CDEBF2CE6C ,96@>A2?J6IA64EDE@C6DF>6:EDD92C6C6AFC492D6D:?E967:CDEBF2CE6C@7 F?56CE96?6H&! for the first quarter. The Company expects to resume its share repurchases in the first quarter of 2021 under the new NCIB. 8 $ G ??F2=*6A@CE2020 Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis The,967@CH2C5 =@@<:?8DE2E6>6?ED5:D4FDD65:?E9:DD64E:@?2C6DF3;64EE@C:D Forward ;>C->0 8;;75:3?@-@191:@?-looking statements 6CE2:?DE2E6>6?ED:?4=F565:?E9:D% 2C67@CH2C5 =@@<:?8DE2E6>6?EDH:E9:?E96>62?:?8@7E96Certain statements included in this MD&A are "forward-looking statements" within the meaning of the United*<7B32(B/B3A&@7D/B3(31C@7B73A"7B75/B7=< States Private Securities Litigation Reform'34=@;1B=4 Act of 1995 and2?5F?56C2?25:2?D64FC:E:6D=2HD JE96:C?2EFC6 7@CH2C5 =@@<:?8DE2E6>6?ED:?G@=G6C:D Forward ;>C->0 8;;75:3?@-@191:@?-looking statements Key!1E-??A9<@5;:? assumptions Statements+E2E6>6?EDC6=2E:?8E@C6G6?F68C@HE9@AA@CEF?:E:6D :?4=F5:?8 relating to revenue growth opportunities, including PNorth &@CE9>6C:42?2?58=@32=64@?@>:48C@HE9 American and global economic growth thoseE9@D6C676CC:?8E@86?6C2=64@?@>:42?53FD:?6DD4@?5:E:@?D referring to general economic and business conditions PLong-term $@?8 E6C>8C@HE9@AA@CEF?:E:6D36:?8=6DD27764E653J4FCC6?E64@?@>:4 growth opportunities being less affected by current economic conditions4@?5:E:@?D PThe ,96'.! A2?56>:48C25F2==J5:>:?:D9:?8:?:?E6?D:EJ:?E96D64@?592=7 COVID-19 pandemic gradually diminishing in intensity in the second half of@7 7@==@H:?8:?4C62D65G244:?2E:@? 2021 following increased vaccination PNo &@>2E6C:2=:?4C62D6:?5:DCFAE:@?@7&OD@A6C2E:@?D@C@7E9664@?@>JOD material increase in disruption of CN's operations or of the economy's supplyDFAA=J492:?D2D2C6DF=E@7E96'.! A2?56>:4:?E96D9@CE6CE6C> chains as a result of the COVID-19 pandemic in the shorter term Statements+E2E6>6?EDC6=2E:?8E@E96@>A2?JD23:=:EJE@>66E563E relating to the Company's ability to meet debt PAdequate 56BF2E64C65:EC2E:@D credit ratios repaymentsC6A2J>6?ED2?57FEFC6@3=:82E:@?D:?E967@C6D6623=67FEFC6 and future obligations in the foreseeable future, PInvestment !?G6DE>6?E 8C2564C65:EC2E:?8D-grade credit ratings including:?4=F5:?8:?4@>6E2IA2J>6?ED 2?542A:E2=DA6?5:?8 income tax payments, and capital spending PAccess 446DDE@42A:E2=>2C<6ED to capital markets PAdequate 56BF2E642D986?6C2E657C@>@A6C2E:@?D2?5@E96CD@FC46D@77:?2?4:?8 cash generated from operations and other sources of financing Statements+E2E6>6?EDC6=2E:?8E@A6?D:@?4@?EC:3FE:@?D relating to pension contributions PAdequate 56BF2E642D986?6C2E657C@>@A6C2E:@?D2?5@E96CD@FC46D@77:?2?4:?8 cash generated from operations and other sources of financing PAdequate 56BF2E6=@?8 E6C>C6EFC?@?:?G6DE>6?E@?A6?D:@?A=2?2DD6ED long-term return on investment on pension plan assets PLevel $6G6=@77F?5:?82D56E6C>:?653J24EF2C:2=G2=F2E:@?D A2CE:4F=2C=J:?7=F6?465 of funding as determined by actuarial valuations, particularly influenced by3J5:D4@F?EC2E6D7@C7F?5:?8AFCA@D6D discount rates for funding purposes Forward @CH2C5 =@@<:?8DE2E6>6?ED2C6?@E8F2C2?E66D@77FEFC6A6C7@C>2?462?5:?G@=G6C:D $ G ??F2=*6A@CE2020 Annual Report 9 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis 2020 5:-:/5-8;A@8;;7 Financial outlook '?"2?F2CJ E96@>A2?J:DDF65:EDOn January 28, 2020, the Company issued its 2020 7:?2?4:2=@FE=@@< '?AC:= 5F6E@E964@?E:?F658=@32=DAC625@7E96'.! financial outlook. On April 27, 2020 due to the continued global spread of the COVID-19 A2?56>:42?54@?D6BF6?EF?AC64656?E6564@?@>:4F?46CE2:?EJ E96@>A2?JH:E95C6H:EDpandemic and consequent unprecedented economic uncertainty, the Company withdrew its 2020 @FE=@@< outlook. Financial 5:-:/5-845348534@? highlights (1) See(33B63A31B7=<=4B67A# 3 2020 /;9<->10@; compared to 2019 Net&6E:?4@>67@CE96J62C6?565 646>36C H2D income for the year ended December 31, 2020 was $3,562 >:==:@? 2564C62D6@7 million, a decrease of $654>:==:@? @C million, or 16%, H96?4@>A2C65E@ when compared to 2019, 2?55:=FE65 and diluted earnings62C?:?8DA6CD92C6564C62D653J per share decreased by 14% E@to $5.00. 'A6C2E:?8:?4@>67@CE96J62C6?565 646>36C 564C62D653JOperating income for the year ended December 31, 2020 decreased by $816>:==:@? @C million, or 15%, E@ to $4,777 >:==:@? ,96564C62D6>2:?=JC67=64ED million. The decrease mainly reflects lower=@H6CG@=F>6D24C@DD>@DE4@>>@5:EJ8C@FAD2?52=@DD@?2DD6ED96=57@CD2=6 A2CE=J@77D6E3J7C6:89EC2E6:?4C62D6D2?5=@H6C7F6=AC:46D volumes across most commodity groups and a loss on assets held for sale, partly offset by freight rate increases and lower fuel prices. The,96@A6C2E:?8C2E:@ 567:?652D@A6C2E:?86IA6?D6D2D2A6C46?E286@7C6G6?F6D H2D operating ratio, defined as operating expenses as a percentage of revenues, was 65.4%:? in 2020, 4@>A2C65E@ compared to 62.5%:? in 2019. Revenues*6G6?F6D7@CE96J62C6?565 646>36C H6C6 for the year ended December 31, 2020 were $13,819 >:==:@?4@>A2C65E@million compared to $14,917 >:==:@?:? million in 2019. ,96564C62D6@7 The decrease of $1,098 million,>:==:@? @C or 7%, H2D>2:?=J2EEC:3FE23=6E@=@H6CG@=F>6D24C@DD>@DE4@>>@5:EJ8C@FAD AC:>2C:=J:?E96D64@?52?5E9:C5BF2CE6C 42FD653J was mainly attributable to lower volumes across most commodity groups, primarily in the second and third quarter, caused by theE96@?8@:?867764ED@7E96'.! A2?56>:42?5=@H6C2AA=:423=67F6=DFC492C86C2E6D A2CE=J@77D6E3J7C6:89EC2E6:?4C62D6D2DH6==2D ongoing effects of the COVID-19 pandemic and lower applicable fuel surcharge rates, partly offset by freight rate increases as well as recordC64@C5D9:A>6?ED@72?25:2?8C2:? shipments of Canadian grain. 'A6C2E:?86IA6?D6D7@CE96J62C6?565 646>36C H6C6Operating expenses for the year ended December 31, 2020 were $9,042 >:==:@?4@>A2C65E@ million compared to $9,324 >:==:@?:? million in 2019. ,96564C62D6@7 The decrease of $282 million,>:==:@? @C or 3%, H2D>2:?=J5F6E@=@H6C7F6=2?5=23@C4@DED2?5564C62D65AFC492D65D6CG:46D2?5>2E6C:2=6IA6?D6A2CE=J@77D6E3J2=@DD@? was mainly due to lower fuel and labor costs and decreased purchased services and material expense; partly offset by a loss on assets2DD6ED96=57@CD2=6 C6DF=E:?87C@>E96@>A2?JD564:D:@?E@>2C<6E7@CD2=67@C@? 8@:?8C2:=@A6C2E:@?D 46CE2:??@? 4@C6=:?6D held for sale, resulting from the Company's decision to market for sale for on-going rail operations, certain non-core lines. The,96@>A2?J86?6C2E65C64@C57C6642D97=@H7@CE96J62C6?565 646>36C @7 Company generated record free cash flow for the year ended December 31, 2020 of $3,227 >:==:@?4@>A2C65E@ million compared to $1,992 >:==:@?:? million in 2019. The,96:?4C62D6@7 increase of $1,235>:==:@? @C million, or 62%, H2D>2:?=J5F6E@=@H6CAC@A6CEJ255:E:@?D:? was mainly due to lower property additions in 2020 4@>A2C65E@E96C64@C5 42A:E2=6IA6?5:EFC6 compared to the record 2019 capital expenditure program,AC@8C2> =@H6C:?4@>6E2I:?DE2=>6?EA2J>6?ED2?52- + E2IC67F?5C646:G65:? 2D2C6DF=E@7E96* +4E A2CE=J@77D6E3J=@H6C lower income tax instalment payments and a U.S. tax refund received in 2020 as a result of the CARES Act, partly offset by lower earnings62C?:?8D6I4=F5:?8?@? 42D9:E6>D excluding non-cash items. 10 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Operating%<1>-@5:345348534@? highlights The,967@==@H:?8E23=6=:DED<6J>62DFC6D@7E96@>A2?JD@A6C2E:?8A6C7@C>2?46 7@CE96AFCA@D6@7>62DFC:?8E96677:4:6?4J2?567764E:G6?6DD following table lists key measures of the Company's operating performance, for the purpose of measuring the efficiency and effectiveness of@7EC2:?@A6C2E:@?D train operations: Change92?86 Favorable/(Unfavorable) 2G@C23=6 -?72G@C23=6 2020 2019 2018 2020 GD vs 2019 GD 2019 vs 2018 C@DDE@?>:=6D ,%DGross ton miles (GTMs);7::7=3@6=C@ (miles per hour) (4) 18.5 18.5 18.0 N—% 3% Fuel F6=677:4:6?4J efficiency (US*(5/::=3@ )#Aconsumed per 1,000 GTMs)(5) 0.89 0.93 0.94 4% 1% Through,9C@F895H6== dwell3 (1) GTMs: )#A)63E=@9:=/2>3@4=@;320GAGAB3;B@/7;3:G7<5B63B@/7:7<5E3756B0GB6327AB/<13B63B@/7<;=D32 The workload performed by system trains in hauling freight or equipment. GTMs are calculated by multiplying the trailing weight by the distance the train moved. A larger:/@53@ For @CE96J62C6?565 646>36C H96?4@>A2C65E@ the year ended December 31, 2020, when compared to 2019, ,%DH6C6?682E:G6=J:>A24E653JE96'.! A2?56>:4 !?C6DA@?D6E@E96 GTMs were negatively impacted by the COVID-19 pandemic. In response to the reductionC65F4E:@?:?G@=F>6D E96@>A2?J:?4C62D65677:4:6?4:6DH:E9:?4C62D65,C2:?H6:89E2?5,C2:?=6?8E9 H9:49?682E:G6=J:>A24E65,9C@F89 in volumes, the Company increased efficiencies with increased Train weight and Train length, which negatively impacted Through 5H6== 2CG6=@4:EJ 2?5,9C@F89?6EH@C<EC2:?DA665 dwell, Car velocity, and Through network train speed. However, @H6G6C E9:D2==@H65E96@>A2?JE@249:6G62?2== E:>6C64@C5 F6=677:4:6?4J this allowed the Company to achieve an all-time record Fuel efficiency. For @CE96J62C6?565 646>36C H96?4@>A2C65E@ the year ended December 31, 2019, when compared to 2018, ,%DH6C6?682E:G6=J:>A24E653JE96H62<6?:?864@?@>:46?G:C@?>6?E GTMs were negatively impacted by the weakening economic environment and2?524@?5F4E@CDEC:<6:?E967@FCE9BF2CE6C@7 a conductor strike in the fourth quarter of 2019. However, @H6G6C H:E942A24:EJ:>AC@G6>6?ED6?23=:?87=F:5:EJ ,9C@F895H6== 2CG6=@4:EJ with capacity improvements enabling fluidity, Through dwell, Car velocity, Through,9C@F89?6EH@C<EC2:?DA665 2DH6==2D F6=677:4:6?4J 9252==:>AC@G65 network train speed, as well as Fuel efficiency, had all improved. Non-GAAP$;: &91-?A>1? measures This,9:D% >2<6DC676C6?46E@?@? (>62DFC6D:?4=F5:?825;FDE65A6C7@C>2?46>62DFC6D 4@?DE2?E4FCC6?4J C6EFC?@?:?G6DE6542A:E2= MD&A makes reference to non-GAAP measures including adjusted performance measures, constant currency, return on invested capital (ROIC)*'!2?525;FDE65*'! 7C6642D97=@H 2?525;FDE65563E E@ 25;FDE6562C?:?8D367@C6:?E6C6DE :?4@>6E2I6D 56AC64:2E:@?2?52>@CE:K2E:@? and adjusted ROIC, free cash flow, and adjusted debt-to-adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) !, >F=E:A=6E92E5@?@E92G62?JDE2?52C5:K65>62?:?8AC6D4C:3653J (2?5E96C67@C6 >2J?@E364@>A2C23=6E@D:>:=2C>62DFC6D multiple that do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures AC6D6?E653J@E96C4@>A2?:6D C@>>2?286>6?EDA6CDA64E:G6 E96D6?@? (>62DFC6D2C6FD67F=>62DFC6D@7A6C7@C>2?462?5AC@G:56presented by other companies. From managements perspective, these non-GAAP measures are useful measures of performance and provide investors:?G6DE@CDH:E9DFAA=6>6?E2CJ:?7@C>2E:@?E@2DD6DDE96@>A2?JDC6DF=ED@7@A6C2E:@?D2?5=:BF:5:EJ ,96D6?@? (>62DFC6DD9@F=5?@E with supplementary information to assess the Company's results of operations and liquidity. These non-GAAP measures should not 364@?D:56C65:?:D@=2E:@?@C2D2DF3DE:EFE67@C7:?2?4:2=>62DFC6DAC6A2C65:?244@C52?46H:E9 ( be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. For @C7FCE96C56E2:=D@7E96D6?@? (>62DFC6D :?4=F5:?82C64@?4:=:2E:@?E@E96>@DE5:C64E=J4@>A2C23=6 (7:?2?4:2=>62DFC6D C676C further details of these non-GAAP measures, including a reconciliation to the most directly comparable GAAP financial measures, refer toE@E96D64E:@?D6?E:E=65 the sections entitled Adjusted28CAB32>3@4=@;/<13;3/AC@3A = $ G ??F2=*6A@CE2020 Annual Report 11 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Adjusted06A?@10<1>2;>9-:/191-?A>1? performance measures Management%2?286>6?E36=:6G6DE92E25;FDE65?6E:?4@>6 25;FDE6562C?:?8DA6CD92C6 25;FDE65@A6C2E:?8:?4@>62?525;FDE65@A6C2E:?8C2E:@2C6FD67F= believes that adjusted net income, adjusted earnings per share, adjusted operating income and adjusted operating ratio are useful measures>62DFC6D@7A6C7@C>2?46E92E42?724:=:E2E6A6C:@5 E@ A6C:@54@>A2C:D@?D 2DE96J6I4=F56:E6>DE92E5@?@E?646DD2C:=J2C:D62DA2CE@7&D of performance that can facilitate period-to-period comparisons, as they exclude items that do not necessarily arise as part of CN's normal?@C>2=52J E@ 52J@A6C2E:@?D2?54@F=55:DE@CEE962?2=JD:D@7EC6?5D:?3FD:?6DDA6C7@C>2?46 %2?286>6?EFD6D25;FDE65A6C7@C>2?46 day-to-day operations and could distort the analysis of trends in business performance. Management uses adjusted performance measures,>62DFC6D H9:496I4=F5646CE2:?:?4@>62?56IA6?D6:E6>D:?:EDC6DF=EDE92E>2?286>6?E36=:6G6D2C6?@EC67=64E:G6@7&DF?56C=J:?8 which exclude certain income and expense items in its results that management believes are not reflective of CN's underlying 3FD:?6DD@A6C2E:@?D E@D6EA6C7@C>2?468@2=D2?52D2>62?DE@>62DFC6&DA6C7@C>2?46 ,966I4=FD:@?@7DF49:?4@>62?56IA6?D6business operations, to set performance goals and as a means to measure CN's performance. The exclusion of such income and expense items:E6>D:?E96D6>62DFC6D5@6D?@E 9@H6G6C :>A=JE92EE96D6:E6>D2C6?646DD2C:=J?@? C64FCC:?8 ,96D6>62DFC6D5@?@E92G62?J in these measures does not, however, imply that these items are necessarily non-recurring. These measures do not have any standardizedDE2?52C5:K65>62?:?8AC6D4C:3653J (2?5E96C67@C6 >2J?@E364@>A2C23=6E@D:>:=2C>62DFC6DAC6D6?E653J@E96C4@>A2?:6D meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. For @CE96J62C6?565 646>36C E96@>A2?JC6A@CE6525;FDE65?6E:?4@>6@7 the year ended December 31, 2020, the Company reported adjusted net income of $3,784 >:==:@? @C million, or $5.31 A6C5:=FE65D92C6 H9:49 per diluted share, which excludes6I4=F56D2=@DD@7 a loss of $486>:==:@? @C million, or $363 >:==:@?27E6C E2Imillion after-tax ($0.51 A6C5:=FE65D92C6:?E96D64@?5BF2CE6C C6DF=E:?87C@>E96@>A2?JD564:D:@? per diluted share) in the second quarter, resulting from the Company's decision toE@>2C<6E7@CD2=67@C@? 8@:?8C2:=@A6C2E:@?D 46CE2:??@? 4@C6=:?6D:?/:D4@?D:? %:49:82?2?5'?E2C:@ 2?524FCC6?E:?4@>6E2IC64@G6CJ@7 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 A6C5:=FE65D92C6:?E967:CDEBF2CE6CC6DF=E:?87C@>E966?24E>6?E@7E96per diluted share) in the first quarter resulting from the enactment of the =@=652EAC@G:5:?8255:E:@?2=DE:>F=FDE@255C6DDE9664@?@>:4:>A24E@7E96'.! a U.S. tax-and-spending package aimed at providing additional stimulus to address the economic impact of the COVID-19 A2?56>:4 pandemic. For @CE96J62C6?565 646>36C E96@>A2?JC6A@CE6525;FDE65?6E:?4@>6@7 the year ended December 31, 2019, the Company reported adjusted net income of $4,189 >:==:@? @C million, or $5.80 A6C5:=FE65D92C6 H9:49 per diluted share, which excludes6I4=F56D6>A=@J66E6C>:?2E:@?36?67:ED2?5D6G6C2?464@DEDC6=2E65E@2H@C<7@C46C65F4E:@?AC@8C2>@7>:==:@? @C>:==:@?27E6C E2I employee termination benefits and severance costs related to a workforce reduction program of $31 million, or $23 million after-tax ($0.03 A6C5:=FE65D92C6:?E967@FCE9BF2CE6C25676CC65:?4@>6E2IC64@G6CJ@7>:==:@? A6C5:=FE65D92C6@C A6C32D:4D92C6 per diluted share) in the fourth quarter; a deferred income tax recovery of $112 million ($0.15 per diluted share or $0.16 per basic share) in:?E96D64@?5BF2CE6C C6DF=E:?87C@>E966?24E>6?E@72=@H6CAC@G:?4:2=4@CA@C2E6:?4@>6E2IC2E62?5256AC64:2E:@?6IA6?D6@7>:==:@? the second quarter, resulting from the enactment of a lower provincial corporate income tax rate; and a depreciation expense of $84 million, or@C>:==:@?27E6C E2I A6C5:=FE65D92C6:?E967:CDEBF2CE6C C6=2E65E@4@DEDAC6G:@FD=J42A:E2=:K657@C2(,324<@77:46DJDE6> $62 million after-tax ($0.09 per diluted share) in the first quarter, related to costs previously capitalized for a PTC back office system 7@==@H:?8E9656A=@J>6?E@72C6A=246>6?EDJDE6> following the deployment of a replacement system. For @CE96J62C6?565 646>36C E96@>A2?JC6A@CE6525;FDE65?6E:?4@>6@7 the year ended December 31, 2018, the Company reported adjusted net income of $4,056 >:==:@? @C million, or $5.50 A6C5:=FE65D92C6 H9:49 per diluted share, which excludes6I4=F56D6>A=@J66E6C>:?2E:@?36?67:ED2?5D6G6C2?464@DEDC6=2E65E@2H@C<7@C46C65F4E:@?AC@8C2>@7>:==:@? @C >:==:@?27E6C E2I employee termination benefits and severance costs related to a workforce reduction program of $27 million, or $20 million after-tax ($0.03 A6C5:=FE65D92C6:?E967@FCE9BF2CE6C2?582:?D@?5:DA@D2=@7AC@A6CEJ@7>:==:@? @C>:==:@?27E6C E2I A6C5:=FE65 per diluted share) in the fourth quarter and gains on disposal of property of $338 million, or $292 million after-tax ($0.40 per diluted share),D92C6 4@?D:DE:?8@7E967@==@H:?8 consisting of the following: P• in :?E967@FCE9BF2CE6C 282:?AC6G:@FD=J5676CC65@?E96 5:DA@D2=@72D68>6?E@7E96 F6=A9DF35:G:D:@?=@42E6536EH66? 6@C86E@H? the fourth quarter, a gain previously deferred on the 2014 disposal of a segment of the Guelph subdivision located between Georgetown and2?5#:E496?6C '?E2C:@ E@86E96CH:E9E96C2:=7:IEFC6D2?546CE2:?A2DD6?86C28C66>6?EDE96 F6=A9 @7>:==:@? @C >:==:@?27E6C Kitchener, Ontario, together with the rail fixtures and certain passenger agreements (the "Guelph"), of $79 million, or $70 million after- taxE2I A6C5:=FE65D92C6 ($0.10 per diluted share); P• in :?E96E9:C5BF2CE6C 282:?@?5:DA@D2=@7AC@A6CEJ=@42E65:?%@?EC62= )F6364E96 @?6J2?5+E C2?4@:D+AFCD@7>:==:@? @C the third quarter, a gain on disposal of property located in Montreal, Quebec (the "Doney and St-Francois Spurs") of $36 million, or $32 million>:==:@?27E6C E2I A6C5:=FE65D92C62?5 after-tax ($0.04 per diluted share); and P• in :?E96D64@?5BF2CE6C 282:?@?EC2?D76C@7E96@>A2?JD7:?2?46=62D6:?E96A2DD6?86CC2:=724:=:E:6D:?%@?EC62= )F6364 E@86E96CH:E9 the second quarter, a gain on transfer of the Company's finance lease in the passenger rail facilities in Montreal, Quebec, together with its:ED:?E6C6DED:?C6=2E65C2:=H2J@A6C2E:?828C66>6?EDE966?EC2=+E2E:@?*2:=H2J$62D6 @7>:==:@? @C>:==:@?27E6C E2I interests in related railway operating agreements (the "Central Station Railway Lease), of $184 million, or $156 million after-tax ($0.21 A6C5:=FE65D92C6 2?5282:?@?5:DA@D2=@7=2?5=@42E65:?2=82CJ =36CE2 6I4=F5:?8E96C2:=7:IEFC6DE962=82CJ!?5FDEC:2=$625 @7per diluted share), and a gain on disposal of land located in Calgary, Alberta, excluding the rail fixtures (the "Calgary Industrial Lead"), of $39>:==:@? @C>:==:@?27E6C E2I A6C5:=FE65D92C6 million, or $34 million after-tax ($0.05 per diluted share). 12 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis The,967@==@H:?8E23=6AC@G:56D2C64@?4:=:2E:@?@7?6E:?4@>62?562C?:?8DA6CD92C6:?244@C52?46H:E9 ( 2DC6A@CE657@CE96J62CD following table provides a reconciliation of net income and earnings per share in accordance with GAAP, as reported for the years ended6?565 646>36C December 31, 2020, 2019 2?5and 2018, E@E96?@? (25;FDE65A6C7@C>2?46>62DFC6DAC6D6?E6596C6:? to the non-GAAP adjusted performance measures presented herein: (1) Includes!<1:C23AB63B/F7;>/1B=47/28CAB;3 The,967@==@H:?8E23=6AC@G:56D2C64@?4:=:2E:@?@7@A6C2E:?8:?4@>62?5@A6C2E:?8C2E:@:?244@C52?46H:E9 ( 2DC6A@CE657@CE96J62CD following table provides a reconciliation of operating income and operating ratio in accordance with GAAP, as reported for the years ended6?565 646>36C December 31, 2020, 2019 2?5and 2018, E@E96?@? (25;FDE65A6C7@C>2?46>62DFC6DAC6D6?E6596C6:? to the non-GAAP adjusted performance measures presented herein: $ G ??F2=*6A@CE2020 Annual Report 13 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis ROIC(% -:0-06A?@10(% and adjusted ROIC Management%2?286>6?E36=:6G6D*'!2?525;FDE65*'!2C6FD67F=>62DFC6D@7E96677:4:6?4J:?E96FD6@742A:E2=7F?5D ,96@>A2?J42=4F=2E6D*'! believes ROIC and adjusted ROIC are useful measures of the efficiency in the use of capital funds. The Company calculates ROIC as2DC6EFC?5:G:5653J2G6C286:?G6DE6542A:E2= *6EFC?:D567:?652D?6E:?4@>6A=FD:?E6C6DE6IA6?D627E6C E2I 42=4F=2E65FD:?8E96@>A2?JD return divided by average invested capital. Return is defined as net income plus interest expense after-tax, calculated using the Company's effective67764E:G6E2IC2E6 G6C286:?G6DE6542A:E2=:D567:?652DE96DF>@7E@E2=D92C69@=56CD6BF:EJ =@?8 E6C>563E2?54FCC6?EA@CE:@?@7=@?8 E6C> tax rate. Average invested capital is defined as the sum of total shareholders' equity, long-term debt and current portion of long-term 563E=6DD42D92?542D96BF:G2=6?ED 2?5C6DEC:4E6542D92?542D96BF:G2=6?ED 2G6C286536EH66?E96368:??:?82?56?5:?832=2?46@G6C2debt less cash and cash equivalents, and restricted cash and cash equivalents, averaged between the beginning and ending balance over a twelve-monthEH6=G6 >@?E9A6C:@5 ,96@>A2?J42=4F=2E6D25;FDE65*'!2D25;FDE65C6EFC?5:G:5653J2G6C286:?G6DE6542A:E2= 5;FDE65C6EFC?:D567:?65 period. The Company calculates adjusted ROIC as adjusted return divided by average invested capital. Adjusted return is defined as2D25;FDE65?6E:?4@>6A=FD:?E6C6DE6IA6?D627E6C E2I 42=4F=2E65FD:?8E96@>A2?JD67764E:G6E2IC2E6 6I4=F5:?8E96E2I67764E@7 adjusted net income plus interest expense after-tax, calculated using the Company's effective tax rate, excluding the tax effect of adjustments25;FDE>6?EDFD65E@56E6C>:?625;FDE65?6E:?4@>6 *'!2?525;FDE65*'!5@?@E92G62?JDE2?52C5:K65>62?:?8AC6D4C:3653J (2?5 used to determine adjusted net income. ROIC and adjusted ROIC do not have any standardized meaning prescribed by GAAP and therefore,E96C67@C6 >2J?@E364@>A2C23=6E@D:>:=2C>62DFC6DAC6D6?E653J@E96C4@>A2?:6D may not be comparable to similar measures presented by other companies. The,967@==@H:?8E23=6AC@G:56D2C64@?4:=:2E:@?@7?6E:?4@>62?525;FDE65?6E:?4@>6E@C6EFC?2?525;FDE65C6EFC? C6DA64E:G6=J 2DH6==2D following table provides a reconciliation of net income and adjusted net income to return and adjusted return, respectively, as well as theE9642=4F=2E:@?@72G6C286:?G6DE6542A:E2= H9:4992G6366?FD65E@42=4F=2E6*'!2?525;FDE65*'! calculation of average invested capital, which have been used to calculate ROIC and adjusted ROIC: Adjusted5;FDE65?6E:?4@>6 net income (2) $ 3,784 $ 4,189 $ 4,056 Interest!?E6C6DE6IA6?D6 expense 554 538 489 Adjusted5;FDE65E2I@?:?E6C6DE6IA6?D6 tax on interest expense (3) (137) (131) (120) Adjusted28CAB32@3BC@< return $ 4,201 $ 4,596 $ 4,425 AverageG6C286:?G6DE6542A:E2= invested capital $ 31,353 $ 30,350 $ 28,192 Adjusted5;FDE65*'! ROIC 13.4% 15.1% 15.7% (1) )6334431B7D3B/F@/B34=@The effective tax rate for 2020 CA32B=1/:1C:/B3B63B/F=<7 14 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Constant;:?@-:@/A>>1:/E currency Financial :?2?4:2=C6DF=ED2E4@?DE2?E4FCC6?4J2==@HC6DF=EDE@36G:6H65H:E9@FEE96:>A24E@77=F4EF2E:@?D:?7@C6:8?4FCC6?4J6I492?86C2E6D E96C63J results at constant currency allow results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby 724:=:E2E:?8A6C:@5 E@ A6C:@54@>A2C:D@?D:?E962?2=JD:D@7EC6?5D:?3FD:?6DDA6C7@C>2?46 %62DFC6D2E4@?DE2?E4FCC6?4J2C64@?D:56C65?@? facilitating period-to-period comparisons in the analysis of trends in business performance. Measures at constant currency are considered non- (>62DFC6D2?55@?@E92G62?JDE2?52C5:K65>62?:?8AC6D4C:3653J (2?5E96C67@C6 >2J?@E364@>A2C23=6E@D:>:=2C>62DFC6DGAAP measures and do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures AC6D6?E653J@E96C4@>A2?:6D :?2?4:2=C6DF=ED2E4@?DE2?E4FCC6?4J2C6@3E2:?653JEC2?D=2E:?8E964FCC6?EA6C:@5C6DF=ED56?@>:?2E65:?-+presented by other companies. Financial results at constant currency are obtained by translating the current period results denominated in US 5@==2CD2EE967@C6:8?6I492?86C2E6D@7E964@>A2C23=6A6C:@5@7E96AC:@CJ62C ,962G6C2867@C6:8?6I492?86C2E6DH6C6dollars at the foreign exchange rates of the comparable period of the prior year. The average foreign exchange rates were $1.34 2?5 and $1.33 A6C per US$1.00,-+ 7@CE96J62CD6?565 646>36C 2?5 for the years ended December 31, 2020 and 2019, C6DA64E:G6=J respectively. '?24@?DE2?E4FCC6?4J32D:D E96@>A2?JD?6E:?4@>67@CE96J62C6?565 646>36C H@F=592G6366?=@H6C3JOn a constant currency basis, the Company's net income for the year ended December 31, 2020 would have been lower by $13 >:==:@?million ($0.02 A6C5:=FE65D92C6 per diluted share). Revenues(1B1:A1? 92?86% Change at2E4@?DE2?E constant In!<;7::7=1534@>1B1:A1? revenues Petroleum(6EC@=6F>2?5496>:42=D and chemicals $ 2,631 $ 3,052 (14%) (14%) Metals%6E2=D2?5>:?6C2=D and minerals 1,409 1,643 (14%) (15%) Forest @C6DEAC@5F4ED products 1,700 1,808 (6%) (7%) Coal@2= 527 658 (20%) (20%) C2:?2?576CE:=:K6CDGrain and fertilizers 2,609 2,392 9% 9% Intermodal!?E6C>@52= 3,751 3,787 (1%) (1%) AutomotiveFE@>@E:G6 591 858 (31%) (31%) )=B/:4@3756B@3D3 Revenues*6G6?F6D7@CE96J62C6?565 646>36C E@E2=65 for the year ended December 31, 2020, totaled $13,819 >:==:@?4@>A2C65E@million compared to $14,917 >:==:@?:? million in 2019. ,96564C62D6@7 The decrease of $1,098 >:==:@? million, or@C 7%, H2D>2:?=J2EEC:3FE23=6E@=@H6CG@=F>6D24C@DD>@DE4@>>@5:EJ8C@FAD AC:>2C:=J:?E96D64@?52?5E9:C5BF2CE6C 42FD653JE96 was mainly attributable to lower volumes across most commodity groups, primarily in the second and third quarter, caused by the ongoing@?8@:?867764ED@7E96'.! A2?56>:42?5=@H6C2AA=:423=67F6=DFC492C86C2E6D A2CE=J@77D6E3J7C6:89EC2E6:?4C62D6D2DH6==2DC64@C5 effects of the COVID-19 pandemic and lower applicable fuel surcharge rates, partly offset by freight rate increases as well as record shipmentsD9:A>6?ED@72?25:2?8C2:? F6=DFC492C86C6G6?F6D564C62D653J of Canadian grain. Fuel surcharge revenues decreased by $330 >:==:@?:?million in 2020, >2:?=J2D2C6DF=E@7=@H6C2AA=:423=67F6=DFC492C86 mainly as a result of lower applicable fuel surcharge ratesC2E6D2?5=@H6CG@=F>6D and lower volumes. In!? 2020, *,%D >62DFC:?8E96H6:89E2?55:DE2?46@77C6:89EEC2?DA@CE653JE96@>A2?J 564=:?653J RTMs, measuring the weight and distance of freight transported by the Company, declined by 5% C6=2E:G6E@relative to 2019. C6:89EC6G6?F6 Freight revenue A6C*,%564C62D653Jper RTM decreased by 2% :?in 2020 H96?4@>A2C65E@when compared to 2019, >2:?=J5C:G6?3J=@H6C2AA=:423=67F6=DFC492C86C2E6D A2CE=J@77D6E3J7C6:89EC2E6 mainly driven by lower applicable fuel surcharge rates, partly offset by freight rate increases.:?4C62D6D Petroleum&1@>;81A9-:0/4195/-8? and chemicals 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= $ G ??F2=*6A@CE2020 Annual Report 15 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis The,96A6EC@=6F>2?5496>:42=D4@>>@5:EJ8C@FA4@>AC:D6D2H:56C2?86@74@>>@5:E:6D :?4=F5:?8496>:42=D2?5A=2DE:4D C67:?65A6EC@=6F> petroleum and chemicals commodity group comprises a wide range of commodities, including chemicals and plastics, refined petroleum AC@5F4ED ?2EFC2=82D=:BF:5D 4CF56@:=2?5DF=7FC ,96AC:>2CJ>2C<6ED7@CE96D64@>>@5:E:6D2C6H:E9:?&@CE9>6C:42 2?52DDF49 E96products, natural gas liquids, crude oil and sulfur. The primary markets for these commodities are within North America, and as such, the A6C7@C>2?46@7E9:D4@>>@5:EJ8C@FA:D4=@D6=J4@CC6=2E65H:E9E96&@CE9>6C:42?64@?@>J2DH6==2D@:=2?582DAC@5F4E:@? %@DE@7E96performance of this commodity group is closely correlated with the North American economy as well as oil and gas production. Most of the @>A2?JDA6EC@=6F>2?5496>:42=DD9:A>6?ED@C:8:?2E6:?E96$@F:D:2?2A6EC@496>:42=4@CC:5@C36EH66?&6H'C=62?D2?52E@?*@F86:?Company's petroleum and chemicals shipments originate in the Louisiana petrochemical corridor between New Orleans and Baton Rouge; in /6DE6C?2?252 2<6J@:=2?582D56G6=@A>6?E2C622?52>2;@C46?E6C7@C?2EFC2=82D7665DE@4<2?5H@C=5 D42=6A6EC@496>:42=D2?5A=2DE:4DWestern Canada, a key oil and gas development area and a major center for natural gas feedstock and world-scale petrochemicals and plastics; and2?5:?62DE6C?2?25:2?C68:@?2=A=2?ED in eastern Canadian regional plants. For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J the year ended December 31, 2020, revenues for this commodity group decreased by $421>:==:@? @C million, or 14%, H96?4@>A2C65E@ when compared to 2019, mainly>2:?=J5F6E@=@H6CG@=F>6D@7A6EC@=6F>4CF56 496>:42=D2?5A=2DE:4AC@5F4ED C67:?65A6EC@=6F>AC@5F4ED2?5?2EFC2=82D=:BF:5D5F6E@E96 due to lower volumes of petroleum crude, chemicals and plastic products, refined petroleum products and natural gas liquids due to the '.! A2?56>:4 A2CE=J@77D6E3J=:BF:52E6552>286DC6=2E:?8E@G@=F>64@>>:E>6?EDF?56C4FDE@>6C4@?EC24ED COVID-19 pandemic, partly offset by liquidated damages relating to volume commitments under customer contracts. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 7% :?in 2020 H96?4@>A2C65E@when compared to 2019, >2:?=J5F6E@E96564C62D6:?E962G6C286=6?8E9@792F=2?5=:BF:52E65 mainly due to the decrease in the average length of haul and liquidated 52>286DC6=2E:?8E@G@=F>64@>>:E>6?EDF?56C4FDE@>6C4@?EC24ED damages relating to volume commitments under customer contracts. Percentage!. !*0 #!+" +))+ of commodity %05#.+1,.!2!*1!/ group revenues 2020 2019 Chemicals96>:42=D2?5A=2DE:4D and plastics 41 % 36 % Refined*67:?65A6EC@=6F>AC@5F4ED petroleum products 40 % 38 % CrudeCF562?54@?56?D2E6 and condensate 15 % 22 % Sulfur+F=7FC 4 % 4 % Metals#1@-8?-:095:1>-8? and minerals 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= The,96>6E2=D2?5>:?6C2=D4@>>@5:EJ8C@FA4@?D:DEDAC:>2C:=J@7>2E6C:2=DC6=2E65E@@:=2?582D56G6=@A>6?E DE66= :C@?@C6 ?@? 76CC@FD32D6 metals and minerals commodity group consists primarily of materials related to oil and gas development, steel, iron ore, non-ferrous base metals>6E2=D2?5@C6D 4@?DECF4E:@?>2E6C:2=D >249:?6CJ C2:=H2J6BF:A>6?E 2?55:>6?D:@?2==2C86=@25D ,96@>A2?JAC@G:56DF?:BF6C2:= and ores, construction materials, machinery, railway equipment, and dimensional (large) loads. The Company provides unique rail access2446DDE@32D6>6E2=D :C@?@C62?57C24D2?5>:?:?82DH6==2D2=F>:?F>2?5DE66=AC@5F4:?8C68:@?D H9:492C62>@?8E96>@DE:>A@CE2?E:? to base metals, iron ore and frac sand mining as well as aluminum and steel producing regions, which are among the most important in North&@CE9>6C:42 ,9:DDEC@?8@C:8:?7C2?49:D6 4@FA=65H:E9E96@>A2?JD2446DDE@A@CE724:=:E:6D2?5E966?5>2C<6ED7@CE96D64@>>@5:E:6D America. This strong origin franchise, coupled with the Company's access to port facilities and the end markets for these commodities, has92D>256&2=6256C:?E96EC2?DA@CE2E:@?@7>6E2=D2?5>:?6C2=DAC@5F4ED ,96<6J5C:G6CD7@CE9:D>2C<6ED68>6?E2C6@:=2?582D made CN a leader in the transportation of metals and minerals products. The key drivers for this market segment are oil and gas 56G6=@A>6?E 2FE@>@E:G6AC@5F4E:@? 2?5?@? C6D:56?E:2=4@?DECF4E:@? development, automotive production, and non-residential construction. For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J the year ended December 31, 2020, revenues for this commodity group decreased by $234>:==:@? @C million, or 14%, H96?4@>A2C65E@ when compared to 2019, mainly>2:?=J5F6E@C65F465D9:A>6?ED@77C24D2?52?5D6>: 7:?:D965DE66=AC@5F4ED5F6E@E96'.! A2?56>:4 due to reduced shipments of frac sand and semi-finished steel products due to the COVID-19 pandemic. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 1% :?in 2020 H96?4@>A2C65E@ when compared to 2019, >2:?=J5F6E@2564C62D6:?E962G6C286=6?8E9@792F= mainly due to a decrease in the average length of haul. Percentage!. !*0 #!+" +))+ of commodity %05#.+1,.!2!*1!/ group revenues 2020 2019 Metals%6E2=D 31 % 30 % Minerals%:?6C2=D 28 % 27 % Energy ?6C8J>2E6C:2=D materials 21 % 26 % Iron!C@?@C6 ore 20% 17% Forest ;>1?@<>;0A/@? products 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= 16 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis The,967@C6DEAC@5F4ED4@>>@5:EJ8C@FA:?4=F56DG2C:@FDEJA6D@7=F>36C A2?6=D A2A6C H@@5AF=A2?5@E96C7:36CDDF492D=@8D C64J4=65A2A6C forest products commodity group includes various types of lumber, panels, paper, wood pulp and other fibers such as logs, recycled paper, woodH@@549:AD 2?5H@@5A6==6ED ,96@>A2?J92D6IE6?D:G6C2:=2446DDE@E96H6DE6C?2?562DE6C?2?25:2?7:36C AC@5F4:?8C68:@?D H9:492C6 chips, and wood pellets. The Company has extensive rail access to the western and eastern Canadian fiber-producing regions, which are among2>@?8E96=2C86DE7:36CD@FC462C62D:?&@CE9>6C:42 !?E96- + E96@>A2?J:DDEC2E68:42==J=@42E65E@D6CG63@E9E96%:5H6DE2?5D@FE96C? the largest fiber source areas in North America. In the U.S., the Company is strategically located to serve both the Midwest and southern U.S.- + 4@CC:5@CDH:E9:?E6C=:?64@??64E:@?DE@@E96C=2DD corridors with interline connections to other Class I railroads.C2:=C@25D ,96<6J5C:G6CD7@CE96G2C:@FD4@>>@5:E:6D2C67@C=F>36C2?5A2?6=D The key drivers for the various commodities are: for lumber and panels, housing9@FD:?8DE2CED2?5C6?@G2E:@?24E:G:E:6DAC:>2C:=J:?E96- + 7@C7:36CD>2:?=JH@@5AF=A E964@?DF>AE:@?@7A2A6C AF=A3@2C52?5E:DDF6:? starts and renovation activities primarily in the U.S.; for fibers (mainly wood pulp), the consumption of paper, pulpboard and tissue in North&@CE9>6C:42?2?5@77D9@C6>2C<6ED2?57@C?6HDAC:?E 25G6CE:D:?8=:?6286 ?@? AC:?E>65:22?5@G6C2==64@?@>:44@?5:E:@?D AC:>2C:=J:?E96 American and offshore markets; and for newsprint, advertising lineage, non-print media and overall economic conditions, primarily in the U.S.- + For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J the year ended December 31, 2020, revenues for this commodity group decreased by $108 >:==:@? @C million, or 6%, H96?4@>A2C65E@ when compared to 2019, mainly>2:?=J5F6E@=@H6CG@=F>6D24C@DD23C@25C2?86@77@C6DEAC@5F4ED2?5=@H6C2AA=:423=67F6=DFC492C86C2E6D A2CE=J@77D6E3J7C6:89EC2E6 due to lower volumes across a broad range of forest products and lower applicable fuel surcharge rates, partly offset by freight rate increases.:?4C62D6D Revenue*6G6?F6A6C*,%C6>2:?657=2E:? per RTM remained flat in 2020 H96?4@>A2C65E@when compared to 2019. Percentage!. !*0 #!+" +))+ of commodity %05#.+1,.!2!*1!/ group revenues 2020 2019 Lumber$F>36C 39 % 38 % Pulp(F=A 30 % 30 % Paper(2A6C 17 % 18 % Panels(2?6=D 14 % 14 % Coal;-8 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= The,964@2=4@>>@5:EJ8C@FA4@?D:DED@7E96C>2=8C256D@73:EF>:?@FD4@2= >6E2==FC8:42=4@2=2?5A6EC@=6F>4@<6 2?25:2?E96C>2=2?5 coal commodity group consists of thermal grades of bituminous coal, metallurgical coal and petroleum coke. Canadian thermal and metallurgical>6E2==FC8:42=4@2=2C6=2C86=J6IA@CE65G:2E6C>:?2=D@?E96H6DE4@2DE@72?252E@@77D9@C6>2C<6ED !?E96- + E96C>2=4@2=:DEC2?DA@CE65 coal are largely exported via terminals on the west coast of Canada to offshore markets. In the U.S., thermal coal is transported 7C@>>:?6DD6CG65:?D@FE96C?!==:?@:D @C7C@>H6DE6C?- + >:?6DG:2:?E6C492?86H:E9@E96CC2:=C@25D E@>2;@CFE:=:E:6D:?E96%:5H6DE2?5from mines served in southern Illinois, or from western U.S. mines via interchange with other railroads, to major utilities in the Midwest and Southeast+@FE962DE- + 2DH6==2D@77D9@C6>2C<6EDG:2E6C>:?2=D@?E96- + F=7@2DE (6EC@=6F>4@<6 23J AC@5F4E@7E96@:=C67:?:?8AC@46DD :D U.S., as well as offshore markets via terminals on the U.S. Gulf Coast. Petroleum coke, a by-product of the oil refining process, is exported6IA@CE65E@@77D9@C6>2C<6EDG:2E6C>:?2=D@?E96H6DE4@2DE@72?2522?5E96- + F=7@2DE 2DH6==2DD9:AA65E@:?5FDEC:2=FD6CD:? to offshore markets via terminals on the west coast of Canada and the U.S. Gulf Coast, as well as shipped to industrial users in 5@>6DE:4>2C<6ED ,96<6J5C:G6CD7@CE9:D>2C<6ED68>6?E2C6H62E96C4@?5:E:@?D 6?G:C@?>6?E2=C68F=2E:@?D 8=@32=DFAA=J2?556>2?5domestic markets. The key drivers for this market segment are weather conditions, environmental regulations, global supply and demand conditions,4@?5:E:@?D 2?57@C- + 5@>6DE:44@2= E96AC:46@7?2EFC2=82D and for U.S. domestic coal, the price of natural gas. For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J the year ended December 31, 2020, revenues for this commodity group decreased by $131>:==:@? @C million, or 20%, H96?4@>A2C65E@ when compared to 2019, mainly>2:?=J5F6E@=@H6CG@=F>6D@7- + E96C>2=4@2=6IA@CEDG:2E96 F=7@2DE5F6E@4@>A6E:E:G6>2C<6EAC:4:?82DH6==2DC65F4655@>6DE:4 due to lower volumes of U.S. thermal coal exports via the Gulf Coast due to competitive market pricing as well as reduced domestic shipmentsD9:A>6?EDE@- + FE:=:E:6D2?52?25:2?>6E2==FC8:42=4@2=G:2H6DE4@2DEA@CED5F6E@E96'.! A2?56>:4A2CE=J@77D6E3J9:896C2?25:2? to U.S. utilities and Canadian metallurgical coal via west coast ports due to the COVID-19 pandemic; partly offset by higher Canadian thermalE96C>2=4@2=6IA@CEDG:2H6DE4@2DEA@CED coal exports via west coast ports. Revenue*6G6?F6A6C*,%564C62D653J per RTM decreased by 13%:? in 2020 H96?4@>A2C65E@when compared to 2019, >2:?=J5F6E@2?:?4C62D6:?E962G6C286=6?8E9@792F= mainly due to an increase in the average length of haul. Percentage!. !*0 #!+" +))+ of commodity %05#.+1,.!2!*1!/ group revenues 2020 2019 Canadian2?25:2?4@2= 6IA@CE coal - export 49 % 40 % Petroleum(6EC@=6F>4@<6 coke 25 % 22 % U.S.- + 4@2= 5@>6DE:4 coal - domestic 17 % 19 % U.S.- + 4@2= 6IA@CE coal - export 9% 19 % $ G ??F2=*6A@CE2020 Annual Report 17 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Grains >-5:?-:021>@585F1>? and fertilizers 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= The,968C2:?2?576CE:=:K6CD4@>>@5:EJ8C@FA56A6?5DAC:>2C:=J@?4C@AD8C@H?2?576CE:=:K6CDAC@46DD65:?/6DE6C?2?2522?5E96- + %:5H6DE grain and fertilizers commodity group depends primarily on crops grown and fertilizers processed in Western Canada and the U.S. Midwest. The,968C2:?D68>6?E4@?D:DED@7H962E @2ED 32C=6J 7=2ID665 CJ6 A62D =6?E:=D 4@C? 6E92?@= 5C:655:DE:==6CD8C2:? 42?@=2D6652?542?@=2 grain segment consists of wheat, oats, barley, flaxseed, rye, peas, lentils, corn, ethanol, dried distillers grain, canola seed and canola AC@5F4ED D@J362?D2?5D@J362?AC@5F4ED (C@5F4E:@?@78C2:?G2C:6D4@?D:56C23=J7C@>J62CE@J62C 27764E65AC:>2C:=J3JH62E96C4@?5:E:@?D products, soybeans and soybean products. Production of grain varies considerably from year to year, affected primarily by weather conditions, seededD665652?592CG6DE6524C6286 E96>:I@78C2:?DAC@5F4652?54C@AJ:6=5D C2:?6IA@CED2C6D6?D:E:G6E@E96D:K62?5BF2=:EJ@7E964C@A and harvested acreage, the mix of grains produced and crop yields. Grain exports are sensitive to the size and quality of the crop AC@5F465 :?E6C?2E:@?2=>2C<6E4@?5:E:@?D2?57@C6:8?8@G6C?>6?EA@=:4J ,96>2;@C:EJ@78C2:?AC@5F465:?/6DE6C?2?2522?5>@G653J&produced, international market conditions and foreign government policy. The majority of grain produced in Western Canada and moved by CN is:D6IA@CE65G:2E96A@CED@7.2?4@FG6C (C:?46*FA6CE2?5,9F?56C2J ,96D6C2:=>@G6>6?ED2C6DF3;64EE@8@G6C?>6?EC68F=2E:@?E92E exported via the ports of Vancouver, Prince Rupert and Thunder Bay. These rail movements are subject to government regulation that establishes6DE23=:D96D2>2I:>F>C6G6?F66?E:E=6>6?EE92EC2:=H2JD42?62C? =E9@F89C2:=H2J4@>A2?:6D2C67C66E@D6E7C6:89EC2E6D7@CH6DE6C?8C2:? a maximum revenue entitlement that railways can earn. Although railway companies are free to set freight rates for western grain shipments,D9:A>6?ED E@E2=C6G6?F6:D=:>:E6532D65@?27@C>F=2E92EE2<6D:?E@244@F?EE@??286 =6?8E9@792F= 2?52DA64:7:65AC:46:?56I +9:A>6?ED@7 total revenue is limited based on a formula that takes into account tonnage, length of haul, and a specified price index. Shipments of grain8C2:?E92E2C66IA@CE65E@E96- + 2C6?@EC68F=2E65 C2:?8C@H?:?E96- + %:5H6DE:D6IA@CE652DH6==2DEC2?DA@CE65E@5@>6DE:4AC@46DD:?8 that are exported to the U.S. are not regulated. Grain grown in the U.S. Midwest is exported as well as transported to domestic processing 724:=:E:6D2?57665>2C<6ED ,96@>A2?J2=D@D6CG6D>2;@CAC@5F46CD@7A@E2D9:?2?252 2DH6==2DAC@5F46CD@72>>@?:F>?:EC2E6 FC62facilities and feed markets. The Company also serves major producers of potash in Canada, as well as producers of ammonium nitrate, urea and2?5@E96C76CE:=:K6CD24C@DD2?2522?5E96- + ,96<6J5C:G6CD7@C76CE:=:K6CD2C6:?AFEAC:46D 56>2?5 8@G6C?>6?EA@=:4:6D 2?5:?E6C?2E:@?2= other fertilizers across Canada and the U.S. The key drivers for fertilizers are input prices, demand, government policies, and international competition.4@>A6E:E:@? For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA:?4C62D653J the year ended December 31, 2020, revenues for this commodity group increased by $217>:==:@? @C million, or 9%, H96?4@>A2C65E@ when compared to 2019, mainly>2:?=J5F6E@C64@C52?25:2?8C2:?G@=F>6D2?57C6:89EC2E6:?4C62D6D A2CE=J@77D6E3J=@H6C2AA=:423=67F6=DFC492C86C2E6D due to record Canadian grain volumes and freight rate increases, partly offset by lower applicable fuel surcharge rates. Revenue*6G6?F6A6C*,%564C62D653J per RTM decreased by 2%:? in 2020 H96?4@>A2C65E@when compared to 2019, >2:?=J5F6E@2?:?4C62D6:?E962G6C286=6?8E9@792F=2?5=@H6C mainly due to an increase in the average length of haul and lower applicable2AA=:423=67F6=DFC492C86C2E6DA2CE=J@77D6E3J7C6:89EC2E6:?4C62D6D fuel surcharge rates; partly offset by freight rate increases. Percentage!. !*0 #!+" +))+ of commodity %05#.+1,.!2!*1!/ group revenues 2020 2019 Canadian2?25:2?8C2:? C68F=2E65 grain - regulated 47 % 42 % U.S.- + 8C2:? 5@>6DE:4 grain - domestic 18 % 19 % Canadian2?25:2?8C2:? 4@>>6C4:2= grain - commercial 11 % 13 % Fertilizers 6CE:=:K6CD A@E2D9 - potash 10 % 10 % Fertilizers 6CE:=:K6CD @E96C - other 9% 10 % U.S.- + 8C2:? 6IA@CED grain - exports 5% 6% Intermodal :@1>9;0-8 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= The,96:?E6C>@52=4@>>@5:EJ8C@FA:?4=F56DC2:=2?5ECF4<:?8D6CG:46D2?5:D4@>AC:D65@7EH@>2C<6ED5@>6DE:4:?E6C>@52=2?5:?E6C?2E:@?2= intermodal commodity group includes rail and trucking services and is comprised of two markets: domestic intermodal and international intermodal.:?E6C>@52= @>6DE:4:?E6C>@52=EC2?DA@CED4@?DF>6CAC@5F4ED2?5>2?F724EFC658@@5D D6CG:?8C6E2:= H9@=6D2=62?5=@8:DE:4DAC@G:56C Domestic intermodal transports consumer products and manufactured goods, serving retail, wholesale and logistics provider channels,492??6=D H:E9:?5@>6DE:42?252 5@>6DE:4- + %6I:4@2?5EC2?D3@C56C H9:=6:?E6C?2E:@?2=:?E6C>@52=92?5=6D:>A@CE2?56IA@CE4@?E2:?6C within domestic Canada, domestic U.S., Mexico and transborder, while international intermodal handles import and export container traffic,EC277:4 D6CG:?8E96>2;@CA@CED@7.2?4@FG6C (C:?46*FA6CE %@?EC62= serving the major ports of Vancouver, Prince Rupert, Montreal, Halifax, 2=:72I &6H'C=62?D2?5%@3:=6 &D?6EH@C<@7:?=2?5:?E6C>@52= New Orleans and Mobile. CN's network of inland intermodal terminals,E6C>:?2=D =@42E65?62CA@CED2?5=2C86FC32?46?E6CD 4@??64ED4FDE@>6CDE@>2;@C>2C<6ED:?&@CE9>6C:422?5@G6CD62D @>6DE:4 located near ports and large urban centers, connects customers to major markets in North America and overseas. Domestic intermodal:?E6C>@52=:D5C:G6?3J4@?DF>6C>2C<6ED H:E98C@HE986?6C2==JE:65E@E9664@?@>J !?E6C?2E:@?2=:?E6C>@52=:D5C:G6?3J&@CE9>6C:42? is driven by consumer markets, with growth generally tied to the economy. International intermodal is driven by North American economic64@?@>:42?5EC2564@?5:E:@?D2DH6==2D8=@32=EC256A2EE6C?D *6G6?F6D7@C,C2?D02?5 and trade conditions as well as global trade patterns. Revenues for TransX and H&R *2C6:?4=F565:?E9:D4@>>@5:EJ8C@FAH:E9:?E96 are included in this commodity group within the 5@>6DE:4>2C<6E domestic market. 18 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J the year ended December 31, 2020, revenues for this commodity group decreased by $36>:==:@? @C million, or 1%, H96?4@>A2C65E@ when compared to 2019, mainly>2:?=J5F6E@=@H6C2AA=:423=67F6=DFC492C86C2E6D2?5=@H6C:?E6C?2E:@?2=4@?E2:?6CG@=F>6DG:2E96A@CED@7(C:?46*FA6CE2?5%@?EC62= 2D due to lower applicable fuel surcharge rates and lower international container volumes via the ports of Prince Rupert and Montreal, as wellH6==2DC65F465D9:A>6?ED7@C5@>6DE:4=@8:DE:4AC@G:56CDA2CE=J@77D6E3J9:896C:?E6C?2E:@?2=4@?E2:?6CEC277:4G:2E96(@CED@7.2?4@FG6C2?5 as reduced shipments for domestic logistic providers; partly offset by higher international container traffic via the Ports of Vancouver and New&6H'C=62?D 2DH6==2D:?4C62D655@>6DE:4C6E2:=D9:A>6?ED Orleans, as well as increased domestic retail shipments. Revenue*6G6?F6A6C*,%564C62D653J per RTM decreased by 2%:? in 2020 H96?4@>A2C65E@when compared to 2019, >2:?=J5F6E@=@H6C2AA=:423=67F6=DFC492C86C2E6D mainly due to lower applicable fuel surcharge rates. Percentage!. !*0 #!+" +))+ of commodity %05#.+1,.!2!*1!/ group revenues 2020 2019 International!?E6C?2E:@?2= 67 % 68 % Domestic @>6DE:4 33 % 32 % AutomotiveA@;9;@5B1 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= The,962FE@>@E:G64@>>@5:EJ8C@FA>@G6D3@E95@>6DE:47:?:D965G69:4=6D2?5A2CEDE9C@F89@FE&@CE9>6C:42 AC@G:5:?8D6CG:46E@46CE2:? automotive commodity group moves both domestic finished vehicles and parts throughout North America, providing service to certain vehicleG69:4=62DD6>3=JA=2?ED:?'?E2C:@ %:49:82?2?5%:DD:DD:AA: ,96@>A2?J2=D@D6CG6DG69:4=65:DEC:3FE:@?724:=:E:6D:?2?2522?5E96- + 2D assembly plants in Ontario, Michigan and Mississippi. The Company also serves vehicle distribution facilities in Canada and the U.S., as wellH6==2DA2CEDAC@5F4E:@?724:=:E:6D:?%:49:82?2?5'?E2C:@ ,96@>A2?JD6CG6DD9:AA6CD@77:?:D965G69:4=6:>A@CEDG:2E96A@CED@7 as parts production facilities in Michigan and Ontario. The Company serves shippers of finished vehicle imports via the ports of Halifax 2=:72I2?5 and Vancouver,.2?4@FG6C 2?5E9C@F89:?E6C492?86H:E9@E96CC2:=C@25D &D3C@25?6EH@C<@72FE@4@>A@F?5D:DFD65E@724:=:E2E65:DEC:3FE:@?@7G69:4=6D and through interchange with other railroads. CN's broad network of auto compounds is used to facilitate distribution of vehicles throughoutE9C@F89@FE2?2522?5E96- + %:5H6DE ,96AC:>2CJ5C:G6CD7@CE9:D>2C<6E2C62FE@>@E:G6AC@5F4E:@?2?5D2=6D:?&@CE9>6C:42 H9:492C6 Canada and the U.S. Midwest. The primary drivers for this market are automotive production and sales in North America, which are 5C:G6?3JE962G6C286286@7G69:4=6D:?&@CE9>6C:422?5E96AC:46@77F6= driven by the average age of vehicles in North America and the price of fuel. For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J the year ended December 31, 2020, revenues for this commodity group decreased by $267>:==:@? @C million, or 31%, H96?4@>A2C65E@ when compared to 2019, mainly>2:?=J5F6E@=@H6CG@=F>6D@77:?:D965G69:4=6D5F6E@E96'.! A2?56>:4 :?4=F5:?8E96E6>A@C2CJD9FE5@H?@72DD6>3=JA=2?ED2?5 due to lower volumes of finished vehicles due to the COVID-19 pandemic, including the temporary shutdown of assembly plants and productionAC@5F4E:@?36EH66?AC:=2?5"F?6 2DH6==2D=@H6C2AA=:423=67F6=DFC492C86C2E6D between April and June, as well as lower applicable fuel surcharge rates. Revenue*6G6?F6A6C*,%564C62D653J per RTM decreased by 1%:? in 2020 H96?4@>A2C65E@when compared to 2019, >2:?=J5F6E@=@H6C2AA=:423=67F6=DFC492C86C2E6D mainly due to lower applicable fuel surcharge rates. Percentage!. !*0 #!+" +))+ of commodity %05#.+1,.!2!*1!/ group revenues 2020 2019 Finished :?:D965G69:4=6D vehicles 92 % 93 % AutoFE@A2CED parts 8% 7% Other%@41>>1B1:A1? revenues 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2020 2019 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= 'E96CC6G6?F6D2C656C:G657C@>?@? C2:==@8:DE:4DD6CG:46DE92EDFAA@CEE96@>A2?JDC2:=3FD:?6DD:?4=F5:?8G6DD6=D2?55@4 Percentage!. !*0 #!+"+0$!..!2!*1!/ of other revenues 2020 2019 Vessels.6DD6=D2?55@4 $ G ??F2=*6A@CE2020 Annual Report 19 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Operating%<1>-@5:31D<1:?1? expenses 'A6C2E:?86IA6?D6D7@CE96J62C6?565 646>36C 2>@F?E65E@Operating expenses for the year ended December 31, 2020, amounted to $9,042 >:==:@?4@>A2C65E@ million compared to $9,324 >:==:@?:? million in 2019. ,96564C62D6@7 The decrease of $282>:==:@? @C million, or 3%, H2D>2:?=J5F6E@=@H6C7F6=2?5=23@C4@DED2?5564C62D65AFC492D65D6CG:46D2?5>2E6C:2=6IA6?D6A2CE=J@77D6E3J2 was mainly due to lower fuel and labor costs and decreased purchased services and material expense; partly offset by a loss=@DD@?2DD6ED96=57@CD2=6 C6DF=E:?87C@>E96@>A2?JD564:D:@?E@>2C<6E7@CD2=67@C@? 8@:?8C2:=@A6C2E:@?D 46CE2:??@? 4@C6=:?6D on assets held for sale, resulting from the Company's decision to market for sale for on-going rail operations, certain non-core lines. 92?86% Change at2E4@?DE2?E constant In!<;7::7=2E6C:2= services and material 2,152 2,267 5% 5% Fuel F6= 1,152 1,637 30% 30% Depreciation 6AC64:2E:@?2?52>@CE:K2E:@? and amortization 1,589 1,562 (2%) (1%) Equipment BF:A>6?EC6?ED rents 432 444 3% 4% Casualty2DF2=EJ2?5@E96C and other 508 492 (3%) (2%) Loss$@DD@?2DD6ED96=57@CD2=6 on assets held for sale 486 N— N/A& N/A& )=B/:=>3@/B7<53F>3 Labor"-.;>-:02>5:31.1:125@? and fringe benefits Labor$23@C2?57C:?8636?67:ED6IA6?D6:?4=F56DH286D A2JC@==E2I6D2?56>A=@J6636?67:EDDF492D:?46?E:G64@>A6?D2E:@? :?4=F5:?8DE@4< 32D65 and fringe benefits expense includes wages, payroll taxes and employee benefits such as incentive compensation, including stock-based compensation,4@>A6?D2E:@? 962=E92?5H6=72C6 4FCC6?ED6CG:464@DE7@CA6?D:@?D2?5A@DEC6E:C6>6?E36?67:ED 6CE2:?:?46?E:G62?5DE@4< 32D65 health and welfare, current service cost for pensions and postretirement benefits. Certain incentive and stock-based compensation4@>A6?D2E:@?A=2?D2C632D65@?7:?2?4:2=A6C7@C>2?46E2C86ED2?5E96C6=2E656IA6?D6:DC64@C565:?C6=2E:@?E@E962EE2:?>6?E@7DF49 plans are based on financial performance targets and the related expense is recorded in relation to the attainment of such targets.E2C86ED Labor$23@C2?57C:?8636?67:ED6IA6?D6564C62D653J and fringe benefits expense decreased by $199 >:==:@? @Cmillion, or 7%, :? in 2020 H96?4@>A2C65E@ when compared to 2019. ,96564C62D6H2DAC:>2C:=J5F6E@ The decrease was primarily due to lower=@H6C2G6C28696254@F?E2?5E96:>A24E@7E96 6>A=@J66E6C>:?2E:@?36?67:ED2?5D6G6C2?464@DEDC6=2E65E@2H@C<7@C46C65F4E:@? average headcount and the impact of the 2019 employee termination benefits and severance costs related to a workforce reduction AC@8C2>A2CE=J@77D6E3J86?6C2=H286:?4C62D6D 9:896C:?46?E:G64@>A6?D2E:@? 2?59:896CA6?D:@?6IA6?D6 program; partly offset by general wage increases, higher incentive compensation, and higher pension expense. Purchased&A>/4-?10?1>B5/1?-:09-@1>5-8 services and material Purchased(FC492D65D6CG:46D2?5>2E6C:2=6IA6?D6:?4=F56DE964@DE@7D6CG:46DAFC492D657C@>@FED:564@?EC24E@CD>2E6C:2=DFD65:?E96>2:?E6?2?46 services and material expense includes the cost of services purchased from outside contractors; materials used in the maintenance of@7E96@>A2?JDEC24< 724:=:E:6D2?56BF:A>6?EEC2?DA@CE2E:@?2?5=@58:?87@CEC2:?4C6H6>A=@J66DFE:=:EJ4@DED2?5E96?6E4@DED@7 the Company's track, facilities and equipment; transportation and lodging for train crew employees; utility costs; and the net costs of operating@A6C2E:?8724:=:E:6D;@:?E=JFD653JE96@>A2?J2?5@E96CC2:=C@25D facilities jointly used by the Company and other railroads. Purchased(FC492D65D6CG:46D2?5>2E6C:2=6IA6?D6564C62D653J services and material expense decreased by $115>:==:@? @C million, or 5%, :? in 2020 H96?4@>A2C65E@when compared to 2019. ,96564C62D6H2D>2:?=J The decrease was mainly due5F6E@=@H6C4@DED7@CD6CG:46DAFC492D657C@>@FED:564@?EC24E@CD2?5=@H6C>2E6C:2=4@DED 5C:G6?3J=@H6CG@=F>6D to lower costs for services purchased from outside contractors and lower material costs, driven by lower volumes. Fuel A18 Fuel F6=6IA6?D6:?4=F56D7F6=4@?DF>653J2DD6ED :?4=F5:?8=@4@>@E:G6D G6DD6=D G69:4=6D2?5@E96C6BF:A>6?E2DH6==2D7656C2= AC@G:?4:2=2?5 expense includes fuel consumed by assets, including locomotives, vessels, vehicles and other equipment as well as federal, provincial and stateDE2E67F6=E2I6D fuel taxes. Fuel F6=6IA6?D6564C62D653J expense decreased by $485>:==:@? @C million, or 30%, :? in 2020 H96?4@>A2C65E@when compared to 2019. ,96564C62D6H2DAC:>2C:=J5F6E@E9672G@C23=6:>A24E The decrease was primarily due to the favorable impact of@7=@H6C7F6=AC:46D =@H6CG@=F>6D5F6E@564C62D65H@C<=@25 2D>62DFC653J ,%D 2DH6==2D7F6=677:4:6?4J82:?D 249:6G:?82?6HC64@C5 lower fuel prices, lower volumes due to decreased workload, as measured by GTMs, as well as fuel efficiency gains, achieving a new record 7F6=677:4:6?4J fuel efficiency. Depreciation1<>1/5-@5;:-:0-9;>@5F-@5;: and amortization Depreciation 6AC64:2E:@?2?52>@CE:K2E:@?6IA6?D6:?4=F56DE964@DED2DD@4:2E65H:E9E96FD6@7AC@A6CE:6D2?5:?E2?8:3=62DD6ED@G6CE96:C6DE:>2E65 and amortization expense includes the costs associated with the use of properties and intangible assets over their estimated serviceD6CG:46=:G6D 6AC64:2E:@?6IA6?D6:D27764E653J42A:E2=255:E:@?D C2:=C@25AC@A6CEJC6E:C6>6?ED7C@>5:DA@D2= D2=62?5 @C232?5@?>6?E2?5 lives. Depreciation expense is affected by capital additions, railroad property retirements from disposal, sale and/or abandonment and other@E96C25;FDE>6?ED:?4=F5:?82DD6E:>A2:C>6?ED adjustments including asset impairments. Depreciation 6AC64:2E:@?2?52>@CE:K2E:@?6IA6?D6:?4C62D653J and amortization expense increased by $27>:==:@? @C million, or 2%, :? in 2020 H96?4@>A2C65E@when compared to 2019. ,96:?4C62D6H2D>2:?=J5F6E@2 The increase was mainly due to a higher9:896C56AC64:23=62DD6E32D6C6DF=E:?87C@>:?4C62D6542A:E2=6IA6?5:EFC6D:?C646?EJ62CD A2CE=J@77D6E3JE96:>A24E@7E96 6IA6?D6@7 depreciable asset base resulting from increased capital expenditures in recent years, partly offset by the impact of the 2019 expense of $84>:==:@?C6=2E65E@4@DEDAC6G:@FD=J42A:E2=:K657@C2(,324<@77:46DJDE6>7@==@H:?8E9656A=@J>6?E@72C6A=246>6?EDJDE6> million related to costs previously capitalized for a PTC back office system following the deployment of a replacement system. 20 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Equipment=A5<91:@>1:@? rents Equipment BF:A>6?EC6?ED6IA6?D6:?4=F56DC6?E2=6IA6?D67@CE96FD6@77C6:89E42CD@H?653J@E96CC2:=C@25D42C9:C6@CAC:G2E64@>A2?:6D2?57@CE96 rents expense includes rental expense for the use of freight cars owned by other railroads (car hire) or private companies and for the lease=62D6@77C6:89E42CD =@4@>@E:G6D2?5:?E6C>@52=6BF:A>6?E ?6E@7C6?E2=:?4@>67C@>@E96CC2:=C@25D7@CE96FD6@7E96@>A2?JD7C6:89E42CD of freight cars, locomotives and intermodal equipment, net of rental income from other railroads for the use of the Company's freight cars (car42C9:C62?5=@4@>@E:G6D hire) and locomotives. Equipment BF:A>6?EC6?ED6IA6?D6564C62D653J rents expense decreased by $12>:==:@? @C million, or 3%, :? in 2020 H96?4@>A2C65E@ when compared to 2019. ,96564C62D6H2DAC:>2C:=J5F6E@=@H6CC2:= The decrease was primarily due to lower rail car42C=62D64@DED5C:G6?3J=@H6CG@=F>6D 2DH6==2D=@H6C42C9:C66IA6?D6A2CE=J@77D6E3J9:896C=@4@>@E:G69@CD6A@H6C 9@FC6IA6?D6 lease costs driven by lower volumes, as well as lower car hire expense; partly offset by higher locomotive horsepower-hour expense. Casualty-?A-8@E-:0;@41> and other 2DF2=EJ2?5@E96C6IA6?D6:?4=F56D6IA6?D6D7@CA6CD@?2=:?;FC:6D 6?G:C@?>6?E2= 7C6:89E2?5AC@A6CEJ52>286 :?DFC2?46 325563E @A6C2E:?8Casualty and other expense includes expenses for personal injuries, environmental, freight and property damage, insurance, bad debt, operating taxes,E2I6D 2?5EC2G6=6IA6?D6D and travel expenses. 2DF2=EJ2?5@E96C6IA6?D6:?4C62D653JCasualty and other expense increased by $16>:==:@? @C million, or 3%, :? in 2020 H96?4@>A2C65E@ when compared to 2019. ,96:?4C62D6H2D>2:?=J5F6E@=@H6C The increase was mainly due to lower recoveriesC64@G6C:6D@74@DED7C@>A2DD6?86CEC2:?DFD:?8&DDJDE6>2?59:896CAC@A6CEJE2I6D A2CE=J@77D6E3J=@H6CEC2G6=6IA6?D6D2?5=682= of costs from passenger trains using CN's system and higher property taxes, partly offset by lower travel expenses and legal provisions.AC@G:D:@?D Loss";??;:-??1@?41802;>?-81 on assets held for sale In!?E96D64@?5BF2CE6C@7 E96@>A2?JC64@C5652=@DD@7>:==:@?@?2DD6ED96=57@CD2=6 C6DF=E:?87C@>E96@>A2?JD564:D:@?E@ the second quarter of 2020, the Company recorded a loss of $486 million on assets held for sale, resulting from the Company's decision to market>2C<6E7@CD2=67@C@? 8@:?8C2:=@A6C2E:@?D 46CE2:??@? 4@C6=:?6D:?/:D4@?D:? %:49:82?2?5'?E2C:@ +66 for sale for on-going rail operations, certain non-core lines in Wisconsin, Michigan and Ontario. See Note$=B3 AA3BA63:24=@A/:3 5 - Assets held for sale toE@E96 the @>A2?JDCompany's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED7@C:?7@C>2E:@?@?E96G2=F2E:@?@72DD6ED96=57@CD2=6 Annual Consolidated Financial Statements for information on the valuation of assets held for sale. Other%@41>5:/;91-:01D<1:?1? income and expense Interest :@1>1?@1D<1:?1 expense In!? 2020, !?E6C6DE6IA6?D6H2D Interest expense was $554 million>:==:@?4@>A2C65E@ compared to $538 >:==:@?:?million in 2019. ,96:?4C62D6H2D>2:?=J5F6E@29:896C2G6C286=6G6=@7563E The increase was mainly due to a higher average level of debt A2CE=J@77D6E3J2=@H6CH6:89E65 2G6C286:?E6C6DEC2E6 partly offset by a lower weighted-average interest rate. Other%@41>/;9<;:1:@?;2:1@<1>5;05/.1:125@5:/;91 components of net periodic benefit income In!? 2020, 'E96C4@>A@?6?ED@7?6EA6C:@5:436?67:E:?4@>6H2D Other components of net periodic benefit income was $315>:==:@?4@>A2C65E@ million compared to $321>:==:@?:? million in 2019. ,96564C62D6H2D>2:?=J5F6E@ The decrease was mainly due to higher9:896C2>@CE:K2E:@?@7?6E24EF2C:2==@DD A2CE=J@77D6E3J=@H6C:?E6C6DE4@DE amortization of net actuarial loss, partly offset by lower interest cost. Other%@41>5:/;91 income In!? 2020, 'E96C:?4@>6H2D>:==:@?4@>A2C65E@ Other income was $6 million compared to $53>:==:@?:? million in 2019, AC:>2C:=J5F6E@=@H6C82:?D@?D2=6@7=2?5 primarily due to lower gains on sale of land. Income :/;91@-D1D<1:?1 tax expense The,966?24E>6?E@7E96,2IFED2?5"@3D4E- + ,2I*67@C>:? 3C@F89E23@FED:8?:7:42?EE2I=2H492?86D H9:49:?4=F5652C65F4E:@? enactment of the Tax Cuts and Jobs Act ("U.S. Tax Reform") in 2017 brought about significant tax law changes, which included a reduction toE@E96- + 7656C2=4@CA@C2E6:?4@>6E2IC2E67C@>E@2?52==@H65E96:>>65:2E642A:E2=6IA6?D:?8@7?6H:?G6DE>6?ED:?46CE2:? the U.S. federal corporate income tax rate from 35% to 21% and allowed the immediate capital expensing of new investments in certain qualifiedBF2=:7:6556AC64:23=62DD6EDH9:49H:==36A92D655@H?DE2CE:? depreciable assets which will be phased down starting8:? in 2023. ,96- + ,2I*67@C>2=D@:?EC@5F465E964C62E:@?@722D6 C@D:@? The U.S. Tax Reform also introduced the creation of a Base Erosion Anti?E: 23FD6,2I ,E92EDF3;64ED46CE2:?A2J>6?ED7C@>- + 4@CA@C2E:@?DE@7@C6:8?C6=2E65A2CE:6DE@255:E:@?2=E2I6D 2?5=:>:E2E:@?DE@-abuse Tax (BEAT) that subjects certain payments from U.S. corporations to foreign related parties to additional taxes, and limitations to theE96565F4E:@?7@C?6E:?E6C6DE6IA6?D6:?4FCC653J- + 4@CA@C2E:@?D +:?46E966?24E>6?E@7E96- + ,2I*67@C>D - + 2FE9@C:E:6D92G6:DDF65 deduction for net interest expense incurred by U.S. corporations. Since the enactment of the U.S. Tax Reforms, U.S. authorities have issued variousG2C:@FDAC@A@D652?57:?2=:K65C68F=2E:@?D2?58F:52?46:?E6CAC6E:?8:EDAC@G:D:@?D ,96D6:?E6CAC6E2E:@?D92G6366?E2<6?:?E@244@F?E:? proposed and finalized regulations and guidance interpreting its provisions. These interpretations have been taken into account in calculating42=4F=2E:?8E96@>A2?JD4FCC6?EJ62C:?4@>6E2IAC@G:D:@?2?5E2IA2J>6?ED ,96- + ,2I*67@C>2?5E96D6C68F=2E:@?D2C62=D@6IA64E65E@ the Company's current year income tax provision and tax payments. The U.S. Tax Reform and these regulations are also expected to impact:>A24EE96@>A2?JD:?4@>6E2IAC@G:D:@?D2?5E2IA2J>6?ED:?7FEFC6J62CD the Company's income tax provisions and tax payments in future years. '?%2C49 E96- + 8@G6C?>6?E6?24E65E96* +4E H9:49:?4=F5654@CA@C2E6:?4@>6E2I>62DFC6D2==@HOn March 27, 2020, the U.S. government enacted the CARES Act, which included corporate income tax measures allowing:?8 U.S.- + 7656C2=?6E federal net operating@A6C2E:?8=@DD6D&'$D2C:D:?8:?E2IJ62CD 2?5 E@367F==J42CC:65324<E@6249@7E967:G6E2IJ62CDAC6465:?8E96E2IJ62C@7 losses (NOLs) arising in tax years 2018, 2019, and 2020 to be fully carried back to each of the five tax years preceding the tax year of theE96&'$ NOL. In!? 2020, E96@>A2?JC64@C5652?:?4@>6E2I6IA6?D6@7 the Company recorded an income tax expense of $982>:==:@?4@>A2C65E@2?:?4@>6E2I6IA6?D6@7 million compared to an income tax expense of $1,213 >:==:@?:?million in 2019. Included!?4=F565:?E96 in the 2020 7:8FC6H2D24FCC6?E:?4@>6E2IC64@G6CJ@7figure was a current income tax recovery of $141>:==:@?C64@C565:?E967:CDEBF2CE6C C6DF=E:?87C@>E966?24E>6?E@7E96 million recorded in the first quarter, resulting from the enactment of the * +4EE96@>A2?JC64=2DD:7:65:ED 5676CC65:?4@>6E2I2DD6E@7>:==:@?@?E96&'$E92E2C@D6:? E@24FCC6?E:?4@>6E2ICARES Act; the Company reclassified its 2019 deferred income tax asset of $213 million on the NOL that arose in 2019, to a current income tax receivableC646:G23=62?5C64@C56524FCC6?E:?4@>6E2IC64@G6CJ@7>:==:@?E@C67=64E2?2>@F?EC64@G6C23=62EE969:896C- + 7656C2=4@CA@C2E6 and recorded a current income tax recovery of $141 million to reflect an amount recoverable at the higher U.S. federal corporate income:?4@>6E2IC2E6@72AA=:423=6E@AC6 E2IJ62CD !?4=F565:?E96 tax rate of 35% applicable to pre-2018 tax years. Included in the 2019 7:8FC6H2D25676CC65:?4@>6E2IC64@G6CJ@7figure was a deferred income tax recovery of $112>:==:@? million recordedC64@C565:?E96D64@?5BF2CE6C C6DF=E:?87C@>E966?24E>6?E@72=@H6CAC@G:?4:2=4@CA@C2E6:?4@>6E2IC2E6 in the second quarter, resulting from the enactment of a lower provincial corporate income tax rate. The,9667764E:G6E2IC2E67@C effective tax rate for 2020 H2D was 21.6% 4@>A2C65E@compared to 22.3%:? in 2019. I4=F5:?8E9627@C6>6?E:@?65:?4@>6E2IC64@G6C:6D E9667764E:G6 Excluding the aforementioned income tax recoveries, the effective taxE2IC2E67@C rate for 2020 H2Dwas 24.7% 4@>A2C65E@ compared to 24.4% :? in 2019. For @C 2021, E96@>A2?J2?E:4:A2E6DE966DE:>2E652??F2=67764E:G6E2IC2E6E@362AAC@I:>2E6=J the Company anticipates the estimated annual effective tax rate to be approximately 25.0%. $ G ??F2=*6A@CE2020 Annual Report 21 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis 2019 /;9<->10@; compared to 2018 Net&6E:?4@>67@CE96J62C6?565 646>36C H2D income for the year ended December 31, 2019 was $4,216 >:==:@? 2564C62D6@7 million, a decrease of $112>:==:@? @C H96?4@>A2C65E@ million, or 3%, when compared to 2018, 2?55:=FE65 and diluted earnings62C?:?8DA6CD92C6564C62D653JE@ per share decreased by 1% to $5.83. 'A6C2E:?8:?4@>67@CE96J62C6?565 646>36C :?4C62D653JOperating income for the year ended December 31, 2019 increased by $100 >:==:@? @C E@ million, or 2%, to $5,593 >:==:@? ,96:?4C62D6>2:?=JC67=64EDmillion. The increase mainly reflects increased:?4C62D65A6EC@=6F>2?54CF562?5:?E6C>@52=C6G6?F6DA2CE=J@77D6E3J9:896CAFC492D65D6CG:46D2?5>2E6C:2=6IA6?D6 2DH6==2D9:896C petroleum and crude and intermodal revenues; partly offset by higher purchased services and material expense, as well as higher 56AC64:2E:@?2?52>@CE:K2E:@?6IA6?D6 ,96@A6C2E:?8C2E:@H2Ddepreciation and amortization expense. The operating ratio was 62.5%:? in 2019, 4@>A2C65E@ compared to 61.6%:? in 2018. Revenues*6G6?F6D7@CE96J62C6?565 646>36C H6C6 for the year ended December 31, 2019 were $14,917 >:==:@?4@>A2C65E@ million compared to $14,321 >:==:@?:? million in 2018. ,96:?4C62D6@7 The increase of $596>:==:@? million, or@C H2D>2:?=J2EEC:3FE23=6E@7C6:89EC2E6:?4C62D6D E96:?4=FD:@?@7,C2?D0:?E96:?E6C>@52=4@>>@5:EJ8C@FAH:E9:?E965@>6DE:4>2C<6E 4%, was mainly attributable to freight rate increases, the inclusion of TransX in the intermodal commodity group within the domestic market, theE96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C2?59:896CG@=F>6D@7A6EC@=6F>4CF56 ?2EFC2=82D=:BF:5D2?5C67:?65A6EC@=6F> positive translation impact of a weaker Canadian dollar and higher volumes of petroleum crude, natural gas liquids and refined petroleum productsAC@5F4ED:?E967:CDE?:?6>@?E9D ,96D6724E@CDH6C6A2CE=J@77D6E3J=@H6CG@=F>6D@723C@25C2?86@77@C6DEAC@5F4ED C65F465- + E96C>2= in the first nine months. These factors were partly offset by lower volumes of a broad range of forest products, reduced U.S. thermal coal4@2=6IA@CEDG:2E96 F=7@2DE2?5=@H6CD9:A>6?ED@77C24D2?5 exports via the Gulf Coast and lower shipments of frac sand. 'A6C2E:?86IA6?D6D7@CE96J62C6?565 646>36C H6C6Operating expenses for the year ended December 31, 2019 were $9,324 >:==:@?4@>A2C65E@ million compared to $8,828 >:==:@?:? million in 2018. ,96:?4C62D6@7 The increase of $496 million,>:==:@? @C H2D>2:?=J5F6E@:?4C62D65AFC492D65D6CG:46D2?5>2E6C:2=6IA6?D6 5F6E@E96:?4=FD:@?@7,C2?D0 9:896C56AC64:2E:@? or 6%, was mainly due to increased purchased services and material expense, due to the inclusion of TransX, higher depreciation expense6IA6?D62?5E96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2CA2CE=J@77D6E3J=@H6C7F6=AC:46D and the negative translation impact of a weaker Canadian dollar; partly offset by lower fuel prices. Constant;:?@-:@/A>>1:/E currency Financial :?2?4:2=C6DF=ED2E4@?DE2?E4FCC6?4J2==@HC6DF=EDE@36G:6H65H:E9@FEE96:>A24E@77=F4EF2E:@?D:?7@C6:8?4FCC6?4J6I492?86C2E6D E96C63J results at constant currency allow results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby 724:=:E2E:?8A6C:@5 E@ A6C:@54@>A2C:D@?D:?E962?2=JD:D@7EC6?5D:?3FD:?6DDA6C7@C>2?46 %62DFC6D2E4@?DE2?E4FCC6?4J2C64@?D:56C65?@? facilitating period-to-period comparisons in the analysis of trends in business performance. Measures at constant currency are considered non- (>62DFC6D2?55@?@E92G62?JDE2?52C5:K65>62?:?8AC6D4C:3653J (2?5E96C67@C6 >2J?@E364@>A2C23=6E@D:>:=2C>62DFC6DGAAP measures and do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presentedAC6D6?E653J@E96C4@>A2?:6D :?2?4:2=C6DF=ED2E4@?DE2?E4FCC6?4J2C6@3E2:?653JEC2?D=2E:?8E964FCC6?EA6C:@5C6DF=ED56?@>:?2E65:?-+ by other companies. Financial results at constant currency are obtained by translating the current period results denominated in US dollars5@==2CD2EE967@C6:8?6I492?86C2E6D@7E964@>A2C23=6A6C:@5@7E96AC:@CJ62C ,962G6C2867@C6:8?6I492?86C2E6DH6C6 at the foreign exchange rates of the comparable period of the prior year. The average foreign exchange rates were $1.33 2?5and $1.30 A6Cper US$1.00,-+ 7@CE96J62CD6?565 646>36C 2?5 for the years ended December 31, 2019 and 2018, C6DA64E:G6=J respectively. '?24@?DE2?E4FCC6?4J32D:D E96@>A2?JD?6E:?4@>67@CE96J62C6?565 646>36C On a constant currency basis, the Company's net income for the year ended December 31, 2019 H@F=592G6366?=@H6C3Jwould have been lower by $65>:==:@? million ($0.09 A6C5:=FE65D92C6 per diluted share). Revenues(1B1:A1? 92?86% Change at2E4@?DE2?E constant In!<;7::7=1534@>1B1:A1? revenues Petroleum(6EC@=6F>2?5496>:42=D and chemicals $ 3,052 $ 2,660 15% 13% Metals%6E2=D2?5>:?6C2=D and minerals 1,643 1,689 (3%) (5%) Forest @C6DEAC@5F4ED products 1,808 1,886 (4%) (6%) Coal@2= 658 661 N—% (2%) C2:?2?576CE:=:K6CDGrain and fertilizers 2,392 2,357 1% N—% Intermodal!?E6C>@52= 3,787 3,465 9% 8% AutomotiveFE@>@E:G6 858 830 3% 1% )=B/:4@3756B@3D3 Revenues*6G6?F6D7@CE96J62C6?565 646>36C E@E2=65 >:==:@?4@>A2C65E@ >:==:@?:? ,96:?4C62D6@7>:==:@? @C for the year ended December 31, 2019, totaled $14,917 million compared to $14,321 million in 2018. The increase of $596 million, or 4%, H2D>2:?=J2EEC:3FE23=6E@7C6:89EC2E6:?4C62D6D E96:?4=FD:@?@7,C2?D0:?E96:?E6C>@52=4@>>@5:EJ8C@FAH:E9:?E965@>6DE:4>2C<6E E96 was mainly attributable to freight rate increases, the inclusion of TransX in the intermodal commodity group within the domestic market, the A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C2?59:896CG@=F>6D@7A6EC@=6F>4CF56 ?2EFC2=82D=:BF:5D2?5C67:?65A6EC@=6F>positive translation impact of a weaker Canadian dollar and higher volumes of petroleum crude, natural gas liquids and refined petroleum AC@5F4ED:?E967:CDE?:?6>@?E9D ,96D6724E@CDH6C6A2CE=J@77D6E3J=@H6CG@=F>6D@723C@25C2?86@77@C6DEAC@5F4ED C65F465- + E96C>2=products in the first nine months. These factors were partly offset by lower volumes of a broad range of forest products, reduced U.S. thermal coal4@2=6IA@CEDG:2E96 F=7@2DE2?5=@H6CD9:A>6?ED@77C24D2?5 F6=DFC492C86C6G6?F6D564C62D653J>:==:@?:? 2D2C6DF=E@7 exports via the Gulf Coast and lower shipments of frac sand. Fuel surcharge revenues decreased by $31 million in 2019, as a result of lower=@H6C2AA=:423=67F6=DFC492C86C2E6D A2CE=J@77D6E3JE96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C applicable fuel surcharge rates, partly offset by the positive translation impact of a weaker Canadian dollar. 22 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis In!? 2019, *,%D564=:?653J RTMs declined by 3% C6=2E:G6E@relative to 2018. C6:89EC6G6?F6A6C*,%:?4C62D653J Freight revenue per RTM increased by 8% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5C:G6?3J mainly driven by 7C6:89EC2E6:?4C62D6D E96:?4=FD:@?@7,C2?D0:?E96:?E6C>@52=4@>>@5:EJ8C@FA2?5E96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?freight rate increases, the inclusion of TransX in the intermodal commodity group and the positive translation impact of a weaker Canadian dollar.5@==2C Petroleum!0.+(!1) * and $!)% (/ chemicals 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA:?4C62D653J>:==:@? @C the year ended December 31, 2019, revenues for this commodity group increased by $392 million, or 15%, H96?4@>A2C65E@ when compared to 2018, >2:?=J mainly 5F6E@9:896CG@=F>6D@7A6EC@=6F>4CF56 ?2EFC2=82D=:BF:5D2?5C67:?65A6EC@=6F>AC@5F4ED:?E967:CDE?:?6>@?E9D7C6:89EC2E6:?4C62D6D2?5due to higher volumes of petroleum crude, natural gas liquids and refined petroleum products in the first nine months; freight rate increases and theE96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C positive translation impact of a weaker Canadian dollar. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 8% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5F6E@7C6:89EC2E6:?4C62D6D2?5E96A@D:E:G6EC2?D=2E:@?:>A24E mainly due to freight rate increases and the positive translation impact of@72H62<6C2?25:2?5@==2C a weaker Canadian dollar. Metals!0 (/ * and )%*!. (/ minerals 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J>:==:@? @C the year ended December 31, 2019, revenues for this commodity group decreased by $46 million, or 3%, H96?4@>A2C65E@ when compared to 2018, >2:?=J mainly 5F6E@=@H6CG@=F>6D@77C24D2?52?523C@25C2?86@7>6E2=AC@5F4EDA2CE=J@77D6E3J7C6:89EC2E6:?4C62D6D2?5E96A@D:E:G6EC2?D=2E:@?due to lower volumes of frac sand and a broad range of metal products; partly offset by freight rate increases and the positive translation impact:>A24E@72H62<6C2?25:2?5@==2C of a weaker Canadian dollar. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 7% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5F6E@2564C62D6:?E962G6C286=6?8E9@792F= 7C6:89EC2E6 mainly due to a decrease in the average length of haul, freight rate increases:?4C62D6D2?5E96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C and the positive translation impact of a weaker Canadian dollar. Forest+.!/0,.+ products 1 0/ 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA564C62D653J>:==:@? @C the year ended December 31, 2019, revenues for this commodity group decreased by $78 million, or 4%, H96?4@>A2C65E@ when compared to 2018, >2:?=J mainly 5F6E@=@H6CG@=F>6D@723C@25C2?86@77@C6DEAC@5F4ED A2CE=J@77D6E3J7C6:89EC2E6:?4C62D6D2?5E96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6Cdue to lower volumes of a broad range of forest products, partly offset by freight rate increases and the positive translation impact of a weaker 2?25:2?5@==2C Canadian dollar. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 6% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5F6E@7C6:89EC2E6:?4C62D6D2?5E96A@D:E:G6EC2?D=2E:@?:>A24E mainly due to freight rate increases and the positive translation impact of@72H62<6C2?25:2?5@==2C a weaker Canadian dollar. $ G ??F2=*6A@CE2020 Annual Report 23 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Coal + ( 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FAC6>2:?657=2EH96?4@>A2C65E@ the year ended December 31, 2019, revenues for this commodity group remained flat when compared to 2018, >2:?=J5F6E@=@H6C- + mainly due to lower U.S. thermalE96C>2=4@2=6IA@CEDG:2E96 F=7@2DE@77D6E3J9:896C>6E2==FC8:42=2?5E96C>2=4@2=6IA@CEDG:2H6DE4@2DEA@CED2?57C6:89EC2E6:?4C62D6D coal exports via the Gulf Coast; offset by higher metallurgical and thermal coal exports via west coast ports and freight rate increases. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 1% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5F6E@7C6:89EC2E6:?4C62D6D mainly due to freight rate increases. Grain. %* * and "!.0%(%6!./ fertilizers 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA:?4C62D653J>:==:@? @C the year ended December 31, 2019, revenues for this commodity group increased by $35 million, or 1%, H96?4@>A2C65E@ when compared to 2018, >2:?=J5F6 mainly due toE@7C6:89EC2E6:?4C62D6D E96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C2?59:896C- + D@J362?6IA@CEDA2CE=J@77D6E3J=@H6C freight rate increases, the positive translation impact of a weaker Canadian dollar and higher U.S. soybean exports; partly offset by lower volumesG@=F>6D@7A@E2D9 of potash. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 5% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5F6E@7C6:89EC2E6:?4C62D6D2?5E96A@D:E:G6EC2?D=2E:@?:>A24E mainly due to freight rate increases and the positive translation impact of@72H62<6C2?25:2?5@==2C a weaker Canadian dollar. Intermodal*0!.)+ ( 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D ;7::7= For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA:?4C62D653J>:==:@? @C the year ended December 31, 2019, revenues for this commodity group increased by $322 million, or 9%, H96?4@>A2C65E@ when compared to 2018, >2:?=J mainly 5F6E@E96:?4=FD:@?@7,C2?D0 9:896C:?E6C?2E:@?2=4@?E2:?6CEC277:4G:2E96(@CE@7(C:?46*FA6CE 7C6:89EC2E6:?4C62D6D2?5E96A@D:E:G6due to the inclusion of TransX, higher international container traffic via the Port of Prince Rupert, freight rate increases and the positive translationEC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2CA2CE=J@77D6E3J=@H6C:?E6C?2E:@?2=4@?E2:?6CEC277:4G:2E96(@CE@7.2?4@FG6C2?5C65F465 impact of a weaker Canadian dollar; partly offset by lower international container traffic via the Port of Vancouver and reduced 5@>6DE:4C6E2:=G@=F>6D 2DH6==2D=@H6C2AA=:423=67F6=DFC492C86C2E6D domestic retail volumes, as well as lower applicable fuel surcharge rates. Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 13% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5F6E@E96:?4=FD:@?@7,C2?D0 7C6:89EC2E6:?4C62D6D2?5E96 mainly due to the inclusion of TransX, freight rate increases and the positiveA@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C translation impact of a weaker Canadian dollar. 24 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Automotive 10+)+0%2! 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= For @CE96J62C6?565 646>36C C6G6?F6D7@CE9:D4@>>@5:EJ8C@FA:?4C62D653J>:==:@? @C the year ended December 31, 2019, revenues for this commodity group increased by $28 million, or 3%, H96?4@>A2C65E@ when compared to 2018, >2:?=J5F6 mainly due toE@9:896CG@=F>6D@75@>6DE:47:?:D965G69:4=6D2?5G69:4=6A2CED:?E967:CDE?:?6>@?E9D E96A@D:E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2? higher volumes of domestic finished vehicles and vehicle parts in the first nine months, the positive translation impact of a weaker Canadian 5@==2C2?57C6:89EC2E6:?4C62D6DA2CE=J@77D6E3J=@H6C:>A@CEG@=F>6D@77:?:D965G69:4=6DG:2E96(@CE@7dollar and freight rate increases; partly offset by lower import volumes of finished vehicles via the Port of Halifax. 2=:72I Revenue*6G6?F6A6C*,%:?4C62D653J per RTM increased by 7% :?in 2019 H96?4@>A2C65E@when compared to 2018, >2:?=J5F6E@2564C62D6:?E962G6C286=6?8E9@792F= E96A@D:E:G6 mainly due to a decrease in the average length of haul, the positive translationEC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C2?57C6:89EC2E6:?4C62D6D impact of a weaker Canadian dollar and freight rate increases. Other0$!..!2!*1!/ revenues 92?86% Change at2E4@?DE2?E constant .3/@3<232 313;03@ Year ended December 31, 2019 2018 %92?86 Change currency4FCC6?4J Revenues*6G6?F6D (millions);7::7= For @CE96J62C6?565 646>36C 'E96CC6G6?F6D564C62D653J>:==:@? @C the year ended December 31, 2019, Other revenues decreased by $54 million, or 7%, H96?4@>A2C65E@ when compared to 2018, >2:?=J5F6E@=@H6CC6G6?F6D mainly due to lower revenues 7C@>G6DD6=D from vessels. Operating%<1>-@5:31D<1:?1? expenses 'A6C2E:?86IA6?D6D7@CE96J62C6?565 646>36C 2>@F?E65E@ >:==:@?4@>A2C65E@ >:==:@?:?Operating expenses for the year ended December 31, 2019 amounted to $9,324 million compared to $8,828 million in 2018. ,96:?4C62D6@7 The increase of $496>:==:@? @C million, or 6%, H2D>2:?=J5F6E@:?4C62D65AFC492D65D6CG:46D2?5>2E6C:2=6IA6?D6 5F6E@E96:?4=FD:@?@7,C2?D0 9:896C56AC64:2E:@? was mainly due to increased purchased services and material expense, due to the inclusion of TransX, higher depreciation expense6IA6?D62?5E96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2CA2CE=J@77D6E3J=@H6C7F6=AC:46D and the negative translation impact of a weaker Canadian dollar; partly offset by lower fuel prices. 92?86% Change at2E4@?DE2?E constant In!<;7::7=2E6C:2= services and material 2,267 1,971 (15%) (14%) Fuel F6= 1,637 1,732 5% 8% Depreciation 6AC64:2E:@?2?52>@CE:K2E:@? and amortization 1,562 1,329 (18%) (16%) Equipment BF:A>6?EC6?ED rents 444 467 5% 7% Casualty2DF2=EJ2?5@E96C and other 492 469 (5%) (3%) )=B/:=>3@/B7<53F>3 Labor +. * and ".%*#! !*!"%0/ fringe benefits Labor$23@C2?57C:?8636?67:ED6IA6?D6:?4C62D653J and fringe benefits expense increased by $62>:==:@? @C million, or 2%, :? H96?4@>A2C65E@ ,96:?4C62D6H2DAC:>2C:=J5F6E@E96 in 2019 when compared to 2018. The increase was primarily due to the inclusion:?4=FD:@?@7,C2?D0 86?6C2=H286:?4C62D6D2?5E96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2CA2CE=J@77D6E3J=@H6C:?46?E:G6 of TransX, general wage increases and the negative translation impact of a weaker Canadian dollar; partly offset by lower incentive compensation.4@>A6?D2E:@? Purchased1. $ /! /!.2% !/ * services and ) 0!.% ( material Purchased(FC492D65D6CG:46D2?5>2E6C:2=6IA6?D6:?4C62D653J services and material expense increased by $296>:==:@? @C million, or 15%, :? H96?4@>A2C65E@ ,96:?4C62D6H2D>2:?=J5F6E@ in 2019 when compared to 2018. The increase was mainly due to theE96:?4=FD:@?@7,C2?D0 9:896CC6A2:CD >2:?E6?2?462?5>2E6C:2=D4@DED 9:896C4@DED7@CD6CG:46DAFC492D657C@>@FED:564@?EC24E@CD2?5E96 inclusion of TransX, higher repairs, maintenance and materials costs, higher costs for services purchased from outside contractors and the negative?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C translation impact of a weaker Canadian dollar. $ G ??F2=*6A@CE2020 Annual Report 25 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Fuel1!( Fuel F6=6IA6?D6564C62D653J expense decreased by $95>:==:@? @C million, or 5%, :? H96?4@>A2C65E@ ,96564C62D6H2DAC:>2C:=J5F6E@=@H6C7F6=AC:46D 564C62D65 in 2019 when compared to 2018. The decrease was primarily due to lower fuel prices, decreased volumesG@=F>6D@7EC277:42?5:?4C62D657F6=AC@5F4E:G:EJA2CE=J@77D6E3JE96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C of traffic and increased fuel productivity; partly offset by the negative translation impact of a weaker Canadian dollar. Depreciation !,.! % 0%+* * and )+.0%6 0%+* amortization Depreciation 6AC64:2E:@?2?52>@CE:K2E:@?6IA6?D6:?4C62D653J and amortization expense increased by $233 >:==:@? @Cmillion, or 18%, :? H96?4@>A2C65E@ ,96:?4C62D6H2D>2:?=J5F6E@2 in 2019 when compared to 2018. The increase was mainly due to a higher9:896C56AC64:23=62DD6E32D6C6DF=E:?87C@>:?4C62D6542A:E2=6IA6?5:EFC6D:?C646?EJ62CD 2?6IA6?D6C6=2E65E@4@DEDAC6G:@FD=J42A:E2=:K65 depreciable asset base resulting from increased capital expenditures in recent years, an expense related to costs previously capitalized 7@C2(,324<@77:46DJDE6>7@==@H:?8E9656A=@J>6?E@72C6A=246>6?EDJDE6>2?5E96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?for a PTC back office system following the deployment of a replacement system and the negative translation impact of a weaker Canadian 5@==2C dollar. Equipment-1%,)!*0.!*0/ rents Equipment BF:A>6?EC6?ED6IA6?D6564C62D653J rents expense decreased by $23>:==:@? @C million, or 5%, :? H96?4@>A2C65E@ ,96564C62D6H2DAC:>2C:=J5F6E@=@H6C4@DED7@C in 2019 when compared to 2018. The decrease was primarily due to lower costs for leased=62D65=@4@>@E:G6D A2CE=J@77D6E3J9:896C42C9:C66IA6?D62?5E96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2C locomotives, partly offset by higher car hire expense and the negative translation impact of a weaker Canadian dollar. Casualty /1 (05 * and +0$!. other 2DF2=EJ2?5@E96C6IA6?D6:?4C62D653JCasualty and other expense increased by $23 >:==:@? @Cmillion, or 5%, :? H96?4@>A2C65E@ ,96:?4C62D6H2D>2:?=J5F6E@9:896C:?4:56?E in 2019 when compared to 2018. The increase was mainly due to higher incident costs4@DED2?5E96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2CA2CE=J@77D6E3J=@H6C=682=AC@G:D:@?D and the negative translation impact of a weaker Canadian dollar; partly offset by lower legal provisions. Other%@41>5:/;91-:01D<1:?1? income and expenses Interest*0!.!/0!4,!*/! expense In!? !?E6C6DE6IA6?D6H2D>:==:@?4@>A2C65E@>:==:@?:? ,96:?4C62D6H2D>2:?=J5F6E@29:896C2G6C286=6G6=@7563E 2019, Interest expense was $538 million compared to $489 million in 2018. The increase was mainly due to a higher average level of debt and2?5E96?682E:G6EC2?D=2E:@?:>A24E@72H62<6C2?25:2?5@==2CA2CE=J@77D6E3J2=@H6C2G6C286:?E6C6DEC2E6 the negative translation impact of a weaker Canadian dollar; partly offset by a lower average interest rate. Other0$!. +),+*!*0/+"*!0,!.%+ components of net periodic % !*!"%0%* +)! benefit income In!? 'E96C4@>A@?6?ED@7?6EA6C:@5:436?67:E:?4@>6H2D>:==:@?4@>A2C65E@ >:==:@?:? ,96:?4C62D6H2D>2:?=J5F6E@ 2019, Other components of net periodic benefit income was $321 million compared to $302 million in 2018. The increase was mainly due to lower=@H6C2>@CE:K2E:@?@7?6E24EF2C:2==@DD A2CE=J@77D6E3J9:896C:?E6C6DE4@DE amortization of net actuarial loss, partly offset by higher interest cost. Other0$!.%* +)! income In!? 'E96C:?4@>6H2D>:==:@?4@>A2C65E@>:==:@?:? !?4=F565:?'E96C:?4@>67@C H2D282:?AC6G:@FD=J5676CC65@? 2019, Other income was $53 million compared to $376 million in 2018. Included in Other income for 2018 was a gain previously deferred on theE96 5:DA@D2=@7E96 F6=A9@7>:==:@? 282:?@?5:DA@D2=@7E96 @?6J2?5+E C2?4@:D+AFCD@7>:==:@? 282:?@?E96EC2?D76C@7 2014 disposal of the Guelph of $79 million, a gain on disposal of the Doney and St-Francois Spurs of $36 million, a gain on the transfer of theE966?EC2=+E2E:@?*2:=H2J$62D6@7>:==:@? 2?5282:?@?5:DA@D2=@7E962=82CJ!?5FDEC:2=$625@7>:==:@? Central Station Railway Lease of $184 million, and a gain on disposal of the Calgary Industrial Lead of $39 million. Income* +)!0 4.! +2!.5!4,!*/! tax recovery (expense) '? 646>36C E96(C6D:56?E@7E96-?:E65+E2E6DD:8?65:?E@=2HE96- + ,2I*67@C> H9:49C65F465E96- + 7656C2=4@CA@C2E6:?4@>6On December 22, 2017, the President of the United States signed into law the U.S. Tax Reform, which reduced the U.S. federal corporate income taxE2IC2E67C@>E@67764E:G62D@7"2?F2CJ ,96- + ,2I*67@C>2=D@2==@HD7@C:>>65:2E642A:E2=6IA6?D:?8@7?6H:?G6DE>6?ED rate from 35% to 21% effective as of January 1, 2018. The U.S. Tax Reform also allows for immediate capital expensing of new investments in:?46CE2:?BF2=:7:6556AC64:23=62DD6ED>25627E6C+6AE6>36C H9:49H:==36A92D655@H?DE2CE:?8:?J62C D2C6DF=E@7E96- + certain qualified depreciable assets made after September 27, 2017, which will be phased down starting in year 2023. As a result of the U.S. Tax,2I*67@C> E96@>A2?JD?6E5676CC65:?4@>6E2I=:23:=:EJ564C62D653J >:==:@?7@CE96J62C6?565 646>36C Reform, the Company's net deferred income tax liability decreased by $1,764 million for the year ended December 31,2017. The,96- + ,2I*67@C>:?EC@5F465@E96C:>A@CE2?E492?86DE@- + 4@CA@C2E6:?4@>6E2I=2HD:?4=F5:?8E964C62E:@?@72?6H2D6 C@D:@? U.S. Tax Reform introduced other important changes to U.S. corporate income tax laws including the creation of a new Base Erosion Anti?E: 23FD6,2I ,E92EDF3;64ED46CE2:?A2J>6?ED7C@>- + 4@CA@C2E:@?DE@7@C6:8?C6=2E65A2CE:6DE@255:E:@?2=E2I6D2?5=:>:E2E:@?DE@E96-abuse Tax (BEAT) that subjects certain payments from U.S. corporations to foreign related parties to additional taxes and limitations to the 565F4E:@?7@C?6E:?E6C6DE6IA6?D6:?4FCC653J- + 4@CA@C2E:@?D +:?46E966?24E>6?E@7E96- + ,2I*67@C> - + 2FE9@C:E:6D92G6:DDF65deduction for net interest expense incurred by U.S. corporations. Since the enactment of the U.S. Tax Reform, U.S. authorities have issued variousG2C:@FDAC@A@D652?57:?2=:K65C68F=2E:@?D2?58F:52?46:?E6CAC6E:?8:EDAC@G:D:@?D ,96D6:?E6CAC6E2E:@?D92G6366?E2<6?:?E@244@F?E:? proposed and finalized regulations and guidance interpreting its provisions. These interpretations have been taken into account in calculating42=4F=2E:?8E96@>A2?JD4FCC6?EJ62C:?4@>6E2IAC@G:D:@?2?5E2IA2J>6?ED ,96- + ,2I*67@C>2?5E96D6C68F=2E:@?D2C66IA64E65E@ the Company's current year income tax provision and tax payments. The U.S. Tax Reform and these regulations are expected to impact:>A24EE96@>A2?JD:?4@>6E2IAC@G:D:@?D2?5E2IA2J>6?ED:?7FEFC6J62CD the Company's income tax provisions and tax payments in future years. In!? E96@>A2?JC64@C5652?:?4@>6E2I6IA6?D6@7 >:==:@?4@>A2C65E@2?:?4@>6E2I6IA6?D6@7 >:==:@?:? 2019, the Company recorded an income tax expense of $1,213 million compared to an income tax expense of $1,354 million in 2018. Included!?4=F565:?E96 7:8FC6H2D25676CC65:?4@>6E2IC64@G6CJ@7>:==:@?C64@C565:?E96D64@?5BF2CE6C C6DF=E:?87C@>E966?24E>6?E@7 in the 2019 figure was a deferred income tax recovery of $112 million recorded in the second quarter, resulting from the enactment of a2=@H6CAC@G:?4:2=4@CA@C2E6:?4@>6E2IC2E6 lower provincial corporate income tax rate. The,9667764E:G6E2IC2E67@C H2D 4@>A2C65E@ :? I4=F5:?8E9627@C6>6?E:@?655676CC65:?4@>6E2IC64@G6CJ E96 effective tax rate for 2019 was 22.3% compared to 23.8% in 2018. Excluding the aforementioned deferred income tax recovery, the effective67764E:G6E2IC2E67@C H2D 4@>A2C65E@ :? ,96:?4C62D6:?E9667764E:G6E2IC2E6H2D>2:?=J2EEC:3FE23=6E@=@H6C82:?D tax rate for 2019 was 24.4% compared to 23.8% in 2018. The increase in the effective tax rate was mainly attributable to lower gains on@?5:DA@D2=@7AC@A6CEJ:? E2I652EE96=@H6C42A:E2=82:?:?4=FD:@?C2E6 disposal of property in 2019, taxed at the lower capital gain inclusion rate. 26 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Summary)A99->E;2=A->@1>8E25:-:/5-80-@- of quarterly financial data (1) Certain3@B/7<?C/@B3@A7<1:C237B3;AB6/B;//@B=4$A<=@;/:2/G B= 2/G=>3@/B7=3@4=@;/<13 (33B63A31B7=<=4B67A# 3 Revenues*6G6?F6D86?6C2E653JE96@>A2?J5FC:?8E96J62C2C6:?7=F6?4653JD62D@?2=H62E96C4@?5:E:@?D 86?6C2=64@?@>:44@?5:E:@?D 4J4=:42= generated by the Company during the year are influenced by seasonal weather conditions, general economic conditions, cyclical 56>2?57@CC2:=EC2?DA@CE2E:@? 4@>A6E:E:G67@C46D:?E96EC2?DA@CE2E:@?>2C<6EA=2462?5E9667764ED@7E96'.! A2?56>:4368:??:?8:?E96demand for rail transportation, competitive forces in the transportation marketplace and the effects of the COVID-19 pandemic beginning in the secondD64@?5BF2CE6C@7 D66E96D64E:@?6?E:E=65 quarter of 2020 (see the section entitled BusinessCA7<3AA@7A9A risks@7E9:D% 'A6C2E:?86IA6?D6DC67=64EE96:>A24E@77C6:89EG@=F>6D of this MD&A). Operating expenses reflect the impact of freight volumes, seasonalD62D@?2=H62E96C4@?5:E:@?D =23@C4@DED 7F6=AC:46D 2?5E96@>A2?JDAC@5F4E:G:EJ:?:E:2E:G6D =F4EF2E:@?D:?E962?25:2?5@==2CC6=2E:G6E@ weather conditions, labor costs, fuel prices, and the Company's productivity initiatives. Fluctuations in the Canadian dollar relative to theE96-+5@==2C92G62=D@27764E65E964@?G6CD:@?@7E96@>A2?JD-+5@==2C 56?@>:?2E65C6G6?F6D2?56IA6?D6D2?5C6DF=E65:?7=F4EF2E:@?D:? US dollar have also affected the conversion of the Company's US dollar-denominated revenues and expenses and resulted in fluctuations in net?6E:?4@>6:?E96C@==:?86:89EBF2CE6CDAC6D6?E6523@G6 income in the rolling eight quarters presented above. Summary)A99->E;22;A>@4=A->@1> of fourth quarter 2020 Fourth @FCE9BF2CE6C quarter 2020 ?6E:?4@>6H2D net income was $1,021 >:==:@? 2?:?4C62D6@7 million, an increase of $148 >:==:@? @Cmillion, or 17%, H96?4@>A2C65E@E96D2>6A6C:@5:? when compared to the same period in 2019, 2?55:=FE65 and diluted earnings62C?:?8DA6CD92C6:?4C62D653J per share increased by 17%E@ to $1.43. 'A6C2E:?8:?4@>67@CE96BF2CE6C6?565 646>36C :?4C62D653JOperating income for the quarter ended December 31, 2020 increased by $193 >:==:@? @Cmillion, or 16%, E@ to $1,411 >:==:@? H96?4@>A2C65E@E96 million, when compared to the sameD2>6A6C:@5:? period in 2019. ,96:?4C62D6>2:?=JC67=64ED=@H6C7F6=4@DED 7C6:89EC2E6:?4C62D6D2?5E96:>A24E@7E96&@G6>36C 4@?5F4E@C The increase mainly reflects lower fuel costs, freight rate increases and the impact of the November 2019 conductor strike;DEC:<6A2CE=J@77D6E3J=@H6C2AA=:423=67F6=DFC492C86C2E6D ,96@A6C2E:?8C2E:@H2D partly offset by lower applicable fuel surcharge rates. The operating ratio was 61.4% :?E967@FCE9BF2CE6C@7in the fourth quarter of 2020 4@>A2C65E@ compared to 66.0%:? in theE967@FCE9BF2CE6C@7 fourth quarter of 2019. Revenues*6G6?F6D7@CE967@FCE9BF2CE6C@7 for the fourth quarter of 2020 :?4C62D653J increased by $72>:==:@? @C million, or 2%, E@ to $3,656 >:==:@? H96?4@>A2C65E@E96D2>6A6C:@5:? million, when compared to the same period in 2019. ,96 The increase:?4C62D6H2D>2:?=J2EEC:3FE23=6E@C64@C5D9:A>6?ED@72?25:2?8C2:? :?4C62D65D9:A>6?ED@7- + 8C2:? 9:896C:?E6C?2E:@?2=4@?E2:?6CEC277:4 was mainly attributable to record shipments of Canadian grain, increased shipments of U.S. grain, higher international container traffic viaG:2E96(@CE@7.2?4@FG6C2?57C6:89EC2E6:?4C62D6DA2CE=J@77D6E3J=@H6C2AA=:423=67F6=DFC492C86C2E6D2?5=@H6CG@=F>6D@7A6EC@=6F> the Port of Vancouver and freight rate increases; partly offset by lower applicable fuel surcharge rates and lower volumes of petroleum crude.4CF56 F6=DFC492C86C6G6?F6D564C62D653J Fuel surcharge revenues decreased by $92>:==:@?:?E967@FCE9BF2CE6C@7 million in the fourth quarter of 2020, >2:?=J5F6E@=@H6C2AA=:423=67F6=DFC492C86C2E6D mainly due to lower applicable fuel surcharge rates. RTMs*,%D:?E967@FCE9BF2CE6C@7 in the fourth quarter of 2020 :?4C62D653J increased by 10% H96?4@>A2C65E@E96D2>6A6C:@5:? when compared to the same period in 2019. C6:89EC6G6?F6A6C*,%564C62D653J Freight revenue per RTM decreased by 6% :?in theE967@FCE9BF2CE6C@7 fourth quarter of 2020 H96?4@>A2C65E@E96D2>6A6C:@5:?when compared to the same period in 2019, >2:?=J5C:G6?3J2?:?4C62D6:?E962G6C286=6?8E9@792F= 492?86D:? mainly driven by an increase in the average length of haul, changes in business3FD:?6DD>:I2?5=@H6C2AA=:423=67F6=DFC492C86C2E6DA2CE=J@77D6E3J7C6:89EC2E6:?4C62D6D mix and lower applicable fuel surcharge rates; partly offset by freight rate increases. 'A6C2E:?86IA6?D6D7@CE967@FCE9BF2CE6C@7Operating expenses for the fourth quarter of 2020 564C62D653Jdecreased by $121>:==:@? @C million, or 5%, E@ to $2,245 >:==:@? H96?4@>A2C65E@E96D2>6A6C:@5 million, when compared to the same period in:? 2019. ,96564C62D6H2D>2:?=J5F6E@=@H6C7F6=4@DED2DH6==2D=@H6CAFC492D65D6CG:46D2?5>2E6C:2=D6IA6?D6 The decrease was mainly due to lower fuel costs as well as lower purchased services and materials expense. $ G ??F2=*6A@CE2020 Annual Report 27 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Financial 5:-:/5-8<;?5@5;: position The,967@==@H:?8E23=6DAC@G:562?2?2=JD:D@7E96@>A2?JD32=2?46D966E2D2E 646>36C 2D4@>A2C65E@ following tables provide an analysis of the Company's balance sheet as at December 31, 2020 as compared to 2019. DD6ED2?5=:23:=:E:6D Assets and liabilities 56?@>:?2E65:?-+5@==2CD92G6366?EC2?D=2E65E@2?25:2?5@==2CDFD:?8E967@C6:8?6I492?86C2E6:?67764E2EE9632=2?46D966E52E6 D2Edenominated in US dollars have been translated to Canadian dollars using the foreign exchange rate in effect at the balance sheet date. As at December 646>36C 2?5 31, 2020 and 2019, E967@C6:8?6I492?86C2E6DH6C6 the foreign exchange rates were $1.2725 2?5 and $1.2990 A6C-+per US$1.00, C6DA64E:G6=J respectively. In!<;7::7= Cash2D92?542D96BF:G2=6?ED2?5 and cash equivalents and 1,100 588 512 Refer*676CE@E96@?D@=:52E65+E2E6>6?ED@72D9 =@HD@7E96 to the Consolidated Statements of Cash Flows of the C6DEC:4E6542D92?542D9restricted cash and cash Company's@>A2?JOD ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED 2020 Annual Consolidated Financial Statements. 6BF:G2=6?EDequivalents Other'E96C4FCC6?E2DD6ED 6I4=F5:?842D9 current assets, excluding cash 2,002 2,242 (240) Decrease 64C62D6AC:>2C:=J5F6E@2>:==:@?564C62D6:?244@F?ED primarily due to a $159 million decrease in accounts 2?542D96BF:G2=6?ED2?5and cash equivalents and receivableC646:G23=62?52>:==:@?564C62D6:?:?4@>6E2I6DC646:G23=6 and a $134 million decrease in income taxes receivable, C6DEC:4E6542D92?542D9restricted cash and cash partlyA2CE=J@77D6E3J >:==:@?@72DD6ED4=2DD:7:652D96=57@CD2=6 offset by $90 million of assets classified as held for sale. 6BF:G2=6?EDequivalents Properties(C@A6CE:6D 40,069 39,669 400 See+66E96D64E:@?@7E9:D% 6?E:E=65 the section of this MD&A entitled Liquidity"7?C727BG/<21/>7B/:@3A=C@13A and capital resources - ! 'A6C2E:?8=62D6C:89E @7 FD6 2DD6EDOperating lease right-of-use-assets 435 520 (85) Decrease 64C62D6AC:>2C:=J5F6E@E96C6EFC?@7=62D6DE92EH6C64@>:?8E@ primarily due to the return of leases that were coming to maturity>2EFC:EJ:? in 2020. Pension(6?D:@?2DD6E asset 777 336 441 Increase!?4C62D6AC:>2C:=J5F6E@24EF2=C6EFC?D2?56>A=@J6C4@?EC:3FE:@?D primarily due to actual returns and employer contributions, partlyA2CE=J@77D6E3J24EF2C:2==@DD6D2C:D:?87C@>E96C65F4E:@?:?E96 offset by actuarial losses arising from the reduction in the year-endJ62C 6?55:D4@F?EC2E67C@> E@ 2DH6==2D:?E6C6DE4@DE discount rate from 3.10% to 2.55%, as well as interest cost and2?5D6CG:464@DE service cost. Intangible!?E2?8:3=62DD6ED 8@@5H:==2?5 assets, goodwill and 421 429 (8) Decrease 64C62D6AC:>2C:=J5F6E@E962>@CE:K2E:@?@7:?E2?8:3=6D2?5E96 primarily due to the amortization of intangibles and the other@E96C change492?86:?72:CG2=F6@7E96?6E2DD6ED24BF:C65:?E96 in fair value of the net assets acquired in the 2019 acquisition24BF:D:E:@?@7,C2?D0H9:49C6DF=E65:?2564C62D6E@8@@5H:== of TransX which resulted in a decrease to goodwill. Total*;@-885-.585@51?-:0)4->14;801>? liabilities and Shareholders' equity1=A5@E $ 44,804 $ 43,784 $ 1,020 Accounts44@F?EDA2J23=62?5@E96C payable and other 2,257 2,235 22 Increase!?4C62D6AC:>2C:=J5F6E@2=@?8E6C>5676CC65C6G6?F64@?EC24E primarily due to a long term deferred revenue contract excluding6I4=F5:?84FCC6?EA@CE:@?@7 current portion of classified4=2DD:7:652DD9@CEE6C> A2CE=J@77D6E3J2?@G6C2==564C62D6:? as short term, partly offset by an overall decrease in operating@A6C2E:?8=62D6=:23:=:E:6D lease liabilities variousG2C:@FD244CF2=D accruals. Deferred 676CC65:?4@>6E2I6D income taxes 8,271 7,844 427 Increase!?4C62D6AC:>2C:=J5F6E@25676CC65:?4@>6E2I6IA6?D6@7 primarily due to a deferred income tax expense of $487 million>:==:@?C64@C565:?&6E:?4@>6H9:49:?4=F565>:==:@?7C@>E96 recorded in Net income which included $213 million from the enactment6?24E>6?E@7E96* +4E 25676CC65:?4@>6E2I6IA6?D6@7 of the CARES Act, a deferred income tax expense of $67 million>:==:@?C64@C565:?'E96C4@>AC696?D:G6:?4@>6 3@E9@7H9:49 recorded in Other comprehensive income, both of which wereH6C6>@DE=J2EEC:3FE23=6E@?6HE6>A@C2CJ5:776C6?46D86?6C2E65 mostly attributable to new temporary differences generated 5FC:?8E96J62C A2CE=J@77D6E3J>:==:@?:?7@C6:8?6I492?86 during the year, partly offset by $95 million in foreign exchange. Other'E96C=:23:=:E:6D2?55676CC654C65:ED liabilities and deferred credits 534 634 (100) Decrease 64C62D6>2:?=J5F6E@2=@?8E6C>5676CC65C6G6?F64@?EC24E mainly due to a long term deferred revenue contract classified4=2DD:7:652DD9@CEE6C> as short term. Pension(6?D:@?2?5@E96CA@DEC6E:C6>6?E and other postretirement 767 733 34 Increase!?4C62D6AC:>2C:=J5F6E@24EF2C:2==@DD6D2C:D:?87C@>E96564C62D6 primarily due to actuarial losses arising from the decrease 36?67:EDbenefits in:?J62C 6?55:D4@F?EC2E6D2DH6==2D:?E6C6DE4@DE A2CE=J@77D6E3J year-end discount rates as well as interest cost, partly offset by actual24EF2=C6EFC?D returns. Total,@E2==@?8 E6C>563E :?4=F5:?8E96 long-term debt, including the 12,906 13,796 (890) See+66E96D64E:@?@7E9:D% 6?E:E=65 the section of this MD&A entitled Liquidity"7?C727BG/<21/>7B/:@3A=C@13A and capital resources 4FCC6?EA@CE:@?current portion - 72C:=J5F6E@9:896C563E decrease primarily due to higher debt repaymentsC6A2J>6?EDE92?:DDF2?46D:? A2CE=J@77D6E3J >:==:@?:? than issuances in 2020, partly offset by $203 million in 7@C6:8?6I492?86 foreign exchange. Operating'A6C2E:?8=62D6=:23:=:E:6D:?4=F5:?8 lease liabilities including 418 501 (83) Decrease 64C62D6AC:>2C:=J5F6E@E96C6EFC?@7=62D6DE92EH6C64@>:?8E@ primarily due to the return of leases that were coming to theE964FCC6?EA@CE:@? current portion maturity>2EFC:EJ:? in 2020. Total,@E2=D92C69@=56CD6BF:EJ shareholders' equity 19,651 18,041 1,610 Refer*676CE@E96@?D@=:52E65+E2E6>6?ED@792?86D:?+92C69@=56CDO to the Consolidated Statements of Changes in Shareholders' Equity BF:EJ@7E96@>A2?JOD ??F2=@?D@=:52E65 :?2?4:2= of the Company's 2020 Annual Consolidated Financial Statements.+E2E6>6?ED 28 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Liquidity"5=A505@E-:0/-<5@-8>1?;A>/1? and capital resources The,96@>A2?JDAC:?4:A2=D@FC46@7=:BF:5:EJ:D42D986?6C2E657C@>@A6C2E:@?D H9:49:DDFAA=6>6?E653J3@CC@H:?8D:?E96>@?6J>2C<6ED2?5 Company's principal source of liquidity is cash generated from operations, which is supplemented by borrowings in the money markets and capital42A:E2=>2C<6ED ,@>66E:EDD9@CE E6C>=:BF:5:EJ?665D E96@>A2?J92D2446DDE@G2C:@FD7:?2?4:?8D@FC46D :?4=F5:?8F?D64FC65C6G@=G:?8 markets. To meet its short-term liquidity needs, the Company has access to various financing sources, including unsecured revolving credit4C65:E724:=:E:6D 4@>>6C4:2=A2A6CAC@8C2>D 2?52?244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2> !?255:E:@?E@E96D6D@FC46D E96@>A2?J42? facilities, commercial paper programs, and an accounts receivable securitization program. In addition to these sources, the Company can issue:DDF6563ED64FC:E:6DE@>66E:ED=@?86C E6C>=:BF:5:EJ?665D ,96DEC@?87@4FD@?42D986?6C2E:@?7C@>2==D@FC46D8:G6DE96@>A2?J debt securities to meet its longer-term liquidity needs. The strong focus on cash generation from all sources gives the Company increased:?4C62D657=6I:3:=:EJ:?E6C>D@7>66E:?8:ED7:?2?4:?8C6BF:C6>6?ED flexibility in terms of meeting its financing requirements. The,96@>A2?JDAC:>2CJFD6D@77F?5D2C67@CH@C<:?842A:E2=C6BF:C6>6?ED :?4=F5:?8:?4@>6E2I:?DE2= Company's primary uses of funds are for working capital requirements, including income tax instalments,>6?ED A6?D:@?4@?EC:3FE:@?D 2?5 pension contributions, and contractual4@?EC24EF2=@3=:82E:@?D42A:E2=6IA6?5:EFC6DC6=2E:?8E@EC24<:?7C2DECF4EFC62?5@E96C24BF:D:E:@?D5:G:56?5D2?5D92C6C6AFC492D6D ,96 obligations; capital expenditures relating to track infrastructure and other; acquisitions; dividends; and share repurchases. The @>A2?JD6EDAC:@C:E:6D@?:EDFD6D@72G2:=23=67F?5D32D65@?D9@CE E6C>@A6C2E:@?2=C6BF:C6>6?ED 6IA6?5:EFC6DE@4@?E:?F6E@@A6C2E62D276Company sets priorities on its uses of available funds based on short-term operational requirements, expenditures to continue to operate a safe railwayC2:=H2J2?5AFCDF6DEC2E68:4:?:E:2E:G6D H9:=62=D@4@?D:56C:?8:ED=@?8 E6C>4@?EC24EF2=@3=:82E:@?D2?5C6EFC?:?8G2=F6E@:EDD92C69@=56CD2?5 and pursue strategic initiatives, while also considering its long-term contractual obligations and returning value to its shareholders; and as2DA2CE@7:ED7:?2?4:?8DEC2E68J E96@>A2?JC68F=2C=JC6G:6HD:ED42A:E2=DECF4EFC6 4@DE@742A:E2= 2?5E96?6657@C255:E:@?2=563E7:?2?4:?8 part of its financing strategy, the Company regularly reviews its capital structure, cost of capital, and the need for additional debt financing. The,96@>A2?J92D2H@C<:?842A:E2=567:4:E H9:49:D4@>>@?:?E9642A:E2= :?E6?D:G6C2:=:?5FDECJ 2?5:D?@E2?:?5:42E:@?@72=24<@7 Company has a working capital deficit, which is common in the capital-intensive rail industry, and is not an indication of a lack of liquidity.=:BF:5:EJ ,96@>A2?J>2:?E2:?D256BF2E6C6D@FC46DE@>66E52:=J42D9C6BF:C6>6?ED 2?592DDF77:4:6?E7:?2?4:2=42A24:EJE@>2?286:ED52J The Company maintains adequate resources to meet daily cash requirements, and has sufficient financial capacity to manage its day- to-dayE@ 52J42D9C6BF:C6>6?ED2?54FCC6?E@3=:82E:@?D D2E 646>36C 2?5 cash requirements and current obligations. As at December 31, 2020 and 2019, E96@>A2?J92 the Company had52D92?542D96BF:G2=6?ED@7 Cash and cash equivalents of $569 million>:==:@?2?5 and $64>:==:@? C6DA64E:G6=J million, respectively;*6DEC:4E6542D Restricted cash92?542D96BF:G2=6?ED@7 and cash equivalents of $531>:==:@?2?5 million and $524>:==:@? C6DA64E:G6=J2?52 million, respectively; and a H@C<:?842A:E2=working capital 567:4:Edeficit@7 of $172>:==:@?2?5 million and $1,457 >:==:@? C6DA64E:G6=J ,9642D92?542D96BF:G2=6?EDA=658652D4@==2E6C2=7@C2>:?:>F>E6C>@7@?6>@?E9 million, respectively. The cash and cash equivalents pledged as collateral for a minimum term of one month AFCDF2?EE@E96@>A2?JD3:=2E6C2==6EE6C@74C65:E724:=:E:6D2C6C64@C5652D*6DEC:4E6542D92?542D96BF:G2=6?ED ,96C62C64FCC6?E=J?@pursuant to the Company's bilateral letter of credit facilities are recorded as Restricted cash and cash equivalents. There are currently no specificDA64:7:4C6BF:C6>6?EDC6=2E:?8E@H@C<:?842A:E2=@E96CE92?:?E96?@C>2=4@FCD6@73FD:?6DD2D5:D4FDD6596C6:? requirements relating to working capital other than in the normal course of business as discussed herein. The,96@>A2?JD- + 2?5@E96C7@C6:8?DF3D:5:2C:6D>2:?E2:?DF77:4:6?E42D9E@>66EE96:CC6DA64E:G6@A6C2E:@?2=C6BF:C6>6?ED R!7E96 Company's U.S. and other foreign subsidiaries maintain sufficient cash to meet their respective operational requirements. If the @>A2?JD9@F=5C6BF:C6>@C6=:BF:5:EJ:?2?252E92?:D86?6C2E653J:ED5@>6DE:4@A6C2E:@?D E96@>A2?J4@F=5564:56E@C6A2EC:2E67F?5DCompany should require more liquidity in Canada than is generated by its domestic operations, the Company could decide to repatriate funds associated2DD@4:2E65H:E9F?5:DEC:3FE6562C?:?8D@7:ED7@C6:8?@A6C2E:@?D :?4=F5:?8:ED- + 2?5@E96C7@C6:8?DF3D:5:2C:6D R,96:>A24E@?=:BF:5:EJ with undistributed earnings of its foreign operations, including its U.S. and other foreign subsidiaries. The impact on liquidity resultingC6DF=E:?87C@>E96C6A2EC:2E:@?@77F?5D96=5@FED:562?252H@F=5?@E36D:8?:7:42?E2DDF49C6A2EC:2E:@?@77F?5DH@F=5?@E42FD6D:8?:7:42?E from the repatriation of funds held outside Canada would not be significant as such repatriation of funds would not cause significant taxE2I:>A=:42E:@?DE@E96@>A2?JF?56CE96E2I=2HD@72?2522?5E96- + 2?5@E96C7@C6:8?E2I;FC:D5:4E:@?D 2?5E96E2IEC62E:6D4FCC6?E=J:? implications to the Company under the tax laws of Canada and the U.S. and other foreign tax jurisdictions, and the tax treaties currently in effect67764E36EH66?E96> between them. The,96@>A2?J6IA64ED42D97C@>@A6C2E:@?D2?5:EDG2C:@FDD@FC46D@77:?2?4:?8E@36DF77:4:6?EE@>66E:ED@?8@:?8@3=:82E:@?D ,96 Company expects cash from operations and its various sources of financing to be sufficient to meet its ongoing obligations. The @>A2?J:D?@E2H2C6@72?JEC6?5D@C6IA64E657=F4EF2E:@?D:?:ED=:BF:5:EJE92EH@F=5:>A24E:ED@?8@:?8@A6C2E:@?D@C7:?2?4:2=4@?5:E:@?2D@7Company is not aware of any trends or expected fluctuations in its liquidity that would impact its ongoing operations or financial condition as of theE9652E6@7E9:D% date of this MD&A. The,96@>A2?J25@AE6544@F?E:?8+E2?52C5D-A52E6+- $62D6D2?5C6=2E652>6?5>6?ED,@A:4:?E967:CDEBF2CE6C@7 Company adopted Accounting Standards Update (ASU) 2016-02: Leases and related amendments (Topic 842) in the first quarter of 2019 FD:?82>@5:7:65C6EC@DA64E:G62AAC@249H:E9?@C6DE2E6>6?E@74@>A2C2E:G6A6C:@57:?2?4:2=:?7@C>2E:@? 55:E:@?2=:?7@C>2E:@?:D using a modified retrospective approach with no restatement of comparative period financial information. Additional information is AC@G:565:?provided in Note$=B3 12 I"3/A3A— LeasesE@E96@>A2?JD to the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED Annual Consolidated Financial Statements. AvailableB-58-.8125:-:/5:3?;A>/1? financing sources Shelf$!(",.+/,! 01/ * prospectus and .!#%/0. 0%+*/0 0!)!*0 registration statement '? 63CF2CJ E96@>A2?J7:=652?6HD96=7AC@DA64EFDH:E92?25:2?D64FC:E:6DC68F=2E@CD2?52C68:DEC2E:@?DE2E6>6?EH:E9E96On February 11, 2020, the Company filed a new shelf prospectus with Canadian securities regulators and a registration statement with the United-?:E65+E2E6D+64FC:E:6D2?5 I492?86@>>:DD:@?+ AFCDF2?EE@H9:49&>2J:DDF6FAE@ 3:==:@?@7563ED64FC:E:6D:?E962?25:2? States Securities and Exchange Commission (SEC), pursuant to which CN may issue up to $6.0 billion of debt securities in the Canadian and2?5- + 42A:E2=>2C<6ED@G6CE96>@?E9D7C@>E967:=:?852E6 ,9:DD96=7AC@DA64EFD2?5C68:DEC2E:@?DE2E6>6?EC6A=2465&DAC6G:@FDD96=7 U.S. capital markets over the 25 months from the filing date. This shelf prospectus and registration statement replaced CN's previous shelf AC@DA64EFD2?5C68:DEC2E:@?DE2E6>6?EE92E6IA:C65@?%2C49 '?%2J F?56C:ED4FCC6?ED96=7AC@DA64EFD2?5C68:DEC2E:@?prospectus and registration statement that expired on March 13, 2020. On May 1, 2020, under its current shelf prospectus and registration statement,DE2E6>6?E E96@>A2?J:DDF65-+ the Company issued US$600 >:==:@?million ($837>:==:@? million) 2.45% &@E6D5F6 :?E96- + 42A:E2=>2C<6ED H9:49C6DF=E65:??6EAC@4665D Notes due 2050 in the U.S. capital markets, which resulted in net proceeds of@7 $810 >:==:@? D2E 646>36C E96C6>2:?:?842A24:EJ@7E9:DD96=7AC@DA64EFD2?5C68:DEC2E:@?DE2E6>6?EH2Dmillion. As at December 31, 2020, the remaining capacity of this shelf prospectus and registration statement was $5.23:==:@? 446DDE@ billion. Access to theE962?25:2?2?5- + 42A:E2=>2C<6EDF?56CE96D96=7AC@DA64EFD2?5C68:DEC2E:@?DE2E6>6?E:D56A6?56?E@?>2C<6E4@?5:E:@?D Canadian and U.S. capital markets under the shelf prospectus and registration statement is dependent on market conditions. The,96@>A2?JD2446DDE@=@?8 E6C>7F?5D:?E9642A:E2=>2C<6ED56A6?5D@?:ED4C65:EC2E:?8D2?5>2C<6E4@?5:E:@?D ,96@>A2?J Company's access to long-term funds in the capital markets depends on its credit ratings and market conditions. The Company 36=:6G6DE92E:E4@?E:?F6DE@92G62446DDE@E9642A:E2=>2C<6ED !7E96@>A2?JH6C6F?23=6E@3@CC@H7F?5D2E2446AE23=6C2E6D:?E9642A:E2=believes that it continues to have access to the capital markets. If the Company were unable to borrow funds at acceptable rates in the capital markets,>2C<6ED E96@>A2?J4@F=53@CC@HF?56C:ED4C65:E724:=:E:6D 5C2H5@H?@?:ED244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2> C2:D642D93J the Company could borrow under its credit facilities, draw down on its accounts receivable securitization program, raise cash by 5:DA@D:?8@7DFCA=FDAC@A6CE:6D@C@E96CH:D6>@?6E:K:?82DD6ED C65F465:D4C6E:@?2CJDA6?5:?8@CE2<624@>3:?2E:@?@7E96D6>62DFC6DE@disposing of surplus properties or otherwise monetizing assets, reduce discretionary spending or take a combination of these measures to assure2DDFC6E92E:E92D256BF2E67F?5:?87@C:ED3FD:?6DD that it has adequate funding for its business. Revolving!2+(2%*# .! credit %0" %(%0%!/ facilities The,96@>A2?J92D2C6G@=G:?84C65:E724:=:EJ@7 3:==:@?E92E4@?D:DED@72 3:==:@?EC2?496>2EFC:?8@?%2J 2?52 3:==:@? Company has a revolving credit facility of $2.0 billion that consists of a $1.0 billion tranche maturing on May 5, 2022 and a $1.0 billion trancheEC2?496>2EFC:?8@?%2J ,96244@C5:@?762EFC6:?4=F565:?E964C65:E724:=:EJ28C66>6?EAC@G:56D7@C2?255:E:@?2= maturing on May 5, 2024. The accordion feature included in the credit facility agreement provides for an additional $500 >:==:@?DF3;64Emillion subject toE@E964@?D6?E@7:?5:G:5F2==6?56CD ,964C65:E724:=:EJ:D2G2:=23=67@C86?6C2=4@CA@C2E6AFCA@D6D :?4=F5:?8324 $ G ??F2=*6A@CE2020 Annual Report 29 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis '?%2C49 E96@>A2?J6?E6C65:?E@2On March 27, 2020, the Company entered into a $250 >:==:@?@?6J62CC6G@=G:?84C65:E724:=:EJ28C66>6?E ,964C65:E724:=:EJ:D2G2:=23=67@Cmillion one year revolving credit facility agreement. The credit facility is available for workingH@C<:?842A:E2=2?586?6C2=4@CA@C2E6AFCA@D6D2?5AC@G:56D7@C3@CC@H:?8D2EG2C:@FD:?E6C6DEC2E6D A=FD2>2C8:? '?%2J E96 capital and general corporate purposes and provides for borrowings at various interest rates, plus a margin. On May 19, 2020, the @>A2?J6?E6C65:?E@2DFAA=6>6?EE@E96@C:8:?2=28C66>6?EE@:?4C62D6E964C65:E724:=:EJE@Company entered into a supplement to the original agreement to increase the credit facility to $390 >:==:@? million.D2E 646>36C As at December 31, 2020, E96 the @>A2?J925Company had no?@@FEDE2?5:?83@CC@H:?8DF?56CE9:DC6G@=G:?84C65:E724:=:EJ2?5E96C6H6C6 outstanding borrowings under this revolving credit facility and there were no?@5C2HD:? draws in 2020. Non+*.!2+(2%*# .!-revolving credit %0" %(%05 facility The,96@>A2?J92D2-+ >:==:@? ?@? C6G@=G:?8E6C>=@2?4C65:E724:=:EJ28C66>6?E7@C7:?2?4:?8@CC67:?2?4:?8E96AFC492D6@76BF:A>6?E Company has a US$300 million, non-revolving term loan credit facility agreement for financing or refinancing the purchase of equipment, whichH9:49H2D2G2:=23=6E@365C2H?FA@?E9C@F89%2C49 '?%2C49 E96@>A2?J6?E6C65:?E@=@2?DFAA=6>6?EDE@E96@C:8:?2= was available to be drawn upon through March 31, 2020. On March 27, 2020, the Company entered into loan supplements to the original agreement28C66>6?E7@C2?255:E:@?2=AC:?4:A2=2>@F?E@7-+ >:==:@? H9:49:D2G2:=23=6E@365C2H?E9C@F89%2C49 ,6C>=@2?D>256F?56C for an additional principal amount of US$310 million, which is available to be drawn through March 31, 2021.Term loans made under thisE9:D724:=:EJ92G62E6?@C@7 RJ62CD 362C:?E6C6DE2E2G2C:23=6C2E6 2C6C6A2J23=6:?6BF2=BF2CE6C=J:?DE2=>6?ED 2C6AC6A2J23=62E2?JE:>6 facility have a tenor of 20 years, bear interest at a variable rate, are repayable in equal quarterly instalments, are prepayable at any time withoutH:E9@FEA6?2=EJ 2?52C6D64FC653JC@==:?8DE@4< penalty, and are secured by rolling stock. AsD2E 646>36C E96@>A2?J925@FEDE2?5:?83@CC@H:?8D@7-+ at December 31, 2020, the Company had outstanding borrowings of US$289 >:==:@?million ($368 >:==:@?2?5925-+million) and had US$310 >:==:@?2G2:=23=6million available underF?56CE9:D?@? C6G@=G:?8E6C>=@2?724:=:EJ this non-revolving term loan facility.D2E 646>36C As at December 31, 2019, E96@>A2?J925 the Company had no?@@FEDE2?5:?83@CC@H:?8D2?5925-+ outstanding borrowings and had US$300 >:==:@? million available2G2:=23=6F?56CE9:D?@? C6G@=G:?8E6C>=@2?724:=:EJ under this non-revolving term loan facility. Commercial +))!. % (, ,!. paper The,96@>A2?J92D24@>>6C4:2=A2A6CAC@8C2>:?2?2522?5:?E96- + @E9AC@8C2>D2C6324 Accounts +1*0/.! !%2 (!/! 1.%0%6 0%+*,.+#. ) receivable securitization program The,96@>A2?J92D2?28C66>6?EE@D6==2?F?5:G:5654@ @H?6CD9:A:?E6C6DE:?2C6G@=G:?8A@@=@7244@F?EDC646:G23=6E@F?C6=2E65ECFDED7@C Company has an agreement to sell an undivided co-ownership interest in a revolving pool of accounts receivable to unrelated trusts for maximum>2I:>F>42D9AC@4665D@7 >:==:@? '? 63CF2CJ E96@>A2?J6IE6?565E96E6C>@7:ED28C66>6?E3JEH@J62CDE@ cash proceeds of $450 million. On February 27, 2020, the Company extended the term of its agreement by two years to February 63CF2CJR R ,96ECFDED2C6>F=E: D6==6CECFDED2?5E96@>A2?J:D?@EE96AC:>2CJ36?67:4:2CJ F?5:?87@CE9624BF:D:E:@?@7E96D62DD6ED 1, 2023. The trusts are multi-seller trusts and the Company is not the primary beneficiary. Funding for the acquisition of these assets is:D4FDE@>2C:=JE9C@F89E96:DDF2?46@72DD6E 324<654@>>6C4:2=A2A6C?@E6D3JE96F?C6=2E65ECFDED customarily through the issuance of asset-backed commercial paper notes by the unrelated trusts. The,96@>A2?J92DC6E2:?65E96C6DA@?D:3:=:EJ7@CD6CG:4:?8 25>:?:DE6C:?82?54@==64E:?8E96C646:G23=6DD@=5 ,962G6C286D6CG:4:?8A6C:@5 Company has retained the responsibility for servicing, administering and collecting the receivables sold. The average servicing period is:D2AAC@I:>2E6=J@?6>@?E92?5:DC6?6H652E>2C<6EC2E6DE96?:?67764E +F3;64EE@4FDE@>2CJ:?56>?:7:42E:@?D 6249ECFDEDC64@FCD6:D approximately one month and is renewed at market rates then in effect. Subject to customary indemnifications, each trusts recourse is limited=:>:E65E@E96244@F?EDC646:G23=6EC2?D76CC65 to the accounts receivable transferred. The,96244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2>AC@G:56DE96@>A2?JH:E9C625:=J2G2:=23=6D9@CE E6C>7:?2?4:?87@C86?6C2=4@CA@C2E6 accounts receivable securitization program provides the Company with readily available short-term financing for general corporate use.FD6 !?E966G6?EE96AC@8C2>:DE6C>:?2E65367@C6:EDD4965F=65>2EFC:EJ E96@>A2?J6IA64EDE@>66E:ED7FEFC6A2J>6?E@3=:82E:@?DE9C@F89 In the event the program is terminated before its scheduled maturity, the Company expects to meet its future payment obligations through its:EDG2C:@FDD@FC46D@77:?2?4:?8:?4=F5:?8:EDC6G@=G:?84C65:E724:=:E:6D2?54@>>6C4:2=A2A6CAC@8C2> 2?5 @C2446DDE@42A:E2=>2C<6ED various sources of financing including its revolving credit facilities and commercial paper program, and/or access to capital markets. AsD2E 646>36C E96@>A2?J925 at December 31, 2020, the Company had no?@3@CC@H:?8DF?56CE96244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2> D2E 646>36C borrowings under the accounts receivable securitization program. As at December 31, 2019, E96@>A2?J9253@CC@H:?8DF?56CE96244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2>@7 the Company had borrowings under the accounts receivable securitization program of $200 >:==:@? D64FC653J2?5=:>:E65E@million, secured by and limited to $224R>:==:@?@7244@F?EDC646:G23=6 AC6D6?E65:?FCC6?EA@CE:@?@7=@?8 E6C>563E@?E96@?D@=:52E652=2?46+966ED million of accounts receivable, presented in Current portion of long-term debt on the Consolidated Balance Sheets. Bilateral %( 0!. ((!00!.+" .! letter of credit %0" %(%0%!/ facilities The,96@>A2?J92D2D6C:6D@74@>>:EE652?5F?4@>>:EE653:=2E6C2==6EE6C@74C65:E724:=:EJ28C66>6?ED '?"F?6 E96@>A2?J Company has a series of committed and uncommitted bilateral letter of credit facility agreements. On June 11, 2020, the Company extended6IE6?565E96>2EFC:EJ52E6@746CE2:?4@>>:EE653:=2E6C2==6EE6C@74C65:E724:=:EJ28C66>6?EDE@AC:= ,9628C66>6?ED2C696=5H:E9 the maturity date of certain committed bilateral letter of credit facility agreements to April 28, 2023. The agreements are held with variousG2C:@FD32? 30 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Additional55:E:@?2=:?7@C>2E:@?C6=2E:?8E@E96@>A2?JD7:?2?4:?8D@FC46D:DAC@G:565:? information relating to the Company's financing sources is provided in Note$=B3I 30B 15 — DebtE@E96@>A2?JD to the Company's 2020 ??F2=@?D@=:52E65Annual Consolidated Financial :?2?4:2=+E2E6>6?ED Statements. Credit>105@>-@5:3? ratings The,96@>A2?JD23:=:EJE@2446DD7F?5:?8:?E96563E42A:E2=>2C<6ED2?5E964@DE2?52>@F?E@77F?5:?82G2:=23=656A6?5D:?A2CE@?:ED4C65:E Company's ability to access funding in the debt capital markets and the cost and amount of funding available depends in part on its credit ratings.C2E:?8D *2E:?85@H?8C256D4@F=5=:>:EE96@>A2?JD2446DDE@E9642A:E2=>2C<6ED @C:?4C62D6:ED3@CC@H:?84@DED Rating downgrades could limit the Company's access to the capital markets, or increase its borrowing costs. The,967@==@H:?8E23=6AC@G:56DE964C65:EC2E:?8DE92E&92DC646:G657C@>4C65:EC2E:?8286?4:6D2D@7E9652E6@7E9:D% following table provides the credit ratings that CN has received from credit rating agencies as of the date of this MD&A Long-term";:3 @1>901.@>-@5:3 debt rating Commercial;991>/5-8<-<1>>-@5:3 paper rating Dominion @>:?:@?@?5*2E:?8+6CG:46 Bond Rating Service A R-1* =@H (low) Moody's%@@5JD!?G6DE@CD+6CG:46 Investors Service A2 P-1( Standard+E2?52C5(@@CD & Poor's A A-1 The,96@>A2?JD4C65:EC2E:?8DC6>2:?65F?492?8657C@> Company's credit ratings remained unchanged from 2019. These,96D64C65:EC2E:?8D2C6?@EC64@>>6?52E:@?DE@AFC492D6 9@=5 @CD6==E96D64FC:E:6DC676CC65E@23@G6 *2E:?8D>2J36C6G:D65@CH:E95C2H?2E credit ratings are not recommendations to purchase, hold, or sell the securities referred to above. Ratings may be revised or withdrawn at any2?JE:>63JE964C65:EC2E:?8286?4:6D 2494C65:EC2E:?8D9@F=5366G2=F2E65:?56A6?56?E=J@72?J@E96C4C65:EC2E:?8 time by the credit rating agencies. Each credit rating should be evaluated independently of any other credit rating. Cash-?428;C? flows In!<;7::7= Free >11/-?428;C cash flow Management%2?286>6?E36=:6G6DE92E7C6642D97=@H:D2FD67F=>62DFC6@7=:BF:5:EJ2D:E56>@?DEC2E6DE96@>A2?JD23:=:EJE@86?6C2E642D97@C563E believes that free cash flow is a useful measure of liquidity as it demonstrates the Company's ability to generate cash for debt obligations@3=:82E:@?D2?57@C5:D4C6E:@?2CJFD6DDF492DA2J>6?E@75:G:56?5D D92C6C6AFC492D6D2?5DEC2E68:4@AA@CEF?:E:6D ,96@>A2?J567:?6D:ED and for discretionary uses such as payment of dividends, share repurchases and strategic opportunities. The Company defines its 7C6642D97=@H>62DFC62DE965:776C6?4636EH66??6E42D9AC@G:5653J@A6C2E:?824E:G:E:6D2?5?6E42D9FD65:?:?G6DE:?824E:G:E:6D 25;FDE65free cash flow measure as the difference between net cash provided by operating activities and net cash used in investing activities, adjusted 7@CE96:>A24E@73FD:?6DD24BF:D:E:@?D :72?J C6642D97=@H5@6D?@E92G62?JDE2?52C5:K65>62?:?8AC6D4C:3653J (2?5E96C67@C6 >2Jfor the impact of business acquisitions, if any. Free cash flow does not have any standardized meaning prescribed by GAAP and therefore, may not?@E364@>A2C23=6E@D:>:=2C>62DFC6DAC6D6?E653J@E96C4@>A2?:6D be comparable to similar measures presented by other companies. The,967@==@H:?8E23=6AC@G:56D2C64@?4:=:2E:@?@7?6E42D9AC@G:5653J@A6C2E:?824E:G:E:6D:?244@C52?46H:E9 ( 2DC6A@CE657@CE96 following table provides a reconciliation of net cash provided by operating activities in accordance with GAAP, as reported for the yearsJ62CD6?565 646>36C 2?5 E@E96?@? (7C6642D97=@HAC6D6?E6596C6:? ended December 31, 2020, 2019 and 2018, to the non-GAAP free cash flow presented herein: In!<;7::7=@=D7232034=@347 (1) Relates'3:/B3AB=B63/1?C7A7B7==@B"7;7B32 Transport Limited ("H&R") '/<2B63)@/ $ G ??F2=*6A@CE2020 Annual Report 31 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Operating,!. 0%*# 0%2%0%!/ activities Net&6E42D9AC@G:5653J@A6C2E:?824E:G:E:6D:?4C62D653J cash provided by operating activities increased by $242>:==:@?:? million in 2020 >2:?=J5F6E@=@H6C:?4@>6E2I:?DE2=>6?EA2J>6?ED2?52- + E2I mainly due to lower income tax instalment payments and a U.S. tax refundC67F?5C646:G65:? 2D2C6DF=E@7E96* +4E A2CE=J@77D6E3J=@H6C62C?:?8D6I4=F5:?8?@? 42D9:E6>D received in 2020 as a result of the CARES Act, partly offset by lower earnings excluding non-cash items. Pension&3 Income!<1=;3B/F>/G;3 Investing*2!/0%*# 0%2%0%!/ activities Net&6E42D9FD65:?:?G6DE:?824E:G:E:6D564C62D653J cash used in investing activities decreased by $1,244 >:==:@?:? million in 2020, >2:?=J2D2C6DF=E@7=@H6CAC@A6CEJ255:E:@?D:? 4@>A2C65E@E96 mainly as a result of lower property additions in 2020 compared to the recordC64@C5 42A:E2=6IA6?5:EFC6AC@8C2>2?5E96@>A2?JD24BF:D:E:@?D 2019 capital expenditure program and the Company's acquisitions@7,C2?D02?5 of TransX and H&R *:? in 2019. Property&@=>3@BG/227B7= In!<;7::7= Track,C24<2?5C@25H2J and roadway (1) $ 1,842 $ 2,262 Rolling*@==:?8DE@4< stock 478 999 BuildingsF:=5:?8D 103 87 Information!?7@C>2E:@?E649?@=@8J technology 301 421 Other'E96C 139 310 @=AA>@=>3@BG/227B7= Property&@=>3@BG/227B7= (1) In !< 2020, />>@=F7;/B3:G approximately 76% (2019 - 65%)=4B63)@/19/<2@=/2E/G>@=>3@BG/227B7=/7@A/<2 of the Track and roadway property additions were incurred to renew basic infrastructure. Costs relating to normal repairs and maintenance;/7 Disposal 7A>=A/:=4>@=>3@BG of property In!? 2020 2?5 E96C6H6C6?@D:8?:7:42?E5:DA@D2=D@7AC@A6CEJ 55:E:@?2=:?7@C>2E:@?C6=2E:?8E@5:DA@D2=D@7AC@A6CEJ:DAC@G:565:? and 2019, there were no significant disposals of property. Additional information relating to disposals of property is provided in Note$=B3 6 I%B63@7<1=;3— Other incomeE@E96@>A2?JD to the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED Annual Consolidated Financial Statements. 32 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis The,962==@42E:@?@7E96AFC492D6AC:46E@E962DD6ED24BF:C652?5=:23:=:E:6D2DDF>65H2DA6C7@C>65@?E9632D:D@7E96:CC6DA64E:G672:C allocation of the purchase price to the assets acquired and liabilities assumed was performed on the basis of their respective fair values.G2=F6D ,96@>A2?JFD652E9:C5A2CEJE@2DD:DE:?6DE23=:D9:?8E9672:CG2=F6D@7E962DD6ED24BF:C652?5=:23:=:E:6D2DDF>65H9:49C6DF=E65:? The Company used a third party to assist in establishing the fair values of the assets acquired and liabilities assumed which resulted in theE96C64@8?:E:@?@7:56?E:7:23=6?6E2DD6ED@7>:==:@?2?58@@5H:==@7>:==:@? ,968@@5H:==24BF:C65E9C@F89E963FD:?6DD4@>3:?2E:@?:D recognition of identifiable net assets of $93 million and goodwill of $12 million. The goodwill acquired through the business combination is mainly>2:?=J2EEC:3FE23=6E@E96AC6>:F>@72?6DE23=:D9653FD:?6DD@A6C2E:@? ,96@>A2?JDAFC492D6AC:462==@42E:@?:D?@H7:?2= attributable to the premium of an established business operation. The Company's purchase price allocation is now final. The,96@>A2?JD@?D@=:52E652=2?46+966E Company's Consolidated Balance SheetsD:?4=F56E962DD6ED2?5=:23:=:E:6D@7 include the assets and liabilities of H&R *2D@7 646>36C E9624BF:D:E:@?52E6 +:?46 as of December 2, 2019, the acquisition date. Since theE9624BF:D:E:@?52E6 acquisition date, H&R's *DC6DF=ED@7@A6C2E:@?D92G6366?:?4=F565:?E96@>A2?JDC6DF=ED@7@A6C2E:@?D ,96@>A2?J92D?@EAC@G:565AC@ results of operations have been included in the Company's results of operations. The Company has not provided pro 7@C>2:?7@C>2E:@?C6=2E:?8E@E96AC6 24BF:D:E:@?A6C:@52D:EH2D?@E>2E6C:2= forma information relating to the pre-acquisition period as it was not material. '?%2C49 E96@>A2?J24BF:C65,C2?D0 ,96E@E2=AFC492D6AC:46@7>:==:@?:?4=F5652?:?:E:2=42D9A2J>6?E@7 On March 20, 2019, the Company acquired TransX. The total purchase price of $192 million included an initial cash payment of $170 million>:==:@?2?5255:E:@?2=4@?D:56C2E:@?@7>:==:@?A2:5@?F8FDE FA@?249:6G6>6?E@7E2C86ED =6DD2?25;FDE>6?E@7>:==:@?:?E96 and additional consideration of $25 million paid on August 27, 2019 upon achievement of targets, less an adjustment of $3 million in the 7@FCE9BF2CE6C@7 E@C67=64EE96D6EE=6>6?E@7H@C<:?842A:E2= fourth quarter of 2019 to reflect the settlement of working capital. The,962==@42E:@?@7E96AFC492D6AC:46E@E962DD6ED24BF:C652?5=:23:=:E:6D2DDF>65H2DA6C7@C>65@?E9632D:D@7E96:CC6DA64E:G672:C allocation of the purchase price to the assets acquired and liabilities assumed was performed on the basis of their respective fair values.G2=F6D ,96@>A2?JFD652E9:C5A2CEJE@2DD:DE:?6DE23=:D9:?8E9672:CG2=F6D@7E962DD6ED24BF:C652?5=:23:=:E:6D2DDF>65H9:49C6DF=E65:? The Company used a third party to assist in establishing the fair values of the assets acquired and liabilities assumed which resulted in theE96C64@8?:E:@?@7:56?E:7:23=6?6E2DD6ED@7>:==:@?2?58@@5H:==@7>:==:@? ,968@@5H:==24BF:C65E9C@F89E963FD:?6DD4@>3:?2E:@? recognition of identifiable net assets of $134 million and goodwill of $58 million. The goodwill acquired through the business combination is:D>2:?=J2EEC:3FE23=6E@E96AC6>:F>@72?6DE23=:D9653FD:?6DD@A6C2E:@? ,96@>A2?JDAFC492D6AC:462==@42E:@?:D?@H7:?2= mainly attributable to the premium of an established business operation. The Company's purchase price allocation is now final. The,96@>A2?JD@?D@=:52E652=2?46+966ED:?4=F56E962DD6ED2?5=:23:=:E:6D@7,C2?D02D@7%2C49 E9624BF:D:E:@?52E6 +:?46 Company's Consolidated Balance Sheets include the assets and liabilities of TransX as of March 20, 2019, the acquisition date. Since theE9624BF:D:E:@?52E6 ,C2?D0DC6DF=ED@7@A6C2E:@?D92G6366?:?4=F565:?E96@>A2?JDC6DF=ED@7@A6C2E:@?D ,96@>A2?J92D?@EAC@G:565 acquisition date, TransX's results of operations have been included in the Company's results of operations. The Company has not provided proAC@7@C>2:?7@C>2E:@?C6=2E:?8E@E96AC6 24BF:D:E:@?A6C:@52D:EH2D?@E>2E6C:2= forma information relating to the pre-acquisition period as it was not material. Additional55:E:@?2=:?7@C>2E:@?C6=2E:?8E@E9624BF:D:E:@?D:DAC@G:565:? information relating to the acquisitions is provided in Note$=B3 CA7<3AA1=;07A2?JD to the Company's 2020 ??F2=@?D@=:52E65Annual Consolidated Financial :?2?4:2=+E2E6>6?ED Statements. 2021 />7B/:3F>3<27BC@3>@=5@/; Capital expenditure program In!? 2021, E96@>A2?J6IA64EDE@:?G6DE2AAC@I:>2E6=J 3:==:@?:?:ED42A:E2=AC@8C2> H9:49H:==367:?2?465H:E942D986?6C2E657C@> the Company expects to invest approximately $3.0 billion in its capital program, which will be financed with cash generated from operations@A6C2E:@?D@CH:E942D97C@>7:?2?4:?824E:G:E:6D2DC6BF:C65 2D@FE=:?6536=@H or with cash from financing activities as required, as outlined below: P• $1.6 3:==:@?@?EC24<2?5C2:=H2J:?7C2DECF4EFC6>2:?E6?2?46E@DFAA@CED2762?5677:4:6?E@A6C2E:@?D :?4=F5:?8E96C6A=246>6?E@7C2:=2?5 billion on track and railway infrastructure maintenance to support safe and efficient operations, including the replacement of rail and ties,E:6D 2DH6==2D3C:586:>AC@G6>6?ED2?5@E96C86?6C2=2DD6E>2:?E6?2?46 as well as bridge improvements and other general asset maintenance; P• $1.2 3:==:@?@?:?:E:2E:G6DE@:?4C62D642A24:EJ2?56?23=68C@HE9 DF492DEC24<:?7C2DECF4EFC66IA2?D:@? :?G6DE>6?ED:?J2C5D2?5 billion on initiatives to increase capacity and enable growth, such as track infrastructure expansion, investments in yards and intermodal:?E6C>@52=E6C>:?2=D 2?5@?:?7@C>2E:@?E649?@=@8JE@:>AC@G6D276EJA6C7@C>2?46 @A6C2E:@?2=677:4:6?4J2?54FDE@>6CD6CG:462?5 terminals, and on information technology to improve safety performance, operational efficiency and customer service; and P• $0.2 3:==:@?@?6BF:A>6?E42A:E2=6IA6?5:EFC6D 2==@H:?8E96@>A2?JE@E2A8C@HE9@AA@CEF?:E:6D2?5:>AC@G6E96BF2=:EJ@7E967=66E !? billion on equipment capital expenditures, allowing the Company to tap growth opportunities and improve the quality of the fleet. In order@C56CE@92?5=66IA64E65EC277:4:?4C62D62?5:>AC@G6@A6C2E:@?2=677:4:6?4J &6IA64EDE@E2<656=:G6CJ@7 to handle expected traffic increase and improve operational efficiency, CN expects to take delivery of 491?6H8C2:?9@AA6C42CD:? new grain hopper cars in theE967:CDEBF2CE6C@7 first quarter of 2021. Financing%* * %*# 0%2%0%!/ activities Net&6E42D9FD65:?7:?2?4:?824E:G:E:6D:?4C62D653J cash used in financing activities increased by $804 >:==:@?:? million in 2020, AC:>2C:=J5C:G6?3J9:896 primarily driven by higherC?6EC6A2J>6?E@7563EA2CE=J@77D6E3J=@H6C net repayment of debt; partly offset by lower repurchasesC6AFC492D6D@74@>>@?D92C6D of common shares. Debt 30B47:==:@?million ($837>:==:@? million) 2.45% Notes&@E6D5F6 :?E96- + 42A:E2=>2C<6ED H9:49C6DF=E65:??6E due 2050 in the U.S. capital markets, which resulted in net proceedsAC@4665D@7 of $810 >:==:@? million; P• '? 63CF2CJ C6A2J>6?E@7-+On February 3, 2020, repayment of US$300 >:==:@? million ($397>:==:@? million) 2.40% &@E6D5F6 FA@?>2EFC:EJNotes due 2020 upon maturity; P• '? 63CF2CJ :DDF2?46@7-+On February 3, 2020, issuance of US$300 >:==:@?million ($397>:==:@?6BF:A>6?E=@2?F?56CE96?@? C6G@=G:?84C65:E724:=:EJ million) equipment loan under the non-revolving credit facility; P• '? 646>36COn December 1, 2020, :DDF2?46@7-+ issuance of US$25>:==:@? million ($32>:==:@?6BF:A>6?E=@2? million) equipment loan; P• Repayment *6A2J>6?E@76BF:A>6?E=@2?F?56CE96?@? C6G@=G:?84C65:E724:=:EJ@7 of equipment loan under the non-revolving credit facility of $15>:==:@? million; P• Net&6EC6A2J>6?E repayment of@74@>>6C4:2=A2A6C@7 commercial paper of $1,273 >:==:@? million; P• Proceeds(C@4665D7C@> from3@CC@H:?8DF?56CE96244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2>@7 borrowings under the accounts receivable securitization program of $450 >:==:@? million; P• Repayment*6A2J>6?E@73@CC@H:?8DF?56CE96244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2>@7 >:==:@? of borrowings under the accounts receivable securitization program of $650 million; P• Proceeds(C@4665D7C@>3@CC@H:?8DF?56CC6G@=G:?84C65:E724:=:EJ28C66>6?E@7 >:==:@? from borrowings under revolving credit facility agreement of $100 million; P• Repayment*6A2J>6?E@73@CC@H:?8DF?56CC6G@=G:?84C65:E724:=:EJ28C66>6?E@7 >:==:@?2?5 of borrowings under revolving credit facility agreement of $100 million; and P• Repayment*6A2J>6?E@77:?2?46=62D6D@7 of finance leases of $59 >:==:@? million. $ G ??F2=*6A@CE2020 Annual Report 33 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Debt 63E7:?2?4:?824E:G:E:6D:? financing activities in 2019 :?4=F565E967@==@H:?8included the following: P• '?&@G6>36C :DDF2?46@7On November 1, 2019, issuance of $450 >:==:@?million 3.05% &@E6D5F6 Notes due 2050 :?E962?25:2?42A:E2=>2C<6ED H9:49C6DF=E65:??6EAC@4665D@7in the Canadian capital markets, which resulted in net proceeds of $443>:==:@? million; P• '? 63CF2CJ :DDF2?46@7On February 8, 2019, issuance of $350 >:==:@? million 3.00% &@E6D5F6 2?5 Notes due 2029 and $450 >:==:@? &@E6D5F6 :?E962?25:2?42A:E2= million 3.60% Notes due 2049 in the Canadian capital markets,>2C<6ED H9:49C6DF=E65:?E@E2=?6EAC@4665D@7 which resulted in total net proceeds of $790 >:==:@?million; P• Net &6E:DDF2?46@74@>>6C4:2=A2A6C@7 issuance of commercial paper of $141>:==:@? million; P• Proceeds (C@4665D7C@>3@CC@H:?8DF?56CE96244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2>@7 from borrowings under the accounts receivable securitization program of $420 >:==:@? million; P• Repayment *6A2J>6?E@73@CC@H:?8DF?56CE96244@F?EDC646:G23=6D64FC:E:K2E:@?AC@8C2>@7 of borrowings under the accounts receivable securitization program of $220 >:==:@?2?5million; and P• Repayment *6A2J>6?E@77:?2?46=62D6D@7 of finance leases of $162>:==:@? million. 2D9@3E2:?657C@>E96:DDF2?46@7563EH2DFD657@C86?6C2=4@CA@C2E6AFCA@D6D :?4=F5:?8E96C656>AE:@?2?5C67:?2?4:?8@7@FEDE2?5:?8Cash obtained from the issuance of debt was used for general corporate purposes, including the redemption and refinancing of outstanding indebtedness,:?563E65?6DD D92C6C6AFC492D6D 24BF:D:E:@?D2?5@E96C3FD:?6DD@AA@CEF?:E:6D 55:E:@?2=:?7@C>2E:@?C6=2E:?8E@E96@>A2?JD@FEDE2?5:?8 share repurchases, acquisitions and other business opportunities. Additional information relating to the Company's outstanding debt563ED64FC:E:6D:DAC@G:565:? securities is provided in Note$=B3I 30B 15 — Debt toE@E96@>A2?JD the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED Annual Consolidated Financial Statements. Repurchase'3>C@16/A3=41=;;=<A6/@3A of common shares The,96@>A2?J>2JC6AFC492D6:ED4@>>@?D92C6DAFCDF2?EE@2&!2EAC6G2:=:?8>2C<6EAC:46DA=FD3C@<6C286766D @CDF49@E96CAC:46D2D Company may repurchase its common shares pursuant to a NCIB at prevailing market prices plus brokerage fees, or such other prices as may>2J36A6C>:EE653JE96,@C@?E@+E@4< I492?86,+0 ,96@>A2?JC6AFC492D65 >:==:@?4@>>@?D92C6DF?56C:ED&!67764E:G6 be permitted by the Toronto Stock Exchange (TSX). The Company repurchased 2.0 million common shares under its NCIB effective between36EH66? 63CF2CJ 2?5"2?F2CJ H9:492==@H657@CE96C6AFC492D6@7FAE@ February 1, 2020 and January 31, 2021, which allowed for the repurchase of up to 16.0 >:==:@?4@>>@?D92C6D million common shares. Previous(C6G:@FD&!D2==@H657@CE96C6AFC492D6@7FAE@ NCIBs allowed for the repurchase of up to 22.0>:==:@?4@>>@?D92C6D36EH66? 63CF2CJ 2?5"2?F2CJ 2?5FA million common shares between February 1, 2019 and January 31, 2020, and up toE@ >:==:@?4@>>@?D92C6D36EH66?'4E@36C 2?5"2?F2CJ 5.5 million common shares between October 30, 2018 and January 31, 2019. The,967@==@H:?8E23=6AC@G:56DE96:?7@C>2E:@?C6=2E65E@E96D92C6C6AFC492D6D7@CE96J62CD6?565 646>36C 2?5 following table provides the information related to the share repurchases for the years ended December 31, 2020, 2019 and 2018: (1) Includes!<1:C23A0@=93@/53433A brokerage fees. (2) Includes!<1:C23A @3>C@16/A3A4@=;B63%1B=03@ %1B=03@ $! E67161= '?On January"2?F2CJ E96@2C5@7 :C64E@CD@7E96@>A2?J2AAC@G652?6H&! H9:492==@HD7@CE96C6AFC492D6@7FAE@ 26, 2021, the Board of Directors of the Company approved a new NCIB, which allows for the repurchase of up to 14>:==:@?4@>>@? million common sharesD92C6D36EH66? 63CF2CJR 2?5"2?F2CJR ,96@>A2?J6IA64EDE@C6DF>6:EDD92C6C6AFC492D6D:?E967:CDEBF2CE6C@7 between February 1, 2021 and January 31, 2022. The Company expects to resume its share repurchases in the first quarter of 2021 underF?56CE96?6H&! the new NCIB. The,96@>A2?JOD&!?@E:46D>2J367@F?5@?=:?6@?+ *2EHHH D652C 4@> Company's NCIB notices may be found online on SEDAR at www.sedar.com 2?5@?E96+ DH63D:E62EHHH D64 8@Gand on the SEC's website at www.sec.govE9C@F89 * through EDGAR. Printed(C:?E654@A:6D>2J36@3E2:?653J4@?E24E:?8E96@CA@C2E6+64C6E2CJOD'77:46 copies may be obtained by contacting the Corporate Secretary's Office. 34 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Share(6/@3)@CABA Trusts The,96@>A2?JD >A=@J666?67:E(=2?,CFDED+92C6,CFDEDAFC492D6&D4@>>@?D92C6D@?E96@A6?>2C<6E H9:492C6FD65E@56=:G6C Company's Employee Benefit Plan Trusts ("Share Trusts") purchase CN's common shares on the open market, which are used to deliver common4@>>@?D92C6DF?56CE96+92C6-?:ED(=2?2?5 shares under the Share Units Plan and, beginning368:??:?8:? in 2019,E96 >A=@J66+92C6!?G6DE>6?E(=2? +!( +92C6DAFC492D653JE96+92C6 the Employee Share Investment Plan (ESIP). Shares purchased by the Share Trusts,CFDED2C6C6E2:?65F?E:=E96@>A2?J:?DECF4EDE96ECFDE66E@EC2?D76CD92C6DE@A2CE:4:A2?ED@7E96+92C6-?:ED(=2?@CE96 +!( 55:E:@?2= are retained until the Company instructs the trustee to transfer shares to participants of the Share Units Plan or the ESIP. Additional information:?7@C>2E:@?C6=2E:?8E@+92C6,CFDED:DAC@G:565:? relating to Share Trusts is provided in Note$=B3I(6/@31/>7B/: 18 — Share capital toE@E96@>A2?JD the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED Annual Consolidated Financial Statements. The,967@==@H:?8E23=6AC@G:56DE96:?7@C>2E:@?C6=2E65E@E96D92C6AFC492D6D2?5D6EE=6>6?ED3J+92C6,CFDEDF?56CE96+92C6-?:ED(=2?2?5 following table provides the information related to the share purchases and settlements by Share Trusts under the Share Units Plan and theE96 +!(7@CE96J62CD6?565 646>36C ESIP for the years ended December 31, 2020, 2019 2?5and 2018: In!<;7::7=B>3@A6/@32/B/ millions, except per share data .3/@3<232 313;03@ Year ended December 31, 2020 2019 2018 Share)4->1/4-?1?.E)4->1+:5@?&8-:)4->1*>A?@? purchases by Share Units Plan Share Trusts Number&F>36C@74@>>@?D92C6D of common shares H— N— 0.4 /6:89E65 2G6C286AC:46A6CD92C6Weighted-average price per share $ H— $ N— $ 104.87 Amount>@F?E@7AFC492D6 of purchase $ H— $ N— $ 38 Share)4->1/4-?1?.E) &)4->1*>A?@? purchases by ESIP Share Trusts Number&F>36C@74@>>@?D92C6D of common shares 0.1 0.3 N/A& /6:89E65 2G6C286AC:46A6CD92C6Weighted-average price per share $ 123.03 $ 118.83 N/A& Amount>@F?E@7AFC492D6 of purchase $ 14 $ 33 N/A& Total*;@-8/4-?1? purchases 14 $ 33 $ 38 Dividends 7D723<2A>/72 paid During FC:?8 2020, E96@>A2?JA2:5BF2CE6C=J5:G:56?5D@7 the Company paid quarterly dividends of $0.5750 A6CD92C62>@F?E:?8E@per share amounting to $1,634 >:==:@? 4@>A2C65E@ million, compared to $1,544 >:==:@? 2EE96C2E6@7 million, at the rate of $0.5375 A6CD92C6 :? per share, in 2019. @C For 2021, E96@>A2?JD@2C5@7 :C64E@CD2AAC@G652?:?4C62D6@7E@E96BF2CE6C=J5:G:56?5E@4@>>@? the Company's Board of Directors approved an increase of 7% to the quarterly dividend to common shareholders,D92C69@=56CD 7C@> from $0.5750 A6CD92C6:? per share in 2020 E@to $0.6150 A6CD92C6:?per share in 2021. Contractual;:@>-/@A-8;.853-@5;:? obligations In!?E96?@C>2=4@FCD6@73FD:?6DD E96@>A2?J:?4FCD4@?EC24EF2=@3=:82E:@?D ,967@==@H:?8E23=6D6ED7@CE9E96@>A2?JD4@?EC24EF2= the normal course of business, the Company incurs contractual obligations. The following table sets forth the Company's contractual obligations@3=:82E:@?D7@CE967@==@H:?8:E6>D2D2E 646>36C R for the following items as at December 31, 2020: 2026 & In!<;7::7==:23:=:E:6D long-term liabilities (5) 696 66 54 48 40 53 435 )=B/:1= (1) Presented&@3A3 $ G ??F2=*6A@CE2020 Annual Report 35 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Adjusted06A?@1001.@ @; -06A?@10 *9A8@5<81 debt-to-adjusted EBITDA multiple Management%2?286>6?E36=:6G6DE92EE9625;FDE65563E E@ 25;FDE65 !, >F=E:A=6:D2FD67F=4C65:E>62DFC63642FD6:EC67=64EDE96@>A2?JD23:=:EJE@ believes that the adjusted debt-to-adjusted EBITDA multiple is a useful credit measure because it reflects the Company's ability to serviceD6CG:46:ED563E2?5@E96C=@?8 E6C>@3=:82E:@?D ,96@>A2?J42=4F=2E6DE9625;FDE65563E E@ 25;FDE65 !, >F=E:A=62D25;FDE65563E its debt and other long-term obligations. The Company calculates the adjusted debt-to-adjusted EBITDA multiple as adjusted debt 5:G:5653J25;FDE65 !, R,96D6>62DFC6D5@?@E92G62?JDE2?52C5:K65>62?:?8AC6D4C:3653J (2?5E96C67@C6 >2J?@E36divided by adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable4@>A2C23=6E@D:>:=2C>62DFC6DAC6D6?E653J@E96C4@>A2?:6D to similar measures presented by other companies. The,967@==@H:?8E23=6AC@G:56D2C64@?4:=:2E:@?@7563E2?5?6E:?4@>6:?244@C52?46H:E9 ( 2DC6A@CE657@CE96J62CD6?565 following table provides a reconciliation of debt and net income in accordance with GAAP, as reported for the years ended December 646>36CR 2?5 31, 2020, 2019 and 2018, E@E9625;FDE65>62DFC6DAC6D6?E6596C6:? H9:4992G6366?FD65E@42=4F=2E6E96?@? (25;FDE65 to the adjusted measures presented herein, which have been used to calculate the non-GAAP adjusted 563E E@ 25;FDE65 !, >F=E:A=6debt-to-adjusted EBITDA multiple: (1) )63=;>/ All==7@CH2C5 =@@<:?8DE2E6>6?ED5:D4FDD65:?E9:DD64E:@?2C6DF3;64EE@C:D 36 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Off%22.-8-:/1?411@->>-:3191:@? balance sheet arrangements Guarantees A->-:@11?-:05:019:525/-@5;:? and indemnifications In!?E96?@C>2=4@FCD6@73FD:?6DD E96@>A2?J6?E6CD:?E@28C66>6?EDE92E>2J:?G@=G6AC@G:5:?88F2C2?E66D@C:?56>?:7:42E:@?DE@E9:C5 the normal course of business, the Company enters into agreements that may involve providing guarantees or indemnifications to third A2CE:6D2?5@E96CD H9:49>2J6IE6?536J@?5E96E6C>@7E9628C66>6?ED ,96D6:?4=F56 3FE2C6?@E=:>:E65E@ DE2?53J=6EE6CD@74C65:E DFC6EJparties and others, which may extend beyond the term of the agreements. These include, but are not limited to, standby letters of credit, surety and2?5@E96C3@?5D 2?5:?56>?:7:42E:@?DE92E2C64FDE@>2CJ7@CE96EJA6@7EC2?D24E:@?@C7@CE96C2:=H2J3FD:?6DD D2E 646>36C E96 other bonds, and indemnifications that are customary for the type of transaction or for the railway business. As at December 31, 2020, the @>A2?J92DCompany has not?@EC64@C5652=:23:=:EJH:E9C6DA64EE@8F2C2?E66D2?5:?56>?:7:42E:@?D 55:E:@?2=:?7@C>2E:@?C6=2E:?8E@8F2C2?E66D2?5 recorded a liability with respect to guarantees and indemnifications. Additional information relating to guarantees and indemnifications:?56>?:7:42E:@?D:DAC@G:565:? is provided in Note$=B3I#/8=@1=;;7B;3 Outstanding%A@?@-:05:3?4->10-@- share data AsD2E 63CF2CJR E96@>A2?J925 at February 1, 2021, the Company had 710.3 >:==:@?4@>>@?D92C6D2?5 >:==:@?DE@4<@AE:@?D@FEDE2?5:?8 million common shares and 4.3 million stock options outstanding. Financial 5:-:/5-85:?@>A91:@? instrument Risk(5?79-:-3191:@ management In!?E96?@C>2=4@FCD6@73FD:?6DD E96@>A2?J:D6IA@D65E@G2C:@FDC:D Credit .! %0.%/' risk C65:EC:D<2C:D6D7C@>42D92?5E6>A@C2CJ:?G6DE>6?ED 244@F?EDC646:G23=62?556C:G2E:G67:?2?4:2=:?DECF>6?ED ,@>2?2864C65:EC:D<Credit risk arises from cash and temporary investments, accounts receivable and derivative financial instruments. To manage credit risk associated2DD@4:2E65H:E942D92?5E6>A@C2CJ:?G6DE>6?ED E96@>A2?JA=246DE96D67:?2?4:2=2DD6EDH:E98@G6C?>6?ED >2;@C7:?2?4:2=:?DE:EFE:@?D @C with cash and temporary investments, the Company places these financial assets with governments, major financial institutions, or other@E96C4C65:EH@CE9J4@F?E6CA2CE:6D 2?5A6C7@C>D@?8@:?8C6G:6HD@7E96D66?E:E:6D ,@>2?2864C65:EC:D<2DD@4:2E65H:E9244@F?EDC646:G23=6 creditworthy counterparties, and performs ongoing reviews of these entities. To manage credit risk associated with accounts receivable, theE96@>A2?JC6G:6HDE964C65:E9:DE@CJ@76249?6H4FDE@>6C >@?:E@CDE967:?2?4:2=4@?5:E:@?2?54C65:E=:>:ED@7:ED4FDE@>6CD 2?5<66ADE96 Company reviews the credit history of each new customer, monitors the financial condition and credit limits of its customers, and keeps the average2G6C28652:=JD2=6D@FEDE2?5:?8H:E9:?2?2446AE23=6C2?86 ,96@>A2?JH@C Liquidity%-1% %05.%/' risk Liquidity$:BF:5:EJC:D<:DE96C:D<E92EDF77:4:6?E7F?5DH:==?@E362G2:=23=6E@D2E:D7J7:?2?4:2=@3=:82E:@?D2DE96J4@>65F6 !?255:E:@?E@42D986?6C2E65 risk is the risk that sufficient funds will not be available to satisfy financial obligations as they come due. In addition to cash generated 7C@>@A6C2E:@?D H9:49C6AC6D6?ED:EDAC:?4:A2=D@FC46@7=:BF:5:EJ E96@>A2?J>2?286D=:BF:5:EJC:D<3J2=:8?:?8@E96C6IE6C?2=D@FC46D@7from operations, which represents its principal source of liquidity, the Company manages liquidity risk by aligning other external sources of 7F?5DH9:4942?36@3E2:?65FA@?D9@CE?@E:46 DF492DC6G@=G:?84C65:E724:=:E:6D 4@>>6C4:2=A2A6CAC@8C2>D 2?52?244@F?EDC646:G23=6funds which can be obtained upon short notice, such as revolving credit facilities, commercial paper programs, and an accounts receivable securitizationD64FC:E:K2E:@?AC@8C2> DH6== E96@>A2?J42?:DDF6563ED64FC:E:6D:?E962?25:2?2?5- + 42A:E2=>2C<6EDF?56C:EDD96=7AC@DA64EFD2?5 program. As well, the Company can issue debt securities in the Canadian and U.S. capital markets under its shelf prospectus and registrationC68:DEC2E:@?DE2E6>6?E ,96@>A2?JD2446DDE@=@?8 E6C>7F?5D:?E96563E42A:E2=>2C<6ED56A6?5D@?:ED4C65:EC2E:?8D2?5>2C<6E statement. The Company's access to long-term funds in the debt capital markets depends on its credit ratings and market conditions.4@?5:E:@?D ,96@>A2?J36=:6G6DE92E:ED:?G6DE>6?E8C2564C65:EC2E:?8D4@?EC:3FE6E@C62D@?23=62446DDE@42A:E2=>2C<6ED +66E96D64E:@? The Company believes that its investment grade credit ratings contribute to reasonable access to capital markets. See the section of@7E9:D% 6?E:E=65 this MD&A entitled Liquidity"7?C727BG/<21/>7B/:@3A=C@13A and capital resources7@C255:E:@?2=:?7@C>2E:@?C6=2E:?8E@E96@>A2?JD2G2:=23=67:?2?4:?8D@FC46D2?5:ED for additional information relating to the Company's available financing sources and its credit4C65:EC2E:?8D ratings. $ G ??F2=*6A@CE2020 Annual Report 37 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Foreign+.!%#* 1..!* 5.%/' currency risk The,96@>A2?J4@?5F4ED:ED3FD:?6DD:?3@E92?2522?5E96- + 2?52D2C6DF=E :D27764E653J4FCC6?4J7=F4EF2E:@?D 92?86D:?E966I492?86 Company conducts its business in both Canada and the U.S. and as a result, is affected by currency fluctuations. Changes in the exchange rateC2E636EH66?E962?25:2?5@==2C2?5E96-+5@==2C27764EE96@>A2?JDC6G6?F6D2?56IA6?D6D ,@>2?2867@C6:8?4FCC6?4JC:D< E96 between the Canadian dollar and the US dollar affect the Company's revenues and expenses. To manage foreign currency risk, the @>A2?J56D:8?2E6D-+5@==2C 56?@>:?2E65563E@7E96A2C6?E4@>A2?J2D27@C6:8?4FCC6?4J96586@7:ED?6E:?G6DE>6?E:?7@C6:8?Company designates US dollar-denominated debt of the parent company as a foreign currency hedge of its net investment in foreign operations.@A6C2E:@?D D2C6DF=E 7C@>E9652E6D@756D:8?2E:@? 7@C6:8?6I492?8682:?D2?5=@DD6D@?EC2?D=2E:@?@7E96@>A2?JD-+5@==2C As a result, from the dates of designation, foreign exchange gains and losses on translation of the Company's US dollar- 56?@>:?2E65563E2C6C64@C565:?44F>F=2E65@E96C4@>AC696?D:G6=@DD H9:49>:?:>:K6DG@=2E:=:EJ@762C?:?8DC6DF=E:?87C@>E964@?G6CD:@?denominated debt are recorded in Accumulated other comprehensive loss, which minimizes volatility of earnings resulting from the conversion of@7-+5@==2C 56?@>:?2E65563E:?E@E962?25:2?5@==2C US dollar-denominated debt into the Canadian dollar. The,96@>A2?J2=D@6?E6CD:?E@7@C6:8?6I492?867@CH2C54@?EC24EDE@>2?286:ED6IA@DFC6E@7@C6:8?4FCC6?4JC:D< D2E 646>36C Company also enters into foreign exchange forward contracts to manage its exposure to foreign currency risk. As at December 31, 2020, E96@>A2?J925@FEDE2?5:?87@C6:8?6I492?867@CH2C54@?EC24EDH:E92?@E:@?2=G2=F6@7-+ the Company had outstanding foreign exchange forward contracts with a notional value of US$397>:==:@? million (2019 -+- US$1,088 >:==:@? million). 92?86D:?E9672:CG2=F6@77@C6:8?6I492?867@CH2C54@?EC24ED C6DF=E:?87C@>492?86D:?7@C6:8?6I492?86C2E6D 2C6C64@8?:K65:?'E96CChanges in the fair value of foreign exchange forward contracts, resulting from changes in foreign exchange rates, are recognized in Other income:?4@>6:?E96@?D@=:52E65+E2E6>6?ED@7!?4@>62DE96J@44FC @CE96J62C6?565 646>36C E96@>A2?JC64@C5652=@DD@7 in the Consolidated Statements of Income as they occur. For the year ended December 31, 2020, the Company recorded a loss of $3 million>:==:@? (2019 =@DD@7 - loss of $75>:==:@? million; 2018 82:?@7- gain of $157>:==:@? C6=2E65E@7@C6:8?6I492?867@CH2C54@?EC24ED ,96D682:?D2?5=@DD6DH6C6 million), related to foreign exchange forward contracts. These gains and losses were largely=2C86=J@77D6E3JE96C6 >62DFC6>6?E@7-+5@==2C 56?@>:?2E65>@?6E2CJ2DD6ED2?5=:23:=:E:6DC64@8?:K65:?'E96C:?4@>6 D2E 646>36C offset by the re-measurement of US dollar-denominated monetary assets and liabilities recognized in Other income. As at December 31, 2020, E9672:CG2=F6@7@FEDE2?5:?87@C6:8?6I492?867@CH2C54@?EC24ED:?4=F565:?'E96C4FCC6?E2DD6ED2?544@F?EDA2J23=62?5@E96CH2D the fair value of outstanding foreign exchange forward contracts included in Other current assets and Accounts payable and other was $nil?:= 2?5and $18>:==:@? C6DA64E:G6=J million, respectively (2019 - $nil?:=2?5 and $24>:==:@? C6DA64E:G6=J million, respectively). The,966DE:>2E652??F2=:>A24E@??6E:?4@>6@72@?6 46?E492?86:?E962?25:2?5@==2CC6=2E:G6E@E96-+5@==2C:D2AAC@I:>2E6=J estimated annual impact on net income of a one-cent change in the Canadian dollar relative to the US dollar is approximately $35 million.>:==:@? Interest*0!.!/0. 0!.%/' rate risk The,96@>A2?J:D6IA@D65E@:?E6C6DEC2E6C:D< H9:49:DE96C:D<E92EE9672:CG2=F6@C7FEFC642D97=@HD@727:?2?4:2=:?DECF>6?EH:==G2CJ2D2 Company is exposed to interest rate risk, which is the risk that the fair value or future cash flows of a financial instrument will vary as a resultC6DF=E@7492?86D:?>2C<6E:?E6C6DEC2E6D +F49C:D<6I:DED:?C6=2E:@?E@E96@>A2?JD563E ,96@>A2?J>2:?=J:DDF6D7:I65 C2E6563E H9:49 of changes in market interest rates. Such risk exists in relation to the Company's debt. The Company mainly issues fixed-rate debt, which exposes6IA@D6DE96@>A2?JE@G2C:23:=:EJ:?E9672:CG2=F6@7E96563E ,96@>A2?J2=D@:DDF6D563EH:E9G2C:23=6:?E6C6DEC2E6D H9:496IA@D6DE96 the Company to variability in the fair value of the debt. The Company also issues debt with variable interest rates, which exposes the @>A2?JE@G2C:23:=:EJ:?:?E6C6DE6IA6?D6 Company to variability in interest expense. To,@>2?286:?E6C6DEC2E6C:D< E96@>A2?J>2?286D:ED3@CC@H:?8D:?=:?6H:E9=:BF:5:EJ?665D >2EFC:EJD4965F=6 2?54FCC6?4J2?5:?E6C6DE manage interest rate risk, the Company manages its borrowings in line with liquidity needs, maturity schedule, and currency and interest rateC2E6AC@7:=6 !?2?E:4:A2E:@?@77FEFC6563E:DDF2?46D E96@>A2?J>2JFD656C:G2E:G6:?DECF>6?EDDF492D7@CH2C5C2E628C66>6?ED ,96 profile. In anticipation of future debt issuances, the Company may use derivative instruments such as forward rate agreements. The @>A2?J5@6D?@E4FCC6?E=J9@=52?JD:8?:7:42?E56C:G2E:G6:?DECF>6?EDE@>2?286:ED:?E6C6DEC2E6C:D< Company does not currently hold any significant derivative instruments to manage its interest rate risk. The,966DE:>2E652??F2=:>A24E@??6E:?4@>6@72@?6 A6C46?E492?86:?E96:?E6C6DEC2E6@?7=@2E:?8C2E6563E:D2AAC@I:>2E6=J estimated annual impact on net income of a one-percent change in the interest rate on floating rate debt is approximately $10 >:==:@? million. Commodity +))+ %05,.% !.%/' price risk The,96@>A2?J:D6IA@D65E@4@>>@5:EJAC:46C:D<C6=2E65E@AFC492D6D@77F6=2?5E96A@E6?E:2=C65F4E:@?:??6E:?4@>65F6E@:?4C62D6D:?E96 Company is exposed to commodity price risk related to purchases of fuel and the potential reduction in net income due to increases in the AC:46@75:6D6= F6=AC:46D2C6:>A24E653J86@A@=:E:42=6G6?ED 492?86D:?E9664@?@>J@CDFAA=J5:DCFAE:@?D F6=D9@CE286D42?@44FC5F6E@price of diesel. Fuel prices are impacted by geopolitical events, changes in the economy or supply disruptions. Fuel shortages can occur due to refineryC67:?6CJ5:DCFAE:@?D AC@5F4E:@?BF@E2C6DEC:4E:@?D 4=:>2E6 2?5=23@C2?5A@=:E:42=:?DE23:=:EJ disruptions, production quota restrictions, climate, and labor and political instability. The,96@>A2?J>2?286D7F6=AC:46C:D<3J@77D6EE:?8E96:>A24E@7C:D:?87F6=AC:46DH:E9E96@>A2?JD7F6=DFC492C86AC@8C2> ,96 Company manages fuel price risk by offsetting the impact of rising fuel prices with the Company's fuel surcharge program. The surchargeDFC492C862AA=:65E@4FDE@>6CD:D56E6C>:?65:?E96D64@?542=6?52C>@?E9AC:@CE@E96>@?E9:?H9:49:E:D2AA=:65 2?5:D86?6C2==J42=4F=2E65 applied to customers is determined in the second calendar month prior to the month in which it is applied, and is generally calculated usingFD:?8E962G6C286>@?E9=JAC:46@7'? the average monthly price of On-Highway :89H2J :6D6= 2?5 E@2=6DD6C6IE6?E /6DE ,6I2D!?E6C>65:2E64CF56@:= Diesel, and, to a lesser extent, West-Texas Intermediate crude oil. /9:=6E96@>A2?JD7F6=DFC492C86AC@8C2>AC@G:56D67764E:G64@G6C286 C6D:5F2=6IA@DFC6C6>2:?D8:G6?E92E7F6=AC:46C:D<42??@E36While the Company's fuel surcharge program provides effective coverage, residual exposure remains given that fuel price risk cannot be completely4@>A=6E6=J>2?28655F6E@E:>:?82?58:G6?E96G@=2E:=:EJ:?E96>2C<6E DDF49 E96@>A2?J>2J6?E6C:?E@56C:G2E:G6:?DECF>6?EDE@ managed due to timing and given the volatility in the market. As such, the Company may enter into derivative instruments to manage>2?286DF49C:D<H96?4@?D:56C652AAC@AC:2E6 such risk when considered appropriate. Fair -5>B-8A1;225:-:/5-85:?@>A91:@? value of financial instruments The,967:?2?4:2=:?DECF>6?EDE92EE96@>A2?J>62DFC6D2E72:CG2=F6@?2C64FCC:?832D:D:?A6C:@5DDF3D6BF6?EE@:?:E:2=C64@8?:E:@?2C6 financial instruments that the Company measures at fair value on a recurring basis in periods subsequent to initial recognition are categorized42E68@C:K65:?E@E967@==@H:?8=6G6=D@7E9672:CG2=F69:6C2C49J32D65@?E96568C66E@H9:49:?AFED2C6@3D6CG23=6 into the following levels of the fair value hierarchy based on the degree to which inputs are observable: P• Level $6G6=!?AFED2C6BF@E65AC:46D7@C:56?E:42=:?DECF>6?ED:?24E:G6>2C<6ED 1: Inputs are quoted prices for identical instruments in active markets P• Level $6G6=+:8?:7:42?E:?AFED@E96CE92?BF@E65AC:46D:?4=F565:?$6G6=2C6@3D6CG23=6 2: Significant inputs (other than quoted prices included in Level 1) are observable P• Level $6G6=+:8?:7:42?E:?AFED2C6F?@3D6CG23=6 3: Significant inputs are unobservable The,9642CCJ:?82>@F?ED@72D92?542D96BF:G2=6?ED2?5*6DEC:4E6542D92?542D96BF:G2=6?ED2AAC@I:>2E672:CG2=F6 ,96D67:?2?4:2= carrying amounts of Cash and cash equivalents and Restricted cash and cash equivalents approximate fair value. These financial instruments:?DECF>6?ED:?4=F569:89=J=:BF:5:?G6DE>6?EDAFC492D65E9C66>@?E9D@C=6DD7C@>>2EFC:EJ 7@CH9:49E9672:CG2=F6:D56E6C>:?653JC676C6?46 include highly liquid investments purchased three months or less from maturity, for which the fair value is determined by reference toE@BF@E65AC:46D:?24E:G6>2C<6ED quoted prices in active markets. The,9642CCJ:?82>@F?ED@744@F?EDC646:G23=6 'E96C4FCC6?E2DD6ED2?544@F?EDA2J23=62?5@E96C2AAC@I:>2E672:CG2=F65F6E@E96:C carrying amounts of Accounts receivable, Other current assets and Accounts payable and other approximate fair value due to their shortD9@CE>2EFC:EJ F?=6DD@E96CH:D6DA64:7:65 ,9672:CG2=F6@756C:G2E:G67:?2?4:2=:?DECF>6?ED :?4=F565:?'E96C4FCC6?E2DD6ED2?544@F?ED maturity, unless otherwise specified. The fair value of derivative financial instruments, included in Other current assets and Accounts A2J23=62?5@E96C:D4=2DD:7:652D$6G6=2?5:DFD65E@>2?286E96@>A2?JD6IA@DFC6E@7@C6:8?4FCC6?4JC:D< ,9672:CG2=F6:D>62DFC653Jpayable and other is classified as Level 2 and is used to manage the Company's exposure to foreign currency risk. The fair value is measured by 5:D4@F?E:?87FEFC642D97=@HDFD:?825:D4@F?EC2E656C:G657C@>>2C<6E52E27@C7:?2?4:2=:?DECF>6?EDDF3;64EE@D:>:=2CC:D 38 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis The,9672:CG2=F6@72DD6ED96=57@CD2=6 :?4=F565:?'E96C4FCC6?E2DD6ED:D4=2DD:7:652D$6G6= 55:E:@?2=5:D4=@DFC6D2C6AC@G:565:? fair value of assets held for sale, included in Other current assets is classified as Level 3. Additional disclosures are provided in Note$=B3I 5 — AssetsAA3BA63:24=@A/:3 held for sale toE@E96@>A2?JD ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED the Company's 2020 Annual Consolidated Financial Statements. The,9642CCJ:?82>@F?E@7E96@>A2?JD563E5@6D?@E2AAC@I:>2E672:CG2=F6 ,9672:CG2=F6:D6DE:>2E6532D65@?BF@E65>2C<6EAC:46D7@C carrying amount of the Company's debt does not approximate fair value. The fair value is estimated based on quoted market prices for theE96D2>6@CD:>:=2C563E:?DECF>6?ED 2DH6==2D5:D4@F?E6542D97=@HDFD:?84FCC6?E:?E6C6DEC2E6D7@C563EH:E9D:>:=2CE6C>D 4@>A2?JC2E:?8 same or similar debt instruments, as well as discounted cash flows using current interest rates for debt with similar terms, company rating, and2?5C6>2:?:?8>2EFC:EJ ,96@>A2?J4=2DD:7:6D563E2D$6G6= D2E 646>36C E96@>A2?JD563E 6I4=F5:?87:?2?46=62D6D 9252 remaining maturity. The Company classifies debt as Level 2. As at December 31, 2020, the Company's debt, excluding finance leases, had a carrying42CCJ:?82>@F?E@7 amount of $12,832 >:==:@? million (2019 - $13,662 >:==:@?2?5272:CG2=F6@7 million) and a fair value of $16,046 >:==:@? million (2019 - $15,667 >:==:@? million). Recent(1/1:@-//;A:@5:3<>;:;A:/191:@? accounting pronouncements The,967@==@H:?8C646?E+-:DDF653JE96 :?2?4:2=44@F?E:?8+E2?52C5D@2C5 +H2D25@AE653JE96@>A2?J5FC:?8E964FCC6?EJ62C following recent ASU issued by the Financial Accounting Standards Board (FASB) was adopted by the Company during the current year: ASU)+ 5:-:/5-85:?@>A91:@? >105@8;??1?*;<5/#1-?A>191:@;2/>105@8;??1?;:25:-:/5-85:?@>A91:@? 2016-13 Financial instruments - Credit losses (Topic 326): Measurement of credit losses on financial instruments The,96+-C6BF:C6D7:?2?4:2=2DD6ED>62DFC652E2>@CE:K654@DEE@36AC6D6?E652EE96?6E2>@F?E6IA64E65E@364@==64E65 ,96?6HDE2?52C5 ASU requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new standard replacesC6A=246DE964FCC6?E:?4FCC65=@DD:>A2:C>6?E>6E9@5@=@8JH:E9@?6E92EC67=64ED6IA64E654C65:E=@DD6D the current incurred loss impairment methodology with one that reflects expected credit losses. The,96@>A2?J25@AE65E9:DDE2?52C5:?E967:CDEBF2CE6C@7 H:E92?67764E:G652E6@7"2?F2CJ ,9625@AE:@?@7E9:DDE2?52C55:5 Company adopted this standard in the first quarter of 2020 with an effective date of January 1, 2020. The adoption of this standard did not?@E92G62?:>A24E@?E96@>A2?JOD@?D@=:52E65 :?2?4:2=+E2E6>6?ED @E96CE92?E96FA52E6E@E9644@F?EDC646:G23=6244@F?E:?8A@=:4J:? have an impact on the Company's Consolidated Financial Statements, other than the update to the Accounts receivable accounting policy in Note$=B3 (C;;/@G=4A75<7471/=:7173A 1- Summary of significant accounting policiesE@E96@>A2?JD to the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED Annual Consolidated Financial Statements. The,967@==@H:?8C646?E+-:DDF653J +42>6:?E@67764E5FC:?8E964FCC6?EJ62C2?592D?@E366?25@AE653JE96@>A2?J following recent ASU issued by FASB came into effect during the current year and has not been adopted by the Company: ASU)+ (121>1:/1>-@1>12;>9*;<5/ -/585@-@5;:;2@411221/@?;2>121>1:/1>-@1>12;>9;:25:-:/5-8>1<;>@5:3 2020-04 Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting London$@?5@?!?E6C32?<'776C65*2E6$!'*:D236?49>2C<:?E6C6DEC2E6C676C6?465:?2G2C:6EJ@728C66>6?EDE92E2C6FD653J2==EJA6D@76?E:E:6D Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. AtEE966?5@7 32? The,967@==@H:?8C646?E+-:DDF653J +92D2?67764E:G652E627E6C 646>36C 2?592D?@E366?25@AE653JE96@>A2?J following recent ASU issued by FASB has an effective date after December 31, 2020 and has not been adopted by the Company: ASU)+ :/;91@-D1?*;<5/ )59<852E5:3@41-//;A:@5:32;>5:/;91@-D1? 2019-12 Income taxes (Topic 740): Simplifying the accounting for income taxes The,96+-255D?6H8F:52?46E@D:>A=:7J244@F?E:?87@C:?4@>6E2I6D 492?86DE96244@F?E:?87@C46CE2:?:?4@>6E2IEC2?D24E:@?D2?5>2<6D ASU adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor>:?@C:>AC@G6>6?EDE@E964@5:7:42E:@? ,96+-:?EC@5F46D?6H8F:52?46E92EAC@G:56D2A@=:4J6=64E:@?E@?@E2==@42E64@?D@=:52E65:?4@>6 improvements to the codification. The ASU introduces new guidance that provides a policy election to not allocate consolidated income taxesE2I6DH96?2>6>36C@724@?D@=:52E65E2IC6EFC?:D?@EDF3;64EE@:?4@>6E2I 2?5AC@G:56D8F:52?46E@6G2=F2E6H96E96C2DE6A FA:?E2I when a member of a consolidated tax return is not subject to income tax, and provides guidance to evaluate whether a step-up in tax 32D:D@78@@5H:==C6=2E6DE@23FD:?6DD4@>3:?2E:@?:?H9:493@@<8@@5H:==H2DC64@8?:K65@C2D6A2C2E6EC2?D24E:@? !?255:E:@? E96+-basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. In addition, the ASU changes492?86DE964FCC6?E8F:52?463J>2<:?82?:?EC2A6C:@52==@42E:@?:7E96C6:D2=@DD:?4@?E:?F:?8@A6C2E:@?D2?582:?D@FED:56@74@?E:?F:?8 the current guidance by making an intraperiod allocation if there is a loss in continuing operations and gains outside of continuing operations;@A6C2E:@?D3J56E6C>:?:?8H96?25676CC65E2I=:23:=:EJ:DC64@8?:K6527E6C2?:?G6DE@C:?27@C6:8?6?E:EJEC2?D:E:@?DE@@C7C@>E966BF:EJ by determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method>6E9@5@7244@F?E:?83J244@F?E:?87@CE2I=2H492?86D2?5J62C E@ 52E6=@DD6D:?:?E6C:>A6C:@5D2?53J56E6C>:?:?89@HE@2AA=JE96 of accounting; by accounting for tax law changes and year-to-date losses in interim periods; and by determining how to apply the income:?4@>6E2I8F:52?46E@7C2?49:D6E2I6D2?5@E96CE2I6DE92E2C6A2CE:2==J32D65@?:?4@>6 tax guidance to franchise taxes and other taxes that are partially based on income. The,96+-:D67764E:G67@C2??F2=2?52?J:?E6C:>A6C:@5368:??:?827E6C 646>36C 2C=J25@AE:@?:DA6C>:EE65 ASU is effective for annual and any interim period beginning after December 15, 2020. Early adoption is permitted. The,96@>A2?J92D6G2=F2E65E9667764EDE92EE9625@AE:@?@7E96+-H:==92G6@?:ED@?D@=:52E65 :?2?4:2=+E2E6>6?ED2?592D Company has evaluated the effects that the adoption of the ASU will have on its Consolidated Financial Statements and has concluded4@?4=F565:EH:==?@E92G62D:8?:7:42?E:>A24E it will not have a significant impact. 'E96CC646?E=J:DDF65+-DC6BF:C65E@362AA=:657@CA6C:@5D368:??:?8@?@C27E6C"2?F2CJ 92G6366?6G2=F2E653JE96@>A2?J2?5Other recently issued ASUs required to be applied for periods beginning on or after January 1, 2021 have been evaluated by the Company and are2C6?@E6IA64E65E@92G62D:8?:7:42?E:>A24E@?E96@>A2?JD@?D@=:52E65 :?2?4:2=+E2E6>6?ED not expected to have a significant impact on the Company's Consolidated Financial Statements. $ G ??F2=*6A@CE2020 Annual Report 39 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Critical>5@5/-8-//;A:@5:31?@59-@1? accounting estimates The,96AC6A2C2E:@?@77:?2?4:2=DE2E6>6?ED:?244@C52?46H:E9 (C6BF:C6D>2?286>6?EE@>2<66DE:>2E6D ;F58>6?ED2?52DDF>AE:@?DE92E preparation of financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect27764EE96C6A@CE652>@F?ED@7C6G6?F6D 6IA6?D6D 2DD6ED2?5=:23:=:E:6D 2?5E965:D4=@DFC6@74@?E:?86?E2DD6ED2?5=:23:=:E:6D2EE9652E6@7 the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent assets and liabilities at the date of theE967:?2?4:2=DE2E6>6?ED '?2?@?8@:?832D:D >2?286>6?EC6G:6HD:ED6DE:>2E6D32D65FA@?2G2:=23=6:?7@C>2E:@? 4EF2=C6DF=ED4@F=55:776C financial statements. On an ongoing basis, management reviews its estimates based upon available information. Actual results could differ 7C@>E96D66DE:>2E6D ,96@>A2?JDA@=:4:6D7@C:?4@>6E2I6D 42A:E2=6IA6?5:EFC6D 56AC64:2E:@? A6?D:@?D2?5@E96CA@DEC6E:C6>6?E36?67:ED from these estimates. The Company's policies for income taxes, capital expenditures, depreciation, pensions and other postretirement benefits, A6CD@?2=:?;FCJ2?5@E96C4=2:>D2?56?G:C@?>6?E2=>2EE6CD C6BF:C6>2?286>6?ED>@C6D:8?:7:42?E;F58>6?ED2?56DE:>2E6D:?E96personal injury and other claims and environmental matters, require managements more significant judgments and estimates in the AC6A2C2E:@?@7E96@>A2?JD4@?D@=:52E657:?2?4:2=DE2E6>6?ED2?5 2DDF49 2C64@?D:56C65E@364C:E:42= ,967@==@H:?8:?7@C>2E:@?D9@F=536preparation of the Company's consolidated financial statements and, as such, are considered to be critical. The following information should be readC625:?4@?;F?4E:@?H:E9E96@>A2?JD in conjunction with the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED2?5&@E6DE96C6E@ Annual Consolidated Financial Statements and Notes thereto. Management%2?286>6?E5:D4FDD6DE9656G6=@A>6?E2?5D6=64E:@?@7E96@>A2?JD4C:E:42=244@F?E:?8A@=:4:6D :?4=F5:?8E96F?56C=J:?86DE:>2E6D discusses the development and selection of the Company's critical accounting policies, including the underlying estimates and2?52DDF>AE:@?D H:E9E96F5:E@>>:EE66@7E96@>A2?JD@2C5@7 :C64E@CD ,96F5:E@>>:EE6692DC6G:6H65E96@>A2?JDC6=2E65 assumptions, with the Audit Committee of the Company's Board of Directors. The Audit Committee has reviewed the Company's related 5:D4=@DFC6D disclosures. Income :/;91@-D1? taxes The,96@>A2?J7@==@HDE962DD6E2?5=:23:=:EJ>6E9@5@7244@F?E:?87@C:?4@>6E2I6D -?56CE962DD6E2?5=:23:=:EJ>6E9@5 E96492?86:?E96?6E Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, the change in the net 5676CC65:?4@>6E2I2DD6E@C=:23:=:EJ:D:?4=F565:?E964@>AFE2E:@?@7&6E:?4@>6@C'E96C4@>AC696?D:G6:?4@>6=@DD 676CC65:?4@>6E2Ideferred income tax asset or liability is included in the computation of Net income or Other comprehensive income (loss). Deferred income tax assets2DD6ED2?5=:23:=:E:6D2C6>62DFC65FD:?86?24E65:?4@>6E2IC2E6D6IA64E65E@2AA=JE@E2I23=6:?4@>6:?E96J62CD:?H9:49E6>A@C2CJ and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary 5:776C6?46D2C66IA64E65E@36C64@G6C65@CD6EE=65 D2C6DF=E 2AC@;64E:@?@7E2I23=6:?4@>6:DC6BF:C657@CE9@D6J62CD 2DH6==2D2?differences are expected to be recovered or settled. As a result, a projection of taxable income is required for those years, as well as an assumption2DDF>AE:@?@7E96F=E:>2E6C64@G6CJ D6EE=6>6?EA6C:@57@CE6>A@C2CJ5:776C6?46D ,96AC@;64E:@?@77FEFC6E2I23=6:?4@>6:D32D65@? of the ultimate recovery/settlement period for temporary differences. The projection of future taxable income is based on managements>2?286>6?ED36DE6DE:>2E62?5>2JG2CJ7C@>24EF2=E2I23=6:?4@>6 best estimate and may vary from actual taxable income. '?2?2??F2=32D:D E96@>A2?J2DD6DD6DE96?665E@6DE23=:D92G2=F2E:@?2==@H2?467@C:ED5676CC65:?4@>6E2I2DD6ED 2?5:7:E:DOn an annual basis, the Company assesses the need to establish a valuation allowance for its deferred income tax assets, and if it is 566>65>@C6=:<6=JE92??@EE92E:ED5676CC65:?4@>6E2I2DD6EDH:==?@E36C62=:K65 2G2=F2E:@?2==@H2?46:DC64@C565 ,96F=E:>2E6C62=:K2E:@?deemed more likely than not that its deferred income tax assets will not be realized, a valuation allowance is recorded. The ultimate realization of@75676CC65:?4@>6E2I2DD6ED:D56A6?56?EFA@?E9686?6C2E:@?@7DF77:4:6?E7FEFC6E2I23=6:?4@>6 @7E96?646DD2CJ492C24E6C 5FC:?8E96 deferred income tax assets is dependent upon the generation of sufficient future taxable income, of the necessary character, during the A6C:@5D:?H9:49E9@D6E6>A@C2CJ5:776C6?46D364@>6565F4E:3=6 %2?286>6?E4@?D:56CDE96D4965F=65C6G6CD2=D@75676CC65:?4@>6E2Iperiods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities,=:23:=:E:6D E962G2:=23=642CCJ324<2?542CCJ7@CH2C5A6C:@5D 2?5AC@;64E657FEFC6E2I23=6:?4@>6:?>2<:?8E9:D2DD6DD>6?E D2E 646>36C the available carryback and carryforward periods, and projected future taxable income in making this assessment. As at December 31, 2020, :?@C56CE@7F==JC62=:K62==@7E965676CC65:?4@>6E2I2DD6ED E96@>A2?JH:==?665E@86?6C2E67FEFC6E2I23=6:?4@>6@7 in order to fully realize all of the deferred income tax assets, the Company will need to generate future taxable income of approximately2AAC@I:>2E6=J 3:==:@? 2?5 32D65FA@?E96=6G6=@79:DE@C:42=E2I23=6:?4@>6 AC@;64E:@?D@77FEFC6E2I23=6:?4@>6@7E96?646DD2CJ $2.7 billion, and, based upon the level of historical taxable income, projections of future taxable income of the necessary character492C24E6C@G6CE96A6C:@5D:?H9:49E965676CC65:?4@>6E2I2DD6ED2C6565F4E:3=6 2?5E96C6G6CD2=@7E2I23=6E6>A@C2CJ5:776C6?46D over the periods in which the deferred income tax assets are deductible, and the reversal of taxable temporary differences, management>2?286>6?E36=:6G6D 7@==@H:?82?2DD6DD>6?E@7E964FCC6?E64@?@>:46?G:C@?>6?E :E:D>@C6=:<6=JE92??@EE92EE96@>A2?JH:==C62=:K6 believes, following an assessment of the current economic environment, it is more likely than not that the Company will realize theE9636?67:ED@7E96D6565F4E:3=65:776C6?46D benefits of these deductible differences. In!?255:E:@? 2?25:2? @C5@>6DE:4 E2ICF=6D2?5C68F=2E:@?D 2DH6==2DE9@D6C6=2E:?8E@7@C6:8?;FC:D5:4E:@?D 2C6DF3;64EE@:?E6CAC6E2E:@? addition, Canadian, or domestic, tax rules and regulations, as well as those relating to foreign jurisdictions, are subject to interpretation and2?5C6BF:C6;F58>6?E3JE96@>A2?JE92E>2J36492==6?8653JE96E2I2E:@?2FE9@C:E:6DFA@?2F5:E@7E967:=65:?4@>6E2IC6EFC?D ,2I require judgment by the Company that may be challenged by the taxation authorities upon audit of the filed income tax returns. Tax 36?67:ED2C6C64@8?:K65:7:E:D>@C6=:<6=JE92??@EE92EE96E2IA@D:E:@?H:==36DFDE2:?65@?6I2>:?2E:@?3JE96E2I2E:@?2FE9@C:E:6D D2Ebenefits are recognized if it is more likely than not that the tax position will be sustained on examination by the taxation authorities. As at December 646>36C E96E@E2=2>@F?E@78C@DDF?C64@8?:K65E2I36?67:EDH2D 31, 2020, the total amount of gross unrecognized tax benefits was $92>:==:@? 367@C64@?D:56C:?8E2IEC62E:6D2?5@E96C million, before considering tax treaties and other arrangements2CC2?86>6?ED36EH66?E2I2E:@?2FE9@C:E:6D ,962>@F?E@7?6EF?C64@8?:K65E2I36?67:ED2D2E 646>36C H2D between taxation authorities. The amount of net unrecognized tax benefits as at December 31, 2020 was $67>:==:@? !7 million. If recognized,C64@8?:K65 $16>:==:@?@7E96?6EF?C64@8?:K65E2I36?67:ED2D2E 646>36C H@F=527764EE9667764E:G6E2IC2E6 ,96@>A2?J36=:6G6D million of the net unrecognized tax benefits as at December 31, 2020 would affect the effective tax rate. The Company believes thatE92E:E:DC62D@?23=JA@DD:3=6E92E it is reasonably possible that $15>:==:@?@7E96?6EF?C64@8?:K65E2I36?67:ED2D2E 646>36C C6=2E65E@2?25:2?7656C2=2?5 million of the net unrecognized tax benefits as at December 31, 2020 related to Canadian federal and AC@G:?4:2=:?4@>6E2I>2EE6CD >2J36C64@8?:K65@G6CE96?6IEEH6=G6>@?E9D2D2C6DF=E@7D6EE=6>6?ED2?52=2AD6@7E962AA=:423=6DE2EFE6provincial income tax matters, may be recognized over the next twelve months as a result of settlements and a lapse of the applicable statute of@7=:>:E2E:@?D 2?5H:==?@E27764EE9667764E:G6E2IC2E62DE96JC6=2E6E@E6>A@C2CJ5:776C6?46D limitations, and will not affect the effective tax rate as they relate to temporary differences. The,96@>A2?JD5676CC65:?4@>6E2I2DD6ED2C6>2:?=J4@>A@D65@7E6>A@C2CJ5:776C6?46DC6=2E65E@E96A6?D:@?=:23:=:EJ =62D6=:23:=:E:6D Company's deferred income tax assets are mainly composed of temporary differences related to the pension liability, lease liabilities, net?6E@A6C2E:?8=@DD6D2?5E2I4C65:E42CCJ7@CH2C5D 244CF2=D7@CA6CD@?2=:?;FCJ2?5@E96C4=2:>D @E96CA@DEC6E:C6>6?E36?67:ED=:23:=:EJ 2?5 operating losses and tax credit carryforwards, accruals for personal injury and other claims, other postretirement benefits liability, and compensation4@>A6?D2E:@?C6D6CG6D ,96@>A2?JD5676CC65:?4@>6E2I=:23:=:E:6D2C6>2:?=J4@>A@D65@7E6>A@C2CJ5:776C6?46DC6=2E65E@AC@A6CE:6D E96 reserves. The Company's deferred income tax liabilities are mainly composed of temporary differences related to properties, the A6?D:@?2DD6E2?5@A6C2E:?8=62D6C:89E @7 FD62DD6ED ,96D65676CC65:?4@>6E2I2DD6ED2?5=:23:=:E:6D2C6C64@C5652EE966?24E65E2IC2E6D@7pension asset and operating lease right-of-use assets. These deferred income tax assets and liabilities are recorded at the enacted tax rates of theE96A6C:@5D:?H9:49E96C6=2E65E6>A@C2CJ5:776C6?46D2C66IA64E65E@C6G6CD6 D2C6DF=E 7:D42=3F586E492?86D2?5 @C492?86D:?:?4@>6E2I periods in which the related temporary differences are expected to reverse. As a result, fiscal budget changes and/or changes in income tax laws=2HDE92E27764E2492?86:?E96E:>:?8 E962>@F?E 2?5 @CE96:?4@>6E2IC2E62EH9:49E96E6>A@C2CJ5:776C6?464@>A@?6?EDH:==C6G6CD6 that affect a change in the timing, the amount, and/or the income tax rate at which the temporary difference components will reverse, could4@F=5>2E6C:2==J27764E5676CC65:?4@>6E2I6IA6?D62DC64@C565:?E96@>A2?JDC6DF=ED@7@A6C2E:@?D ,96C6G6CD2=@7E6>A@C2CJ5:776C6?46D materially affect deferred income tax expense as recorded in the Company's results of operations. The reversal of temporary differences is:D6IA64E652E7FEFC6 6?24E65:?4@>6E2IC2E6DH9:494@F=5492?865F6E@7:D42=3F586E492?86D2?5 @C492?86D:?:?4@>6E2I=2HD D2 expected at future-enacted income tax rates which could change due to fiscal budget changes and/or changes in income tax laws. As a result,C6DF=E 2492?86:?E96E:>:?82?5 @CE96:?4@>6E2IC2E62EH9:49E964@>A@?6?EDH:==C6G6CD6 4@F=5>2E6C:2==J27764E5676CC65:?4@>6E2I a change in the timing and/or the income tax rate at which the components will reverse, could materially affect deferred income tax expense6IA6?D62DC64@C565:?E96@>A2?JDC6DF=ED@7@A6C2E:@?D C@>E:>6E@E:>6 E967656C2= AC@G:?4:2= 2?5DE2E68@G6C?>6?ED6?24E?6H as recorded in the Company's results of operations. From time to time, the federal, provincial, and state governments enact new corporate4@CA@C2E6:?4@>6E2IC2E6DC6DF=E:?8:?6:E96C=@H6C@C9:896CE2I=:23:=:E:6D @?6 A6C46?E286 A@:?E492?86:?E962?25:2?2?5- + DE2EFE@CJ income tax rates resulting in either lower or higher tax liabilities. A one-percentage-point change in the Canadian and U.S. statutory 7656C2=E2IC2E6H@F=592G6E9667764E@7492?8:?8E965676CC65:?4@>6E2I6IA6?D63Jfederal tax rate would have the effect of changing the deferred income tax expense by $169>:==:@?2?5 million and $141>:==:@?:? million in 2020, C6DA64E:G6=J respectively. For @CE96J62C6?565 646>36C E96@>A2?JC64@C5652?:?4@>6E2I6IA6?D6@7 the year ended December 31, 2020, the Company recorded an income tax expense of $982>:==:@? @7H9:49 million, of which $487>:==:@?H2D2 million was a 5676CC65:?4@>6E2I6IA6?D6 ,964FCC6?E:?4@>6E2I6IA6?D6:?4=F5652C64@G6CJ@7deferred income tax expense. The current income tax expense included a recovery of $141>:==:@?C6DF=E:?87C@>E966?24E>6?E@7E96* + million resulting from the enactment of the CARES 40 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Act.4E @CE96J62C6?565 646>36C E96@>A2?JC64@C5652?:?4@>6E2I6IA6?D6@7 For the year ended December 31, 2019, the Company recorded an income tax expense of $1,213 >:==:@? @7H9:49 million, of which $569 >:==:@?H2D2million was a 5676CC65:?4@>6E2I6IA6?D6 ,965676CC65:?4@>6E2I6IA6?D6:?4=F5652C64@G6CJ@7deferred income tax expense. The deferred income tax expense included a recovery of $112>:==:@?C6DF=E:?87C@>E966?24E>6?E@72=@H6C million resulting from the enactment of a lower AC@G:?4:2=4@CA@C2E6:?4@>6E2IC2E6 @CE96J62C6?565 646>36C E96@>A2?JC64@C565E@E2=:?4@>6E2I6IA6?D6@7provincial corporate income tax rate. For the year ended December 31, 2018, the Company recorded total income tax expense of $1,354 >:==:@? million, of@7H9:49 which $527>:==:@?H2D25676CC65:?4@>6E2I6IA6?D6 ,96@>A2?JD?6E5676CC65:?4@>6E2I=:23:=:EJ2D2E 646>36C H2D million was a deferred income tax expense. The Company's net deferred income tax liability as at December 31, 2020 was $8,271 million>:==:@? (2019 - $7,844 >:==:@? 55:E:@?2=5:D4=@DFC6D2C6AC@G:565:? million). Additional disclosures are provided in Note$=B3I!<1=;3B/F3A 7 — Income taxesE@E96@>A2?JD to the Company's 2020 ??F2=@?D@=:52E65 Annual Consolidated Financial :?2?4:2=+E2E6>6?ED Statements. Depreciation1<>1/5-@5;: Properties(C@A6CE:6D2C642CC:652E4@DE=6DD244F>F=2E6556AC64:2E:@?:?4=F5:?82DD6E:>A2:C>6?EHC:E6 5@H?D ,96@>A2?J92D2AC@46DD:?A=246E@ are carried at cost less accumulated depreciation including asset impairment write-downs. The Company has a process in place to 56E6C>:?6H96E96C@C?@E4@DEDBF2=:7J7@C42A:E2=:K2E:@? H9:49C6BF:C6D;F58>6?E ,964@DE@7AC@A6CE:6D :?4=F5:?8E9@D6F?56C7:?2?46=62D6D determine whether or not costs qualify for capitalization, which requires judgment. The cost of properties, including those under finance leases, net?6E@72DD6E:>A2:C>6?EHC:E6 5@H?D :D56AC64:2E65@?2DEC2:89E =:?632D:D@G6CE96:C6DE:>2E65D6CG:46=:G6D >62DFC65:?J62CD 6I46AE7@CC2:= of asset impairment write-downs, is depreciated on a straight-line basis over their estimated service lives, measured in years, except for rail and2?532==2DEH9@D6D6CG:46D=:G6D2C6>62DFC65:?>:==:@?D@78C@DDE@?D ,96@>A2?J7@==@HDE968C@FA>6E9@5@756AC64:2E:@?H96C63J2 ballast whose services lives are measured in millions of gross tons. The Company follows the group method of depreciation whereby a singleD:?8=64@>A@D:E656AC64:2E:@?C2E6:D2AA=:65E@E968C@DD:?G6DE>6?E:?24=2DD@7D:>:=2C2DD6ED 56DA:E6D>2==5:776C6?46D:?E96D6CG:46=:76@C composite depreciation rate is applied to the gross investment in a class of similar assets, despite small differences in the service life or salvageD2=G286G2=F6@7:?5:G:5F2=AC@A6CEJF?:EDH:E9:?E96D2>62DD6E4=2DD ,96@>A2?JFD6D2AAC@I:>2E6=J 5:776C6?E56AC64:23=62DD6E4=2DD6D value of individual property units within the same asset class. The Company uses approximately 40 different depreciable asset classes. For @C2==56AC64:23=62DD6ED E9656AC64:2E:@?C2E6:D32D65@?E966DE:>2E65D6CG:46=:G6D@7E962DD6ED DD6DD:?8E96C62D@?23=6?6DD@7E96 all depreciable assets, the depreciation rate is based on the estimated service lives of the assets. Assessing the reasonableness of the estimated6DE:>2E65D6CG:46=:G6D@7AC@A6CE:6DC6BF:C6D;F58>6?E2?5:D32D65@?4FCC6?E=J2G2:=23=6:?7@C>2E:@? :?4=F5:?8A6C:@5:456AC64:2E:@?DEF5:6D service lives of properties requires judgment and is based on currently available information, including periodic depreciation studies conducted4@?5F4E653JE96@>A2?J ,96@>A2?JD- + AC@A6CE:6D2C6DF3;64EE@4@>AC696?D:G656AC64:2E:@?DEF5:6D2DC6BF:C653JE96+,2?52C6 by the Company. The Company's U.S. properties are subject to comprehensive depreciation studies as required by the STB and are conducted4@?5F4E653J6IE6C?2=6IA6CED 6AC64:2E:@?DEF5:6D7@C2?25:2?AC@A6CE:6D2C6?@EC6BF:C653JC68F=2E:@?2?52C64@?5F4E65:?E6C?2==J +EF5:6D by external experts. Depreciation studies for Canadian properties are not required by regulation and are conducted internally. Studies are2C6A6C7@C>65@?DA64:7:42DD6E8C@FAD@?2A6C:@5:432D:D 92?86D:?E966DE:>2E65D6CG:46=:G6D@7E962DD6ED2?5E96:CC6=2E654@>A@D:E6 performed on specific asset groups on a periodic basis. Changes in the estimated service lives of the assets and their related composite 56AC64:2E:@?C2E6D2C6:>A=6>6?E65AC@DA64E:G6=J depreciation rates are implemented prospectively. The,96DEF5:6D4@?D:56C 2>@?8@E96C724E@CD E962?2=JD:D@79:DE@C:42=C6E:C6>6?E52E2FD:?8C64@8?:K65=:762?2=JD:DE649?:BF6D 2?5E96 studies consider, among other factors, the analysis of historical retirement data using recognized life analysis techniques, and the 7@C642DE:?8@72DD6E=:76492C24E6C:DE:4D 92?86D:?4:C4F>DE2?46D DF492DE649?@=@8:42=25G2?46D 492?86DE@E96@>A2?JD3FD:?6DDforecasting of asset life characteristics. Changes in circumstances, such as technological advances, changes to the Company's business strategy,DEC2E68J 492?86D:?E96@>A2?JD42A:E2=DEC2E68J@C492?86D:?C68F=2E:@?D42?C6DF=E:?E9624EF2=D6CG:46=:G6D5:776C:?87C@>E96@>A2?JD changes in the Company's capital strategy or changes in regulations can result in the actual service lives differing from the Company's estimates.6DE:>2E6D A492?86:?E96C6>2:?:?8D6CG:46=:76@728C@FA@72DD6ED @CE96:C6DE:>2E65?6ED2=G286G2=F6 H:==27764EE9656AC64:2E:@?C2E6FD65E@ change in the remaining service life of a group of assets, or their estimated net salvage value, will affect the depreciation rate used to amortize2>@CE:K6E968C@FA@72DD6ED2?5E9FD27764E56AC64:2E:@?6IA6?D62DC6A@CE65:?E96@>A2?JDC6DF=ED@7@A6C2E:@?D 492?86@7@?6J62C:? the group of assets and thus affect depreciation expense as reported in the Company's results of operations. A change of one year in theE964@>A@D:E6D6CG:46=:76@7E96@>A2?JD7:I652DD6E32D6H@F=5:>A24E2??F2=56AC64:2E:@?6IA6?D63J2AAC@I:>2E6=J composite service life of the Company's fixed asset base would impact annual depreciation expense by approximately $63 >:==:@? million. Depreciation 6AC64:2E:@?DEF5:6D2C62>62?D@76?DFC:?8E92EE962DDF>AE:@?DFD65E@6DE:>2E6E96D6CG:46=:G6D@7A2CE:4F=2C2DD6E8C@FAD2C6DE:== studies are a means of ensuring that the assumptions used to estimate the service lives of particular asset groups are still validG2=:52?5H96C6E96J2C6?@E E96JD6CG62DE9632D:DE@6DE23=:D9E96?6H56AC64:2E:@?C2E6DE@36FD65@?2AC@DA64E:G632D:D !? and where they are not, they serve as the basis to establish the new depreciation rates to be used on a prospective basis. In 2020, E96 the @>A2?J4@>A=6E6556AC64:2E:@?DEF5:6D7@C6BF:A>6?EAC@A6CE:6D2?52D2C6DF=E E96@>A2?J492?865E966DE:>2E65D6CG:46=:G6D7@CCompany completed depreciation studies for equipment properties and as a result, the Company changed the estimated service lives for variousG2C:@FDEJA6D@76BF:A>6?E2DD6ED2?5E96:CC6=2E654@>A@D:E656AC64:2E:@?C2E6D ,96C6DF=ED@7E96D656AC64:2E:@?DEF5:6D5:5?@E>2E6C:2==J types of equipment assets and their related composite depreciation rates. The results of these depreciation studies did not materially affect27764EE96@>A2?JD2??F2=56AC64:2E:@?6IA6?D6 the Company's annual depreciation expense. :G6?E96?2EFC6@7E96C2:=C@252?5E964@>A@D:E:@?@7:ED?6EH@C<H9:49:D>256FA@79@>@86?6@FD=@?8 =:G652DD6ED :E:D:>AC24E:42=E@Given the nature of the railroad and the composition of its network which is made up of homogeneous long-lived assets, it is impractical to maintain>2:?E2:?C64@C5D@7DA64:7:4AC@A6CE:6D2EE96:C=@H6DEF?:E@7AC@A6CEJ records of specific properties at their lowest unit of property. Retirements*6E:C6>6?ED@72DD6ED@44FCE9C@F89E96C6A=246>6?E@72?2DD6E:?E96?@C>2=4@FCD6@73FD:?6DD E96D2=6@72?2DD6E@CE96 of assets occur through the replacement of an asset in the normal course of business, the sale of an asset or the abandonment232?5@?>6?E@72D64E:@?@7EC24< @CC6E:C6>6?ED:?E96?@C>2=4@FCD6@73FD:?6DD 86?6C2==JE96=:76@7E96C6E:C652DD6E:DH:E9:?2C62D@?23=6 of a section of track. For retirements in the normal course of business, generally the life of the retired asset is within a reasonable rangeC2?86@7E966IA64E65FD67F==:76 2D56E6C>:?65:?E9656AC64:2E:@?DEF5:6D 2?5 2DDF49 ?@82:?@C=@DD:DC64@8?:K65F?56CE968C@FA>6E9@5 of the expected useful life, as determined in the depreciation studies, and, as such, no gain or loss is recognized under the group method. The,962DD6ED4@DE:DC6>@G657C@>E962DD6E244@F?E2?5E965:776C6?4636EH66?:ED4@DE2?56DE:>2E65C6=2E65244F>F=2E6556AC64:2E:@??6E assets cost is removed from the asset account and the difference between its cost and estimated related accumulated depreciation (net of@7D2=G286AC@4665D :72?J :DC64@C5652D2?25;FDE>6?EE@244F>F=2E6556AC64:2E:@?2?5?@82:?@C=@DD:DC64@8?:K65 ,969:DE@C:42=4@DE@7 salvage proceeds), if any, is recorded as an adjustment to accumulated depreciation and no gain or loss is recognized. The historical cost of theE96C6E:C652DD6E:D6DE:>2E653JFD:?8567=2E:@?724E@CD@C:?5:46DE92E4=@D6=J4@CC6=2E6E@E96AC@A6CE:6D4@>AC:D:?8E962DD6E4=2DD6D:? retired asset is estimated by using deflation factors or indices that closely correlate to the properties comprising the asset classes in combination4@>3:?2E:@?H:E9E966DE:>2E65286@7E96C6E:C652DD6EFD:?827:CDE :? 7:CDE @FE2AAC@249 2?52AA=J:?8:EE@E96C6A=246>6?EG2=F6@7E962DD6E with the estimated age of the retired asset using a first-in, first-out approach, and applying it to the replacement value of the asset. In!?624956AC64:2E:@?DEF5J 2?6DE:>2E6:D>256@72?J6I46DD@C567:4:6?4J:?244F>F=2E6556AC64:2E:@?7@C2==4@CC6DA@?5:?82DD6E each depreciation study, an estimate is made of any excess or deficiency in accumulated depreciation for all corresponding asset classes4=2DD6DE@6?DFC6E92EE9656AC64:2E:@?C2E6DC6>2:?2AAC@AC:2E6 ,966I46DD@C567:4:6?4J:?244F>F=2E6556AC64:2E:@?:D2>@CE:K65@G6CE96 to ensure that the depreciation rates remain appropriate. The excess or deficiency in accumulated depreciation is amortized over the remainingC6>2:?:?8=:76@7E962DD6E4=2DD life of the asset class. For @CC6E:C6>6?ED@756AC64:23=6AC@A6CE:6DE92E5@?@E@44FC:?E96?@C>2=4@FCD6@73FD:?6DD E969:DE@C:42=4@DE ?6E@7D2=G286AC@4665D :D retirements of depreciable properties that do not occur in the normal course of business, the historical cost, net of salvage proceeds, is recordedC64@C5652D282:?@C=@DD:?:?4@>6 C6E:C6>6?E:D4@?D:56C65?@EE@36:?E96?@C>2=4@FCD6@73FD:?6DD:7:E>66EDE967@==@H:?84C:E6C:2::E as a gain or loss in income. A retirement is considered not to be in the normal course of business if it meets the following criteria: (i) it is:DF?FDF2= :::E:DD:8?:7:42?E:?2>@F?E 2?5::::EG2C:6DD:8?:7:42?E=J7C@>E96C6E:C6>6?EA2EE6C?:56?E:7:65E9C@F8956AC64:2E:@?DEF5:6D unusual, (ii) it is significant in amount, and (iii) it varies significantly from the retirement pattern identified through depreciation studies. A gain82:?@C=@DD:DC64@8?:K65:?'E96C:?4@>67@CE96D2=6@7=2?5@C5:DA@D2=@72DD6EDE92E2C6?@EA2CE@7C2:=C@25@A6C2E:@?D or loss is recognized in Other income for the sale of land or disposal of assets that are not part of railroad operations. For @CE96J62C6?565 646>36C E96@>A2?JC64@C565E@E2=56AC64:2E:@?6IA6?D6@7 the year ended December 31, 2020, the Company recorded total depreciation expense of $1,583 >:==:@? million (2019 - $1,559 >:==:@?million; 2018 - $1,327 >:==:@? D2E 646>36C E96@>A2?J925(C@A6CE:6D@7 million). As at December 31, 2020, the Company had Properties of $40,069 >:==:@? ?6E@7244F>F=2E6556AC64:2E:@?@7 million, net of accumulated depreciation of $14,443 >:==:@? million (2019 - $39,669 >:==:@? ?6E@7244F>F=2E6556AC64:2E:@?@7million, net of accumulated depreciation of $13,912 >:==:@? 55:E:@?2=5:D4=@DFC6D2C6AC@G:565:? million). Additional disclosures are provided in Note$=B3I&@=>3@B73A 11 — Properties toE@E96 the @>A2?JDCompany's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?ED Annual Consolidated Financial Statements. $ G ??F2=*6A@CE2020 Annual Report 41 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis (C6BF:C6DE96FD6@79:DE@C:42=4@DE2DE9632D:D@7C6A@CE:?8:?7:?2?4:2=DE2E6>6?ED D2C6DF=E E964F>F=2E:G667764E@7:?7=2E:@? GAAP requires the use of historical cost as the basis of reporting in financial statements. As a result, the cumulative effect of inflation, whichH9:4992DD:8?:7:42?E=J:?4C62D652DD6EC6A=246>6?E4@DED7@C42A:E2= :?E6?D:G64@>A2?:6DDF492D& :D?@EC67=64E65:?@A6C2E:?86IA6?D6D has significantly increased asset replacement costs for capital-intensive companies such as CN, is not reflected in operating expenses. Depreciation 6AC64:2E:@?492C86D@?2?:?7=2E:@? 25;FDE6532D:D 2DDF>:?8E92E2==@A6C2E:?82DD6ED2C6C6A=24652E4FCC6?EAC:46=6G6=D H@F=536 charges on an inflation-adjusted basis, assuming that all operating assets are replaced at current price levels, would be substantiallyDF3DE2?E:2==J8C62E6CE92?9:DE@C:42==JC6A@CE652>@F?ED greater than historically reported amounts. Pensions&1:?5;:?-:0;@41><;?@>1@5>191:@.1:125@? and other postretirement benefits The,96@>A2?JDA=2?D92G62>62DFC6>6?E52E6@7 646>36C ,967@==@H:?8E23=6AC@G:56DE96@>A2?JDA6?D:@?2DD6E A6?D:@?=:23:=:EJ Company's plans have a measurement date of December 31. The following table provides the Company's pension asset, pension liability and2?5@E96CA@DEC6E:C6>6?E36?67:ED=:23:=:EJ2D2E 646>36C 2?5 other postretirement benefits liability as at December 31, 2020, and 2019: In!<;7::7=6?E36?67:ED=:23:=:EJ postretirement benefits liability 228 227 The,9656D4C:AE:@?D:?E967@==@H:?8A2C28C2A9DA6CE2:?:?8E@A6?D:@?DC6=2E686?6C2==JE@E96@>A2?JD>2:?A6?D:@?A=2? E96&(6?D:@?(=2? descriptions in the following paragraphs pertaining to pensions relate generally to the Company's main pension plan, the CN Pension Plan, unlessF?=6DD@E96CH:D6DA64:7:65 otherwise specified. Calculation ( 1( 0%+*+"*!0,!.%+ of net periodic % !*!"%0 +/0%* +)! benefit cost (income) In!?244@F?E:?87@CA6?D:@?D2?5@E96CA@DEC6E:C6>6?E36?67:ED 2DDF>AE:@?D2C6C6BF:C657@C 2>@?8@E96CE9:?8D E965:D4@F?EC2E6 E966IA64E65 accounting for pensions and other postretirement benefits, assumptions are required for, among other things, the discount rate, the expected long-term=@?8 E6C>C2E6@7C6EFC?@?A=2?2DD6ED E96C2E6@74@>A6?D2E:@?:?4C62D6 962=E942C64@DEEC6?5C2E6D >@CE2=:EJC2E6D 6>A=@J6662C=J rate of return on plan assets, the rate of compensation increase, health care cost trend rates, mortality rates, employee early retirements,C6E:C6>6?ED E6C>:?2E:@?D2?55:D23:=:EJ 92?86D:?E96D62DDF>AE:@?DC6DF=E:?24EF2C:2=82:?D@C=@DD6D H9:492C6C64@8?:K65:?'E96C terminations and disability. Changes in these assumptions result in actuarial gains or losses, which are recognized in Other comprehensive4@>AC696?D:G6:?4@>6=@DD ,96@>A2?J86?6C2==J2>@CE:K6DE96D682:?D@C=@DD6D:?E@?6EA6C:@5:436?67:E4@DE:?4@>6@G6CE96 income (loss). The Company generally amortizes these gains or losses into net periodic benefit cost (income) over the expected6IA64E652G6C286C6>2:?:?8D6CG:46=:76@7E966>A=@J668C@FA4@G6C653JE96A=2?D@?=JE@E966IE6?EE92EE96F?C64@8?:K65?6E24EF2C:2=82:?D average remaining service life of the employee group covered by the plans only to the extent that the unrecognized net actuarial gains and2?5=@DD6D2C6:?6I46DD@7E964@CC:5@CE9C6D9@=5 H9:49:D42=4F=2E652D @7E968C62E6C@7E96368:??:?8 @7 J62C32=2?46D@7E96AC@;64E65 losses are in excess of the corridor threshold, which is calculated as 10% of the greater of the beginning-of-year balances of the projected 36?67:E@3=:82E:@?@C>2C<6E C6=2E65G2=F6@7A=2?2DD6ED ,96@>A2?JD?6EA6C:@5:436?67:E4@DE:?4@>67@C7FEFC6A6C:@5D:D56A6?56?E@?benefit obligation or market-related value of plan assets. The Company's net periodic benefit cost (income) for future periods is dependent on 56>@8C2A9:46IA6C:6?46 64@?@>:44@?5:E:@?D2?5:?G6DE>6?EA6C7@C>2?46 *646?E56>@8C2A9:46IA6C:6?4692DC6G62=65?@>2E6C:2=?6Edemographic experience, economic conditions and investment performance. Recent demographic experience has revealed no material net gains82:?D@C=@DD6D@?E6C>:?2E:@? C6E:C6>6?E 5:D23:=:EJ2?5>@CE2=:EJ IA6C:6?46H:E9C6DA64EE@64@?@>:44@?5:E:@?D2?5:?G6DE>6?E or losses on termination, retirement, disability and mortality. Experience with respect to economic conditions and investment A6C7@C>2?46:D7FCE96C5:D4FDD6596C6:? performance is further discussed herein. For @CE96J62CD6?565 646>36C 2?5 E964@?D@=:52E65?6EA6C:@5:436?67:E4@DE:?4@>67@CA6?D:@?D2?5@E96C the years ended December 31, 2020, 2019 and 2018, the consolidated net periodic benefit cost (income) for pensions and other A@DEC6E:C6>6?E36?67:EDH6C62D7@==@HDpostretirement benefits were as follows: AsD2E 646>36C 2?5 at December 31, 2020 and 2019, E96AC@;64E65A6?D:@?36?67:E@3=:82E:@?2?5244F>F=2E65@E96CA@DEC6E:C6>6?E36?67:E@3=:82E:@?H6C6 the projected pension benefit obligation and accumulated other postretirement benefit obligation were as2D7@==@HD follows: In!<;7::7=F=2E65@E96CA@DEC6E:C6>6?E36?67:E@3=:82E:@? other postretirement benefit obligation 228 $ 227 Discount %/ +1*0. 0! //1),0%+* rate assumption The,96@>A2?JD5:D4@F?EC2E62DDF>AE:@? H9:49:DD6E2??F2==J2EE966?5@76249J62C :D56E6C>:?653J>2?286>6?EH:E9E962:5@7E9:C5 Company's discount rate assumption, which is set annually at the end of each year, is determined by management with the aid of third- A2CEJ24EF2C:6D ,965:D4@F?EC2E6:DFD65E@>62DFC6E96D:?8=62>@F?EE92E :7:?G6DE652EE96>62DFC6>6?E52E6:?2A@CE7@=:@@79:89 BF2=:EJparty actuaries. The discount rate is used to measure the single amount that, if invested at the measurement date in a portfolio of high-quality 563E:?DECF>6?EDH:E92C2E:?8@7@C36EE6C H@F=5AC@G:56E96?646DD2CJ42D97=@HDE@A2J7@CA6?D:@?36?67:ED2DE96J364@>65F6 @CE96debt instruments with a rating of AA or better, would provide the necessary cash flows to pay for pension benefits as they become due. For the 2?25:2?A6?D:@?2?5@E96CA@DEC6E:C6>6?E36?67:EA=2?D 7FEFC66IA64E6536?67:EA2J>6?ED2C65:D4@F?E65FD:?8DA@EC2E6D32D65@?256C:G65Canadian pension and other postretirement benefit plans, future expected benefit payments are discounted using spot rates based on a derived AA4@CA@C2E63@?5J:6=54FCG67@C6249>2EFC:EJJ62C J62C 6?55:D4@F?EC2E6@7 corporate bond yield curve for each maturity year. A year-end discount rate of 2.55% 32D65@?3@?5J:6=5DAC6G2:=:?82E 646>36C based on bond yields prevailing at December 31, 2020 (2019 - 3.10%)H2D4@?D:56C652AAC@AC:2E63JE96@>A2?J was considered appropriate by the Company. The,96@>A2?JFD6DE96DA@EC2E62AAC@249E@>62DFC64FCC6?ED6CG:464@DE2?5:?E6C6DE4@DE7@C2==567:?6536?67:EA6?D:@?2?5@E96C Company uses the spot rate approach to measure current service cost and interest cost for all defined benefit pension and other A@DEC6E:C6>6?E36?67:EA=2?D -?56CE96DA@EC2E62AAC@249 :?5:G:5F2=DA@E5:D4@F?EC2E6D2=@?8E96D2>6J:6=54FCG6FD65:?E9656E6C>:?2E:@?postretirement benefit plans. Under the spot rate approach, individual spot discount rates along the same yield curve used in the determination of@7E96AC@;64E6536?67:E@3=:82E:@?2C62AA=:65E@E96C6=6G2?EAC@;64E6542D97=@HD7@C4FCC6?ED6CG:464@DE2EE96C6=6G2?E>2EFC:EJ %@C6 the projected benefit obligation are applied to the relevant projected cash flows for current service cost at the relevant maturity. More specifically,DA64:7:42==J 4FCC6?ED6CG:464@DE:D>62DFC65FD:?8E9642D97=@HDC6=2E65E@36?67:ED6IA64E65E@36244CF65:?E967@==@H:?8J62C3J24E:G6 current service cost is measured using the cash flows related to benefits expected to be accrued in the following year by active 42 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis members>6>36CD@72A=2?2?5:?E6C6DE4@DE:D>62DFC65FD:?8E96AC@;64E6542D97=@HD>2<:?8FAE96AC@;64E6536?67:E@3=:82E:@?>F=E:A=:653JE96 of a plan and interest cost is measured using the projected cash flows making up the projected benefit obligation multiplied by the corresponding4@CC6DA@?5:?8DA@E5:D4@F?EC2E62E6249>2EFC:EJ spot discount rate at each maturity. AsD2E 646>36C 2 at December 31, 2020, a 0.25%564C62D6:?E96 decrease in the 2.55%5:D4@F?EC2E6FD65E@56E6C>:?6E96AC@;64E6536?67:E@3=:82E:@?H@F=592G6 discount rate used to determine the projected benefit obligation would have resultedC6DF=E65:?2564C62D6@72AAC@I:>2E6=J in a decrease of approximately $640 >:==:@?E@E967F?565DE2EFD7@CA6?D:@?D2?5H@F=5C6DF=E:?2564C62D6@72AAC@I:>2E6=J million to the funded status for pensions and would result in a decrease of approximately $20 million>:==:@?E@E96 to the 2021 AC@;64E65?6EA6C:@5:436?67:E:?4@>6 projected net periodic benefit income. A 0.25%:?4C62D6:?E965:D4@F?EC2E6H@F=592G6C6DF=E65:?2?:?4C62D6@7 increase in the discount rate would have resulted in an increase of approximately2AAC@I:>2E6=J $610 >:==:@?E@E967F?565DE2EFD7@CA6?D:@?D2?5H@F=5C6DF=E:?2?:?4C62D6@72AAC@I:>2E6=J million to the funded status for pensions and would result in an increase of approximately $20 >:==:@?E@E96million to the 2021 AC@;64E65 projected net?6EA6C:@5:436?67:E:?4@>6 periodic benefit income. Expected4,! 0! (+*#0!.). 0!+".!01.* //1),0%+* long-term rate of return assumption The,966IA64E65=@?8 E6C>C2E6@7C6EFC?:D56E6C>:?6532D65@?6IA64E657FEFC6A6C7@C>2?467@C62492DD6E4=2DD2?5:DH6:89E6532D65@?E96 expected long-term rate of return is determined based on expected future performance for each asset class and is weighted based on the investment:?G6DE>6?EA@=:4J @?D:56C2E:@?:DE2<6?@7E969:DE@C:42=A6C7@C>2?46 E96AC6>:F>C6EFC?86?6C2E657C@>2?24E:G6=J>2?2865A@CE7@=:@ 2D policy. Consideration is taken of the historical performance, the premium return generated from an actively managed portfolio, as wellH6==2D4FCC6?EE2C86E2DD6E2==@42E:@?D AF3=:D965>2C<6EC6EFC?6IA64E2E:@?D 64@?@>:456G6=@A>6?ED :?7=2E:@?C2E6D2?525>:?:DEC2E:G6 as current target asset allocations, published market return expectations, economic developments, inflation rates and administrative expenses.6IA6?D6D 2D65@?E96D6724E@CD E96C2E6:D56E6C>:?653JE96@>A2?J @C Based on these factors, the rate is determined by the Company. For 2020, E96@>A2?JFD652=@?8 E6C>C2E6@7C6EFC?2DDF>AE:@? the Company used a long-term rate of return assumption of@7 7.00% @?E96>2C<6E C6=2E65G2=F6@7A=2?2DD6EDE@4@>AFE6?6EA6C:@5:436?67:E4@DE:?4@>6 ,96@>A2?J92D6=64E65E@FD62>2C<6E on the market-related value of plan assets to compute net periodic benefit cost (income). The Company has elected to use a market- relatedC6=2E65G2=F6@72DD6ED H96C63JC62=:K652?5F?C62=:K6582:?D =@DD6D2?52AAC64:2E:@? 56AC64:2E:@?:?E96G2=F6@7E96:?G6DE>6?ED2C6 value of assets, whereby realized and unrealized gains/losses and appreciation/depreciation in the value of the investments are recognizedC64@8?:K65@G6C2A6C:@5@77:G6J62CD H9:=6:?G6DE>6?E:?4@>6:DC64@8?:K65:>>65:2E6=J !? over a period of five years, while investment income is recognized immediately. In 2021, E96@>A2?JH:==564C62D6E966IA64E65 the Company will decrease the expected long-term=@?8 E6C>C2E6@7C6EFC?@?A=2?2DD6ED3J rate of return on plan assets by 2532D:DA@:?EDE@ basis points to 6.75%E@C67=64E>2?286>6?ED4FCC6?EG:6H@7=@?8 E6C>:?G6DE>6?EC6EFC?D to reflect managements current view of long-term investment returns. The,962DD6ED@7E96@>A2?JDG2C:@FDA=2?D2C6AC:>2C:=J96=5:?D6A2C2E6ECFDE7F?5D,CFDEDH9:492C65:G6CD:7:653J2DD6EEJA6 4@F?ECJ assets of the Company's various plans are primarily held in separate trust funds ("Trusts") which are diversified by asset type, country, sectorD64E@C2?5:?G6DE>6?EDEC2E68J 249J62C E96&@2C5@7 :C64E@CDC6G:6HD2?54@?7:C>D@C2>6?5DE96+E2E6>6?E@7!?G6DE>6?E(@=:4:6D and investment strategy. Each year, the CN Board of Directors reviews and confirms or amends the Statement of Investment Policies and2?5(C@465FC6D+!((H9:49:?4=F56DE96A=2?D=@?8 E6C>E2C86E2DD6E2==@42E:@?(@=:4J2?5C6=2E6536?49>2C<:?5:46D ,9:D(@=:4J:D Procedures ("SIPP") which includes the plane long-term target asset allocation (Policy) and related benchmark indices. This Policy is based32D65@?E96=@?8 E6C>6IA64E2E:@?D@7E9664@?@>J2?57:?2?4:2=>2C<6EC6EFC?D2?54@?D:56CDE965J?2>:4D@7E96A=2?D36?67:E@3=:82E:@?D on the long-term expectations of the economy and financial market returns and considers the dynamics of the plane benefit obligations. In!? 2020, E96(@=:4JH2D2>6?565E@:>A=6>6?E2E2C86E2DD6E2==@42E:@?492?86E@42D92?5D9@CE E6C>:?G6DE>6?ED 2?53@?5D2?5>@CE8286D the Policy was amended to implement a target asset allocation change to cash and short-term investments, and bonds and mortgages. These,96D6492?86DH6C6E2<6?:?E@244@F?E:?E9656E6C>:?2E:@?@7E96@>A2?JD6IA64E65=@?8 E6C>C2E6@7C6EFC?2DDF>AE:@? !? changes were taken into account in the determination of the Company's expected long-term rate of return assumption. In 2020, E96 the Policy(@=:4JH2D was: 2% 42D92?5D9@CE E6C>:?G6DE>6?ED cash and short-term investments, 41%3@?5D2?5>@CE8286D bonds and mortgages, 1.5% 6>6C8:?8>2C<6E563E emerging market debt, 1.5% AC:G2E6563E private debt, 35% 6BF:E:6D equities, 4% realC62=6DE2E6 estate, 7% @:=2?582D oil and gas, 4% :?7C2DECF4EFC6:?G6DE>6?ED infrastructure investments, 10% 23D@=FE6C6EFC?:?G6DE>6?ED2?5?682E:G6 absolute return investments and negative 6% 7@C:?G6DE>6?E C6=2E65=:23:=:E:6D for investment-related liabilities. Annually,??F2==J E96&!?G6DE>6?E :G:D:@?!?G6DE>6?E%2?286C 25:G:D:@?@7E96@>A2?J4C62E65E@:?G6DE2?525>:?:DE6CE962DD6ED@7E96 the CN Investment Division (Investment Manager), a division of the Company created to invest and administer the assets of the plans,A=2?D 42?2=D@:>A=6>6?E2?:?G6DE>6?EDEC2E68J+EC2E68JH9:4942?=625E96(=2?D24EF2=2DD6E2==@42E:@?E@56G:2E67C@>E96(@=:4J5F6E@ can also implement an investment strategy ("Strategy') which can lead the Plan's actual asset allocation to deviate from the Policy due to changing492?8:?8>2C<6EC:D 2020 2019 2018 2017 2016 Actual4EF2= 12.5% 12.2% (2.4%) 9.2% 4.4% Market%2C<6E C6=2E65G2=F6-related value 7.1% 6.1% 5.7% 9.1% 8.2% Expected IA64E65 7.00% 7.00% 7.00% 7.00% 7.00% The,96@>A2?JD6IA64E65=@?8 E6C>C2E6@7C6EFC?@?A=2?2DD6EDC67=64ED>2?286>6?EDG:6H@7=@?8 E6C>:?G6DE>6?EC6EFC?D2?5E9667764E@7 Company's expected long-term rate of return on plan assets reflects managements view of long-term investment returns and the effect of a2G2C:2E:@?:?DF49C2E6@7C6EFC?H@F=5C6DF=E:?2492?86E@E96?6EA6C:@5:436?67:E4@DE:?4@>6@72AAC@I:>2E6=J 1% variation in such rate of return would result in a change to the net periodic benefit cost (income) of approximately $100 >:==:@? million. Managements%2?286>6?ED2DDF>AE:@?@7E966IA64E65=@?8 E6C>C2E6@7C6EFC?:DDF3;64EE@C:D Net!0,!.%+ periodic % !*!"%0%* +)!"+.,!*/%+*/"+. benefit income for pensions for 2021 In!? 2021, E96@>A2?J6IA64ED?6EA6C:@5:436?67:E:?4@>6E@36 the Company expects net periodic benefit income to be $165>:==:@? million (2020 - $141>:==:@?7@C2==:ED567:?6536?67:EA6?D:@?A=2?D million) for all its defined benefit pension plans. $ G ??F2=*6A@CE2020 Annual Report 43 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Plan( * //!0 ((+ 0%+* asset allocation Based2D65@?E9672:CG2=F6@7E962DD6ED96=52D2E 646>36C E962DD6ED@7E96@>A2?JDG2C:@FDA=2?D2C64@>AC:D65@7 on the fair value of the assets held as at December 31, 2020, the assets of the Company's various plans are comprised of 3% :?42D92?5in cash and short-termD9@CE E6C>:?G6DE>6?ED investments, 37% :?3@?5D2?5>@CE8286D in bonds and mortgages, 2%:?6>6C8:?8>2C<6E563E in emerging market debt, 3% :?AC:G2E6563E in private debt, 38%:?6BF:E:6D in equities, 2% :?C62=6DE2E6 in real estate, 3%:? in oil@:=2?582D and gas, 3% :?:?7C2DECF4EFC6 in infrastructure, 10% :?23D@=FE6C6EFC?:?G6DE>6?ED in absolute return investments, 1%:?2=E6C?2E:G6C:D<AC6>:2:?G6DE>6?ED2?5?682E:G6 in alternative risk premia investments and negative 2% :?:?G6DE>6?E in investment- relatedC6=2E65=:23:=:E:6D +66&@E6 (6?D:@?D2?5@E96CA@DEC6E:C6>6?E36?67:EDE@E96@>A2?JD liabilities. See Note 17 - Pensions and other postretirement benefits to the Company's 2020 ??F2=@?D@=:52E65 :?2?4:2=+E2E6>6?EDAnnual Consolidated Financial Statements 7@C:?7@C>2E:@?@?E9672:CG2=F6>62DFC6>6?ED@7DF492DD6ED for information on the fair value measurements of such assets. AD:8?:7:42?EA@CE:@?@7E96A=2?D2DD6ED2C6:?G6DE65:?AF3=:4=JEC25656BF:EJD64FC:E:6DH9@D6C6EFC?:DAC:>2C:=J5C:G6?3JDE@4<>2C<6E significant portion of the plane assets are invested in publicly traded equity securities whose return is primarily driven by stock market A6C7@C>2?46 63ED64FC:E:6D2=D@244@F?E7@C2D:8?:7:42?EA@CE:@?@7E96A=2?D:?G6DE>6?ED2?5AC@G:562A2CE:2=@77D6EE@E96G2C:2E:@?:?E96performance. Debt securities also account for a significant portion of the plans' investments and provide a partial offset to the variation in the A6?D:@?36?67:E@3=:82E:@?E92E:D5C:G6?3J492?86D:?E965:D4@F?EC2E6 ,967F?565DE2EFD@7E96A=2?7=F4EF2E6DH:E9>2C<6E4@?5:E:@?D2?5pension benefit obligation that is driven by changes in the discount rate. The funded status of the plan fluctuates with market conditions and impacts:>A24ED7F?5:?8C6BF:C6>6?ED ,96@>A2?JH:==4@?E:?F6E@>2<64@?EC:3FE:@?DE@E96A6?D:@?A=2?DE92E2D2>:?:>F>>66EA6?D:@? funding requirements. The Company will continue to make contributions to the pension plans that as a minimum meet pension legislative=68:D=2E:G6C6BF:C6>6?ED requirements. Rate 0!+" +),!*/ 0%+*%* .! /! of compensation increase The,96C2E6@74@>A6?D2E:@?:?4C62D6:D56E6C>:?653JE96@>A2?J32D65FA@?:ED=@?8 E6C>A=2?D7@CDF49:?4C62D6D @C rate of compensation increase is determined by the Company based upon its long-term plans for such increases. For 2020, 232D:4C2E6@7 a basic rate of compensation4@>A6?D2E:@?:?4C62D6@7 increase of 2.75% H2DFD65E@56E6C>:?6E96AC@;64E6536?67:E@3=:82E:@?2?5E96?6EA6C:@5:436?67:E4@DE:?4@>6 was used to determine the projected benefit obligation and the net periodic benefit cost (income). Mortality+.0 (%05 The,962?25:2?!?DE:EFE6@74EF2C:6D!AF3=:D965:? 2C6A@CE@?2?25:2?(6?D:@?6CD%@CE2=:EJ*6A@CE ,96*6A@CE4@?E2:?65 Canadian Institute of Actuaries (CIA) published in 2014 a report on Canadian Pensioners' Mortality (Report"). The Report contained 2?25:2?A6?D:@?6CD>@CE2=:EJE23=6D2?5:>AC@G6>6?ED42=6D32D65@?6IA6C:6?46DEF5:6D4@?5F4E653JE96! ,96!D4@?4=FD:@?DH6C6Canadian pensioners' mortality tables and improvement scales based on experience studies conducted by the CIA. The CIA's conclusions were takenE2<6?:?E@244@F?E:?D6=64E:?8>2?286>6?ED36DE6DE:>2E6>@CE2=:EJ2DDF>AE:@?FD65E@42=4F=2E6E96AC@;64E6536?67:E@3=:82E:@?2D2E into account in selecting managements best estimate mortality assumption used to calculate the projected benefit obligation as at December 646>36C 2?5 R 31, 2020, 2019 and 2018. Funding1* %*#+",!*/%+*,( */ of pension plans The,96@>A2?JD>2:?2?25:2?567:?6536?67:EA6?D:@?A=2? E96&(6?D:@?(=2? 244@F?ED7@C Company's main Canadian defined benefit pension plan, the CN Pension Plan, accounts for 93% @7E96@>A2?JDA6?D:@?@3=:82E:@?2?5of the Company's pension obligation and can42?AC@5F46D:8?:7:42?EG@=2E:=:EJ:?A6?D:@?7F?5:?8C6BF:C6>6?ED 8:G6?E96A6?D:@?7F?5DD:K6 E96>2?J724E@CDE92E5C:G6E96A=2?D7F?565 produce significant volatility in pension funding requirements, given the pension fund's size, the many factors that drive the plan's funded status,DE2EFD 2?52?25:2?DE2EFE@CJA6?D:@?7F?5:?8C6BF:C6>6?ED 5G6CD6492?86DE@E962DDF>AE:@?DFD65E@42=4F=2E6E96A=2?D7F?5:?8DE2EFD and Canadian statutory pension funding requirements. Adverse changes to the assumptions used to calculate the plan's funding status, A2CE:4F=2C=JE965:D4@F?EC2E6FD657@C7F?5:?8AFCA@D6D 2DH6==2D492?86DE@6I:DE:?87656C2=A6?D:@?=68:D=2E:@? C68F=2E:@?2?58F:52?46particularly the discount rate used for funding purposes, as well as changes to existing federal pension legislation, regulation and guidance could4@F=5D:8?:7:42?E=J:>A24EE96@>A2?JD7FEFC64@?EC:3FE:@?D significantly impact the Company's future contributions. For @C244@F?E:?8AFCA@D6D E967F?565DE2EFD:D42=4F=2E65F?56C86?6C2==J2446AE65244@F?E:?8AC:?4:A=6D7@C2==A6?D:@?A=2?D @C7F?5:?8 accounting purposes, the funded status is calculated under generally accepted accounting principles for all pension plans. For funding AFCA@D6D E967F?565DE2EFD:D2=D@42=4F=2E65F?56C8@:?84@?46C?2?5D@=G6?4JD46?2C:@D2DAC6D4C:365F?56CA6?D:@?=68:D=2E:@?2?5DF3;64Epurposes, the funded status is also calculated under going concern and solvency scenarios as prescribed under pension legislation and subject toE@8F:52?46:DDF653JE96!2?5E96'77:46@7E96+FA6C:?E6?56?E@7 :?2?4:2=!?DE:EFE:@?D'+ !7@C2==C68:DE6C652?25:2?567:?6536?67:E guidance issued by the CIA and the Office of the Superintendent of Financial Institutions (OSFI) for all registered Canadian defined benefit A6?D:@?A=2?D ,96@>A2?JD7F?5:?8C6BF:C6>6?ED2C656E6C>:?65FA@?4@>A=6E:@?@724EF2C:2=G2=F2E:@?D 4EF2C:2=G2=F2E:@?D2C686?6C2==Jpension plans. The Company's funding requirements are determined upon completion of actuarial valuations. Actuarial valuations are generally requiredC6BF:C65@?2?2??F2=32D:D7@C2==2?25:2?567:?6536?67:EA6?D:@?A=2?D @CH96?566>652AAC@AC:2E63JE96'+ ! 4EF2C:2=G2=F2E:@?D2C6 on an annual basis for all Canadian defined benefit pension plans, or when deemed appropriate by the OSFI. Actuarial valuations are also2=D@C6BF:C652??F2==J7@CE96@>A2?JD- + BF2=:7:65567:?6536?67:EA6?D:@?A=2?D required annually for the Company's U.S. qualified defined benefit pension plans. The,96@>A2?JD>@DEC646?E=J7:=6524EF2C:2=G2=F2E:@?D7@C7F?5:?8AFCA@D6D7@C:ED2?25:2?C68:DE6C65567:?65A6?D:@?A=2?D4@?5F4E65 Company's most recently filed actuarial valuations for funding purposes for its Canadian registered defined pension plans conducted as2D2E 646>36C at December 31, 2019 :?5:42E6527F?5:?86I46DD@?28@:?84@?46C?32D:D@72AAC@I:>2E6=J 3:==:@?2?527F?5:?86I46DD@?2D@=G6?4Jindicated a funding excess on a going concern basis of approximately $3.5 billion and a funding excess on a solvency basis32D:D@72AAC@I:>2E6=J 3:==:@? 42=4F=2E65FD:?8E96E9C66 J62C2G6C286@7E96A=2?D9JA@E96E:42=H:?5 FAC2E:@:?244@C52?46H:E9E96 of approximately $0.6 billion, calculated using the three-year average of the plane hypothetical wind-up ratio in accordance with the Pension&3 44 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Information*"+.) 0%+* disclosed %/ (+/! 5) &+.,!*/%+*,( * by major pension plan The,967@==@H:?8E23=6AC@G:56DE96@>A2?JDA=2?2DD6ED3J42E68@CJ AC@;64E6536?67:E@3=:82E:@?2E6?5@7J62C 2DH6==2D@>A2?J2?5 following table provides the Company's plan assets by category, projected benefit obligation at end of year, as well as Company and employee6>A=@J664@?EC:3FE:@?D3J>2;@C567:?6536?67:EA6?D:@?A=2? contributions by major defined benefit pension plan: (1) Investment! Additional55:E:@?2=5:D4=@DFC6D2C6AC@G:565:? disclosures are provided in Note$=B3I&3 Personal&1>?;:-85:6A>E-:0;@41>/8-59? injury and other claims In!?E96?@C>2=4@FCD6@73FD:?6DD E96@>A2?J364@>6D:?G@=G65:?G2C:@FD=682=24E:@?DD66<:?84@>A6?D2E@CJ2?5@442D:@?2==JAF?:E:G6 the normal course of business, the Company becomes involved in various legal actions seeking compensatory and occasionally punitive 52>286D :?4=F5:?824E:@?D3C@F89E@?3692=7@7G2C:@FDAFCA@CE654=2DD6D@74=2:>2?ED2?54=2:>DC6=2E:?8E@6>A=@J662?5E9:C5 A2CEJdamages, including actions brought on behalf of various purported classes of claimants and claims relating to employee and third-party A6CD@?2=:?;FC:6D @44FA2E:@?2=5:D62D62?5AC@A6CEJ52>286 2C:D:?8@FE@792C>E@:?5:G:5F2=D@CAC@A6CEJ2==6865=J42FD653J 3FE?@E=:>:E65personal injuries, occupational disease and property damage, arising out of harm to individuals or property allegedly caused by, but not limited to,E@ 56C2:=>6?ED@C@E96C244:56?ED derailments or other accidents. Canada * Employee >A=@J66:?;FC:6D2C68@G6C?653JE96H@C<6CD4@>A6?D2E:@?=68:D=2E:@?:?6249AC@G:?46H96C63J6>A=@J66D>2J362H2C5656:E96C2=F>A injuries are governed by the workers' compensation legislation in each province whereby employees may be awarded either a lump sumDF>@C27FEFC6DEC62>@7A2J>6?ED56A6?5:?8@?E96?2EFC62?5D6G6C:EJ@7E96:?;FCJ DDF49 E96AC@G:D:@?7@C6>A=@J66:?;FCJ4=2:>D:D or a future stream of payments depending on the nature and severity of the injury. As such, the provision for employee injury claims is 5:D4@F?E65 !?E96AC@G:?46DH96C6E96@>A2?J:DD6=7 :?DFC65 4@DEDC6=2E65E@6>A=@J66H@C< C6=2E65:?;FC:6D2C6244@F?E657@C32D65@?discounted. In the provinces where the Company is self-insured, costs related to employee work-related injuries are accounted for based on actuarially24EF2C:2==J56G6=@A656DE:>2E6D@7E96F=E:>2E64@DE2DD@4:2E65H:E9DF49:?;FC:6D :?4=F5:?84@>A6?D2E:@? 962=E942C62?5E9:C5 A2CEJ developed estimates of the ultimate cost associated with such injuries, including compensation, health care and third-party administration25>:?:DEC2E:@?4@DED ?24EF2C:2=DEF5J:D86?6C2==JA6C7@C>652E=62DE@?2EC:6??:2=32D:D @C2==@E96C=682=24E:@?D E96@>A2?J>2:?E2:?D costs. An actuarial study is generally performed at least on a triennial basis. For all other legal actions, the Company maintains, and2?5C68F=2C=JFA52E6D@?242D6 3J 42D632D:D AC@G:D:@?D7@CDF49:E6>DH96?E966IA64E65=@DD:D3@E9AC@323=62?542?36C62D@?23=J regularly updates on a case-by-case basis, provisions for such items when the expected loss is both probable and can be reasonably estimated6DE:>2E6532D65@?4FCC6?E=J2G2:=23=6:?7@C>2E:@? based on currently available information. In!? 2020, 2019 2?5 and 2018 E96@>A2?JC64@C5652564C62D6@7the Company recorded a decrease of $13>:==:@?2?5>:==:@? 2?52?:?4C62D6@7>:==:@? C6DA64E:G6=J E@:ED million and $7 million, and an increase of $4 million, respectively, to its provisionAC@G:D:@?7@CA6CD@?2=:?;FC:6D:?2?2522D2C6DF=E@724EF2C:2=G2=F2E:@?D7@C6>A=@J66:?;FCJ4=2:>D R for personal injuries in Canada as a result of actuarial valuations for employee injury claims. $ G ??F2=*6A@CE2020 Annual Report 45 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis AsD2E 646>36C at December 31, 2020, 2019 2?5and 2018, E96@>A2?JDAC@G:D:@?7@CA6CD@?2=:?;FCJ2?5@E96C4=2:>D:?2?252H2D2D7@==@HD the Company's provision for personal injury and other claims in Canada was as follows: The,962DDF>AE:@?DFD65:?6DE:>2E:?8E96F=E:>2E64@DED7@C2?25:2?6>A=@J66:?;FCJ4=2:>D:?4=F56 2>@?8@E96C724E@CD E965:D4@F?EC2E6 E96 assumptions used in estimating the ultimate costs for Canadian employee injury claims include, among other factors, the discount rate, the rateC2E6@7:?7=2E:@? H286:?4C62D6D2?5962=E942C64@DED ,96@>A2?JA6C:@5:42==JC6G:6HD:ED2DDF>AE:@?DE@C67=64E4FCC6?E=J2G2:=23=6 of inflation, wage increases and health care costs. The Company periodically reviews its assumptions to reflect currently available information.:?7@C>2E:@? 'G6CE96A2DEE9C66J62CD E96@>A2?J92D?@E925E@D:8?:7:42?E=J492?862?J@7E96D62DDF>AE:@?D 92?86D:?2?J@7E96D6 Over the past three years, the Company has not had to significantly change any of these assumptions. Changes in any of these assumptions2DDF>AE:@?D4@F=5>2E6C:2==J27764E2DF2=EJ2?5@E96C6IA6?D62DC6A@CE65:?E96@>A2?JDC6DF=ED@7@A6C2E:@?D could materially affect Casualty and other expense as reported in the Company's results of operations. For @C2==@E96C=682=4=2:>D:?2?252 6DE:>2E6D2C632D65@?E96DA64:7:4D@7E9642D6 EC6?5D2?5;F58>6?E all other legal claims in Canada, estimates are based on the specifics of the case, trends and judgment. United*%0! 0 0!/ States Personal(6CD@?2=:?;FCJ4=2:>D3JE96@>A2?JD6>A=@J66D :?4=F5:?84=2:>D2==68:?8@44FA2E:@?2=5:D62D62?5H@C< C6=2E65:?;FC:6D 2C6DF3;64EE@E96 injury claims by the Company's employees, including claims alleging occupational disease and work-related injuries, are subject to the AC@G:D:@?D@7E96provisions of the Federal 323@/: ;>:=G3@A"7/07:7BG1B Employers' Liability Act $ >A=@J66D2C64@>A6?D2E65F?56C $7@C52>286D2DD6DD6532D65@?27:?5:?8@7 (FELA). Employees are compensated under FELA for damages assessed based on a finding of 72F=EE9C@F89E96- + ;FCJDJDE6>@CE9C@F89:?5:G:5F2=D6EE=6>6?ED DDF49 E96AC@G:D:@?:DF?5:D4@F?E65 /:E9=:>:E656I46AE:@?DH96C6fault through the U.S. jury system or through individual settlements. As such, the provision is undiscounted. With limited exceptions where claims4=2:>D2C66G2=F2E65@?242D6 3J 42D632D:D E96@>A2?J7@==@HD2?24EF2C:2= 32D652AAC@2492?5244CF6DE966IA64E654@DE7@CA6CD@?2= are evaluated on a case-by-case basis, the Company follows an actuarial-based approach and accrues the expected cost for personal injury,:?;FCJ :?4=F5:?82DD6CE652?5F?2DD6CE65@44FA2E:@?2=5:D62D64=2:>D 2?5AC@A6CEJ52>2864=2:>D 32D65@?24EF2C:2=6DE:>2E6D@7E96:C including asserted and unasserted occupational disease claims, and property damage claims, based on actuarial estimates of their ultimateF=E:>2E64@DE ?24EF2C:2=DEF5J:DA6C7@C>652??F2==J cost. An actuarial study is performed annually. For @C6>A=@J66H@C< C6=2E65:?;FC:6D :?4=F5:?82DD6CE65@44FA2E:@?2=5:D62D64=2:>D 2?5E9:C5 A2CEJ4=2:>D :?4=F5:?88C2564C@DD:?8 employee work-related injuries, including asserted occupational disease claims, and third-party claims, including grade crossing, trespasserEC6DA2DD6C2?5AC@A6CEJ52>2864=2:>D E9624EF2C:2=G2=F2E:@?4@?D:56CD 2>@?8@E96C724E@CD E96@>A2?JD9:DE@C:42=A2EE6C?D@74=2:>D and property damage claims, the actuarial valuation considers, among other factors, the Company's historical patterns of claims 7:=:?8D2?5A2J>6?ED @CF?2DD6CE65@44FA2E:@?2=5:D62D64=2:>D E9624EF2C:2=G2=F2E:@?:?4=F56DE96AC@;64E:@?@7E96@>A2?JD6IA6C:6?46filings and payments. For unasserted occupational disease claims, the actuarial valuation includes the projection of the Company's experience into:?E@E967FEFC64@?D:56C:?8E96A@E6?E:2==J6IA@D65A@AF=2E:@? ,96@>A2?J25;FDED:ED=:23:=:EJ32D65FA@?>2?286>6?ED2DD6DD>6?E2?5E96 the future considering the potentially exposed population. The Company adjusts its liability based upon managements assessment and the resultsC6DF=ED@7E96DEF5J '?2?@?8@:?832D:D >2?286>6?EC6G:6HD2?54@>A2C6DE962DDF>AE:@?D:?96C6?E:?E96=2E6DE24EF2C:2=G2=F2E:@?H:E9 of the study. On an ongoing basis, management reviews and compares the assumptions inherent in the latest actuarial valuation with theE964FCC6?E4=2:>6IA6C:6?462?5 :7C6BF:C65 25;FDE>6?EDE@E96=:23:=:EJ2C6C64@C565 current claim experience and, if required, adjustments to the liability are recorded. Due F6E@E96:?96C6?EF?46CE2:?EJ:?G@=G65:?AC@;64E:?87FEFC66G6?ED :?4=F5:?86G6?EDC6=2E65E@@44FA2E:@?2=5:D62D6D H9:49:?4=F563FE to the inherent uncertainty involved in projecting future events, including events related to occupational diseases, which include but are2C6?@E=:>:E65E@ E96E:>:?82?5?F>36C@724EF2=4=2:>D E962G6C2864@DEA6C4=2:>2?5E96=68:D=2E:G62?5;F5:4:2=6?G:C@?>6?E E96 not limited to, the timing and number of actual claims, the average cost per claim and the legislative and judicial environment, the @>A2?JD7FEFC6A2J>6?ED>2J5:776C7C@>4FCC6?E2>@F?EDC64@C565 Company's future payments may differ from current amounts recorded. In!? 2020, E96@>A2?JC64@C5652564C62D6@7 the Company recorded a decrease of $10 >:==:@?E@:EDAC@G:D:@?7@C- + A6CD@?2=:?;FCJ2?5@E96C4=2:>D2EEC:3FE23=6E@?@? million to its provision for U.S. personal injury and other claims attributable to non- occupational@44FA2E:@?2=5:D62D64=2:>D E9:C5 A2CEJ4=2:>D2?5@44FA2E:@?2=5:D62D64=2:>DAFCDF2?EE@E96 disease claims, third-party claims and occupational disease claims pursuant to the 2020 24EF2C:2=G2=F2E:@? !? actuarial valuation. In 2019 2?5and 2018, actuarial24EF2C:2=G2=F2E:@?DC6DF=E65:?2?:?4C62D6@7>:==:@?2?5 valuations resulted in an increase of $2 million and $13 >:==:@? C6DA64E:G6=J ,96AC:@CJ62CD25;FDE>6?ED7C@>E9624EF2C:2=G2=F2E:@?Dmillion, respectively. The prior years' adjustments from the actuarial valuations wereH6C6>2:?=J2EEC:3FE23=6E@E9:C5 A2CEJ4=2:>D ?@? @44FA2E:@?2=5:D62D64=2:>D2?5@44FA2E:@?2=5:D62D64=2:>DC67=64E:?8492?86D:?E96 mainly attributable to third-party claims, non-occupational disease claims and occupational disease claims reflecting changes in the @>A2?JD6DE:>2E6D@7F?2DD6CE654=2:>D2?54@DEDC6=2E65E@2DD6CE654=2:>D ,96@>A2?J92D2?@?8@:?8C:D<>:E:82E:@?DEC2E68J7@4FD65Company's estimates of unasserted claims and costs related to asserted claims. The Company has an ongoing risk mitigation strategy focused on@?C65F4:?8E967C6BF6?4J2?5D6G6C:EJ@74=2:>DE9C@F89:?;FCJAC6G6?E:@?2?54@?E2:?>6?E>:E:82E:@?@74=2:>D2?5=@H6CD6EE=6>6?ED@7 reducing the frequency and severity of claims through injury prevention and containment; mitigation of claims; and lower settlements of existing6I:DE:?84=2:>D claims. AsD2E 646>36C 2?5 E96@>A2?JDAC@G:D:@?7@CA6CD@?2=:?;FCJ2?5@E96C4=2:>D:?E96- + H2D2D7@==@HD at December 31, 2020, 2019 and 2018, the Company's provision for personal injury and other claims in the U.S. was as follows: For @CE96- + A6CD@?2=:?;FCJ2?5@E96C4=2:>D=:23:=:EJ 9:DE@C:42=4=2:>52E2:DFD65E@7@C>F=2E62DDF>AE:@?DC6=2E:?8E@E966IA64E65?F>36C@7 the U.S. personal injury and other claims liability, historical claim data is used to formulate assumptions relating to the expected number of claims4=2:>D2?52G6C2864@DEA6C4=2:>7@C6249J62C 92?86D:?2?J@?6@7E96D62DDF>AE:@?D4@F=5>2E6C:2==J27764E2DF2=EJ2?5@E96C6IA6?D6 and average cost per claim for each year. Changes in any one of these assumptions could materially affect Casualty and other expense as2DC6A@CE65:?E96@>A2?JDC6DF=ED@7@A6C2E:@?D 492?86:?E962D36DE@D2G6C2864=2:>4@DEH@F=5C6DF=E:?2?:?4C62D6@C564C62D6:? reported in the Company's results of operations. A 5% change in the asbestos average claim cost would result in an increase or decrease in theE96=:23:=:EJC64@C565@72AAC@I:>2E6=J>:==:@?2?52492?86:?E96:?7=2E:@?EC6?5C2E67@C2==:?;FCJEJA6DH@F=5C6DF=E:?2?:?4C62D6@C liability recorded of approximately $1 million and a 1% change in the inflation trend rate for all injury types would result in an increase or 564C62D6:?E96=:23:=:EJC64@C565@72AAC@I:>2E6=J>:==:@? decrease in the liability recorded of approximately $3 million. 46 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Environmental:B5>;:91:@-89-@@1>? matters Known*+3*!4%/0%*#!*2%.+*)!*0 ( +* !.*/ existing environmental concerns The,96@>A2?J:D@C>2J36=:23=67@CC6>65:2E:@?4@DED2E:?5:G:5F2=D:E6D :?D@>642D6D2=@?8H:E9@E96CA@E6?E:2==JC6DA@?D:3=6A2CE:6D Company is or may be liable for remediation costs at individual sites, in some cases along with other potentially responsible parties, associated2DD@4:2E65H:E924EF2=@C2==68654@?E2>:?2E:@? ,96F=E:>2E64@DE@7255C6DD:?8E96D6:?2E65D:E6D42??@E36567:?:E:G6=J with actual or alleged contamination. The ultimate cost of addressing these known contaminated sites cannot be definitively established6DE23=:D9658:G6?E92EE966DE:>2E656?G:C@?>6?E2==:23:=:EJ7@C2?J8:G6?D:E6>2JG2CJ56A6?5:?8@?E96?2EFC62?56IE6?E@7E96 given that the estimated environmental liability for any given site may vary depending on the nature and extent of the contamination;4@?E2>:?2E:@?E96?2EFC6@72?E:4:A2E65C6DA@?D624E:@?D E2<:?8:?E@244@F?EE962G2:=23=64=62? FAE649?:BF6D6G@=G:?8C68F=2E@CJDE2?52C5D the nature of anticipated response actions, taking into account the available clean-up techniques; evolving regulatory standards governing8@G6C?:?86?G:C@?>6?E2==:23:=:EJ2?5E96?F>36C@7A@E6?E:2==JC6DA@?D:3=6A2CE:6D2?5E96:C7:?2?4:2=G:23:=:EJ D2C6DF=E =:23:=:E:6D2C6 environmental liability; and the number of potentially responsible parties and their financial viability. As a result, liabilities are recordedC64@C56532D65@?E96C6DF=ED@727@FC A92D62DD6DD>6?E4@?5F4E65@?2D:E6 3J D:E632D:D =:23:=:EJ:D:?:E:2==JC64@C565H96?6?G:C@?>6?E2= based on the results of a four-phase assessment conducted on a site-by-site basis. A liability is initially recorded when environmental assessments2DD6DD>6?ED@44FC C6>65:2=677@CED2C6AC@323=6 2?5H96?E964@DED 32D65@?2DA64:7:4A=2?@724E:@?:?E6C>D@7E96E649?@=@8JE@36FD65 occur, remedial efforts are probable, and when the costs, based on a specific plan of action in terms of the technology to be used and2?5E966IE6?E@7E964@CC64E:G624E:@?C6BF:C65 42?36C62D@?23=J6DE:>2E65 ,96@>A2?J6DE:>2E6DE964@DEDC6=2E65E@2A2CE:4F=2CD:E6 the extent of the corrective action required, can be reasonably estimated. The Company estimates the costs related to a particular site usingFD:?84@DED46?2C:@D6DE23=:D9653J6IE6C?2=4@?DF=E2?ED32D65@?E966IE6?E@74@?E2>:?2E:@?2?56IA64E654@DED7@CC6>65:2=677@CED !?E96 cost scenarios established by external consultants based on the extent of contamination and expected costs for remedial efforts. In the case42D6@7>F=E:A=6A2CE:6D E96@>A2?J244CF6D:ED2==@423=6D92C6@7=:23:=:EJE2<:?8:?E@244@F?EE96@>A2?JD2==6865C6DA@?D:3:=:EJ E96 of multiple parties, the Company accrues its allocable share of liability taking into account the Company's alleged responsibility, the number?F>36C@7A@E6?E:2==JC6DA@?D:3=6A2CE:6D2?5E96:C23:=:EJE@A2JE96:CC6DA64E:G6D92C6@7E96=:23:=:EJ 5;FDE>6?EDE@:?:E:2=6DE:>2E6D2C6 of potentially responsible parties and their ability to pay their respective share of the liability. Adjustments to initial estimates are recordedC64@C5652D255:E:@?2=:?7@C>2E:@?364@>6D2G2:=23=6 as additional information becomes available. The,96@>A2?JDAC@G:D:@?7@CDA64:7:46?G:C@?>6?E2=D:E6D:DF?5:D4@F?E652?5:?4=F56D4@DED7@CC6>65:2E:@?2?5C6DE@C2E:@?@7D:E6D 2D Company's provision for specific environmental sites is undiscounted and includes costs for remediation and restoration of sites, as wellH6==2D>@?:E@C:?84@DED ?G:C@?>6?E2=6IA6?D6D H9:492C64=2DD:7:652D2DF2=EJ2?5@E96C:?E96@?D@=:52E65+E2E6>6?ED@7!?4@>6 as monitoring costs. Environmental expenses, which are classified as Casualty and other in the Consolidated Statements of Income, include:?4=F562>@F?ED7@C?6H=J:56?E:7:65D:E6D@C4@?E2>:?2?ED2DH6==2D25;FDE>6?EDE@:?:E:2=6DE:>2E6D *64@G6C:6D@76?G:C@?>6?E2=C6>65:2E:@? amounts for newly identified sites or contaminants as well as adjustments to initial estimates. Recoveries of environmental remediation costs4@DED7C@>@E96CA2CE:6D2C6C64@C5652D2DD6EDH96?E96:CC646:AE:D566>65AC@323=6 from other parties are recorded as assets when their receipt is deemed probable. AsD2E 646>36C 2?5 E96@>A2?JDAC@G:D:@?7@CDA64:7:46?G:C@?>6?E2=D:E6DH2D2D7@==@HD at December 31, 2020, 2019 and 2018, the Company's provision for specific environmental sites was as follows: The,96@>A2?J2?E:4:A2E6DE92EE96>2;@C:EJ@7E96=:23:=:EJ2E 646>36C H:==36A2:5@FE@G6CE96?6IE7:G6J62CD 2D65@?E96 Company anticipates that the majority of the liability at December 31, 2020 will be paid out over the next five years. Based on the information:?7@C>2E:@?4FCC6?E=J2G2:=23=6 E96@>A2?J4@?D:56CD:EDAC@G:D:@?DE@36256BF2E6 currently available, the Company considers its provisions to be adequate. Unknown*'*+3*!4%/0%*#!*2%.+*)!*0 ( +* !.*/ existing environmental concerns /9:=6E96@>A2?J36=:6G6DE92E:E92D:56?E:7:65E964@DED=:<6=JE@36:?4FCC657@C6?G:C@?>6?E2=>2EE6CD32D65@?2E:@? E96While the Company believes that it has identified the costs likely to be incurred for environmental matters based on known information, the 5:D4@G6CJ@7?6H724ED 7FEFC6492?86D:?=2HD E96A@DD:3:=:EJ@7C6=62D6D@792K2C5@FD>2E6C:2=D:?E@E966?G:C@?>6?E2?5E96@>A2?JDdiscovery of new facts, future changes in laws, the possibility of releases of hazardous materials into the environment and the Company's ongoing@?8@:?8677@CEDE@:56?E:7JA@E6?E:2=6?G:C@?>6?E2==:23:=:E:6DE92E>2J362DD@4:2E65H:E9:EDAC@A6CE:6D>2JC6DF=E:?E96:56?E:7:42E:@?@7 efforts to identify potential environmental liabilities that may be associated with its properties may result in the identification of additional255:E:@?2=6?G:C@?>6?E2==:23:=:E:6D2?5C6=2E654@DED ,96>28?:EF56@7DF49255:E:@?2==:23:=:E:6D2?5E964@DED@74@>A=J:?8H:E97FEFC6 environmental liabilities and related costs. The magnitude of such additional liabilities and the costs of complying with future environmental6?G:C@?>6?E2==2HD2?54@?E2:?:?8@CC6>65:2E:?84@?E2>:?2E:@?42??@E36C62D@?23=J6DE:>2E655F6E@>2?J724E@CD :?4=F5:?8 laws and containing or remediating contamination cannot be reasonably estimated due to many factors, including: P• the E96=24<@7DA64:7:4E649?:42=:?7@C>2E:@?2G2:=23=6H:E9C6DA64EE@>2?JD:E6D lack of specific technical information available with respect to many sites; P• the E9623D6?46@72?J8@G6C?>6?E2FE9@C:EJ E9:C5 A2CEJ@C56CD @C4=2:>DH:E9C6DA64EE@A2CE:4F=2CD:E6D absence of any government authority, third-party orders, or claims with respect to particular sites; P• the E96A@E6?E:2=7@C?6H@C492?865=2HD2?5C68F=2E:@?D2?57@C56G6=@A>6?E@7?6HC6>65:2E:@?E649?@=@8:6D2?5F?46CE2:?EJC682C5:?8E96 potential for new or changed laws and regulations and for development of new remediation technologies and uncertainty regarding the timingE:>:?8@7E96H@C<H:E9C6DA64EE@A2CE:4F=2CD:E6D2?5 of the work with respect to particular sites; and P• the E9656E6C>:?2E:@?@7E96@>A2?JD=:23:=:EJ:?AC@A@CE:@?E@@E96CA@E6?E:2==JRC6DA@?D:3=6A2CE:6D2?5E9623:=:EJE@C64@G6C4@DED7C@>2?J determination of the Company's liability in proportion to other potentially responsible parties and the ability to recover costs from any thirdE9:C5A2CE:6DH:E9C6DA64EE@A2CE:4F=2CD:E6D parties with respect to particular sites. Therefore,,96C67@C6 E96=:<6=:9@@5@72?JDF494@DED36:?8:?4FCC65@CH96E96CDF494@DEDH@F=536>2E6C:2=E@E96@>A2?J42??@E3656E6C>:?652E the likelihood of any such costs being incurred or whether such costs would be material to the Company cannot be determined at thisE9:DE:>6 ,96C642?E9FD36?@2DDFC2?46E92E=:23:=:E:6D@C4@DEDC6=2E65E@6?G:C@?>6?E2=>2EE6CDH:==?@E36:?4FCC65:?E967FEFC6 @CH:==?@E time. There can thus be no assurance that liabilities or costs related to environmental matters will not be incurred in the future, or will not have92G62>2E6C:2=25G6CD667764E@?E96@>A2?JD7:?2?4:2=A@D:E:@?@CC6DF=ED@7@A6C2E:@?D:?2A2CE:4F=2CBF2CE6C@C7:D42=J62C @CE92EE96 a material adverse effect on the Company's financial position or results of operations in a particular quarter or fiscal year, or that the @>A2?JD=:BF:5:EJH:==?@E3625G6CD6=J:>A24E653JDF49=:23:=:E:6D@C4@DED 2=E9@F89>2?286>6?E36=:6G6D 32D65@?4FCC6?E:?7@C>2E:@? Company's liquidity will not be adversely impacted by such liabilities or costs, although management believes, based on current information, thatE92EE964@DEDE@255C6DD6?G:C@?>6?E2=>2EE6CDH:==?@E92G62>2E6C:2=25G6CD667764E@?E96@>A2?JD7:?2?4:2=A@D:E:@?@C=:BF:5:EJ @DED the costs to address environmental matters will not have a material adverse effect on the Company's financial position or liquidity. Costs relatedC6=2E65E@2?JF?:?2E:@?H:==36244CF65:?E96A6C:@5:?H9:49E96J364@>6AC@323=62?5C62D@?23=J6DE:>23=6 to any unknown existing or future contamination will be accrued in the period in which they become probable and reasonably estimable. $ G ??F2=*6A@CE2020 Annual Report 47 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Future101.!+ 1..!* !/ occurrences In!?C2:=C@252?5C6=2E65EC2?DA@CE2E:@?@A6C2E:@?D :E:DA@DD:3=6E92E56C2:=>6?ED@C@E96C244:56?ED :?4=F5:?8DA:==D2?5C6=62D6D@792K2C5@FD railroad and related transportation operations, it is possible that derailments or other accidents, including spills and releases of hazardous materials,>2E6C:2=D >2J@44FCE92E4@F=542FD692C>E@9F>2?962=E9@CE@E966?G:C@?>6?E D2C6DF=E E96@>A2?J>2J:?4FC4@DED:?E967FEFC6 may occur that could cause harm to human health or to the environment. As a result, the Company may incur costs in the future, whichH9:49>2J36>2E6C:2= E@255C6DD2?JDF4992C> 4@>A=:2?46H:E9=2HD2?5@E96CC:D Regulatory!#1( 0+.5 +),(% * ! compliance The,96@>A2?J>2J:?4FCD:8?:7:42?E42A:E2=2?5@A6C2E:?84@DED2DD@4:2E65H:E96?G:C@?>6?E2=C68F=2E@CJ4@>A=:2?462?54=62? FA Company may incur significant capital and operating costs associated with environmental regulatory compliance and clean-up requirements,C6BF:C6>6?ED :?:EDC2:=C@25@A6C2E:@?D2?5C6=2E:?8E@:EDA2DE2?5AC6D6?E@H?6CD9:A @A6C2E:@?@C4@?EC@=@7C62=AC@A6CEJ ?G:C@?>6?E2= in its railroad operations and relating to its past and present ownership, operation or control of real property. Environmental expenditures6IA6?5:EFC6DE92EC6=2E6E@4FCC6?E@A6C2E:@?D2C66IA6?D65F?=6DDE96JC6=2E6E@2?:>AC@G6>6?EE@E96AC@A6CEJ IA6?5:EFC6DE92EC6=2E6E@2? that relate to current operations are expensed unless they relate to an improvement to the property. Expenditures that relate to an existing6I:DE:?84@?5:E:@?42FD653JA2DE@A6C2E:@?D2?5H9:492C6?@E6IA64E65E@4@?EC:3FE6E@4FCC6?E@C7FEFC6@A6C2E:@?D2C66IA6?D65 condition caused by past operations and which are not expected to contribute to current or future operations are expensed. 'A6C2E:?8Operating expenses6IA6?D6DC6=2E65E@C68F=2E@CJ4@>A=:2?4624E:G:E:6D7@C6?G:C@?>6?E2=>2EE6CD7@CE96J62C6?565 646>36C 2>@F?E65E@ related to regulatory compliance activities for environmental matters for the year ended December 31, 2020 amounted to $25>:==:@? million (2019 - $25>:==:@? million; 2018 - $22>:==:@? @C million). For 2021, E96@>A2?J6IA64EDE@:?4FC@A6C2E:?86IA6?D6DC6=2E:?8E@6?G:C@?>6?E2=>2EE6CD:?E96 the Company expects to incur operating expenses relating to environmental matters in the sameD2>6C2?862D range as 2020. !?255:E:@? 32D65@?E96C6DF=ED@7:ED@A6C2E:@?D2?5>2:?E6?2?46AC@8C2>D 2DH6==2D@?8@:?86?G:C@?>6?E2=2F5:ED In addition, based on the results of its operations and maintenance programs, as well as ongoing environmental audits and2?5@E96C724E@CD E96@>A2?JA=2?D7@CDA64:7:442A:E2=:>AC@G6>6?ED@?2?2??F2=32D:D 6CE2:?@7E96D6:>AC@G6>6?ED96=A6?DFC6 other factors, the Company plans for specific capital improvements on an annual basis. Certain of these improvements help ensure 724:=:E:6D DF492D7F6=:?8DE2E:@?D H2DE6H2E6C2?5DE@C>H2E6CEC62E>6?EDJDE6>D 4@>A=JH:E96?G:C@?>6?E2=DE2?52C5D2?5:?4=F56?6Hfacilities, such as fueling stations, waste water and storm water treatment systems, comply with environmental standards and include new construction4@?DECF4E:@?2?5E96FA52E:?8@76I:DE:?8DJDE6>D2?5 @CAC@46DD6D 'E96C42A:E2=6IA6?5:EFC6DC6=2E6E@2DD6DD:?82?5C6>65:2E:?846CE2:? and the updating of existing systems and/or processes. Other capital expenditures relate to assessing and remediating certain impaired:>A2:C65AC@A6CE:6D ,96@>A2?JD6?G:C@?>6?E2=42A:E2=6IA6?5:EFC6D7@CE96J62C6?565 646>36C 2>@F?E65E@ >:==:@? properties. The Company's environmental capital expenditures for the year ended December 31, 2020 amounted to $20 million (2019 - $25>:==:@? million; 2018 - $19 >:==:@? @Cmillion). For 2021, E96@>A2?J6IA64EDE@:?4FC42A:E2=6IA6?5:EFC6DC6=2E:?8E@6?G:C@?>6?E2=>2EE6CD:?E96D2>6 the Company expects to incur capital expenditures relating to environmental matters in the same rangeC2?862D as 2020. BusinessA?5:1??>5?7? risks In!?E96?@C>2=4@FCD6@73FD:?6DD E96@>A2?J:D6IA@D65E@G2C:@FD3FD:?6DDC:D Pandemic&-:0195/>5?7-:01/;:;95/0;C:@A>: risk and economic downturn Severe+6G6C65:DCFAE:@?D:?C68:@?2=64@?@>:6D2?5E96H@C=564@?@>J42?3642FD653JE96@FE3C62<@724@?E28:@FD:==?6DD DF492DE964FCC6?E disruptions in regional economies and the world economy can be caused by the outbreak of a contagious illness, such as the current '.! A2?56>:4 ,96EC2?D>:DD:@?@7'.! 2?5677@CEDE@4@?E2:?:EDDAC62592G6C6DF=E65:?:?E6C?2E:@?2= ?2E:@?2=2?5=@42=3@C56CCOVID-19 pandemic. The transmission of COVID-19 and efforts to contain its spread have resulted in international, national and local border closings,4=@D:?8D EC2G6=C6DEC:4E:@?D D:8?:7:42?E5:DCFAE:@?DE@3FD:?6DD@A6C2E:@?D DFAA=J492:?D 4FDE@>6C24E:G:EJ2?556>2?5 D6CG:4642?46==2E:@?D travel restrictions, significant disruptions to business operations, supply chains, customer activity and demand, service cancellations, reductionsC65F4E:@?D2?5@E96C492?86D D:8?:7:42?E492==6?86D:?962=E942C6D6CG:46AC6A2C2E:@?2?556=:G6CJ 2?5BF2C2?E:?6D 2DH6==2D4@?D:56C23=6 and other changes, significant challenges in healthcare service preparation and delivery, and quarantines, as well as considerable general86?6C2=4@?46C?2?5F?46CE2:?EJ 2==@7H9:4992G6?682E:G6=J27764E65E9664@?@>:46?G:C@?>6?E2?5>2J:?E967FEFC692G67FCE96C2?5=2C86C concern and uncertainty, all of which have negatively affected the economic environment and may in the future have further and larger impacts.:>A24ED !E:D?@EA@DD:3=6E@AC65:4EH92E255:E:@?2=>62DFC6D2?5C6DEC:4E:@?DH:==36:>A@D653J8@G6C?>6?E2=2FE9@C:E:6D2?5E96A6C:@5:? It is not possible to predict what additional measures and restrictions will be imposed by governmental authorities and the period in timeE:>65FC:?8H9:49E9@D6>62DFC6D2?5C6DEC:4E:@?DH:==2AA=J (C@=@?8653@C56C4=@D:?8D2?564@?@>:42?5DFAA=J492:?5:DCFAE:@?D4@F=5 during which those measures and restrictions will apply. Prolonged border closings and economic and supply chain disruptions could 7FCE96C>2E6C:2==J27764EE96@>A2?JD7:?2?4:2=C6DF=ED2?5@A6C2E:@?D ,96'.! A2?56>:44@F=52=D@7FCE96C2?5D:8?:7:42?E=J:>A24Efurther materially affect the Company's financial results and operations. The COVID-19 pandemic could also further and significantly impact 7C6:89E56>2?52?54@>>@5:EJAC:46D:?4@??64E:@?H:E9E966?DF:?864@?@>:45@H?EFC? DFAA=JD9@CE286D EC2565:DCFAE:@? E6>A@C2CJDE277freight demand and commodity prices in connection with the ensuing economic downturn, supply shortages, trade disruption, temporary staff shortagesD9@CE286D 2?5E6>A@C2CJ4=@DFC6D@7724:=:E:6D:?86@8C2A9:4=@42E:@?D>@C6:>A@CE2?E=J:>A24E653JE96@FE3C62< ,96D4@A62?5D6G6C:EJ@7and temporary closures of facilities in geographic locations more importantly impacted by the outbreak. The scope and severity of suchDF495:DCFAE:@?D2?5E96:C:>A24E@?E96@>A2?JD7:?2?4:2=C6DF=ED2?5@A6C2E:@?D92G6366? 2?52C66IA64E65E@4@?E:?F6E@36>2E6C:2= disruptions and their impact on the Company's financial results and operations have been, and are expected to continue to be material. Competition;9<1@5@5;: The,96@>A2?J7246DD:8?:7:42?E4@>A6E:E:@? :?4=F5:?87C@>C2:=42CC:6CD2?5@E96C>@56D@7EC2?DA@CE2E:@? 2?5:D2=D@27764E653J:ED Company faces significant competition, including from rail carriers and other modes of transportation, and is also affected by its customers'4FDE@>6CD7=6I:3:=:EJE@D6=64E2>@?8G2C:@FD@C:8:?D2?556DE:?2E:@?D :?4=F5:?8A@CED :?86EE:?8E96:CAC@5F4EDE@>2C<6E +A64:7:42==J E96 flexibility to select among various origins and destinations, including ports, in getting their products to market. Specifically, the @>A2?J7246D4@>A6E:E:@?7C@>2?25:2?(24:7:4*2:=H2J@>A2?J( H9:49@A6C2E6DE96@E96C>2;@CC2:=DJDE6>:?2?2522?5D6CG:46DCompany faces competition from Canadian Pacific Railway Company (CP), which operates the other major rail system in Canada and services most>@DE@7E96D2>6:?5FDEC:2=2C62D 4@>>@5:EJC6D@FC46D2?5A@AF=2E:@?46?E6CD2DE96@>A2?J>2;@C- + C2:=C@25D2?5@E96C2?25:2?2?5 of the same industrial areas, commodity resources and population centers as the Company; major U.S. railroads and other Canadian and U.S.- + C2:=C@25D=@?8 5:DE2?46ECF4<:?84@>A2?:6D EC2?DA@CE2E:@?G:2E96+E $2HC6?46 C62E$2<6D+62H2J2?5E96%:DD:DD:AA:*:G6C2?5 railroads; long-distance trucking companies, transportation via the St. Lawrence-Great Lakes Seaway and the Mississippi River and transportationEC2?DA@CE2E:@?G:2A:A6=:?6D !?255:E:@? H9:=6C2:=C@25D>FDE3F:=5@C24BF:C62?5>2:?E2:?E96:CC2:=DJDE6>D >@E@C42CC:6CD2?532C86D2C623=6 via pipelines. In addition, while railroads must build or acquire and maintain their rail systems, motor carriers and barges are able toE@FD6AF3=:4C:89ED @7 H2JE92E2C63F:=E2?5>2:?E2:?653JAF3=:46?E:E:6DH:E9@FEA2J:?8766D4@G6C:?8E966?E:C64@DED@7E96:CFD286 use public rights-of-way that are built and maintained by public entities without paying fees covering the entire costs of their usage. 48 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis @>A6E:E:@?:D86?6C2==J32D65@?E96BF2=:EJ2?5E96C6=:23:=:EJ@7E96D6CG:46AC@G:565 2446DDE@>2C<6ED 2DH6==2DAC:46 24E@CDCompetition is generally based on the quality and the reliability of the service provided, access to markets, as well as price. Factors affecting27764E:?8E964@>A6E:E:G6A@D:E:@?@74FDE@>6CD :?4=F5:?86I492?86C2E6D2?56?6C8J4@DE 4@F=5>2E6C:2==J25G6CD6=J27764EE9656>2?57@C the competitive position of customers, including exchange rates and energy cost, could materially adversely affect the demand for goods8@@5DDFAA=:653JE96D@FC46DD6CG653JE96@>A2?J2?5 E96C67@C6 E96@>A2?JDG@=F>6D C6G6?F6D2?5AC@7:E>2C8:?D 24E@CD27764E:?8 supplied by the sources served by the Company and, therefore, the Company's volumes, revenues and profit margins. Factors affecting theE9686?6C2=>2C<6E4@?5:E:@?D7@CE96@>A2?JD4FDE@>6CD42?C6DF=E:?2?:>32=2?46@7EC2?DA@CE2E:@?42A24:EJC6=2E:G6E@56>2?5 ? general market conditions for the Company's customers can result in an imbalance of transportation capacity relative to demand. An extended6IE6?565A6C:@5@7DFAA=J 56>2?5:>32=2?464@F=5?682E:G6=J:>A24E>2C<6EC2E6=6G6=D7@C2==EC2?DA@CE2E:@?D6CG:46D 2?5>@C6DA64:7:42==J period of supply/demand imbalance could negatively impact market rate levels for all transportation services, and more specifically theE96@>A2?JD23:=:EJE@>2:?E2:?@C:?4C62D6C2E6D ,9:D :?EFC? 4@F=5>2E6C:2==J2?525G6CD6=J27764EE96@>A2?JD3FD:?6DD C6DF=ED@7 Company's ability to maintain or increase rates. This, in turn, could materially and adversely affect the Company's business, results of operations@A6C2E:@?D@C7:?2?4:2=A@D:E:@? or financial position. The,96=6G6=@74@?D@=:52E:@?@7C2:=DJDE6>D:?E96- + 92DC6DF=E65:?=2C86CC2:=DJDE6>DE92E2C6:?2A@D:E:@?E@4@>A6E667764E:G6=JH:E9E96 level of consolidation of rail systems in the U.S. has resulted in larger rail systems that are in a position to compete effectively with the @>A2?J:??F>6C@FD>2C<6ED Company in numerous markets. There,96C642?36?@2DDFC2?46E92EE96@>A2?JH:==3623=6E@4@>A6E667764E:G6=J282:?DE4FCC6?E2?57FEFC64@>A6E:E@CD:?E96 can be no assurance that the Company will be able to compete effectively against current and future competitors in the transportationEC2?DA@CE2E:@?:?5FDECJ @CE92E7FCE96C4@?D@=:52E:@?H:E9:?E96EC2?DA@CE2E:@?:?5FDECJ2?5=68:D=2E:@?2==@H:?87@C>@C6=6?:6?4J:?D:K62?5 industry, or that further consolidation within the transportation industry and legislation allowing for more leniency in size and weightH6:89E7@C>@E@C42CC:6CDH:==?@E25G6CD6=J27764EE96@>A2?JD4@>A6E:E:G6A@D:E:@? &@2DDFC2?4642?368:G6?E92E4@>A6E:E:G6AC6DDFC6D for motor carriers will not adversely affect the Company's competitive position. No assurance can be given that competitive pressures willH:==?@E=625E@C65F465C6G6?F6D AC@7:E>2C8:?D@C3@E9 not lead to reduced revenues, profit margins or both. Environmental:B5>;:91:@-89-@@1>? matters The,96@>A2?JD@A6C2E:@?D2C6DF3;64EE@?F>6C@FD7656C2= AC@G:?4:2= DE2E6 >F?:4:A2=2?5=@42=6?G:C@?>6?E2==2HD2?5C68F=2E:@?D:?2?252 Company's operations are subject to numerous federal, provincial, state, municipal and local environmental laws and regulations in Canada and2?5E96- + 4@?46C?:?8 2>@?8@E96CE9:?8D 6>:DD:@?D:?E@E962:C5:D492C86D:?E@H2E6CDE9686?6C2E:@? 92?5=:?8 DE@C286 EC2?DA@CE2E:@? the U.S. concerning, among other things, emissions into the air; discharges into waters; the generation, handling, storage, transportation, treatmentEC62E>6?E2?55:DA@D2=@7H2DE6 92K2C5@FDDF3DE2?46D2?5@E96C>2E6C:2=D564@>>:DD:@?:?8@7F?56C8C@F?52?523@G68C@F?5DE@C286 and disposal of waste, hazardous substances and other materials; decommissioning of underground and aboveground storage tanks;E2? Personal&1>?;:-85:6A>E-:0;@41>/8-59? injury and other claims In!?E96?@C>2=4@FCD6@73FD:?6DD E96@>A2?J364@>6D:?G@=G65:?G2C:@FD=682=24E:@?DD66<:?84@>A6?D2E@CJ2?5@442D:@?2==JAF?:E:G6 the normal course of business, the Company becomes involved in various legal actions seeking compensatory and occasionally punitive 52>286D :?4=F5:?824E:@?D3C@F89E@?3692=7@7G2C:@FDAFCA@CE654=2DD6D@74=2:>2?ED2?54=2:>DC6=2E:?8E@6>A=@J662?5E9:C5 A2CEJdamages, including actions brought on behalf of various purported classes of claimants and claims relating to employee and third-party A6CD@?2=:?;FC:6D @44FA2E:@?2=5:D62D6 2?5AC@A6CEJ52>286 2C:D:?8@FE@792C>E@:?5:G:5F2=D@CAC@A6CEJ2==6865=J42FD653J 3FE?@E=:>:E65personal injuries, occupational disease, and property damage, arising out of harm to individuals or property allegedly caused by, but not limited to,E@ 56C2:=>6?ED@C@E96C244:56?ED ,96@>A2?J>2:?E2:?DAC@G:D:@?D7@CDF49:E6>D H9:49:E4@?D:56CDE@36256BF2E67@C2==@7:ED derailments or other accidents. The Company maintains provisions for such items, which it considers to be adequate for all of its outstanding@FEDE2?5:?8@CA6?5:?84=2:>D2?536?67:ED7C@>:?DFC2?464@G6C2867@C@44FCC6?46D:?6I46DD@746CE2:?2>@F?ED ,967:?2=@FE4@>6H:E9 or pending claims and benefits from insurance coverage for occurrences in excess of certain amounts. The final outcome with respectC6DA64EE@24E:@?D@FEDE2?5:?8@CA6?5:?82E 646>36C @CH:E9C6DA64EE@7FEFC64=2:>D 42??@E36AC65:4E65H:E946CE2:?EJ 2?5 to actions outstanding or pending at December 31, 2020, or with respect to future claims, cannot be predicted with certainty, and thereforeE96C67@C6E96C642?36?@2DDFC2?46E92EE96:CC6D@=FE:@?H:==?@E92G62>2E6C:2=25G6CD667764E@?E96@>A2?JDC6DF=ED@7@A6C2E:@?D there can be no assurance that their resolution will not have a material adverse effect on the Company's results of operations, 7:?2?4:2=A@D:E:@?@C=:BF:5:EJ :?2A2CE:4F=2CBF2CE6C@C7:D42=J62C financial position or liquidity, in a particular quarter or fiscal year. $ G ??F2=*6A@CE2020 Annual Report 49 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Labor"-.;>:13;@5-@5;:? negotiations AsD2E 646>36C &6>A=@J652E@E2=@7 at December 31, 2020, CN employed a total of 17,645 6>A=@J66D:?2?252 @7H9:49 employees in Canada, of which 12,585, @C or 71%, H6C6F?:@?:K656>A=@J66D2?5 were unionized employees and 6,736 employees6>A=@J66D:?E96- + @7H9:49 in the U.S., of which 5,624, @C or 83%, H6C6F?:@?:K656>A=@J66D ,96@>A2?JDC6=2E:@?D9:ADH:E9:EDF?:@?:K65H@C<7@C462C6 were unionized employees. The Company's relationships with its unionized workforce are 8@G6C?653J 2>@?8DE@E96C:E6>D 4@==64E:G628C66>6?EDH9:492C6?68@E:2E657C@>E:>6E@E:>6 :DAFE6DC6=2E:?8E@E96C6?6H2=@74@==64E:G6governed by, amongst other items, collective agreements which are negotiated from time to time. Disputes relating to the renewal of collective agreements28C66>6?ED4@F=5A@E6?E:2==JC6DF=E:?DEC:<6D D=@H5@H?D2?5=@DD@73FD:?6DD FEFC6=23@C28C66>6?ED@CC6?68@E:2E6528C66>6?ED4@F=5 could potentially result in strikes, slowdowns and loss of business. Future labor agreements or renegotiated agreements could increase:?4C62D6=23@C2?57C:?8636?67:ED2?5C6=2E656IA6?D6D ,96C642?36?@2DDFC2?46E92EE96@>A2?JH:==3623=6E@C6?6H2?592G6:ED labor and fringe benefits and related expenses. There can be no assurance that the Company will be able to renew and have its collective4@==64E:G628C66>6?EDC2E:7:65H:E9@FE2?JDEC:<6D@C=@4<@FED@CE92EE96C6D@=FE:@?@7E96D64@==64E:G632C82:?:?8?68@E:2E:@?DH:==?@E92G62 agreements ratified without any strikes or lockouts or that the resolution of these collective bargaining negotiations will not have a material>2E6C:2=25G6CD667764E@?E96@>A2?JDC6DF=ED@7@A6C2E:@?D@C7:?2?4:2=A@D:E:@? adverse effect on the Company's results of operations or financial position. Canadian * % *3+.'"+. ! workforce There,96C62C6?@>2E6C:2=4@==64E:G628C66>6?ED:?2?252E92E2C6@A6?7@C?68@E:2E:@?2EE9:DE:>6 ,96@>A2?JD4@==64E:G628C66>6?EDC6>2:? are no material collective agreements in Canada that are open for negotiation at this time. The Company's collective agreements remain in:?67764EF?E:=E9632C82:?:?8AC@46DD@FE=:?65F?56CE96 effect until the bargaining process outlined under the / U.S.3+.'"+. ! workforce AsD@7 63CF2CJ 4@==64E:G628C66>6?ED4@G6C:?82==?@? @A6C2E:?82?5@A6C2E:?84C27E6>A=@J66D2E C2?5,CF?</6DE6C?*2:=C@25 of February 1, 2021, collective agreements covering all non-operating and operating craft employees at Grand Trunk Western Railroad @>A2?J ,/ 4@>A2?:6D@H?653J!==:?@:D6?EC2=@CA@C2E:@?! 4@>A2?:6D@H?653J/:D4@?D:?6?EC2=$E5 /2?56DD6>6CCompany (GTW), companies owned by Illinois Central Corporation (ICC), companies owned by Wisconsin Central Ltd. (WC) and Bessemer & Lake$2<6 C:6*2:=C@25@>A2?J$ 2?52==6>A=@J66D2E(:EED3FC892?5@??62FE @4<@>A2?J( H6C6C2E:7:65 ,9628C66>6?ED:?A=246 Erie Railroad Company (BLE), and all employees at Pittsburgh and Conneaut Dock Company (PCD) were ratified. The agreements in place have92G6G2C:@FD>@C2E@C:F>AC@G:D:@?D H9:49AC6D6CG6E96DE2EFDBF@H:E9C6DA64EE@E968:G6?4@==64E:G628C66>6?E5FC:?8E96E6C>D@7DF49 various moratorium provisions, which preserve the status quo with respect to the given collective agreement during the terms of such moratoriums.>@C2E@C:F>D /96C6?68@E:2E:@?D2C6@?8@:?8 E96E6C>D2?54@?5:E:@?D@76I:DE:?828C66>6?ED86?6C2==J4@?E:?F6E@2AA=JF?E:=?6H Where negotiations are ongoing, the terms and conditions of existing agreements generally continue to apply until new agreements28C66>6?ED2C6C624965@CE96AC@46DD6D@7E96 are reached or the processes of the Railway'/7:E/G"/0=@1B Labor Act92G6366?6I92FDE65 have been exhausted. The,9686?6C2=2AAC@249E@=23@C?68@E:2E:@?D3J- + =2DD general approach to labor negotiations by U.S. Class I railroadsC2:=C@25D:DE@32C82:?@?24@==64E:G6?2E:@?2=32D:DH:E9E96:?5FDECJ H9:49 is to bargain on a collective national basis with the industry, which ,/ ! /2?5$ 4FCC6?E=JA2CE:4:A2E6:? 7@C4@==64E:G628C66>6?ED4@G6C:?82==?@? @A6C2E:?82?5@A6C2E:?86>A=@J66D H:E9E96GTW, ICC, WC and BLE currently participate in, for collective agreements covering all non-operating and operating employees, with the exception6I46AE:@?@7EH@6>A=@J668C@FADH@C<:?82E( 4@G6C:?876H6CE92?6>A=@J66D ,96?6IE?2E:@?2=32C82:?:?8C@F?592D4@>>6?465 of two employee groups working at PCD covering fewer than 35 employees. The next national bargaining round has commenced. Regulation(13A8-@5;: In!?@C56CE@724:=:E2E6E964@?E:?F65>@G6>6?E@78@@5D5FC:?8E96'.! A2?56>:4 C68F=2E@CJ286?4:6D:?E96- + 2?52?25292G6:DDF65 order to facilitate the continued movement of goods during the COVID-19 pandemic, regulatory agencies in the U.S. and Canada have issued waiversH2:G6CD@C6I6>AE:@?DE@C2:=H2J4@>A2?:6DAC@G:5:?8C6=:677C@>E96DEC:4E2AA=:42E:@?@7D@>6C68F=2E:@?D ,96D6C6=:67DH6C6AC@G:565E@ or exemptions to railway companies providing relief from the strict application of some regulations. These reliefs were provided to 724:=:E2E6D@4:2=5:DE2?4:?82?54@>A=:2?46H:E9@E96C4@?DEC2:?ED2DD@4:2E65H:E9E96'.! A2?56>:4E92EH@F=5AC6G6?EC2:=H2JD7C@>facilitate social distancing and compliance with other constraints associated with the COVID-19 pandemic that would prevent railways from complying4@>A=J:?8H:E9C6BF:C6>6?ED:?2>2??6C4@?D:DE6?EH:E96I:DE:?8AC@G:D:@?D with requirements in a manner consistent with existing provisions. Economic +*+)% .!#1( 0%+*7 * regulation — Canada The,96@>A2?JDC2:=@A6C2E:@?D:?2?2522C6DF3;64EE@64@?@>:4C68F=2E:@?3JE962?25:2?,C2?DA@CE2E:@?86?4JF?56CE96 Company's rail operations in Canada are subject to economic regulation by the Canadian Transportation Agency under the /=@B/B7=<1BTransportation Act, H9:49AC@G:56DC2E62?5D6CG:46C6>65:6D :?4=F5:?87:?2=@776C2C3:EC2E:@? =@?8 92F=:?E6CDH:E49:?8C2E6D2?5>2?52E@CJ which provides rate and service remedies, including final offer arbitration, long-haul interswitching rates and mandatory interswitching.:?E6CDH:E49:?8 !E2=D@C68F=2E6DE96>2I:>F>C6G6?F66?E:E=6>6?E7@CE96>@G6>6?E@7C68F=2E658C2:? 492C86D7@CC2:=H2J2?4:==2CJD6CG:46D It also regulates the maximum revenue entitlement for the movement of regulated grain, charges for railway ancillary services and2?5?@:D6 C6=2E655:DAFE6D !?255:E:@? G2C:@FD@>A2?J3FD:?6DDEC2?D24E:@?D>FDE82:?AC:@CC68F=2E@CJ2AAC@G2= H:E92EE6?52?EC:D No&@2DDFC2?4642?368:G6?E92E2?J4FCC6?E@C7FEFC6C68F=2E@CJ@C=68:D=2E:G6:?:E:2E:G6D3JE962?25:2?7656C2=8@G6C?>6?E2?5286?4:6DH:== assurance can be given that any current or future regulatory or legislative initiatives by the Canadian federal government and agencies will not?@E>2E6C:2==J25G6CD6=J27764EE96@>A2?JDC6DF=ED@7@A6C2E:@?D@C:ED4@>A6E:E:G62?57:?2?4:2=A@D:E:@? materially adversely affect the Company's results of operations or its competitive and financial position. Economic +*+)% .!#1( 0%+*7 regulation — U.S. The,96@>A2?JD- + C2:=@A6C2E:@?D2C6DF3;64EE@64@?@>:4C68F=2E:@?3JE96+, ,96+,D6CG6D2D3@E92?25;F5:42E@CJ2?5C68F=2E@CJ3@5J Company's U.S. rail operations are subject to economic regulation by the STB. The STB serves as both an adjudicatory and regulatory body and2?592D;FC:D5:4E:@?@G6C46CE2:?C2:=C@25C2E62?5D6CG:46:DDF6D2?5C2:=C6DECF4EFC:?8EC2?D24E:@?DDF492D>6C86CD =:?6D2=6D =:?64@?DECF4E:@? has jurisdiction over certain railroad rate and service issues and rail restructuring transactions such as mergers, line sales, line construction and2?5=:?6232?5@?>6?ED DDF49 G2C:@FD@>A2?J3FD:?6DDEC2?D24E:@?D>FDE82:?AC:@CC68F=2E@CJ2AAC@G2=2?52DA64ED@7:EDAC:4:?82?5 line abandonments. As such, various Company business transactions must gain prior regulatory approval and aspects of its pricing and serviceD6CG:46AC24E:46D>2J36DF3;64EE@492==6?86 H:E92EE6?52?EC:D 50 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis '?F8FDE E96+,:DDF65:?E6C:>7:?5:?8D2?58F:52?46E@&2E:@?2=*2:=C@25(2DD6?86C@CA@C2E:@?>EC2<2?5E96@>A2?JOn August 8, 2019, the STB issued interim findings and guidance to National Railroad Passenger Corporation (Amtrak) and the Company regardingC682C5:?8E96E6C>D2?54@?5:E:@?D7@C>EC2 No&@2DDFC2?4642?368:G6?E92EE96D62?52?J@E96C4FCC6?E@C7FEFC6C68F=2E@CJ@C=68:D=2E:G6:?:E:2E:G6D3JE96- + 7656C2=8@G6C?>6?E2?5 assurance can be given that these and any other current or future regulatory or legislative initiatives by the U.S. federal government and agencies286?4:6DH:==?@E>2E6C:2==J25G6CD6=J27764EE96@>A2?JDC6DF=ED@7@A6C2E:@?D@C:ED4@>A6E:E:G62?57:?2?4:2=A@D:E:@? will not materially adversely affect the Company's results of operations or its competitive and financial position. Safety "!05.!#1( 0%+*7 * regulation — Canada The,96@>A2?JDC2:=@A6C2E:@?D:?2?2522C6DF3;64EE@D276EJC68F=2E:@?3JE96%:?:DE6CF?56CE96 Company's rail operations in Canada are subject to safety regulation by the Minister under the Railway'/7:E/G(/43BG1B Safety Act2DH6==2DE96C2:=A@CE:@?D as well as the rail portions of@7@E96CD276EJ C6=2E65DE2EFE6D H9:492C625>:?:DE6C653J,C2?DA@CE2?252 R,96@>A2?J>2J36C6BF:C65E@EC2?DA@CEE@I:4:?92=2E:@? other safety-related statutes, which are administered by Transport Canada. The Company may be required to transport toxic inhalation hazard92K2C5>2E6C:2=D2D2C6DF=E@7:ED4@>>@?42CC:6C@3=:82E:@?D2?5 2DDF49 :D2=D@DF3;64EE@255:E:@?2=C68F=2E@CJ@G6CD:89E:?2?252 ,96 materials as a result of its common carrier obligations and, as such, is also subject to additional regulatory oversight in Canada. The )@/=@B/B7=<=4 /<53@=CA ==2A1BTransportation of Dangerous Goods Act, 2=D@25>:?:DE6C653J,C2?DA@CE2?252 6DE23=:D96DE96D276EJC6BF:C6>6?ED7@CE96EC2?DA@CE2E:@?@7 also administered by Transport Canada, establishes the safety requirements for the transportation of goods8@@5D4=2DD:7:652D52?86C@FD2?56?23=6DE9625@AE:@?@7C68F=2E:@?D7@CD64FC:EJEC2:?:?82?5D4C66?:?8@7A6CD@??6=H@C<:?8H:E952?86C@FD classified as dangerous and enables the adoption of regulations for security training and screening of personnel working with dangerous goods,8@@5D 2DH6==2DE9656G6=@A>6?E@72AC@8C2>E@C6BF:C62EC2?DA@CE2E:@?D64FC:EJ4=62C2?467@C52?86C@FD8@@5D E96EC24<:?8@752?86C@FD as well as the development of a program to require a transportation security clearance for dangerous goods, the tracking of dangerous goods8@@5D5FC:?8EC2?DA@CE2?5E9656G6=@A>6?E@72?6>6C86?4JC6DA@?D6A=2? during transport and the development of an emergency response plan. In!? ,C2?DA@CE2?252D?6H 2014, Transport Canada's new @/23@=AA7<5A'35C:/B7= $ G ??F2=*6A@CE2020 Annual Report 51 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Bill:== H9:4942>6:?E@7@C46@?%2J 4@?E2:?DAC@G:D:@?DE92E2>6?5E96 C-49, which came into force on May 23, 2018, contains provisions that amend the Railway'/7:E/G(/43BG1B Safety ActE@AC@9:3:E2C2:=H2J4@>A2?J to prohibit a railway company 7C@>@A6C2E:?8C2:=H2J6BF:A>6?EF?=6DD:E:D7:EE65H:E9AC6D4C:365C64@C5:?8:?DECF>6?ED2?5E96AC6D4C:365:?7@C>2E:@?:DC64@C565 4@==64E65from operating railway equipment unless it is fitted with prescribed recording instruments and the prescribed information is recorded, collected and2?5AC6D6CG65 ,96D6492?86D2C6?@EJ6E:?7@C462DE96$@4@>@E:G6 preserved. These changes are not yet in force as the Locomotive+=713/<2+723='31=@23@'35C:/B7=36C 3FEH:==@?=J4@>6:?E@7@C46EH@J62CD=2E6C@?+6AE6>36C ,96 were published by Transport Canada on September 2, 2020 but will only come into force two years later on September 2, 2022. The LVVR$..**68F=2E:@?DC6BF:C6C2:=H2J4@>A2?:6DE@AC@4FC62?5:?DE2==$..*6BF:A>6?EH:E9:?EH@J62CD@74@>:?8:?E@7@C46 ,96$..* Regulations require railway companies to procure and install LVVR equipment within two years of coming into force. The LVVR Regulations*68F=2E:@?D2=D@D6E@FEE96E649?:42=DA64:7:42E:@?D@7E966BF:A>6?E 562=H:E9C64@C5<66A:?8 AC@G:567@CAC:G24JAC@E64E:@?2?556E2:=9@H also set out the technical specifications of the equipment, deal with record keeping, provide for privacy protection and detail how railwayC2:=H2J4@>A2?:6D42?2446DDE96:?7@C>2E:@?@?2C2?5@>32D:D $..*E649?@=@8JH:==2DD:DE:?AC6G6?E:?8244:56?ED2?5724:=:E2E6 companies can access the information on a random basis. LVVR technology will assist in preventing accidents and facilitate investigations:?G6DE:82E:@?DE@36EE6CF?56CDE2?5E964:C4F>DE2?46D@7244:56?ED to better understand the circumstances of accidents. '? 646>36C E96%:?:DE6C:DDF652?@C56CC6BF6DE:?82?25:2?C2:=H2J4@>A2?:6DE@C6G:D6E96On December 20, 2018, the Minister issued an order requesting Canadian railway companies to revise the ,=@9 '3AB'C:3AWork/Rest RulesF?56CE96 under the Railway'/7:E/G(/43BG1B SafetyActE@C67=64EE96=2E6DE72E:8F6D4:6?462?572E:8F6>2?286>6?EAC24E:46D2?5255C6DD2D6C:6D@7C6=2E656=6>6?ED ,965C27E to reflect the latest fatigue science and fatigue management practices and address a series of related elements. The draft rulesCF=6DAC@A@D653JE962?25:2?C2:=:?5FDECJH6C67:=65H:E9E96%:?:DE6C@?+6AE6>36C '?&@G6>36C E96%:?:DE6C2AAC@G65 proposed by the Canadian rail industry were filed with the Minister on September 11, 2020. On November 25, 2020, the Minister approved theE96?6H new Duty CBG/<2'3AB&3@7=2'C:3A4=@%>3@/B7<5 ;>:=G33A and Rest Period Rules for Operating Employees subjectDF3;64EE@4@?5:E:@?DH9:494=2C:7:65D@>62DA64ED@7E96*F=6D ,96>2;@C:EJ@7E96 to conditions which clarified some aspects of the Rules. The majority of the AC@G:D:@?D2AA=:423=6E@&H:==4@>6:?E@67764E@?%2J provisions applicable to CN will come into effect on May 25, 2023. '?On '4E@36C ,C2?DA@CE2?252:DDF65?6HOctober 6, 2020, Transport Canada issued new Passenger&/AA3<53@'/7:(31C@7BG'35C:/B7=:?8:?E@7@C46:?D6BF6?46 with their provisions coming into force in sequence. These,96D6C68F=2E:@?DC6BF:C6A2DD6?86CC2:=H2J2?59@DE4@>A2?:6DE@67764E:G6=J>2?286E96:CD64FC:EJC:D No&@2DDFC2?4642?368:G6?E92EE96D62?52?J@E96C4FCC6?E@C7FEFC6C68F=2E@CJ@C=68:D=2E:G6:?:E:2E:G6D3JE962?25:2?7656C2=8@G6C?>6?E assurance can be given that these and any other current or future regulatory or legislative initiatives by the Canadian federal government and2?5286?4:6DH:==?@E>2E6C:2==J25G6CD6=J27764EE96@>A2?JDC6DF=ED@7@A6C2E:@?D@C:ED4@>A6E:E:G62?57:?2?4:2=A@D:E:@? R agencies will not materially adversely affect the Company's results of operations or its competitive and financial position. Safety "!05.!#1( 0%+*7 regulation - U.S. The,96@>A2?JD- + C2:=@A6C2E:@?D2C6DF3;64EE@D276EJC68F=2E:@?3JE96 *F?56CE96 Company's U.S. rail operations are subject to safety regulation by the FRA under the Federal 323@/:'/7:@=/2(/43BG1B Railroad Safety Act2DH6==2DC2:=A@CE:@?D@7 as well as rail portions of other@E96CD276EJDE2EFE6D H:E9E96EC2?DA@CE2E:@?@746CE2:?92K2C5@FD4@>>@5:E:6D2=D@8@G6C?653JC68F=2E:@?DAC@>F=82E653JE96(:A6=:?62?5 safety statutes, with the transportation of certain hazardous commodities also governed by regulations promulgated by the Pipeline and Hazardous 2K2C5@FD%2E6C:2=D+276EJ5>:?:DEC2E:@?( Materials Safety Administration (PHMSA). %+ ( PHMSA %+C6BF:C6D42CC:6CD@A6C2E:?8:?E96- + E@C6A@CE2??F2==JE96G@=F>62?5C@FE6 requires carriers operating in the U.S. to report annually the volume and route- specificDA64:7:452E27@C42CD4@?E2:?:?8E96D64@>>@5:E:6D4@?5F4E2D276EJ2?5D64FC:EJC:D<2?2=JD:D7@C6249FD65C@FE6:56?E:7J24@>>6C4:2==J data for cars containing these commodities; conduct a safety and security risk analysis for each used route; identify a commercially AC24E:423=62=E6C?2E:G6C@FE67@C6249FD65C@FE62?5D6=64E7@CFD6E96AC24E:42=C@FE6A@D:?8E96=62DED276EJ2?5D64FC:EJC:D< !?255:E:@? E96practicable alternative route for each used route; and select for use the practical route posing the least safety and security risk. In addition, the Transportation,C2?DA@CE2E:@?+64FC:EJ5>:?:DEC2E:@?,+C6BF:C6DC2:=42CC:6CDE@AC@G:56FA@?C6BF6DE H:E9:?7:G6>:?FE6D7@C2D:?8=642C2?5 >:?FE6D Security Administration (TSA) requires rail carriers to provide upon request, within five minutes for a single car and 30 minutes 7@C>F=E:A=642CD =@42E:@?2?5D9:AA:?8:?7@C>2E:@?@?42CD@?E96:C?6EH@C No&@2DDFC2?4642?368:G6?E92EE96D62?52?J@E96C4FCC6?E@C7FEFC6C68F=2E@CJ@C=68:D=2E:G6:?:E:2E:G6D3JE96- + 7656C2=8@G6C?>6?E2?5 assurance can be given that these and any other current or future regulatory or legislative initiatives by the U.S. federal government and agencies286?4:6DH:==?@E>2E6C:2==J25G6CD6=J27764EE96@>A2?JDC6DF=ED@7@A6C2E:@?D@C:ED4@>A6E:E:G62?57:?2?4:2=A@D:E:@? will not materially adversely affect the Company's results of operations or its competitive and financial position. 52 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Regulation!#1( 0%+*7 !//!(/ — Vessels The,96@>A2?JDG6DD6=@A6C2E:@?D2C6DF3;64EE@C68F=2E:@?3JE96- + @2DE F2C52?5E96 6A2CE>6?E@7,C2?DA@CE2E:@? %2C:E:>6 Company's vessel operations are subject to regulation by the U.S. Coast Guard and the Department of Transportation, Maritime Administration,5>:?:DEC2E:@? H9:49C68F=2E6E96@H?6CD9:A2?5@A6C2E:@?@7G6DD6=D@A6C2E:?8@?E96 C62E$2<6D2?5:?- + 4@2DE2=H2E6CD !?255:E:@? E96 which regulate the ownership and operation of vessels operating on the Great Lakes and in U.S. coastal waters. In addition, the Environmental ?G:C@?>6?E2=(C@E64E:@?86?4J92D2FE9@C:EJE@C68F=2E62:C6>:DD:@?D7C@>E96D6G6DD6=D Protection Agency has authority to regulate air emissions from these vessels. Security! 1.%05 The,96@>A2?J:DDF3;64EE@DE2EFE@CJ2?5C68F=2E@CJ5:C64E:G6D:?E96- + 255C6DD:?89@>6=2?5D64FC:EJ4@?46C?D !?E96- + D276EJ>2EE6CD Company is subject to statutory and regulatory directives in the U.S. addressing homeland security concerns. In the U.S., safety matters relatedC6=2E65E@D64FC:EJ2C6@G6CD66?3JE96,+ H9:49:DA2CE@7E96- + 6A2CE>6?E@7 to security are overseen by the TSA, which is part of the U.S. Department of Homeland @>6=2?5+64FC:EJ Security (DHS) +2?5( and PHMSA, %+ H9:49 =:<6E96 * which, like the FRA, is:DA2CE@7E96- + 6A2CE>6?E@7,C2?DA@CE2E:@? @C56CD64FC:EJ72==DF?56CE96;FC:D5:4E:@?@7- + FDE@>D2?5@C56C(C@E64E:@?( H9:49 part of the U.S. Department of Transportation. Border security falls under the jurisdiction of U.S. Customs and Border Protection (CBP), which is:DA2CE@7E96 part of the DHS. + !?2?252 E96@>A2?J:DDF3;64EE@C68F=2E:@?3JE962?252@C56C+6CG:46D86?4J In Canada, the Company is subject to regulation by the Canada Border Services Agency+ %2EE6CDC6=2E65E@ (CBSA). Matters related to agriculture28C:4F=EFC6 C6=2E65D9:A>6?ED4C@DD:?8E962?252 - + 3@C56C2=D@72==F?56CE96;FC:D5:4E:@?@7E96- + 6A2CE>6?E@78C:4F=EFC6-+ 2?5-related shipments crossing the Canada/U.S. border also fall under the jurisdiction of the U.S. Department of Agriculture (USDA) and theE96 @@52?5 CF85>:?:DEC2E:@? :?E96- + 2?5E962?25:2? @@5!?DA64E:@?86?4J !:?2?252 %@C6DA64:7:42==J E96@>A2?J Food and Drug Administration (FDA) in the U.S. and the Canadian Food Inspection Agency (CFIA) in Canada. More specifically, the Company is:DDF3;64EE@ subject to: P• 3@C56CD64FC:EJ2CC2?86>6?ED AFCDF2?EE@2?28C66>6?EE96@>A2?J2?5(6?E6C65:?E@H:E9E96(2?5E96+border security arrangements, pursuant to an agreement the Company and CP entered into with the CBP and the CBSA; P• the E96(DFDE@>D ,C256(2CE?6CD9:A82:?DE,6CC@C:D> ,(,AC@8C2>2?556D:8?2E:@?2D2=@H C:D<42CC:6CF?56C+DFDE@>D CBP's Customs-Trade Partnership Against Terrorism (C-TPAT) program and designation as a low-risk carrier under CBSA's Customs Self+6=7 DD6DD>6?E+AC@8C2>-Assessment (CSA) program; P• regulations C68F=2E:@?D:>A@D653JE96(C6BF:C:?825G2?46?@E:7:42E:@?3J2==>@56D@7EC2?DA@CE2E:@?7@C2==D9:A>6?ED:?E@E96- + ,96+:D imposed by the CBP requiring advance notification by all modes of transportation for all shipments into the U.S. The CBSA is also2=D@H@C<:?8@?D:>:=2CC6BF:C6>6?ED7@C2?252 3@F?5EC277:4 working on similar requirements for Canada-bound traffic; P• inspection :?DA64E:@?7@C:>A@CE657CF:ED2?5G686E23=6D8C@H?:?2?2522?5E9628C:4F=EFC2=BF2C2?E:?62?5:?DA64E:@?)!FD6C7667@C2==EC277:4 for imported fruits and vegetables grown in Canada and the agricultural quarantine and inspection (AQI) user fee for all traffic entering6?E6C:?8E96- + 7C@>2?2522?5 the U.S. from Canada; and P• gamma 82>>2C2JD4C66?:?8@742C8@6?E6C:?8E96- + 7C@>2?252 2?5A@E6?E:2=D64FC:EJ2?528C:4F=EFC2=:?DA64E:@?D2EE962?252 - + ray screening of cargo entering the U.S. from Canada, and potential security and agricultural inspections at the Canada/U.S. 3@C56C border. The,96@>A2?J92DH@C<65H:E9E96*E@56G6=@A2?5AFE:?A=2462?6IE6?D:G6:?5FDECJ H:56D64FC:EJA=2?E@255C6DDE6CC@C:D>2?5 Company has worked with the AAR to develop and put in place an extensive industry-wide security plan to address terrorism and securityD64FC:EJ 5C:G6?677@CED3JDE2E62?5=@42=8@G6C?>6?EDD66<:?8E@C6DEC:4EE96C@FE:?8D@746CE2:?92K2C5@FD>2E6C:2=D !7DF49DE2E62?5=@42=-driven efforts by state and local governments seeking to restrict the routings of certain hazardous materials. If such state and local routingC@FE:?8C6DEC:4E:@?DH6C6E@8@:?E@7@C46 E96JH@F=536=:<6=JE@255E@D64FC:EJ4@?46C?D3J7@C64=@D:?8E96@>A2?JD>@DE@AE:>2=2?5 restrictions were to go into force, they would be likely to add to security concerns by foreclosing the Company's most optimal and secureD64FC6EC2?DA@CE2E:@?C@FE6D =625:?8E@:?4C62D65J2C592?5=:?8 =@?86C92F=D 2?5E96EC2?D76C@7EC277:4E@=:?6D=6DDDF:E23=67@C>@G:?8 transportation routes, leading to increased yard handling, longer hauls, and the transfer of traffic to lines less suitable for moving hazardous92K2C5@FD>2E6C:2=D H9:=62=D@:?7C:?8:?8FA@?E966I4=FD:G62?5F?:7@C>7656C2=@G6CD:89E@G6CC2:=C@25D64FC:EJ>2EE6CD materials, while also infringing upon the exclusive and uniform federal oversight over railroad security matters. /9:=6E96@>A2?JH:==4@?E:?F6E@H@C<4=@D6=JH:E9E96+ ( 2?5@E96C2?25:2?2?5- + 286?4:6D 2D56D4C:36523@G6 ?@2DDFC2?46While the Company will continue to work closely with the CBSA, CBP, and other Canadian and U.S. agencies, as described above, no assurance can42?368:G6?E92EE96D62?57FEFC6564:D:@?D3JE96- + 2?25:2? AC@G:?4:2= DE2E6 @C=@42=8@G6C?>6?ED@?9@>6=2?5D64FC:EJ>2EE6CD be given that these and future decisions by the U.S., Canadian, provincial, state, or local governments on homeland security matters, legislation=68:D=2E:@?@?D64FC:EJ>2EE6CD6?24E653JE96- + @?8C6DD@C(2C=:2>6?E @C;@:?E564:D:@?D3JE96:?5FDECJ:?C6DA@?D6E@E9C62EDE@E96&@CE9 on security matters enacted by the U.S. Congress or Parliament, or joint decisions by the industry in response to threats to the North American>6C:42?C2:=?6EH@C< H:==?@E>2E6C:2==J25G6CD6=J27764EE96@>A2?JDC6DF=ED@7@A6C2E:@?D @C:ED4@>A6E:E:G62?57:?2?4:2=A@D:E:@? rail network, will not materially adversely affect the Company's results of operations, or its competitive and financial position. . */,+.0 0%+*+"$ 6 .Transportation of hazardous +1/) 0!.% (/ materials AsD2C6DF=E@7:ED4@>>@?42CC:6C@3=:82E:@?D E96@>A2?J:D=682==JC6BF:C65E@EC2?DA@CEE@I:4:?92=2E:@?92K2C5>2E6C:2=DC682C5=6DD@7C:D<@C a result of its common carrier obligations, the Company is legally required to transport toxic inhalation hazard materials regardless of risk or A@E6?E:2=6IA@DFC6@C=@DD EC2:?244:56?E:?G@=G:?8E96EC2?DA@CE@7E96D64@>>@5:E:6D4@F=5C6DF=E:?D:8?:7:42?E4@DED2?54=2:>D7@Cpotential exposure or loss. A train accident involving the transport of these commodities could result in significant costs and claims for A6CD@?2=:?;FCJ AC@A6CEJ52>286 6?G:C@?>6?E2=A6?2=E:6D2?5C6>65:2E:@?:?6I46DD@7:?DFC2?464@G6C2867@CE96D6C:D Economic/;:;95//;:05@5;:? conditions The,96@>A2?J:DDFD46AE:3=6E@492?86D:?E9664@?@>:44@?5:E:@?D@7E96:?5FDEC:6D2?586@8C2A9:42C62DE92EAC@5F462?54@?DF>6E96 Company is susceptible to changes in the economic conditions of the industries and geographic areas that produce and consume the 7C6:89E:EEC2?DA@CED@CE96DFAA=:6D:EC6BF:C6DE@@A6C2E6 !?255:E:@? >2?J@7E968@@5D2?54@>>@5:E:6D42CC:653JE96@>A2?J6IA6C:6?46freight it transports or the supplies it requires to operate. In addition, many of the goods and commodities carried by the Company experience cyclicality4J4=:42=:EJ:?56>2?5 @C6I2>A=6 E96G@=2E:=:EJ:?5@>6DE:42?58=@32=6?6C8J>2C<6ED4@F=5:>A24EE9656>2?57@CEC2?DA@CE2E:@?D6CG:46D2D in demand. For example, the volatility in domestic and global energy markets could impact the demand for transportation services as wellH6==2D:>A24EE96@>A2?JD7F6=4@DED2?5DFC492C86D !?255:E:@? E96G@=2E:=:EJ:?@E96C4@>>@5:EJ>2C<6EDDF492D4@2=2?5:C@?@C64@F=5 as impact the Company's fuel costs and surcharges. In addition, the volatility in other commodity markets such as coal and iron ore could have92G62?:>A24E@?G@=F>6D %2?J@7E963F=<4@>>@5:E:6DE96@>A2?JEC2?DA@CED>@G6@77D9@C62?52C627764E65>@C63J8=@32=C2E96CE92? an impact on volumes. Many of the bulk commodities the Company transports move offshore and are affected more by global rather than North&@CE9>6C:42?64@?@>:44@?5:E:@?D 5G6CD6&@CE9>6C:42?2?58=@32=64@?@>:44@?5:E:@?D @C64@?@>:4@C:?5FDEC:2=C6DECF4EFC:?8 E92E American economic conditions. Adverse North American and global economic conditions, or economic or industrial restructuring, that affect27764EE96AC@5F46CD2?54@?DF>6CD@7E964@>>@5:E:6D42CC:653JE96@>A2?J :?4=F5:?84FDE@>6C:?D@=G6?4J >2J92G62>2E6C:2=25G6CD6 the producers and consumers of the commodities carried by the Company, including customer insolvency, may have a material adverse effect67764E@?E96G@=F>6@7C2:=D9:A>6?ED2?5 @CC6G6?F6D7C@>4@>>@5:E:6D42CC:653JE96@>A2?J 2?5E9FD>2E6C:2==J2?5?682E:G6=J27764E:ED on the volume of rail shipments and/or revenues from commodities carried by the Company, and thus materially and negatively affect its resultsC6DF=ED@7@A6C2E:@?D 7:?2?4:2=A@D:E:@? @C=:BF:5:EJ of operations, financial position, or liquidity. $ G ??F2=*6A@CE2020 Annual Report 53 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Pension&1:?5;:2A:05:3B;8-@585@E funding volatility The,96@>A2?JD7F?5:?8C6BF:C6>6?ED7@C:ED567:?6536?67:EA6?D:@?A=2?D2C656E6C>:?65FD:?824EF2C:2=G2=F2E:@?D +66E96D64E:@?@7E9:D Company's funding requirements for its defined benefit pension plans are determined using actuarial valuations. See the section of this MD&A% 6?E:E=65 entitled @7B71/:/11=C There,96C642?36?@2DDFC2?46E92EE96@>A2?JDA6?D:@?6IA6?D62?57F?5:?8@7:ED567:?6536?67:EA6?D:@?A=2?DH:==?@E:?4C62D6:?E967FEFC6 can be no assurance that the Company's pension expense and funding of its defined benefit pension plans will not increase in the future and2?5E96C63J?682E:G6=J:>A24E62C?:?8D2?5 @C42D97=@H thereby negatively impact earnings and/or cash flow. Reliance(185-:/1;:@1/4:;8;3E-:0>18-@10/E.1>?1/A>5@E>5?7 on technology and related cybersecurity risk The,96@>A2?JC6=:6D@?:?7@C>2E:@?E649?@=@8J:?2==2DA64ED@7:ED3FD:?6DD /9:=6E96@>A2?J92D3FD:?6DD4@?E:?F:EJ2?55:D2DE6CC64@G6CJ Company relies on information technology in all aspects of its business. While the Company has business continuity and disaster recovery A=2?D 2DH6==2D@E96CD64FC:EJ2?5>:E:82E:@?AC@8C2>D:?A=246E@AC@E64E:ED@A6C2E:@?D :?7@C>2E:@?2?5E649?@=@8J2DD6ED 24J36CD64FC:EJplans, as well as other security and mitigation programs in place to protect its operations, information and technology assets, a cybersecurity attack2EE24<2?5D:8?:7:42?E5:DCFAE:@?@C72:=FC6@7:ED:?7@C>2E:@?E649?@=@8J2?54@>>F?:42E:@?DDJDE6>D4@F=5C6DF=E:?D6CG:46:?E6CCFAE:@?D and significant disruption or failure of its information technology and communications systems could result in service interruptions, safetyD276EJ72:=FC6D D64FC:EJG:@=2E:@?D C68F=2E@CJ4@>A=:2?4672:=FC6D@C@E96C@A6C2E:@?2=5:77:4F=E:6D =625:?8E@A@DD:3=6=:E:82E:@?2?5C68F=2E@CJ failures, security violations, regulatory compliance failures or other operational difficulties, leading to possible litigation and regulatory oversight.@G6CD:89E R+64FC:EJE9C62ED2C66G@=G:?8 2?542?4@>67C@>?2E:@?DE2E6D @C82?:K654C:>:?2=D 924 Trade*>-01>1?@>5/@5;:? restrictions =@32=2DH6==2D&@CE9>6C:42?EC2564@?5:E:@?D :?4=F5:?8EC25632CC:6CD@?46CE2:?4@>>@5:E:6D >2J:?E6C76C6H:E9E967C664:C4F=2E:@?@7Global as well as North American trade conditions, including trade barriers on certain commodities, may interfere with the free circulation of goods8@@5D24C@DD2?2522?5E96- + @CE964@DE2DD@4:2E65E96C6H:E9 @==@H:?8E966IA:C2E:@?@7E96+@7EH@@5$F>36C8C66>6?E+$ across Canada and the U.S. or the cost associated therewith. Following the expiration of the Softwood Lumber Agreement (SLA) 36EH66?2?2522?5E96- + :?4=F5:?8E966IA:C2E:@?@7E96@?6J62C>@C2E@C:F>A6C:@5AC6G6?E:?8E96- + 7C@>=2F?49:?82?JEC25624E:@?between Canada and the U.S., including the expiration of the one year moratorium period preventing the U.S. from launching any trade action against282:?DE2?25:2?AC@5F46CD @?"2?F2CJ 32D65@?277:C>2E:G67:?2=56E6C>:?2E:@?D3J3@E9E96- + 6A2CE>6?E@7@>>6C462?5E96 Canadian producers, on January 3, 2018, based on affirmative final determinations by both the U.S. Department of Commerce and the U.S.- + !?E6C?2E:@?2=,C256@>>:DD:@? 2?E:5F>A:?82?54@F?E6CG2:=:?85FEJ@C56CDH6C6:>A@D65@?:>A@CED@72?25:2?D@7EH@@5=F>36CE@ International Trade Commission, antidumping and countervailing duty orders were imposed on imports of Canadian softwood lumber to theE96- + 2?52?252C6DA@?565E@E96:>A@D:E:@?3JE96- + @72?E:5F>A:?82?54@F?E6CG2:=:?85FE:6D :?4@??64E:@?H:E9=F>36C2?5@E96C U.S. and Canada responded to the imposition by the U.S. of antidumping and countervailing duties, in connection with lumber and other commodities,4@>>@5:E:6D 3J7:=:?824@>A=2:?EH:E9E96/@C=5,C256'C82?:K2E:@?/,' '?F8FDE E96/,'CF=65E92E-+5FE:6D@?2?25:2? by filing a complaint with the World Trade Organization (WTO). On August 24, 2020, the WTO ruled that US duties on Canadian softwoodD@7EH@@5=F>36C2C6:?4@?D:DE6?EH:E9E96/,'@3=:82E:@?D@7E96-?:E65+ lumber are inconsistent with the WTO obligations of the United StatesE2E6D 2?5@?&@G6>36C E96-+ 6A2CE>6?E@7@>>6C46and on November 24, 2020, the US Department of Commerce concluded4@?4=F565E96:C7:CDE25>:?:DEC2E:G6C6G:6H@72?25:2?=F>36C4@F?E6CG2:=:?82?52?E:5F>A:?85FE:6D C65F4:?8E962G6C286C2E6@75FE:6D their first administrative review of Canadian lumber countervailing and antidumping duties, reducing the average rate of duties. '?&@G6>36C E96- + 2?2522?5%6I:4@D:8?65E96-?:E65+E2E6D %6I:4@ 2?2528C66>6?E-+% 2?6HEC256On November 30, 2018, the U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement (USMCA), a new trade agreement28C66>6?EE@C6A=246E96&@CE9>6C:42? C66,C2568C66>6?E ==E9C664@F?EC:6D92G6C2E:7:65E9628C66>6?EH9:4942>6:?E@7@C46@? to replace the North American Free Trade Agreement. All three countries have ratified the agreement which came into force on July"F=JR 1, 2020. It!EC6>2:?DE@@62C=JE@2DD6DDE96A@E6?E:2=@FE4@>6@7@E96C@?8@:?8G2C:@FDEC25624E:@?DE2<6?3J8@G6C?>6?ED2?5286?4:6D DDF49 remains too early to assess the potential outcome of other ongoing various trade actions taken by governments and agencies. As such, thereE96C642?36?@2DDFC2?46E92EEC25624E:@?DH:==?@E>2E6C:2==J25G6CD6=J27764EE96G@=F>6@7C2:=D9:A>6?ED2?5 @CC6G6?F6D7C@> can be no assurance that trade actions will not materially adversely affect the volume of rail shipments and/or revenues from commodities4@>>@5:E:6D42CC:653JE96@>A2?J 2?5E9FD>2E6C:2==J2?5?682E:G6=J:>A24E62C?:?8D2?5 @C42D97=@H carried by the Company, and thus materially and negatively impact earnings and/or cash flow. Terrorism*1>>;>5?9-:05:@1>:-@5;:-8/;:285/@? and international conflicts Potential(@E6?E:2=E6CC@C:DE24E:@?D42?92G625:C64E@C:?5:C64E:>A24E@?E96EC2?DA@CE2E:@?:?7C2DECF4EFC6 :?4=F5:?8C2:=H2J:?7C2DECF4EFC6:?&@CE9 terrorist actions can have a direct or indirect impact on the transportation infrastructure, including railway infrastructure in North America,>6C:42 2?542?:?E6C76C6H:E9E967C667=@H@78@@5D *2:==:?6D 724:=:E:6D2?56BF:A>6?E4@F=5365:C64E=JE2C86E65@C364@>6:?5:C64E and can interfere with the free flow of goods. Rail lines, facilities and equipment could be directly targeted or become indirect casualties,42DF2=E:6D H9:494@F=5:?E6C76C6H:E9E967C667=@H@78@@5D !?E6C?2E:@?2=4@?7=:4ED42?2=D@92G62?:>A24E@?E96@>A2?JD>2C<6ED which could interfere with the free flow of goods. International conflicts can also have an impact on the Company's markets. @G6C?>6?EC6DA@?D6E@DF496G6?ED4@F=525G6CD6=J27764EE96@>A2?JD@A6C2E:@?D !?DFC2?46AC6>:F>D4@F=52=D@:?4C62D6D:8?:7:42?E=J@CGovernment response to such events could adversely affect the Company's operations. Insurance premiums could also increase significantly or coverage4@G6C2864@F=5364@>6F?2G2:=23=6 could become unavailable. 54 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis CustomerA?@;91>/>105@>5?7 credit risk In!?E96?@C>2=4@FCD6@73FD:?6DD E96@>A2?J>@?:E@CDE967:?2?4:2=4@?5:E:@?2?54C65:E=:>:ED@7:ED4FDE@>6CD2?5C6G:6HDE964C65:E9:DE@CJ the normal course of business, the Company monitors the financial condition and credit limits of its customers and reviews the credit history of@76249?6H4FDE@>6C =E9@F89E96@>A2?J36=:6G6DE96C62C6?@D:8?:7:42?E4@?46?EC2E:@?D@74C65:EC:D< 64@?@>:44@?5:E:@?D42?27764E each new customer. Although the Company believes there are no significant concentrations of credit risk, economic conditions can affect theE96@>A2?JD4FDE@>6CD2?542?C6DF=E:?2?:?4C62D6E@E96@>A2?JD4C65:EC:D<2?56IA@DFC6E@E963FD:?6DD72:=FC6D@7:ED4FDE@>6CD Company's customers and can result in an increase to the Company's credit risk and exposure to the business failures of its customers. A widespreadH:56DAC62556E6C:@C2E:@?@74FDE@>6C4C65:E2?5 @C3FD:?6DD72:=FC6D@74FDE@>6CD4@F=592G62>2E6C:2=25G6CD667764E@?E96@>A2?JD deterioration of customer credit and/or business failures of customers could have a material adverse effect on the Company's resultsC6DF=ED@7@A6C2E:@?D 7:?2?4:2=A@D:E:@?@C=:BF:5:EJ of operations, financial position or liquidity. Liquidity"5=A505@E Disruptions :DCFAE:@?D:?7:?2?4:2=>2C<6ED@C56E6C:@C2E:@?@7E96@>A2?JD4C65:EC2E:?8D4@F=59:?56CE96@>A2?JD2446DDE@6IE6C?2=D@FC46D@7 in financial markets or deterioration of the Company's credit ratings could hinder the Company's access to external sources of 7F?5:?8E@>66E:ED=:BF:5:EJ?665D ,96C642?36?@2DDFC2?46E92E492?86D:?E967:?2?4:2=>2C<6EDH:==?@E92G62?682E:G667764E@?E96funding to meet its liquidity needs. There can be no assurance that changes in the financial markets will not have a negative effect on the @>A2?JD=:BF:5:EJ2?5:ED2446DDE@42A:E2=2E2446AE23=6E6C>D2?5C2E6D Company's liquidity and its access to capital at acceptable terms and rates. Supplier)A<<851>/;:/1:@>-@5;: concentration The,96@>A2?J@A6C2E6D:?242A:E2= :?E6?D:G6:?5FDECJH96C6E964@>A=6I:EJ@7C2:=6BF:A>6?E=:>:EDE96?F>36C@7DFAA=:6CD2G2:=23=6 ,96 Company operates in a capital-intensive industry where the complexity of rail equipment limits the number of suppliers available. The supplyDFAA=J>2C<6E4@F=5365:DCFAE65:7492?86D:?E9664@?@>J42FD652?J@7E96@>A2?JDDFAA=:6CDE@462D6AC@5F4E:@?@CE@6IA6C:6?46 market could be disrupted if changes in the economy caused any of the Company's suppliers to cease production or to experience capacity42A24:EJ@CDFAA=JD9@CE286D ,96DFAA=J>2C<6E4@F=5364@>67FCE96C4@?46?EC2E652?54@F=5C6DF=E:?492?86DE@E96AC@5F4E@CD6CG:46 or supply shortages. The supply market could become further concentrated and could result in changes to the product or service offerings@776C:?8D3JDFAA=:6CD ,9:D4@F=52=D@C6DF=E:?4@DE:?4C62D6DE@E96@>A2?J2?55:77:4F=EJ:?@3E2:?:?82?5>2:?E2:?:?8E96@>A2?JDC2:= by suppliers. This could also result in cost increases to the Company and difficulty in obtaining and maintaining the Company's rail equipment6BF:A>6?E2?5>2E6C:2=D +:?46E96@>A2?J2=D@92D7@C6:8?DFAA=:6CD :?E6C?2E:@?2=C6=2E:@?D EC256C6DEC:4E:@?D2?58=@32=64@?@>:42?5 and materials. Since the Company also has foreign suppliers, international relations, trade restrictions and global economic and other@E96C4@?5:E:@?D>2JA@E6?E:2==J:?E6C76C6H:E9E96@>A2?JD23:=:EJE@AC@4FC6?646DD2CJ6BF:A>6?E2?5>2E6C:2=D /:56DAC6253FD:?6DD conditions may potentially interfere with the Company's ability to procure necessary equipment and materials. Widespread business 72:=FC6D@7 @CC6DEC:4E:@?D@?DFAA=:6CD 4@F=592G62>2E6C:2=25G6CD667764E@?E96@>A2?JDC6DF=ED@7@A6C2E:@?D@C7:?2?4:2=A@D:E:@? failures of, or restrictions on suppliers, could have a material adverse effect on the Company's results of operations or financial position. AvailabilityB-58-.585@E;2=A-852510<1>?;::18 of qualified personnel The,96@>A2?J>2J6IA6C:6?4656>@8C2A9:4492==6?86D:?E966>A=@J>6?E=6G6=D@7:EDH@C<7@C46 92?86D:?6>A=@J6656>@8C2A9:4D EC2:?:?8 Company may experience demographic challenges in the employment levels of its workforce. Changes in employee demographics, training requirementsC6BF:C6>6?ED2?5E962G2:=23:=:EJ@7BF2=:7:65A6CD@??6= A2CE:4F=2C=J=@4@>@E:G66?8:?66CD2?54@?5F4E@CD 4@F=5?682E:G6=J:>A24EE96 and the availability of qualified personnel, particularly locomotive engineers and conductors, could negatively impact the @>A2?JD23:=:EJE@>66E56>2?57@CC2:=D6CG:46 ,96@>A2?J>@?:E@CD6>A=@J>6?E=6G6=D2?5D66 Fuel A18/;?@? costs The,96@>A2?J:DDFD46AE:3=6E@E96G@=2E:=:EJ@77F6=AC:46D5F6E@492?86D:?E9664@?@>J@CDFAA=J5:DCFAE:@?D F6=D9@CE286D42?@44FC5F6 Company is susceptible to the volatility of fuel prices due to changes in the economy or supply disruptions. Fuel shortages can occur due toE@C67:?6CJ5:DCFAE:@?D AC@5F4E:@?BF@E2C6DEC:4E:@?D 4=:>2E6 2DH6==2D=23@C2?5A@=:E:42=:?DE23:=:EJ !?4C62D6D:?7F6=AC:46D@CDFAA=J refinery disruptions, production quota restrictions, climate, as well as labor and political instability. Increases in fuel prices or supply 5:DCFAE:@?D>2J>2E6C:2==J25G6CD6=J27764EE96@>A2?JDC6DF=ED@7@A6C2E:@?D 7:?2?4:2=A@D:E:@?@C=:BF:5:EJ disruptions may materially adversely affect the Company's results of operations, financial position or liquidity. Foreign ;>153:1D/4-:31 exchange The,96@>A2?J4@?5F4ED:ED3FD:?6DD:?3@E92?2522?5E96- + 2?52D2C6DF=E :D27764E653J4FCC6?4J7=F4EF2E:@?D 92?86D:?E966I492?86 Company conducts its business in both Canada and the U.S. and as a result, is affected by currency fluctuations. Changes in the exchange rateC2E636EH66?E962?25:2?5@==2C2?5@E96C4FCC6?4:6D:?4=F5:?8E96-+5@==2C>2<6E968@@5DEC2?DA@CE653JE96@>A2?J>@C6@C=6DD between the Canadian dollar and other currencies (including the US dollar) make the goods transported by the Company more or less competitive4@>A6E:E:G6:?E96H@C=5>2C<6EA=2462?5E96C63J>2J25G6CD6=J27764EE96@>A2?JDC6G6?F6D2?56IA6?D6D in the world marketplace and thereby may adversely affect the Company's revenues and expenses. Interest :@1>1?@>-@1? rates The,96@>A2?J:D6IA@D65E@:?E6C6DEC2E6C:D<C6=2E:?8E@E96@>A2?JD563E ,96@>A2?J>2:?=J:DDF6D7:I65 C2E6563E H9:496IA@D6DE96 Company is exposed to interest rate risk relating to the Company's debt. The Company mainly issues fixed-rate debt, which exposes the @>A2?JE@G2C:23:=:EJ:?E9672:CG2=F6@7E96563E ,96@>A2?J2=D@:DDF6D563EH:E9G2C:23=6:?E6C6DEC2E6D H9:496IA@D6DE96@>A2?JE@Company to variability in the fair value of the debt. The Company also issues debt with variable interest rates, which exposes the Company to variabilityG2C:23:=:EJ:?:?E6C6DE6IA6?D6 5G6CD6492?86DE@>2C<6E:?E6C6DEC2E6D>2JD:8?:7:42?E=J:>A24EE9672:CG2=F6@C7FEFC642D97=@HD@7E96 in interest expense. Adverse changes to market interest rates may significantly impact the fair value or future cash flows of the @>A2?JD7:?2?4:2=:?DECF>6?ED ,96C642?36?@2DDFC2?46E92E492?86D:?E96>2C<6E:?E6C6DEC2E6DH:==?@E92G62?682E:G667764E@?E96Company's financial instruments. There can be no assurance that changes in the market interest rates will not have a negative effect on the @>A2?JDC6DF=ED@7@A6C2E:@?D@C=:BF:5:EJ Company's results of operations or liquidity. Transportation*>-:?<;>@-@5;::1@C;>705?>A<@5;:? network disruptions Due F6E@E96:?E68C2E65?2EFC6@7E96&@CE9>6C:42?7C6:89EEC2?DA@CE2E:@?:?7C2DECF4EFC6 E96@>A2?JD@A6C2E:@?D>2J36?682E:G6=J27764E65 to the integrated nature of the North American freight transportation infrastructure, the Company's operations may be negatively affected 3JD6CG:465:DCFAE:@?D@7:ED@H??6EH@C< :?4=F5:?8:==682=3=@4<256D 2DH6==2D@7@E96CEC2?DA@CE2E:@?=:? $ G ??F2=*6A@CE2020 Annual Report 55 Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Severe)1B1>1C1-@41> weather The,96@>A2?JDDF446DD:D56A6?56?E@?:ED23:=:EJE@@A6C2E6:EDC2:=C@25677:4:6?E=J +6G6C6H62E96C2?5?2EFC2=5:D2DE6CD DF492D6IEC6>64@=5 Company's success is dependent on its ability to operate its railroad efficiently. Severe weather and natural disasters, such as extreme cold or@C962E 7=@@5:?8 5C@F89ED 7:C6D 9FCC:42?6D2?562CE9BF2<6D 42?5:DCFAE@A6C2E:@?D2?5D6CG:467@CE96C2:=C@25 27764EE96A6C7@C>2?46@7 heat, flooding, droughts, fires, hurricanes and earthquakes, can disrupt operations and service for the railroad, affect the performance of locomotives=@4@>@E:G6D2?5C@==:?8DE@4< 2DH6==2D5:DCFAE@A6C2E:@?D7@C3@E9E96@>A2?J2?5:ED4FDE@>6CD FD:?6DD:?E6CCFAE:@?DC6DF=E:?87C@> and rolling stock, as well as disrupt operations for both the Company and its customers. Business interruptions resulting from severeD6G6C6H62E96C4@F=5C6DF=E:?:?4C62D654@DED :?4C62D65=:23:=:E:6D2?5=@H6CC6G6?F6D H9:494@F=592G62>2E6C:2=25G6CD667764E@?E96 weather could result in increased costs, increased liabilities and lower revenues, which could have a material adverse effect on the @>A2?JDC6DF=ED@7@A6C2E:@?D 7:?2?4:2=4@?5:E:@?@C=:BF:5:EJ Company's results of operations, financial condition or liquidity. Climate859-@1/4-:31 change =:>2E6492?86 :?4=F5:?8E96:>A24ED@78=@32=H2C>:?8 92DE96A@E6?E:2=A9JD:42=C:D 56 CN$ 12020G ??F2=*6A@CE Annual Report Management's#-:-3191:@?5?/A??5;:-:0:-8E?5? Discussion and Analysis Controls;:@>;8?-:0<>;/10A>1? and procedures The,96@>A2?JD9:67 I64FE:G6'77:46C2?5:ED9:67 :?2?4:2='77:46C 27E6C6G2=F2E:?8E9667764E:G6?6DD@7E96@>A2?JD5:D4=@DFC64@?EC@=D Company's Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and2?5AC@465FC6D2D567:?65:? I492?864E*F=6D2 62?55 62D@7 646>36C 92G64@?4=F565E92EE96@>A2?JD procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2020, have concluded that the Company's 5:D4=@DFC64@?EC@=D2?5AC@465FC6DH6C667764E:G6 disclosure controls and procedures were effective. During FC:?8E967@FCE9BF2CE6C6?565 646>36C E96C6H2D?@492?86:?E96@>A2?JD:?E6C?2=4@?EC@=@G6C7:?2?4:2=C6A@CE:?8E92E the fourth quarter ended December 31, 2020, there was no change in the Company's internal control over financial reporting that has92D>2E6C:2==J27764E65 @C:DC62D@?23=J=:<6=JE@>2E6C:2==J27764E E96@>A2?JD:?E6C?2=4@?EC@=@G6C7:?2?4:2=C6A@CE:?8 materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. AsD@7 646>36C >2?286>6?E92D2DD6DD65E9667764E:G6?6DD@7E96@>A2?JD:?E6C?2=4@?EC@=@G6C7:?2?4:2=C6A@CE:?8FD:?8E96 of December 31, 2020, management has assessed the effectiveness of the Company's internal control over financial reporting using the criteria4C:E6C:2D6E7@CE93JE96@>>:EE66@7+A@?D@C:?8'C82?:K2E:@?D@7E96,C625H2J@>>:DD:@?:? set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal! $ G ??F2=*6A@CE2020 Annual Report 57 Management's )6)/-5-6<;#-87:<76 6<-:6)476<:747>-:16)6+1)4#-87:<16/ Report on Internal Control over Financial Reporting Management&3@397?7@F;ED7EBA@E;4>78AD7EF34>;E:;@93@6?3;@F3;@;@9367CG3F7;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9 "@F7D@3>5A@FDA>AH7D8;@3@5;3> is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reportingD7BADF;@9;E3BDA57EE67E;9@76FABDAH;67D73EA@34>73EEGD3@57D793D6;@9F:7D7>;34;>;FKA88;@3@5;3>D7BADF;@93@6F:7BD7B3D3F;A@A88;@3@5;3> is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsEF3F7?7@FE8AD7JF7D@3>BGDBAE7E;@355AD63@57I;F:97@7D3>>K3557BF76355AG@F;@9BD;@5;B>7E 753GE7A8;FE;@:7D7@F>;?;F3F;A@E ;@F7D@3> for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control5A@FDA>AH7D8;@3@5;3>D7BADF;@9?3K@AFBD7H7@FAD67F75F?;EEF3F7?7@FE over financial reporting may not prevent or detect misstatements. Management&3@397?7@F:3E3EE7EE76F:778875F;H7@7EEA8F:7 A?B3@KE;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@93EA8 757?47D GE;@9F:7 has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2020 using the criteria5D;F7D;3E7F8ADF:4KF:7 A??;FF77A8,BA@EAD;@9(D93@;L3F;A@EA8F:7-D736I3K A??;EE;A@;@ set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ;A2?;.9<;A?<9 Control - Integrated ;A24?.A21 ?.:2D5A@FDA>AH7D8;@3@5;3>D7BADF;@9I3E78875F;H73EA8 on this assessment, management has determined that the Company's internal control over financial reporting was effective as of December 757?47D 31, 2020. KPMG$)& %%) 3@;@67B7@67@FD79;EF7D76BG4>;5355AG@F;@98;D? :3E;EEG763@G@CG3>;8;763G6;FD7BADFA@F:778875F;H7@7EEA8F:7 A?B3@KELLP, an independent registered public accounting firm, has issued an unqualified audit report on the effectiveness of the Company's internal;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@93EA8 757?47D 3@6:3E3>EA7JBD7EE763@G@CG3>;8;763G6;FAB;@;A@A@F:7 A?B3@KE control over financial reporting as of December 31, 2020 and has also expressed an unqualified audit opinion on the Company's 2020 consolidated5A@EA>;63F768;@3@5;3>EF3F7?7@FE3EEF3F76;@F:7;D+7BADFEA8"@67B7@67@F+79;EF7D76)G4>;555AG@F;@9 ;D?63F76 74DG3DKW financial statements as stated in their Reports of Independent Registered Public Accounting Firm dated February 1, 2021. (s)@ Jean!2.; !.0>B2@-Jacques'B2@A Ruest President)D7E;67@F3@6 :;78 J75GF;H7(88;57D and Chief Executive Officer February 74DG3DKW 1, 2021 (s)@ [email protected]; February 74DG3DKW 1, 2021 58 CN 12020C@@G3>+7BADF Annual Report Report#-87:<7. 6,-8-6,-6<#-/1;<-:-,"=*41+++7=6<16/1:5 of Independent Registered Public Accounting Firm To-AF:7,:3D7:A>67DE3@6A3D6A8 ;D75FADE the Shareholders and Board of Directors 3@36;3@'3F;A@3>+3;>I3K A?B3@KCanadian National Railway Company: Opinion!81617676<0-+76;741,)<-,.16)6+1)4;<)<-5-6<; on the consolidated financial statements 07:3H73G6;F76F:7355A?B3@K;@95A@EA>;63F7643>3@57E:77FEA8 3@36;3@'3F;A@3>+3;>I3K A?B3@KF:7 A?B3@K3EA8 757?47D We have audited the accompanying consolidated balance sheets of Canadian National Railway Company (the "Company") as of December 31, 20203@6 and 2019, F:7D7>3F765A@EA>;63F76EF3F7?7@FEA8;@5A?7 5A?BD7:7@E;H7;@5A?7 5:3@97E;@E:3D7:A>67DE7CG;FK 3@653E:8>AIE8AD the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for each735:A8F:7K73DE;@F:7F:D77OK73DB7D;A67@676 757?47D 3@6F:7D7>3F76@AF7E5A>>75F;H7>K F:75A@EA>;63F768;@3@5;3> of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the "consolidated financial statements").EF3F7?7@FE "@AGDAB;@;A@ F:75A@EA>;63F768;@3@5;3>EF3F7?7@FEBD7E7@F83;D>K ;@3>>?3F7D;3>D7EB75FE F:78;@3@5;3>BAE;F;A@A8F:7 A?B3@K In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as3EA8 757?47D 3@6 of December 31, 2020 and 2019, 3@6F:7D7EG>FEA8;FEAB7D3F;A@E3@6;FE53E:8>AIE8AD735:A8F:7K73DE;@F:7F:D77OK73DB7D;A67@676 and the results of its operations and its cash flows for each of the years in the three-year period ended December 757?47D ;@5A@8AD?;FKI;F:. , 97@7D3>>K3557BF76355AG@F;@9BD;@5;B>7E 31, 2020, in conformity with U.S. generally accepted accounting principles. 073>EA:3H73G6;F76 ;@355AD63@57I;F:F:7EF3@63D6EA8F:7)G4>;5 A?B3@K55AG@F;@9(H7DE;9:FA3D6.@;F76,F3F7E) ( F:7We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCA0B"), the A?B3@KE;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@93EA8 757?47D 43E76A@5D;F7D;37EF34>;E:76;@Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal ;A2?;.9<;A?<9H Control — Integrated ;A24?.A21 Framework ?.:2D;8;76AB;@;A@A@F:778875F;H7@7EEA8F:7 A?B3@KE;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9 an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Change0)6/-16)++7=6<16/8:16+184- in accounting principle AsE6;E5GEE76;@'AF7FAF:75A@EA>;63F768;@3@5;3>EF3F7?7@FE F:7 A?B3@K:3E5:3@976;FE?7F:A6A8355AG@F;@98AD>73E7E3EA8 discussed in Note 12 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January#3@G3DKW 6G7FAF:736ABF;A@A855AG@F;@9,F3@63D6E A6;8;53F;A@-AB;5 1, 2019 due to the adoption of Accounting Standards Codification Topic 842 Leases,"2.@2@ GE;@93?A6;8;76D7FDAEB75F;H736ABF;A@ using a modified retrospective adoption approach.3BBDA35: Basis);1;.7:7816176 for opinion These-:7E75A@EA>;63F768;@3@5;3>EF3F7?7@FE3D7F:7D7EBA@E;4;>;FKA8F:7 A?B3@KE?3@397?7@F (GDD7EBA@E;4;>;FK;EFA7JBD7EE3@AB;@;A@A@ consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on theseF:7E75A@EA>;63F768;@3@5;3>EF3F7?7@FE43E76A@AGD3G6;FE 073D73BG4>;5355AG@F;@98;D?D79;EF7D76I;F:F:7) (3@63D7D7CG;D76FA47 consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent;@67B7@67@FI;F:D7EB75FFAF:7 A?B3@K;@355AD63@57I;F:F:7. , 8767D3>E75GD;F;7E>3IE3@6F:73BB>;534>7DG>7E3@6D79G>3F;A@EA8F:7 with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities,75GD;F;7E3@6 J5:3@97 A??;EE;A@3@6F:7) ( and Exchange Commission and the PCAOB. 075A@6G5F76AGD3G6;FE;@355AD63@57I;F:F:7EF3@63D6EA8F:7) ( -:AE7EF3@63D6ED7CG;D7F:3FI7B>3@3@6B7D8AD?F:73G6;FFAWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainA4F3;@D73EA@34>73EEGD3@5734AGFI:7F:7DF:75A@EA>;63F768;@3@5;3>EF3F7?7@FE3D78D77A8?3F7D;3>?;EEF3F7?7@F I:7F:7D6G7FA7DDADAD reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or 8D3G6 (GD3G6;FE;@5>G676B7D8AD?;@9BDA576GD7EFA3EE7EEF:7D;E=EA8?3F7D;3>?;EEF3F7?7@FA8F:75A@EA>;63F768;@3@5;3>EF3F7?7@FE fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whetherI:7F:7D6G7FA7DDADAD8D3G6 3@6B7D8AD?;@9BDA576GD7EF:3FD7EBA@6FAF:AE7D;E=E ,G5:BDA576GD7E;@5>G6767J3?;@;@9 A@3F7EF43E;E due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence7H;67@57D793D6;@9F:73?AG@FE3@66;E5>AEGD7E;@F:75A@EA>;63F768;@3@5;3>EF3F7?7@FE (GD3G6;FE3>EA;@5>G6767H3>G3F;@9F:7355AG@F;@9 regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting BD;@5;B>7EGE763@6E;9@;8;53@F7EF;?3F7E?3674K?3@397?7@F 3EI7>>3E7H3>G3F;@9F:7AH7D3>>BD7E7@F3F;A@A8F:75A@EA>;63F768;@3@5;3>principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.EF3F7?7@FE 0747>;7H7F:3FAGD3G6;FEBDAH;673D73EA@34>743E;E8ADAGDAB;@;A@ We believe that our audits provide a reasonable basis for our opinion. Critical:1<1+)4)=,1<5)<<-:; audit matters The-:75D;F;53>3G6;F?3FF7DE5A??G@;53F7647>AI3D7?3FF7DE3D;E;@98DA?F:75GDD7@FB7D;A63G6;FA8F:75A@EA>;63F768;@3@5;3>EF3F7?7@FEF:3F critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that wereI7D75A??G@;53F76ADD7CG;D76FA475A??G@;53F76FAF:73G6;F5A??;FF773@6F:3FD7>3F7FA355AG@FEAD6;E5>AEGD7EF:3F3D7?3F7D;3>FA communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to theF:75A@EA>;63F768;@3@5;3>EF3F7?7@FE3@6;@HA>H76AGD7EB75;3>>K5:3>>7@9;@9 EG4<75F;H7 AD5A?B>7J Evaluation6!,5!4)/./&).#/-%4!8%3 of income taxes AsE6;E5GEE76;@'AF7FAF:75A@EA>;63F768;@3@5;3>EF3F7?7@FE F:7@7F6787DD76;@5A?7F3J>;34;>;FKI3E discussed in Note 7 to the consolidated financial statements, the net deferred income tax liability was $8,271 ?;>>;A@ million3EA8 757?47D as of December 31, 20203@6;@5A?7F3J7JB7@E7I3E?;>>;A@8ADF:7K73D7@676 757?47D -:7 A?B3@KAB7D3F7E;@6;887D7@FF3J M$)&© 2020 KPMG %%) 3@(@F3D;A>;?;F76>;34;>;FKB3DF@7DE:;B3@63?7?47D8;D?A8F:7$)& LLP, an Ontario limited liability partnership and a member firm of the KPMG 9>A43>AD93@;L3F;A@A8;@67B7@67@F?7?47D8;D?E388;>;3F76I;F:$)& global organization of independent member firms affiliated with KPMG "@F7D@3F;A@3>International Limited,%;?;F76 3BD;H3F7 @9>;E:5A?B3@K>;?;F764K9G3D3@F77 >>D;9:FED7E7DH76 a private English company limited by guarantee. All rights reserved. C@@G3>+7BADF2020 Annual Report 59 Report#-87:<7. 6,-8-6,-6<#-/1;<-:-,"=*41+++7=6<16/1:5 of Independent Registered Public Accounting Firm The-:78A>>AI;@93D7F:7BD;?3DKBDA576GD7EI7B7D8AD?76FA366D7EEF:;E5D;F;53>3G6;F?3FF7D 077H3>G3F76F:767E;9@3@6F7EF76F:7 following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operatingAB7D3F;@978875F;H7@7EEA857DF3;@;@F7D@3>5A@FDA>ED7>3F76FAF:7 A?B3@KRED75A@5;>;3F;A@3@63@3>KE;EA8;FE6787DD76;@5A?7F3J43>3@57E 07 effectiveness of certain internal controls related to the Company's reconciliation and analysis of its deferred income tax balances. We involved;@HA>H76;@5A?7F3J3@6FD3@E87DBD;5;@9BDA87EE;A@3>EI;F:EB75;3>;L76E=;>>E3@6=@AI>7697I:A3EE;EF76;@3EE7EE;@9F:7 A?B3@KRE income tax and transfer pricing professionals with specialized skills and knowledge who assisted in: (1) assessing the Company's interpretation;@F7DBD7F3F;A@A8F:7D7>7H3@FF3JD79G>3F;A@E7H3>G3F;@9F:7 A?B3@KREF3JBAE;F;A@E3@6FD3@E87DBD;5;@93DD3@97?7@FE3@3>KL;@9F:7 of the relevant tax regulations; (2) evaluating the Company's tax positions and transfer pricing arrangements; (3) analyzing the A?B3@KRE6787DD76;@5A?7F3J43>3@57E4K5A?B3D;@9BD;ADK73DF3J7EF;?3F7EFA35FG3>F3JD7FGD@E8;>76 3@67H3>G3F;@9F:7 A?B3@KRECompany's deferred income tax balances by comparing prior year tax estimates to actual tax returns filed, and evaluating the Company's reconciliationD75A@5;>;3F;A@A8F:76787DD76;@5A?7F3J43>3@57EFAF:7G@67D>K;@9F7?BAD3DK6;887D7@57E of the deferred income tax balances to the underlying temporary differences. Evaluation6!,5!4)/./&#!0)4!,):!4)/./&#/3432%,!4).'4/42!#+!.$2!),7!9).&2!3425#452%!.$$%02%#)!4)/.2%,!4%$4/02/0%24)%3 of capitalization of costs relating to track and railway infrastructure and depreciation related to properties AsE6;E5GEE76;@'AF7 discussed in Note 11FAF:75A@EA>;63F768;@3@5;3>EF3F7?7@FE 53B;F3>366;F;A@EI7D7 to the consolidated financial statements, capital additions were $2,863 ?;>>;A@8ADF:7K73D7@676 757?47D million for the year ended December 31, 2020, ofA8I:;5: which $1,427?;>>;A@D7>3F76FAFD35=3@6D3;>I3K;@8D3EFDG5FGD7?3;@F7@3@57 ;@5>G6;@9F:7D7B>357?7@FA8D3;> F;7E 4D;697;?BDAH7?7@FE 3@6 million related to track and railway infrastructure maintenance, including the replacement of rail, ties, bridge improvements, and otherAF:7D97@7D3>FD35=?3;@F7@3@57 E6;E5GEE76;@'AF7FAF:75A@EA>;63F768;@3@5;3>EF3F7?7@FE 7JB7@6;FGD7ED7>3F76FAE7>8 5A@EFDG5F76 general track maintenance. As discussed in Note 1 to the consolidated financial statements, expenditures related to self-constructed BDAB7DF;7E;@5>G676;D75F?3F7D;3> >34AD 3@65A@FD35F76E7DH;57E 3EI7>>3EAF:7D3>>A53F765AEFE -:7 A?B3@K8A>>AIEF:79DAGB?7F:A6A8properties include direct material, labor, and contracted services, as well as other allocated costs. The Company follows the group method of 67BD75;3F;A@I:7D74K3E;@9>75A?BAE;F767BD75;3F;A@D3F7;E3BB>;76FAF:79DAEE;@H7EF?7@F;@35>3EEA8E;?;>3D3EE7FE 7BD75;3F;A@7JB7@E7depreciation whereby a single composite depreciation rate is applied to the gross investment in a class of similar assets. Depreciation expense relatingD7>3F;@9FABDAB7DF;7EI3E to properties was $1,583 ?;>>;A@8ADF:7K73D7@676 757?47D -:7 A?B3@KB7D8AD?E5A?BD7:7@E;H7 3@36;3@3@6. , million for the year ended December 31, 2020. The Company performs comprehensive Canadian and U.S. 67BD75;3F;A@EFG6;7EA@EB75;8;53EE7F9DAGBEA@3B7D;A6;543E;E I:;5:D7CG;D7E;9@;8;53@F (s)E$)& KPMG %%) LLP* 07:3H7E7DH763EF:7 A?B3@KE3G6;FADE;@57 We have served as the Company's auditor since 1992. Montreal,&A@FDX3> 3@363 Canada February 74DG3DKW 1, 2021 *&.B16A 60 CN 12020C@@G3>+7BADF Annual Report Report#-87:<7. 6,-8-6,-6<#-/1;<-:-,"=*41+++7=6<16/1:5 of Independent Registered Public Accounting Firm To-AF:7,:3D7:A>67DE3@6A3D6A8 ;D75FADE the Shareholders and Board of Directors 3@36;3@'3F;A@3>+3;>I3K A?B3@KCanadian National Railway Company: Opinion!8161767616<-:6)4+76<:747>-:.16)6+1)4:-87:<16/ on internal control over financial reporting 07:3H73G6;F76F:7 3@36;3@'3F;A@3>+3;>I3K A?B3@KEF:7 A?B3@K;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@93EA8 757?47D We have audited the Canadian National Railway Company's (the "Company") internal control over financial reporting as of December 31, 2020, 43E76A@5D;F7D;37EF34>;E:76;@based on criteria established in Internal ;A2?;.9<;A?<9 Control - Integrated ;A24?.A21 ?.:2D>?3F7D;3>D7EB75FE 78875F;H7;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@93EA8 Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 757?47D 43E76A@5D;F7D;37EF34>;E:76;@ 31, 2020, based on criteria established in Internal ;A2?;.9<;A?<9 Control - Integrated ;A24?.A21 ?.:2DEA:3H73G6;F76 ;@355AD63@57I;F:F:7EF3@63D6EA8F:7)G4>;5 A?B3@K55AG@F;@9(H7DE;9:FA3D6.@;F76,F3F7E) ( F:7We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCA0B"), the consolidated5A@EA>;63F7643>3@57E:77FEA8F:7 A?B3@K3EA8 757?47D 3@6 balance sheets of the Company as of December 31, 2020 and 2019, F:7D7>3F765A@EA>;63F76EF3F7?7@FEA8;@5A?7 the related consolidated statements of income, comprehensive5A?BD7:7@E;H7;@5A?7 5:3@97E;@E:3D7:A>67DE7CG;FK3@653E:8>AIE8AD735:A8F:7K73DE;@F:7F:D77 K73DB7D;A67@676 757?47D income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2020, and3@6F:7D7>3F76@AF7E 3@6AGDD7BADF63F76 74DG3DKW 7JBD7EE763@G@CG3>;8;76AB;@;A@A@F:AE75A@EA>;63F768;@3@5;3>EF3F7?7@FE the related notes, and our report dated February 1, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis);1;.7:7816176 for opinion The-:7 A?B3@KE?3@397?7@F;ED7EBA@E;4>78AD?3;@F3;@;@978875F;H7;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@93@68AD;FE3EE7EE?7@FA8F:7 Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness78875F;H7@7EEA8;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9;@5>G676;@F:7355A?B3@K;@9&3@397?7@FE+7BADFA@"@F7D@3> A@FDA>AH7D ;@3@5;3> of internal control over financial reporting included in the accompanying Managements Report on Internal Control over Financial Reporting.+7BADF;@9 (GDD7EBA@E;4;>;FK;EFA7JBD7EE3@AB;@;A@A@F:7 A?B3@KE;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@943E76A@AGD3G6;F 073D73 Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a BG4>;5355AG@F;@98;D?D79;EF7D76I;F:F:7) (3@63D7D7CG;D76FA47;@67B7@67@FI;F:D7EB75FFAF:7 A?B3@K;@355AD63@57I;F:F:7. , public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. 8767D3>E75GD;F;7E>3IE3@6F:73BB>;534>7DG>7E3@6D79G>3F;A@EA8F:7,75GD;F;7E3@6 J5:3@97 A??;EE;A@3@6F:7) ( federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 075A@6G5F76AGD3G6;F;@355AD63@57I;F:F:7EF3@63D6EA8F:7) ( -:AE7EF3@63D6ED7CG;D7F:3FI7B>3@3@6B7D8AD?F:73G6;FFAWe conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainA4F3;@D73EA@34>73EEGD3@5734AGFI:7F:7D78875F;H7;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9I3E?3;@F3;@76;@3>>?3F7D;3>D7EB75FE (GD3G6;F reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit ofA8;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9;@5>G676A4F3;@;@93@G@67DEF3@6;@9A8;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9 3EE7EE;@9F:7D;E= internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk thatF:3F3?3F7D;3>I73=@7EE7J;EFE 3@6F7EF;@93@67H3>G3F;@9F:767E;9@3@6AB7D3F;@978875F;H7@7EEA8;@F7D@3>5A@FDA>43E76A@F:73EE7EE76 a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.D;E= (GD3G6;F3>EA;@5>G676B7D8AD?;@9EG5:AF:7DBDA576GD7E3EI75A@E;67D76@757EE3DK;@F:75;D5G?EF3@57E 0747>;7H7F:3FAGD3G6;F Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit BDAH;67E3D73EA@34>743E;E8ADAGDAB;@;A@ provides a reasonable basis for our opinion. Definition-.161<176)6,4151<)<176;7.16<-:6)4+76<:747>-:.16)6+1)4:-87:<16/ and limitations of internal control over financial reporting A5A?B3@KE;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9;E3BDA57EE67E;9@76FABDAH;67D73EA@34>73EEGD3@57D793D6;@9F:7D7>;34;>;FKA88;@3@5;3> company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingD7BADF;@93@6F:7BD7B3D3F;A@A88;@3@5;3>EF3F7?7@FE8AD7JF7D@3>BGDBAE7E;@355AD63@57I;F:97@7D3>>K3557BF76355AG@F;@9BD;@5;B>7E and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's5A?B3@KE;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9;@5>G67EF:AE7BA>;5;7E3@6BDA576GD7EF:3FB7DF3;@FAF:7?3;@F7@3@57A8D75AD6EF:3F ;@ internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonableD73EA@34>767F3;> 355GD3F7>K3@683;D>KD78>75FF:7FD3@E35F;A@E3@66;EBAE;F;A@EA8F:73EE7FEA8F:75A?B3@KBDAH;67D73EA@34>73EEGD3@57 detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thatF:3FFD3@E35F;A@E3D7D75AD6763E@757EE3DKFAB7D?;FBD7B3D3F;A@A88;@3@5;3>EF3F7?7@FE;@355AD63@57I;F:97@7D3>>K3557BF76355AG@F;@9 transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting BD;@5;B>7E 3@6F:3FD757;BFE3@67JB7@6;FGD7EA8F:75A?B3@K3D747;@9?367A@>K;@355AD63@57I;F:3GF:AD;L3F;A@EA8?3@397?7@F3@6principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and 6;D75FADEA8F:75A?B3@K3@6BDAH;67D73EA@34>73EEGD3@57D793D6;@9BD7H7@F;A@ADF;?7>K67F75F;A@A8G@3GF:AD;L7635CG;E;F;A@ GE7 ADdirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or 6;EBAE;F;A@A8F:75A?B3@KE3EE7FEF:3F5AG>6:3H73?3F7D;3>78875FA@F:78;@3@5;3>EF3F7?7@FE disposition of the company's assets that could have a material effect on the financial statements. Because753GE7A8;FE;@:7D7@F>;?;F3F;A@E ;@F7D@3>5A@FDA>AH7D8;@3@5;3>D7BADF;@9?3K@AFBD7H7@FAD67F75F?;EEF3F7?7@FE >EA BDA<75F;A@EA8 of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any3@K7H3>G3F;A@A878875F;H7@7EEFA8GFGD7B7D;A6E3D7EG4<75FFAF:7D;E=F:3F5A@FDA>E?3K475A?7;@367CG3F74753GE7A85:3@97E;@5A@6;F;A@E evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orADF:3FF:7679D77A85A?B>;3@57I;F:F:7BA>;5;7EADBDA576GD7E?3K67F7D;AD3F7 that the degree of compliance with the policies or procedures may deteriorate. (s)E$)& KPMG %%) LLP* Montreal,&A@FDX3> 3@363 Canada February 74DG3DKW W 1, 2021 *&.B16A M$)&© 2020 KPMG %%) 3@(@F3D;A>;?;F76>;34;>;FKB3DF@7DE:;B3@63?7?47D8;D?A8F:7$)& LLP, an Ontario limited liability partnership and a member firm of the KPMG 9>A43>AD93@;L3F;A@A8;@67B7@67@F?7?47D8;D?E388;>;3F76I;F:$)& global organization of independent member firms affiliated with KPMG "@F7D@3F;A@3>International Limited,%;?;F76 3BD;H3F7 @9>;E:5A?B3@K>;?;F764K9G3D3@F77 >>D;9:FED7E7DH76 a private English company limited by guarantee. All rights reserved. C@@G3>+7BADF2020 Annual Report 61 Consolidated76;741,)<-,$<)<-5-6<;7. 6+75- Statements of Income In ;:6996<;@2E02=A=2?@5.?21.A. millions, except per share data -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 Revenues#->-6=-; (Note$ Operating!8-:)<16/-@8-6;-; expenses %34AD3@68D;@9747@78;FELabor and fringe benefits 2,723 2,922 2,860 Purchased)GD5:3E76E7DH;57E3@6?3F7D;3> services and material 2,152 2,267 1,971 Fuel G7> 1,152 1,637 1,732 Depreciation 7BD75;3F;A@3@63?ADF;L3F;A@ and amortization (Note$ Net%4).#/-% income $ 3,562 $ 4,216 $ 4,328 Earnings):616/;8-:;0):- per share (Note$ Weighted(-1/0<-,)>-:)/-6=5*-:7.;0):-;-average number of shares (Note$ See(22.00<:=.;F6;4; Consolidatea76;741,)<-,$<)<-5-6<;7.758:-0-6;1>- 6+75- statements of Comprehensive Income In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 '7F;@5A?7Net income $ 3,562 $ 4,216 $ 4,328 Other!<0-:+758:-0-6;1>-16+75-47;; comprehensive income (loss) (Note$ Comprehensive/-02%(%.3)6%).#/-% income $ 3,573 $ 3,582 $ 4,263 See(22.00<:=.;F6;4; 62 CN 12020C@@G3>+7BADF Annual Report Consolidated # $ $# Balance Sheets In%$"##"&%* millions December $ ) 31, 2020 2019 Assets##$# Current assets /& *"! /&#-1'2 (#*0/Cash and cash equivalents $ 569 $ 64 Restricted #/0.'!0#"! /& *"! /&#-1'2 (#*0/ cash and cash equivalents (Note&+ 15) 531 524 Accounts!!+1*0/.#!#'2 receivable (# (Note&+ 9) 1,054 1,213 0#.' ( *"/1,,('#/Material and supplies 583 611 0&#.!1..#*0 //#0/Other current assets (Note&+ 10) 365 418 &+# ,)) %+** +*Total current assets 3,102 2,830 Properties.+,#.0'#/ (Note&+ 11) 40,069 39,669 ,#. 0'*%(# /#.'%&0+$1/# //#0/Operating lease right-of-use assets (Note&+ 12) 435 520 Pension#*/'+* //#0 asset (Note&+ 17) 777 336 Intangible*0 *%' (# //#0/%++"3'(( *"+0&#. assets, goodwill and other (Note&+ 13) 421 429 Total assets $ 44,804 $ 43,784 Liabilities $ # # " and shareholders' "#!% $& equity Current liabilities Accounts!!+1*0/, 5 payable (# *"+0&#. and other&+ (Note 14) $ 2,364 $ 2,357 1..#*0,+.0'+*+$(+*%0#.)"#Current portion of long-term debt 0 (Note&+ 15) 910 1,930 &+# ,)) %+#""#"+" *Total current liabilities 3,274 4,287 Deferred#$#..#"'*!+)#0 4#/ income taxes (Note&+ 7) 8,271 7,844 0&#.(' Other liabilities '('0'#/ *""#$#..#"!.#"'0/ and deferred credits (Note&+ 16) 534 634 Pension#*/'+* *"+0&#.,+/0.#0'.#)#*0 and other postretirement benefits#*#$'0/ (Note&+ 17) 767 733 Long-term+*%0#.)"# debt 0 (Note&+ 15) 11,996 11,866 ,#. 0'*%(# /#(' Operating lease liabilities '('0'#/ (Note&+ 12) 311 379 Shareholders' equity +))+*/& .#/Common shares (Note&+ 18) 3,698 3,650 +))+*/& .#/'* & .# .1/0/Common shares in Share Trusts (Note&+ 18) (115) (163) Additional""'0'+* (, '"'*! ,'0 ( paid-in capital 379 403 Accumulated!!1)1( 0#"+0&#.!+),.#&#*/'2#(+// other comprehensive loss&+ (Note 20) (3,472) (3,483) Retained #0 '*#"# .*'*%/ earnings 19,161 17,634 &+#*!) !&# )* (,"+-Total shareholders' equity 19,651 18,041 Total liabilities and shareholders' equity $ 44,804 $ 43,784 See &$'%-"% accompanying %&+ *+& &%*&#" + "%% "#*++ $ %+* notes to consolidated financial statements. On* behalf#& ($+$0&#+ ."+$'.#!0+./ of the Board of Directors: (s)*& )+ Robert Pace (s)* % (, *, *+ Jean-Jacques Ruest Director'.#!0+. Director'.#!0+. ' **1 ( #,+.02020 Annual Report 63 Consolidated76;741,)<-,$<)<-5-6<;7.0)6/-;16$0):-074,-:;9=1 Number =5*-:7. of Common75576 Accumulated++=5=4)<-, +75576;0):-;common shares shares;0):-; Additional,,1<176)4 7<0-:other Total%7<)4 Share$0):- Common75576 in16$0):- Share paid8)1,16-in comprehensive+758:-0-6;1>- Retained#-<)16-, shareholders';0):-074,-:; In ;:6996<;@ millions Outstanding!=<;<)6,16/ Trusts%:=;<; shares;0):-; Trusts%:=;<; capital+)81<)4 loss47;; earnings-):616/; equity-9=1 Balance.9.;02.A202:/2? at December 31, 2017 742.6 2.0 $ 3,613 $ (168) $ 434 $ (2,784) $ 15,561 $ 16,656 Net'7F;@5A?7 income 4,328 4,328 Stock,FA5=ABF;A@E7J7D5;E76 options exercised 1.7 120 (17) 103 Settlement,7FF>7?7@FA87CG;FKE7FF>763I3D6E of equity settled awards (Note$ Balance.9.;02.A202:/2? at December 31, 2018 725.3 2.0 3,634 (175) 408 (2,849) 16,623 17,641 Net'7F;@5A?7 income 4,216 4,216 Stock,FA5=ABF;A@E7J7D5;E76 options exercised 1.1 89 (12) 77 Settlement,7FF>7?7@FA87CG;FKE7FF>763I3D6E of equity settled awards (Note$ Balance.9.;02.A202:/2? at December 31, 2019 712.3 1.8 3,650 (163) 403 (3,483) 17,634 18,041 Net'7F;@5A?7 income 3,562 3,562 Stock,FA5=ABF;A@E7J7D5;E76 options exercised 0.8 65 ( 9) 56 Settlement,7FF>7?7@FA87CG;FKE7FF>763I3D6E of equity settled awards (Note$ Balance!,!.#%!4%#%-"%2 at December 31, 2020 710.3 1.3 $ 3,698 $ (115) $ 379 $ (3,472) $ 19,161 $ 19,651 (1) )52<:=.;F.1<=A2100 64 CN 12020C@@G3>+7BADF Annual Report Consolidated76;741,)<-,$<)<-5-6<;7.);047?; Statements of Cash Flows In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 Operating!8-:)<16/)+<1>1<1-; activities '7F;@5A?7Net income $ 3,562 $ 4,216 $ 4,328 Adjustments6 See(22.00<:=.;F6;4; C@@G3>+7BADF2020 Annual Report 65 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements Contents76<-6<; 1 $=55):A7.;1/61.1+)6<)++7=6<16/8741+1-; Summary of significant accounting policies 67 2 #-+-6<)++7=6<16/8:767=6+-5-6<; Recent accounting pronouncements 73 3=;16-;;+75*16)<176; Business combinations 74 4#->-6=-; Revenues 75 5;;-<;0-4,.7:;)4- Assets held for sale 76 6!<0-:16+75- Other income 76 7 6+75-<)@-; Income taxes 77 8):616/;8-:;0):- Earnings per share 80 9++7=6<;:-+-1>)*4- Accounts receivable 80 !<0-:+=::-6<);;-<;10 Other current assets 80 ":78-:<1-;11 Properties 81 -);-;12 Leases 81 6<)6/1*4-);;-<;/77,?144)6,7<0-:13 Intangible assets, goodwill and other 83 ++7=6<;8)A)*4-)6,7<0-:14 Accounts payable and other 83 -*<15 Debt 84 !<0-:41)*141<1-;)6,,-.-::-,+:-,1<;16 Other liabilities and deferred credits 87 "-6;176;)6,7<0-:87;<:-<1:-5-6<*-6-.1<;17 Pensions and other postretirement benefits 88 $0):-+)81<)418 Share capital 95 $<7+3*);-,+758-6;)<17619 Stock-based compensation 97 ++=5=4)<-,7<0-:+758:-0-6;1>-47;;20 Accumulated other comprehensive loss 102 )27:+7551<5-6<;)6,+76<16/-6+1-;21 Major commitments and contingencies 103 16)6+1)416;<:=5-6<;22 Financial instruments 106 $-/5-6<-,16.7:5)<17623 Segmented information 107 $=*;-9=-6<->-6<;24 Subsequent events 108 66 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements 3@36;3@'3F;A@3>+3;>I3K A?B3@K FA97F:7DI;F:;FEI:A>>K AI@76EG4E;6;3D;7E 5A>>75F;H7>K 'ADF:7 A?B3@K ;E7@93976;@F:7D3;>3@6Canadian National Railway Company, together with its wholly-owned subsidiaries, collectively "CN" or the "Company', is engaged in the rail and relatedD7>3F76FD3@EBADF3F;A@4GE;@7EE 'EB3@E 3@3633@6F:7.@;F76,F3F7EA8?7D;53. , F:7A@>KD3;>DA365A@@75F;@9 3@363RE 3EF7D@3@6 transportation business. CN spans Canada and the United States of America (U.S.), the only railroad connecting Canada's Eastern and 07EF7D@5A3EFEI;F:F:7. , ,AGF: 'E8D7;9:FD7H7@G7E3D767D;H768DA?F:7?AH7?7@FA836;H7DE;8;763@643>3@576BADF8A>;AA89AA6E Western coasts with the U.S. South. CN's freight revenues are derived from the movement of a diversified and balanced portfolio of goods, including;@5>G6;@9B7FDA>7G?3@65:7?;53>E 9D3;@3@687DF;>;L7DE 5A3> ?7F3>E3@6?;@7D3>E 8AD7EFBDA6G5FE ;@F7D?A63>3@63GFA?AF;H7 petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal and automotive. 1 D$=55):A7.;1/61.1+)6<)++7=6<16/8741+1-; - Summary of significant accounting policies Basis);1;7.8:-;-6<)<176 of presentation These-:7E75A@EA>;63F768;@3@5;3>EF3F7?7@FE3D77JBD7EE76;@ 3@36;3@6A>>3DE 7J57BFI:7D7AF:7DI;E7;@6;53F76 3@6:3H7477@BD7B3D76;@ consolidated financial statements are expressed in Canadian dollars, except where otherwise indicated, and have been prepared in accordance355AD63@57I;F:.@;F76,F3F7E97@7D3>>K3557BF76355AG@F;@9BD;@5;B>7E with United States generally accepted accounting principles (GAAP) )3E5A6;8;76;@F:7 ;@3@5;3>55AG@F;@9,F3@63D6EA3D6 as codified in the Financial Accounting Standards Board (FASB) ,55AG@F;@9,F3@63D6E A6;8;53F;A@, Accounting Standards Codification (ASC). Principles":16+184-;7.+76;741,)<176 of consolidation These-:7E75A@EA>;63F768;@3@5;3>EF3F7?7@FE;@5>G67F:7355AG@FEA83>>EG4E;6;3D;7E3@6H3D;34>7;@F7D7EF7@F;F;7E8ADI:;5:F:7 A?B3@K;EF:7 consolidated financial statements include the accounts of all subsidiaries and variable interest entities for which the Company is the BD;?3DK47@78;5;3DK -:7 A?B3@K;EF:7BD;?3DK47@78;5;3DKA8F:7 ?B>AK777@78;F)>3@-DGEFE,:3D7-DGEFE3EF:7 A?B3@K8G@6EF:7primary beneficiary. The Company is the primary beneficiary of the Employee Benefit Plan Trusts ("Share Trusts") as the Company funds the Share,:3D7-DGEFE -:7 A?B3@KE;@H7EF?7@FE;@I:;5:;F:3EE;9@;8;53@F;@8>G7@573D7355AG@F768ADGE;@9F:77CG;FK?7F:A63@63>>AF:7D Trusts. The Company's investments in which it has significant influence are accounted for using the equity method and all other investments;@H7EF?7@FE8ADI:;5:83;DH3>G7;E@AFD736;>K67F7D?;@34>73D7355AG@F768AD3F5AEF?;@GE;?B3;D?7@F B>GEAD?;@GEA4E7DH34>7BD;57 for which fair value is not readily determinable are accounted for at cost minus impairment, plus or minus observable price changes.5:3@97E Use&;-7.-;<15)<-; of estimates The-:7BD7B3D3F;A@A88;@3@5;3>EF3F7?7@FE;@5A@8AD?;FKI;F: preparation of financial statements in conformity with GAAP) requiresD7CG;D7E?3@397?7@FFA?3=77EF;?3F7E3@63EEG?BF;A@EF:3F38875FF:7 management to make estimates and assumptions that affect the reportedD7BADF763?AG@FEA8D7H7@G7E 7JB7@E7E 3EE7FE3@6>;34;>;F;7E 3@6F:76;E5>AEGD7A85A@F;@97@F3EE7FE3@6>;34;>;F;7E3FF:763F7A8F:78;@3@5;3> amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements.EF3F7?7@FE (@3@A@9A;@943E;E ?3@397?7@FD7H;7IE;FE7EF;?3F7E ;@5>G6;@9F:AE7D7>3F76FA9AA6I;>> ;@F3@9;4>73EE7FE ;67@F;8;763EE7FE On an ongoing basis, management reviews its estimates, including those related to goodwill, intangible assets, identified assets and3@6>;34;>;F;7E35CG;D76;@4GE;@7EE5A?4;@3F;A@E ;@5A?7F3J7E 67BD75;3F;A@ B7@E;A@E3@6AF:7DBAEFD7F;D7?7@F47@78;FE B7DEA@3>;@ Revenues#->-6=-; Nature!452%/&3%26)#%3 of services The-:7 A?B3@KED7H7@G7E5A@E;EFA88D7;9:FD7H7@G7E3@6AF:7DD7H7@G7E D7;9:FD7H7@G7E;@5>G67D7H7@G78DA?F:7?AH7?7@FA88D7;9:FAH7D Company's revenues consist of freight revenues and other revenues. Freight revenues include revenue from the movement of freight over railD3;>3@63D767D;H768DA?F:78A>>AI;@9E7H7@5A??A6;FK9DAGBE and are derived from the following seven commodity groups: U• Petroleum )7FDA>7G?3@65:7?;53>E I:;5:;@5>G67E5:7?;53>E3@6B>3EF;5E D78;@76B7FDA>7G?BDA6G5FE 5DG673@65A@67@E3F7 3@6EG>8GD and chemicals, which includes chemicals and plastics, refined petroleum products, crude and condensate, and sulfur; U• Metals &7F3>E3@6?;@7D3>E I:;5:;@5>G67E7@7D9K?3F7D;3>E ?7F3>E ?;@7D3>E 3@6;DA@AD7 and minerals, which includes energy materials, metals, minerals, and iron ore; U• Forest AD7EFBDA6G5FE I:;5:;@5>G67E>G?47D BG>B B3B7D 3@6B3@7>E products, which includes lumber, pulp, paper, and panels; U• A3> I:;5:;@5>G67E5A3>3@6B7FDA>7G?5A=7Coal, which includes coal and petroleum coke; U• GrainD3;@3@687DF;>;L7DE I:;5:;@5>G67E 3@36;3@D79G>3F769D3;@ 3@36;3@5A??7D5;3>9D3;@ . , 9D3;@ BAF3E:3@6AF:7D87DF;>;L7DE and fertilizers, which includes Canadian regulated grain, Canadian commercial grain, U.S. grain, potash and other fertilizers; U• Intermodal, "@F7D?A63> I:;5:;@5>G67ED3;>3@6FDG5=;@9E7DH;57E8AD6A?7EF;53@6;@F7D@3F;A@3>FD388;53@6 which includes rail and trucking services for domestic and international traffic; and U• Automotive, GFA?AF;H7 I:;5:;@5>G67E8;@;E:76H7:;5>7E3@63GFAB3DFE which includes finished vehicles and auto parts. Freight D7;9:FD7H7@G7E3>EA5A?BD;E7D7H7@G7E8ADABF;A@3>E7DH;57E47KA@6F:743E;5?AH7?7@FA88D7;9:F;@5>G6;@93EE7FGE7 EI;F5:;@9 EFAD397 revenues also comprise revenues for optional services beyond the basic movement of freight including asset use, switching, storage, and3@6AF:7DE7DH;57E other services. (F:7DD7H7@G7E3D767D;H768DA?@A@ D3;>>A9;EF;5EE7DH;57EF:3FEGBBADFF:7 A?B3@KED3;>4GE;@7EE;@5>G6;@9H7EE7>E3@66A5=E Other revenues are derived from non-rail logistics services that support the Company's rail business including vessels and docks, transloadingFD3@E>A36;@93@66;EFD;4GF;A@ 3GFA?AF;H7>A9;EF;5E 3@68D7;9:F8ADI3D6;@93@6FD3@EBADF3F;A@?3@397?7@F and distribution, automotive logistics, and freight forwarding and transportation management. Revenue%6%.5%2%#/'.)4)/. recognition Revenues+7H7@G7E3D7D75A9@;L76I:7@5A@FDA>A8BDA?;E76E7DH;57E;EFD3@E87DD76FA5GEFA?7DE;@3@3?AG@FF:3FD78>75FEF:75A@E;67D3F;A@F:7 are recognized when control of promised services is transferred to customers in an amount that reflects the consideration the A?B3@K7JB75FEFA477@F;F>76FAD757;H7;@7J5:3@978ADF:AE7E7DH;57E Company expects to be entitled to receive in exchange for those services. The-:7 A?B3@K355AG@FE8AD5A@FD35FEI;F:5GEFA?7DEI:7@;F:3E3BBDAH3>3@65A??;F?7@F8DA?4AF:B3DF;7E 735:B3DFKED;9:FE:3H7 Company accounts for contracts with customers when it has approval and commitment from both parties, each party's rights have 477@;67@F;8;76 B3K?7@FF7D?E3D7678;@76 F:75A@FD35F:3E5A??7D5;3>EG4EF3@573@65A>>75F;A@;EBDA434>7 AD5A@FD35FEF:3F;@HA>H7been identified, payment terms are defined, the contract has commercial substance and collection is probable. For contracts that involve multiple?G>F;B>7B7D8AD?3@57A4>;93F;A@E F:7 A?B3@K3>>A53F7EF:7FD3@E35F;A@BD;57FA735:B7D8AD?3@57A4>;93F;A@;@F:75A@FD35F43E76A@D7>3F;H7 performance obligations, the Company allocates the transaction price to each performance obligation in the contract based on relative standaloneEF3@63>A@7E7>>;@9BD;57E3@6D75A9@;L7ED7H7@G7I:7@ AD3E B7D8AD?3@57A4>;93F;A@E;@F:75A@FD35F3D7E3F;E8;76 selling prices and recognizes revenue when, or as, performance obligations in the contract are satisfied. Revenues+7H7@G7E3D7BD7E7@F76@7FA8F3J7E5A>>75F768DA?5GEFA?7DE3@6D7?;FF76FA9AH7D@?7@F3>3GF:AD;F;7E are presented net of taxes collected from customers and remitted to governmental authorities. C@@G3>+7BADF2020 Annual Report 67 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements Freight ?2645A?2C2;B2@ revenues Freight D7;9:FE7DH;57E3D73DD3@976F:DAG9:BG4>;5>K 3H3;>34>7F3D;88EAD5GEFA?7D EB75;8;539D77?7@FEF:3F7EF34>;E:F:7BD;5;@9 F7D?E3@65A@6;F;A@E services are arranged through publicly-available tariffs or customer-specific agreements that establish the pricing, terms and conditions 8AD8D7;9:FE7DH;57EA887D764KF:7 A?B3@K ADD7H7@G7D75A9@;F;A@BGDBAE7E 35A@FD35F8ADF:7?AH7?7@FA88D7;9:FAH7DD3;>7J;EFEI:7@for freight services offered by the Company. For revenue recognition purposes, a contract for the movement of freight over rail exists when shippingE:;BB;@9;@EFDG5F;A@E3D7E7@F4K35GEFA?7D3@6:3H7477@3557BF764KF:7 A?B3@K;@5A@@75F;A@I;F:F:7D7>7H3@FF3D;88AD5GEFA?7D instructions are sent by a customer and have been accepted by the Company in connection with the relevant tariff or customer- specificEB75;8;539D77?7@F agreement. Revenues+7H7@G7E8ADF:7?AH7?7@FA88D7;9:FAH7DD3;>3D7D75A9@;L76AH7DF;?76G7FAF:75A@F;@GAGEFD3@E87DA85A@FDA>FAF:75GEFA?7D3E for the movement of freight over rail are recognized over time due to the continuous transfer of control to the customer as 8D7;9:F?AH7E8DA?AD;9;@FA67EF;@3F;A@ )DA9D7EEFAI3D6E5A?B>7F;A@A8F:7B7D8AD?3@57A4>;93F;A@;E?73EGD7643E76A@F:7FD3@E;FF;?7A8freight moves from origin to destination. Progress towards completion of the performance obligation is measured based on the transit time of 8D7;9:F8DA?AD;9;@FA67EF;@3F;A@ -:73>>A53F;A@A8D7H7@G7E47FI77@B7D;A6E;E43E76A@F:7D7>3F;H7FD3@E;FF;?7;@735:B7D;A6I;F:7JB7@E7Efreight from origin to destination. The allocation of revenues between periods is based on the relative transit time in each period with expenses recordedD75AD6763E;@5GDD76 +7H7@G7ED7>3F76FA8D7;9:F5A@FD35FEF:3FD7CG;D7F:7;@HA>H7?7@FA83@AF:7DD3;>53DD;7DFA?AH78D7;9:F8DA?AD;9;@FA as incurred. Revenues related to freight contracts that require the involvement of another rail carrier to move freight from origin to 67EF;@3F;A@3D7D7BADF76A@3@7F43E;E D7;9:F?AH7?7@FE3D75A?B>7F76AH7D3E:ADFB7D;A6A8F;?73@63D797@7D3>>K5A?B>7F76478AD7destination are reported on a net basis. Freight movements are completed over a short period of time and are generally completed before B3K?7@F;E6G7 D7;9:FD757;H34>7E3D7;@5>G676;@55AG@FED757;H34>7A@F:7 A@EA>;63F763>3@57,:77FE payment is due. Freight receivables are included in Accounts receivable on the Consolidated Balance Sheets. The-:7 A?B3@K:3E@A?3F7D;3>5A@FD35F3EE7FE3EEA5;3F76I;F:8D7;9:FD7H7@G7E Company has no material contract assets associated with freight revenues. A@FD35F>;34;>;F;7ED7BD7E7@F5A@E;67D3F;A@D757;H768DA?5GEFA?7DE8ADI:;5:F:7D7>3F76B7D8AD?3@57A4>;93F;A@:3E@AF477@E3F;E8;76 Contract liabilities represent consideration received from customers for which the related performance obligation has not been satisfied. A@FD35F>;34;>;F;7E3D7D75A9@;L76;@FAD7H7@G7EI:7@AD3EF:7D7>3F76B7D8AD?3@57A4>;93F;A@;EE3F;E8;76 -:7 A?B3@K;@5>G67E5A@FD35FContract liabilities are recognized into revenues when or as the related performance obligation is satisfied. The Company includes contract liabilities>;34;>;F;7EI;F:;@55AG@FEB3K34>73@6AF:7D3@6(F:7D>;34;>;F;7E3@66787DD765D76;FEA@F:7 A@EA>;63F763>3@57,:77FE within Accounts payable and other and Other liabilities and deferred credits on the Consolidated Balance Sheets. Revenues+7H7@G7E8ADABF;A@3>E7DH;57E3D7D75A9@;L763F3BA;@F;@F;?7ADAH7DF;?73EB7D8AD?3@57A4>;93F;A@E3D7E3F;E8;76 67B7@6;@9A@F:7 for optional services are recognized at a point in time or over time as performance obligations are satisfied, depending on the nature@3FGD7A8F:7E7DH;57 of the service. Freight D7;9:F5A@FD35FE?3K47EG4<75FFAH3D;34>75A@E;67D3F;A@;@F:78AD?A8HA>G?7 43E76;@57@F;H7E D743F7E ADAF:7D;F7?E I:;5:38875FF:7 contracts may be subject to variable consideration in the form of volume-based incentives, rebates, or other items, which affect the transactionFD3@E35F;A@BD;57 /3D;34>75A@E;67D3F;A@;ED75A9@;L763ED7H7@G7FAF:77JF7@FF:3F;F;EBDA434>7F:3F3E;9@;8;53@FD7H7DE3>;@F:73?AG@FA8 price. Variable consideration is recognized as revenue to the extent that it is probable that a significant reversal in the amount of cumulative5G?G>3F;H7D7H7@G7D75A9@;L76I;>>@AFA55GD /3D;34>75A@E;67D3F;A@;E355DG76A@F:743E;EA8?3@397?7@FE47EF7EF;?3F7A8F:77JB75F76 revenue recognized will not occur. Variable consideration is accrued on the basis of managements best estimate of the expected amount,3?AG@F I:;5:;E43E76A@3H3;>34>7:;EFAD;53> 5GDD7@F3@68AD753EF76;@8AD?3F;A@ which is based on available historical, current and forecasted information. %A52??2C2;B2@Other revenues (F:7DD7H7@G7E3D7D75A9@;L763F3BA;@F;@F;?7ADAH7DF;?73EB7D8AD?3@57A4>;93F;A@E3D7E3F;E8;76 67B7@6;@9A@F:7@3FGD7A8F:7E7DH;57 Other revenues are recognized at a point in time or over time as performance obligations are satisfied, depending on the nature of the service. Income 6+75-<)@-; taxes The-:7 A?B3@K8A>>AIEF:73EE7F3@6>;34;>;FK?7F:A6A8355AG@F;@98AD;@5A?7F3J7E .@67DF:73EE7F3@6>;34;>;FK?7F:A6 F:75:3@97;@F:7@7F Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, the change in the net 6787DD76;@5A?7F3J3EE7FAD>;34;>;FK;E;@5>G676;@F:75A?BGF3F;A@A8'7F;@5A?7AD(F:7D5A?BD7:7@E;H7;@5A?7>AEE 787DD76;@5A?7F3Jdeferred income tax asset or liability is included in the computation of Net income or Other comprehensive income (loss). Deferred income tax assets3EE7FE3@6>;34;>;F;7E3D7?73EGD76GE;@97@35F76F3JD3F7E7JB75F76FA3BB>KFAF3J34>7;@5A?7;@F:7K73DE;@I:;5:F7?BAD3DK6;887D7@57E3D7 and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected7JB75F76FA47D75AH7D76ADE7FF>76 to be recovered or settled. Earnings):616/;8-:;0):- per share Basic3E;573D@;@9EB7DE:3D7;E53>5G>3F76GE;@9F:7I7;9:F76 3H7D397@G?47DA843E;5E:3D7EAGFEF3@6;@96GD;@9F:7B7D;A6 -:7I7;9:F76 3H7D397 earnings per share is calculated using the weighted-average number of basic shares outstanding during the period. The weighted-average number@G?47DA843E;5E:3D7EAGFEF3@6;@97J5>G67EE:3D7E:7>6;@F:7,:3D7-DGEFE3@6;@5>G67EH7EF767CG;FKE7FF>76EFA5= 43E765A?B7@E3F;A@ of basic shares outstanding excludes shares held in the Share Trusts and includes vested equity settled stock-based compensation awards3I3D6EAF:7DF:3@EFA5=ABF;A@E ;>GF7673D@;@9EB7DE:3D7;E53>5G>3F76GE;@9F:7I7;9:F76 3H7D397@G?47DA86;>GF76E:3D7EAGFEF3@6;@9 other than stock options. Diluted earnings per share is calculated using the weighted-average number of diluted shares outstanding 6GD;@9F:7B7D;A6 3BB>K;@9F:7FD73EGDKEFA5=?7F:A6 -:7I7;9:F76 3H7D397@G?47DA86;>GF76E:3D7EAGFEF3@6;@9;@5>G67EF:76;>GF;H778875FEduring the period, applying the treasury stock method. The weighted-average number of diluted shares outstanding includes the dilutive effects ofA85A??A@E:3D7E;EEG34>7GBA@7J7D5;E7A8AGFEF3@6;@9EFA5=ABF;A@E3@6@A@H7EF767CG;FKE7FF>763I3D6E common shares issuable upon exercise of outstanding stock options and nonvested equity settled awards. Foreign7:-1/6+=::-6+A currency All>>A8F:7 A?B3@KE8AD7;9@EG4E;6;3D;7EGE7F:7.,6A>>3D3EF:7;D8G@5F;A@3>5GDD7@5K 55AD6;@9>K F:78AD7;9@EG4E;6;3D;7E3EE7FE3@6 of the Company's foreign subsidiaries use the US dollar as their functional currency. Accordingly, the foreign subsidiaries' assets and liabilities>;34;>;F;7E3D7FD3@E>3F76;@FA 3@36;3@6A>>3DE3FF:77J5:3@97D3F7;@78875F3FF:743>3@57E:77F63F73@6F:7D7H7@G7E3@67JB7@E7E3D7 are translated into Canadian dollars at the exchange rate in effect at the balance sheet date and the revenues and expenses are translatedFD3@E>3F763FF:73H7D3977J5:3@97D3F7E6GD;@9F:7K73D >>36 Cash);0)6,+);0-9=1>)4-6<; and cash equivalents 3E:3@653E:7CG;H3>7@FE;@5>G67:;9:>K>;CG;6;@H7EF?7@FEBGD5:3E76F:D77?A@F:EAD>7EE8DA??3FGD;FK3@63D7EF3F763F5AEFB>GE355DG76Cash and cash equivalents include highly liquid investments purchased three months or less from maturity and are stated at cost plus accrued interest,;@F7D7EF I:;5:3BBDAJ;?3F7E83;DH3>G7 which approximates fair value. 68 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements Restricted#-;<:1+<-,+);0)6,+);0-9=1>)4-6<; cash and cash equivalents The-:7 A?B3@K:3EF:7ABF;A@ G@67D;FE4;>3F7D3>>7FF7DA85D76;F835;>;FK39D77?7@FEI;F:H3D;AGE43@=E FAB>76975A>>3F7D3>;@F:78AD?A853E: Company has the option, under its bilateral letter of credit facility agreements with various banks, to pledge collateral in the form of cash and3@653E:7CG;H3>7@FE8AD3?;@;?G?F7D?A8A@7?A@F: 7CG3>FA3F>73EFF:78357H3>G7A8F:7>7FF7DEA85D76;F;EEG76 +7EFD;5F7653E:3@653E: cash equivalents for a minimum term of one month, equal to at least the face value of the letters of credit issued. Restricted cash and cash equivalents7CG;H3>7@FE;@5>G67:;9:>K>;CG;6;@H7EF?7@FEBGD5:3E76F:D77?A@F:EAD>7EE8DA??3FGD;FK3@63D7EF3F763F5AEFB>GE355DG76;@F7D7EF I:;5: include highly liquid investments purchased three months or less from maturity and are stated at cost plus accrued interest, which approximates3BBDAJ;?3F7E83;DH3>G7 fair value. Accounts++7=6<;:-+-1>)*4- receivable Accounts55AG@FED757;H34>73D7D75AD6763F5AEF@7FA84;>>;@936 Material )<-:1)4)6,;=8841-; and supplies Material&3F7D;3>3@6EGBB>;7E I:;5:5A@E;EF?3;@>KA8D3;> F;7E 3@6AF:7D;F7?E8AD5A@EFDG5F;A@3@6?3;@F7@3@57A8BDAB7DFK3@67CG;B?7@F 3EI7>>3E and supplies, which consist mainly of rail, ties, and other items for construction and maintenance of property and equipment, as well as 6;7E7>8G7> 3D7?73EGD763FI7;9:F76 3H7D3975AEF diesel fuel, are measured at weighted-average cost. Assets;;-<;0-4,.7:;)4- held for sale AssetsEE7FEF:3F3D75>3EE;8;763E:7>68ADE3>73D7?73EGD763FF:7>AI7DA8F:7;D53DDK;@93?AG@FAD83;DH3>G7>7EE7JB75F76E7>>;@95AEFE that are classified as held for sale are measured at the lower of their carrying amount or fair value less expected selling costs ("estimatedS7EF;?3F76E7>>;@9BD;57TI;F:3>AEED75A9@;L76FAF:77JF7@FF:3FF:753DDK;@93?AG@F7J5776EF:77EF;?3F76E7>>;@9BD;57 -:75>3EE;8;53F;A@ selling price") with a loss recognized to the extent that the carrying amount exceeds the estimated selling price. The classification is;E3BB>;534>73FF:763F7GBA@I:;5:F:7E3>7A83EE7FE;EBDA434>7 3@6F:73EE7FE3D73H3;>34>78AD;??76;3F7E3>7;@F:7;DBD7E7@F5A@6;F;A@ applicable at the date upon which the sale of assets is probable, and the assets are available for immediate sale in their present condition. The-:7FD3@E87DA8F:73EE7FE?GEF3>EA477JB75F76FACG3>;8K8ADD75A9@;F;A@3E35A?B>7F76E3>7I;F:;@F:7K73D8A>>AI;@9F:763F7A8 transfer of the assets must also be expected to qualify for recognition as a completed sale within the year following the date of classification.5>3EE;8;53F;A@ AssetsEE7FEA@575>3EE;8;763E:7>68ADE3>7 3D7@AFEG4<75FFA67BD75;3F;A@AD3?ADF;L3F;A@3@64AF:F:73EE7FE3@63@K>;34;>;F;7E6;D75F>K once classified as held for sale, are not subject to depreciation or amortization and both the assets and any liabilities directly associated3EEA5;3F76I;F:F:73EE7FE:7>68ADE3>73D75>3EE;8;763E5GDD7@F;@F:7 A?B3@KRE A@EA>;63F763>3@57,:77FE with the assets held for sale are classified as current in the Company's Consolidated Balance Sheets. Subsequent,G4E7CG7@F5:3@97EFAF:77EF;?3F76E7>>;@9BD;57A83EE7FE:7>68ADE3>73D7D75AD6763E93;@EAD>AEE7EFAF:7 A@EA>;63F76,F3F7?7@FE changes to the estimated selling price of assets held for sale are recorded as gains or losses to the Consolidated Statements ofA8"@5A?7I:7D7;@F:7D75A9@;F;A@A8EG4E7CG7@F93;@E;E>;?;F76FAF:75G?G>3F;H7>AEEBD7H;AGE>KD75A9@;L76 Income wherein the recognition of subsequent gains is limited to the cumulative loss previously recognized. Properties":78-:<1-; Capitalization!0)4!,):!4)/./&#/343 of costs The-:7 A?B3@KED3;>DA36AB7D3F;A@E3D7:;9:>K53B;F3>;@F7@E;H7 -:7 A?B3@KEBDAB7DF;7E?3;@>K5A@E;EFA8:A?A97@7AGEAD@7FIAD= FKB7 Company's railroad operations are highly capital intensive. The Company's properties mainly consist of homogeneous or network-type assets3EE7FEEG5:3ED3;> F;7E 43>>3EF3@6AF:7DEFDG5FGD7E I:;5:8AD?F:7 A?B3@KE-D35=3@6DA36I3KBDAB7DF;7E 3@6+A>>;@9EFA5= -:7 such as rail, ties, ballast and other structures, which form the Company's Track and roadway properties, and Rolling stock. The A?B3@KE53B;F3>7JB7@6;FGD7E3D78ADF:7D7B>357?7@FA87J;EF;@93EE7FE3@68ADF:7BGD5:3E7AD5A@EFDG5F;A@A8@7I3EE7FEFA7@:3@57Company's capital expenditures are for the replacement of existing assets and for the purchase or construction of new assets to enhance operationsAB7D3F;A@EADBDAH;67@7IE7DH;57A887D;@9EFA5GEFA?7DE >3D97BADF;A@A8F:7 A?B3@KE53B;F3>7JB7@6;FGD7E3D78ADE7>8 5A@EFDG5F76 or provide new service offerings to customers. A large portion of the Company's capital expenditures are for self-constructed BDAB7DF;7E ;@5>G6;@9F:7D7B>357?7@FA87J;EF;@9FD35=3@6DA36I3K3EE7FE3@6FD35=>;@77JB3@E;A@ 3EI7>>3E?3 C@@G3>+7BADF2020 Annual Report 69 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements thereon,F:7D7A@ 3@63EEG5: F:75AEFE;@5GDD763D753B;F3>;L769;H7@F:3FF:735F;H;FK7JF7@6EF:7E7DH;57>;87A8F:7D3;>3EE7F47KA@6;FEAD;9;@3>AD and as such, the costs incurred are capitalized given that the activity extends the service life of the rail asset beyond its original or current5GDD7@F5A@6;F;A@3E366;F;A@3>9DAEEFA@E53@4753DD;76AH7DF:7D3;>8AD;FED7?3;@;@9E7DH;57>;87 condition as additional gross tons can be carried over the rail for its remaining service life. For ADF:743>>3EF3EE7F F:7 A?B3@K7@9397E;@E:AG>67D43>>3EFG@67D5GFF;@9F:3F5A@E;EFEA8D7?AH;@9EA?7AD3>>A8F:743>>3EF I:;5::3E the ballast asset, the Company engages in shoulder ballast undercutting that consists of removing some or all of the ballast, which has 67F7D;AD3F76AH7D;FEE7DH;57>;87 3@6D7B>35;@9;FI;F:@7I43>>3EF 0:7@43>>3EF;E;@EF3>>763EB3DFA83E:AG>67D43>>3EFG@67D5GFF;@9WBDA<75F ;Fdeteriorated over its service life, and replacing it with new ballast. When ballast is installed as part of a shoulder ballast undercutting project, it representsD7BD7E7@FEF:7366;F;A@A83@7I3EE7F3@6@AFF:7D7B3;DAD?3;@F7@3@57A83@7J;EF;@93EE7F EEG5: F:7 A?B3@K53B;F3>;L7E7JB7@6;FGD7E the addition of a new asset and not the repair or maintenance of an existing asset. As such, the Company capitalizes expenditures relatedD7>3F76FAE:AG>67D43>>3EFG@67D5GFF;@99;H7@F:3F3@7J;EF;@93EE7F;ED7F;D763@6D7B>3576I;F:3@7I3EE7F .@67DF:79DAGB?7F:A6A8 to shoulder ballast undercutting given that an existing asset is retired and replaced with a new asset. Under the group method of accounting355AG@F;@98ADBDAB7DF;7E F:767F7D;AD3F7643>>3EF;ED7F;D763F;FE:;EFAD;53>5AEF for properties, the deteriorated ballast is retired at its historical cost. AEFEA8675A@EFDG5F;A@3@6D7?AH3>A8D7B>35763EE7FE D787DD76FA:7D7;@3E6;E?3@F>;@95AEFE 3D76;EF;@9G;E:768DA?;@EF3>>3F;A@5AEFECosts of deconstruction and removal of replaced assets, referred to herein as dismantling costs, are distinguished from installation costs 8ADE7>8 5A@EFDG5F76BDAB7DF;7E43E76A@F:7@3FGD7A8F:7D7>3F7635F;H;FK AD-D35=3@6DA36I3KBDAB7DF;7E 7?B>AK77E5A@5GDD7@F>KB7D8AD?for self-constructed properties based on the nature of the related activity. For Track and roadway properties, employees concurrently perform 6;E?3@F>;@93@6;@EF3>>3F;A@A8@7IFD35=3@6DA36I3K3EE7FE3@6 3EEG5: F:7 A?B3@K7EF;?3F7EF:73?AG@FA8>34AD3@6AF:7D5AEFEF:3Fdismantling and installation of new track and roadway assets and, as such, the Company estimates the amount of labor and other costs that are3D7D7>3F76FA6;E?3@F>;@9 -:7 A?B3@K67F7D?;@7E6;E?3@F>;@95AEFE43E76A@3@3@3>KE;EA8F:7FD35=3@6DA36I3K;@EF3>>3F;A@BDA57EE related to dismantling. The Company determines dismantling costs based on an analysis of the track and roadway installation process. Expenditures JB7@6;FGD7ED7>3F;@9FAF:7 A?B3@KEBDAB7DF;7EF:3F6A@AF?77FF:7 A?B3@KE53B;F3>;L3F;A@5D;F7D;33D77JB7@E763E;@5GDD76 AD relating to the Company's properties that do not meet the Company's capitalization criteria are expensed as incurred. For Track-D35=3@6DA36I3KBDAB7DF;7E EG5:7JB7@6;FGD7E;@5>G674GF3D7@AF>;?;F76FAEBAFF;7D7B>357?7@F EBAFAD4DA=7@D3;>D7B>357?7@F B:KE;53> and roadway properties, such expenditures include but are not limited to spot tie replacement, spot or broken rail replacement, physical trackFD35=;@EB75F;A@8AD67F75F;A@A8D3;>67875FE3@6?;@ADFD35=5ADD75F;A@E 3@6AF:7D97@7D3>?3;@F7@3@57A8FD35=;@8D3EFDG5FGD7 inspection for detection of rail defects and minor track corrections, and other general maintenance of track infrastructure. Depreciation%02%#)!4)/. Properties)DAB7DF;7E3D753DD;763F5AEF>7EE355G?G>3F7667BD75;3F;A@;@5>G6;@93EE7F;?B3;D?7@FID;F7 6AI@E -:75AEFA8BDAB7DF;7E ;@5>G6;@9F:AE7 are carried at cost less accumulated depreciation including asset impairment write-downs. The cost of properties, including those underG@67D8;@3@57>73E7E @7FA83EE7F;?B3;D?7@FID;F7 6AI@E ;E67BD75;3F76A@3EFD3;9:F >;@743E;EAH7DF:7;D7EF;?3F76E7DH;57>;H7E ?73EGD76;@ finance leases, net of asset impairment write-downs, is depreciated on a straight-line basis over their estimated service lives, measured in years,K73DE 7J57BF8ADD3;>3@643>>3EFI:AE7E7DH;57>;H7E3D7?73EGD76;@?;>>;A@EA89DAEEFA@E -:7 A?B3@K8A>>AIEF:79DAGB?7F:A6A8 except for rail and ballast whose service lives are measured in millions of gross tons. The Company follows the group method of 67BD75;3F;A@I:7D74K3E;@9>75A?BAE;F767BD75;3F;A@D3F7;E3BB>;76FAF:79DAEE;@H7EF?7@F;@35>3EEA8E;?;>3D3EE7FE 67EB;F7E?3>>depreciation whereby a single composite depreciation rate is applied to the gross investment in a class of similar assets, despite small 6;887D7@57E;@F:7E7DH;57>;87ADE3>H397H3>G7A8;@6;H;6G3>BDAB7DFKG@;FEI;F:;@F:7E3?73EE7F5>3EE -:7 A?B3@KGE7E3BBDAJ;?3F7>Kdifferences in the service life or salvage value of individual property units within the same asset class. The Company uses approximately 40 6;887D7@F67BD75;34>73EE7F5>3EE7E different depreciable asset classes. For AD3>>67BD75;34>73EE7F5>3EE7E F:767BD75;3F;A@D3F7;E43E76A@F:77EF;?3F76E7DH;57>;H7EA8F:73EE7FE EE7EE;@9F:7 all depreciable asset classes, the depreciation rate is based on the estimated service lives of the assets. Assessing the reasonablenessD73EA@34>7@7EEA8F:77EF;?3F76E7DH;57>;H7EA8BDAB7DF;7ED7CG;D7E 70 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements Leases -);-; The-:7 A?B3@K7@9397E;@E:ADF3@6>A@9 F7D?>73E7E8ADDA>>;@9EFA5=;@5>G6;@9>A5A?AF;H7E3@68D7;9:F53DE 7CG;B?7@F D73>7EF3F73@6E7DH;57 Company engages in short and long-term leases for rolling stock including locomotives and freight cars, equipment, real estate and service contracts5A@FD35FEF:3F5A@F3;@7?476676>73E7E -:7 A?B3@K67F7D?;@7EI:7F:7DAD@AF35A@FD35F5A@F3;@E3>73E73F;@57BF;A@ %73E7EI;F:3F7D? that contain embedded leases. The Company determines whether or not a contract contains a lease at inception. Leases with a term ofA8FI7>H7?A@F:EAD>7EE3D7@AFD75AD6764KF:7 A?B3@KA@F:7 A@EA>;63F763>3@57,:77FE twelve months or less are not recorded by the Company on the Consolidated Balance Sheets. Finance ;@3@573@6AB7D3F;@9>73E7D;9:F A8 GE73EE7FE3@6>;34;>;F;7E3D7D75A9@;L7643E76A@F:7BD7E7@FH3>G7A8F:78GFGD7>73E7B3K?7@FEAH7D and operating lease right-of-use assets and liabilities are recognized based on the present value of the future lease payments over theF:7>73E7F7D?3FF:75A??7@57?7@F63F7 0:7D7F:7;?B>;5;F;@F7D7EFD3F7;E@AF67F7D?;@34>78DA?F:7>73E7 F:7 A?B3@KGE7E;@F7D@3> lease term at the commencement date. Where the implicit interest rate is not determinable from the lease, the Company uses internal incremental;@5D7?7@F3>4ADDAI;@9D3F7E4KF7@AD3@65GDD7@5KFA;@;F;3>>K?73EGD7>73E7E;@7J57EEA8FI7>H7?A@F:EA@F:7 A@EA>;63F763>3@57,:77FE borrowing rates by tenor and currency to initially measure leases in excess of twelve months on the Consolidated Balance Sheets. (B7D3F;@9>73E77JB7@E7;ED75A9@;L76A@3EFD3;9:F >;@743E;EAH7DF:7>73E7F7D? Operating lease expense is recognized on a straight-line basis over the lease term. -:7 A?B3@KE>73E75A@FD35FE?3K5A@F3;@F7D?;@3F;A@ D7@7I3> 3@6 ADBGD5:3E7ABF;A@E D7E;6G3>H3>G79G3D3@F77E AD35A?4;@3F;A@The Company's lease contracts may contain termination, renewal, and/or purchase options, residual value guarantees, or a combination thereof,F:7D7A8 3>>A8I:;5:3D77H3>G3F764KF:7 A?B3@KA@3CG3DF7D>K43E;E -:7?3 Intangible 6<)6/1*4-);;-<; assets Intangible"@F3@9;4>73EE7FE5A@E;EF?3;@>KA85GEFA?7D5A@FD35FE3@6D7>3F;A@E:;BE35CG;D76F:DAG9:4GE;@7EE35CG;E;F;A@E "@F3@9;4>73EE7FE3D7 assets consist mainly of customer contracts and relationships acquired through business acquisitions. Intangible assets are 97@7D3>>K3?ADF;L76A@3EFD3;9:F >;@743E;EAH7DF:7;D7JB75F76GE78G>>;H7E D3@9;@98DA?generally amortized on a straight-line basis over their expected useful lives, ranging from 20FA to 50K73DE "835:3@97;@F:77EF;?3F76GE78G>>;87 years. If a change in the estimated useful life ofA83@;@F3@9;4>73EE7F;E67F7D?;@76 3?ADF;L3F;A@;E36 Goodwill 77,?144 The-:7 A?B3@KD75A9@;L7E9AA6I;>>3EF:77J57EEA8F:7BGD5:3E7BD;57AH7DF:783;DH3>G7A8;67@F;8;34>7@7F3EE7FE35CG;D76;@4GE;@7EE Company recognizes goodwill as the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.5A?4;@3F;A@E GoodwillAA6I;>>;E3EE;9@76FAF:7D7BADF;@9G@;FEF:3F3D77JB75F76FA47@78;F8DA?F:74GE;@7EE35CG;E;F;A@ -:753DDK;@93?AG@FA8 is assigned to the reporting units that are expected to benefit from the business acquisition. The carrying amount of 9AA6I;>>;E@AF3?ADF;L76;@EF736 ;F;EF7EF768AD;?B3;D?7@F3@@G3>>K3EA8F:78;DEF63KA8F:78;E53>8AGDF:CG3DF7DAD?AD78D7CG7@F>K;87H7@FEgoodwill is not amortized; instead, it is tested for impairment annually as of the first day of the fiscal fourth quarter or more frequently if events orAD5:3@97E;@5;D5G?EF3@57E;@6;53F7F:3F;F;E?AD7>;=7>KF:3@@AFF:3FF:783;DH3>G7A83D7BADF;@9G@;F;E>7EEF:3@F:753DDK;@93?AG@F changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than the carrying amount. 0;F:D7EB75FFA;?B3;D?7@F F:7 A?B3@K?3K8;DEF3EE7EE57DF3;@CG3>;F3F;H7835FADEFA67F7D?;@7;8;F;E?AD7>;=7>KF:3@@AFF:3FF:783;DWith respect to impairment, the Company may first assess certain qualitative factors to determine if it is more likely than not that the fair valueH3>G7A83D7BADF;@9G@;F;E>7EEF:3@;FE53DDK;@93?AG@F ;@5>G6;@99AA6I;>> ADBDA57766;D75F>KFA3CG3@F;F3F;H79AA6I;>>;?B3;D?7@FF7EF of a reporting unit is less than its carrying amount, including goodwill, or proceed directly to a quantitative goodwill impairment test. Qualitative*G3>;F3F;H7835FADE;@5>G674GF3D7@AF>;?;F76FA 75A@A?;5 ?3D=7F3@6;@6GEFDK5A@6;F;A@E 5AEF835FADE3@6AH7D3>>8;@3@5;3>B7D8AD?3@57A8 factors include but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of theF:7D7BADF;@9G@;F 3@67H7@FEEG5:3E5:3@97E;@?3@397?7@FAD5GEFA?7DE "8F:7CG3>;F3F;H73EE7EE?7@F;@6;53F7EF:3F;F;E?AD7>;=7>KF:3@ reporting unit, and events such as changes in management or customers. If the qualitative assessment indicates that it is more likely than not@AFF:3FF:783;DH3>G7A83D7BADF;@9G@;F;E>7EEF:3@;FE53DDK;@93?AG@F F:7CG3@F;F3F;H7;?B3;D?7@FF7EF?GEF47B7D8AD?76 -:7CG3@F;F3F;H7 that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test must be performed. The quantitative impairment;?B3;D?7@FF7EF;EB7D8AD?764K5A?B3D;@9F:783;DH3>G7A83D7BADF;@9G@;FI;F:;FE53DDK;@93?AG@F ;@5>G6;@99AA6I;>> 3@63@;?B3;D?7@F test is performed by comparing the fair value of a reporting unit with its carrying amount, including goodwill, and an impairment loss>AEE;ED75A9@;L768ADF:73?AG@F4KI:;5:F:753DDK;@93?AG@F7J5776EF:7D7BADF;@9G@;FRE83;DH3>G7 GBFAF:7H3>G7A89AA6I;>> -:7 is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, up to the value of goodwill. The A?B3@K678;@7EF:783;DH3>G7A83D7BADF;@9G@;F3EF:7BD;57F:3FIAG>647D757;H76FAE7>>F:7D7BADF;@9G@;F3E3I:A>7;@3@AD67D>KCompany defines the fair value of a reporting unit as the price that would be received to sell the reporting unit as a whole in an orderly transactionFD3@E35F;A@47FI77@?3D=7FB3DF;5;B3@FE3EA8F:7;?B3;D?7@F63F7 -A67F7D?;@7F:783;DH3>G7A83D7BADF;@9G@;F F:7 A?B3@KGE7EF:7 between market participants as of the impairment date. To determine the fair value of a reporting unit, the Company uses the 6;E5AG@F7653E:8>AI?7F:A6GE;@9F:7BD7 F3J6;E5AG@FD3F7F:3FD78>75FE5GDD7@F?3D=7F3EE7EE?7@FEA8F:7F;?7H3>G7A8?A@7K3@6F:7D;E=Ediscounted cash flow method using the pre-tax discount rate that reflects current market assessments of the time value of money and the risks specificEB75;8;5FAF:73EE7FAD9DAGBA83EE7FE to the asset or group of assets. Accounts++7=6<;:-+-1>)*4-;-+=:1<1B)<176 receivable securitization Based3E76A@F:7EFDG5FGD7A8;FE355AG@FED757;H34>7E75GD;F;L3F;A@BDA9D3? F:7 A?B3@K355AG@FE8ADF:7BDA5776ED757;H763EE75GD76 on the structure of its accounts receivable securitization program, the Company accounts for the proceeds received as secured 4ADDAI;@9E borrowings. C@@G3>+7BADF2020 Annual Report 71 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements Pensions"-6;176; Pension)7@E;A@5AEFE3D767F7D?;@76GE;@935FG3D;3>?7F:A6E '7FB7D;A6;547@78;F5AEF;@5A?7;@5>G67EF:75GDD7@FE7DH;575AEFA8B7@E;A@47@78;FE costs are determined using actuarial methods. Net periodic benefit cost (income) includes the current service cost of pension benefits BDAH;676;@7J5:3@978AD7?B>AK77E7DH;57D7@67D766GD;@9F:7K73D I:;5:;ED75AD676;@%34AD3@68D;@9747@78;FE7JB7@E7 '7FB7D;A6;5provided in exchange for employee service rendered during the year, which is recorded in Labor and fringe benefits expense. Net periodic 47@78;F5AEF;@5A?73>EA;@5>G67EF:78A>>AI;@9 I:;5:3D7D75AD676;@(F:7D5A?BA@7@FEA8@7FB7D;A6;547@78;F;@5A?75AEFbenefit cost (income) also includes the following, which are recorded in Other components of net periodic benefit income (cost): U• the F:7;@F7D7EF5AEFA8B7@E;A@A4>;93F;A@E interest cost of pension obligations; U• the F:77JB75F76>A@9 F7D?D7FGD@A@B7@E;A@8G@63EE7FE expected long-term return on pension fund assets; U• the F:73?ADF;L3F;A@A8BD;ADE7DH;575AEFE3@63?7@6?7@FEAH7DF:77JB75F763H7D397D7?3;@;@9E7DH;57>;87A8F:77?B>AK779DAGB5AH7D76 amortization of prior service costs and amendments over the expected average remaining service life of the employee group covered 4KF:7B>3@E3@6by the plans; and U• the F:73?ADF;L3F;A@A85G?G>3F;H7@7F35FG3D;3>93;@E3@6>AEE7E;@7J57EEA8 amortization of cumulative net actuarial gains and losses in excess of 10%A8F:79D73F7DA8F:7479;@@;@9A8K73D43>3@57EA8F:7 of the greater of the beginning of year balances of the BDA<75F7647@78;FA4>;93F;A@AD?3D=7F D7>3F76H3>G7A8B>3@3EE7FE AH7DF:77JB75F763H7D397D7?3;@;@9E7DH;57>;87A8F:77?B>AK779DAGBprojected benefit obligation or market-related value of plan assets, over the expected average remaining service life of the employee group covered5AH7D764KF:7B>3@E by the plans. The-:7B7@E;A@B>3@E3D78G@676F:DAG9:5A@FD;4GF;A@E67F7D?;@76;@355AD63@57I;F:F:7BDA<75F76G@;F5D76;F35FG3D;3>5AEF?7F:A6 pension plans are funded through contributions determined in accordance with the projected unit credit actuarial cost method. Postretirement"7;<:-<1:-5-6<*-6-.1<;7<0-:<0)68-6;176; benefits other than pensions The-:7 A?B3@K355DG7EF:75AEFA8BAEFD7F;D7?7@F47@78;FEAF:7DF:3@B7@E;A@EGE;@935FG3D;3>?7F:A6E -:7E747@78;FE I:;5:3D78G@6763E Company accrues the cost of postretirement benefits other than pensions using actuarial methods. These benefits, which are funded as theyF:7K475A?76G7 ;@5>G67>;87;@EGD3@57BDA9D3?E ?76;53>47@78;FE3@6 8AD35>AE769DAGBA87?B>AK77E 8D77D3;>FD3H7>47@78;FE become due, include life insurance programs, medical benefits and, for a closed group of employees, free rail travel benefits. The-:7 A?B3@K3?ADF;L7EF:75G?G>3F;H7@7F35FG3D;3>93;@E3@6>AEE7E;@7J57EEA8 Company amortizes the cumulative net actuarial gains and losses in excess of 10%A8F:7BDA<75F7647@78;FA4>;93F;A@3FF:7479;@@;@9 of the projected benefit obligation at the beginning ofA8F:7K73D AH7DF:77JB75F763H7D397D7?3;@;@9E7DH;57>;87A8F:77?B>AK779DAGB5AH7D764KF:7B>3@ the year, over the expected average remaining service life of the employee group covered by the plan. Additional,,1<176)48)1,16+)81<)4 paid-in capital Additional66;F;A@3>B3;6 ;@53B;F3>;@5>G67EF:7EFA5= 43E765A?B7@E3F;A@7JB7@E7A@7CG;FKE7FF>763I3D6E3@6AF:7D;F7?ED7>3F;@9FA7CG;FKE7FF>76 paid-in capital includes the stock-based compensation expense on equity settled awards and other items relating to equity settled awards.3I3D6E .BA@F:77J7D5;E7A8EFA5=ABF;A@E F:7EFA5= 43E765A?B7@E3F;A@7JB7@E7D7>3F76FAF:AE73I3D6E;ED75>3EE;8;768DA?66;F;A@3> Upon the exercise of stock options, the stock-based compensation expense related to those awards is reclassified from Additional B3;6 ;@53B;F3>FA A??A@E:3D7E .BA@E7FF>7?7@FA83>>AF:7D7CG;FKE7FF>763I3D6E F:7 A?B3@KD75>3EE;8;7E8DA?66;F;A@3>B3;6 ;@53B;F3>paid-in capital to Common shares. Upon settlement of all other equity settled awards, the Company reclassifies from Additional paid-in capital toFA+7F3;@76 3D@;@9EF:7EFA5= 43E765A?B7@E3F;A@7JB7@E73@6AF:7D;F7?ED7>3F76FA7CG;FKE7FF>763I3D6E GBFAF:73?AG@FA8F:7 Retained Earnings the stock-based compensation expense and other items related to equity settled awards, up to the amount of the settlementE7FF>7?7@F5AEF -:77J57EE ;83@K A8F:7E7FF>7?7@F5AEFAH7DF:7EFA5= 43E765A?B7@E3F;A@7JB7@E7;ED75AD676;@+7F3;@76 3D@;@9E cost. The excess, if any, of the settlement cost over the stock-based compensation expense is recorded in Retained Earnings. Stock$<7+3*);-,+758-6;)<176-based compensation For AD7CG;FKE7FF>763I3D6E EFA5= 43E765A?B7@E3F;A@5AEFE3D7355DG76AH7DF:7D7CG;E;F7E7DH;57B7D;A643E76A@F:783;DH3>G7A8F:73I3D6E equity settled awards, stock-based compensation costs are accrued over the requisite service period based on the fair value of the awards at3FF:79D3@F63F7 -:79D3@F63F783;DH3>G7A8B7D8AD?3@57E:3D7G@;F),.3I3D6E;E67B7@67@FA@F:7FKB7A8),.3I3D6 -:79D3@F63F783;D the grant date. The grant date fair value of performance share unit (PSU) awards is dependent on the type of PSU award. The grant date fair valueH3>G7A8),. +(" 3I3D6E;E67F7D?;@76GE;@93>3FF;57 43E76?A67>;@5ADBAD3F;@93?;@;?G?E:3D7BD;575A@6;F;A@3@6F:79D3@F63F783;D of PSU-ROIC awards is determined using a lattice-based model incorporating a minimum share price condition and the grant date fair valueH3>G7A8),. -,+3I3D6E;E67F7D?;@76GE;@93&A@F7 3D>AE;?G>3F;A@?A67> -:79D3@F63F783;DH3>G7A87CG;FKE7FF>766787DD76E:3D7G@;F of PSU-TSR awards is determined using a Monte Carlo simulation model. The grant date fair value of equity settled deferred share unit (DSU) ,.3I3D6E;E67F7D?;@76GE;@9F:7EFA5=BD;573FF:79D3@F63F7 -:79D3@F63F783;DH3>G7A8EFA5=ABF;A@3I3D6E;E67F7D?;@76GE;@9F:7 awards is determined using the stock price at the grant date. The grant date fair value of stock option awards is determined using the Black-Scholes>35= ,5:A>7EABF;A@ BD;5;@9?A67> AD53E:E7FF>763I3D6E EFA5= 43E765A?B7@E3F;A@5AEFE3D7355DG76AH7DF:7D7CG;E;F7E7DH;57B7D;A6 option-pricing model. For cash settled awards, stock-based compensation costs are accrued over the requisite service period 43E76A@F:783;DH3>G767F7D?;@763F735:B7D;A6 7@6 -:783;DH3>G7A853E:E7FF>76 ,.3I3D6E;E67F7D?;@76GE;@9F:7;D;@FD;@E;5H3>G7 based on the fair value determined at each period-end. The fair value of cash settled DSU awards is determined using their intrinsic value. Personal"-:;76)4162=:A)6,7<0-:+4)15; injury and other claims In"@ 3@363 F:7 A?B3@K355AG@FE8AD5AEFED7>3F76FA7?B>AK77IAD= D7>3F76;@ Environmental6>1:765-6<)4-@8-6,1<=:-; expenditures Environmental @H;DA@?7@F3>7JB7@6;FGD7EF:3FD7>3F7FA5GDD7@FAB7D3F;A@E ADFA3@7J;EF;@95A@6;F;A@53GE764KB3EFAB7D3F;A@E 3D77JB7@E763E;@5GDD76 expenditures that relate to current operations, or to an existing condition caused by past operations, are expensed as incurred. Environmental @H;DA@?7@F3>7JB7@6;FGD7EF:3FBDAH;6738GFGD747@78;F3D753B;F3>;L76 @H;DA@?7@F3>>;34;>;F;7E3D7D75AD676I:7@7@H;DA@?7@F3> expenditures that provide a future benefit are capitalized. Environmental liabilities are recorded when environmental assessments3EE7EE?7@FEA55GD D7?76;3>788ADFE3D7BDA434>7 3@6I:7@F:75AEFE 43E76A@3EB75;8;5B>3@A835F;A@;@F7D?EA8F:7F75:@A>A9KFA47GE76 occur, remedial efforts are probable, and when the costs, based on a specific plan of action in terms of the technology to be used and3@6F:77JF7@FA8F:75ADD75F;H735F;A@D7CG;D76 53@47D73EA@34>K7EF;?3F76 -:7 A?B3@K355DG7E;FE3>>A534>7E:3D7A8>;34;>;FKF3=;@9;@FA the extent of the corrective action required, can be reasonably estimated. The Company accrues its allocable share of liability taking into account355AG@FF:7 A?B3@KE3>>7976D7EBA@E;4;>;FK F:7@G?47DA8BAF7@F;3>>KD7EBA@E;4>7B3DF;7E3@6F:7;D34;>;FKFAB3KF:7;DD7EB75F;H7E:3D7EA8F:7 the Company's alleged responsibility, the number of potentially responsible parties and their ability to pay their respective shares of the liability.>;34;>;FK +75AH7D;7EA87@H;DA@?7@F3>D7?76;3F;A@5AEFE8DA?AF:7DB3DF;7E3D7D75AD6763E3EE7FEI:7@F:7;DD757;BF;E677?76BDA434>7 Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. 72 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements Derivative-:1>)<1>-.16)6+1)416;<:=5-6<; financial instruments The-:7 A?B3@KGE7E67D;H3F;H78;@3@5;3>;@EFDG?7@FE8DA?F;?7FAF;?7;@F:7?3@397?7@FA8;FE;@F7D7EFD3F73@68AD7;9@5GDD7@5K7JBAEGD7E Company uses derivative financial instruments from time to time in the management of its interest rate and foreign currency exposures. Derivative 7D;H3F;H7;@EFDG?7@FE3D7D75AD676A@F:743>3@57E:77F3F83;DH3>G7 -:75:3@97E;@83;DH3>G7A867D;H3F;H7;@EFDG?7@FE@AF67E;9@3F76AD@AF instruments are recorded on the balance sheet at fair value. The changes in fair value of derivative instruments not designated or not CG3>;8;763E3:76973D7D75AD676;@'7F;@5A?7;@F:75GDD7@FB7D;A6 qualified as a hedge are recorded in Net income in the current period. 2 D#-+-6<)++7=6<16/8:767=6+-5-6<; - Recent accounting pronouncements The-:78A>>AI;@9D757@F55AG@F;@9,F3@63D6E.B63F7,.;EEG764KF:7 ,I3E36ABF764KF:7 A?B3@K6GD;@9F:75GDD7@FK73D following recent Accounting Standards Update (ASU) issued by the FASB was adopted by the Company during the current year: ASU$& 16)6+1)416;<:=5-6<;:-,1<47;;-;%781+ -);=:-5-6<7.+:-,1<47;;-;76.16)6+1)416;<:=5-6<; 2016-13 Financial instruments - Credit losses (Topic 326): Measurement of credit losses on financial instruments The-:7,.D7CG;D7E8;@3@5;3>3EE7FE?73EGD763F3?ADF;L765AEFFA47BD7E7@F763FF:7@7F3?AG@F7JB75F76FA475A>>75F76 -:7@7IEF3@63D6 ASU requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new standard replacesD7B>357EF:75GDD7@F;@5GDD76>AEE;?B3;D?7@F?7F:A6A>A9KI;F:A@7F:3FD78>75FE7JB75F765D76;F>AEE7E the current incurred loss impairment methodology with one that reflects expected credit losses. The-:7 A?B3@K36ABF76F:;EEF3@63D6;@F:78;DEFCG3DF7DA8I;F:3@78875F;H763F7A8#3@G3DK -:736ABF;A@A8F:;EEF3@63D66;6 Company adopted this standard in the first quarter of 2020 with an effective date of January 1, 2020. The adoption of this standard did not@AF:3H73@;?B35FA@F:7 A?B3@KRE A@EA>;63F76 ;@3@5;3>,F3F7?7@FE AF:7DF:3@F:7GB63F7FAF:755AG@FED757;H34>7355AG@F;@9BA>;5K;@ have an impact on the Company's Consolidated Financial Statements, other than the update to the Accounts receivable accounting policy in Note$ The-:78A>>AI;@9D757@F,.;EEG764K ,53?7;@FA78875F6GD;@9F:75GDD7@FK73D3@6:3E@AF477@36ABF764KF:7 A?B3@K following recent ASU issued by FASB came into effect during the current year and has not been adopted by the Company: ASU$& #-.-:-6+-:)<-:-.7:5%781+)+141<)<1767.<0--..-+<;7.:-.-:-6+-:)<-:-.7:576.16)6+1)4:-87:<16/ 2020-04 Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting London%A@6A@"@F7D43@=(887D76+3F7%"(+;E347@5:?3D=;@F7D7EFD3F7D787D7@576;@3H3D;7FKA839D77?7@FEF:3F3D7GE764K3>>FKB7EA87@F;F;7E Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. AtFF:77@6A8 43@=EI;>>@A>A@97D47D7CG;D76FAD7BADF;@8AD?3F;A@F:3F;EGE76FA67F7D?;@7%"(+ E3D7EG>F %"(+5AG>647 the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be 6;E5A@F;@G76 (F:7D;@F7D7EFD3F7EGE769>A43>>K5AG>63>EA476;E5A@F;@G768ADE;?;>3DD73EA@E discontinued. Other interest rates used globally could also be discontinued for similar reasons. The-:7,.BDAH;67EABF;A@3>7JB76;7@FE3@67J57BF;A@E8AD3BB>K;@997@7D3>>K3557BF76355AG@F;@9BD;@5;B>7EFAFD3@E35F;A@E38875F764K ASU provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by referenceD787D7@57D3F7D78AD?;857DF3;@5D;F7D;33D7?7F -:7E7FD3@E35F;A@E;@5>G675A@FD35F?A6;8;53F;A@E :769;@9D7>3F;A@E:;BE 3@6E3>7ADFD3@E87DA8 rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of 674FE75GD;F;7E5>3EE;8;763E:7>6 FA ?3FGD;FK debt securities classified as held-to-maturity. The-:7BDAH;E;A@EA8F:7,.3D778875F;H7EF3DF;@9A@&3D5: :AI7H7D F:7KI;>>A@>K473H3;>34>7G@F;> 757?47D I:7@F:7 provisions of the ASU are effective starting on March 12, 2020; however, they will only be available until December 31, 2022, when the referenceD787D7@57D3F7D7B>357?7@F35F;H;FK;E7JB75F76FA475A?B>7F76 -:7 A?B3@K?3K3BB>KF:7BDAH;E;A@EA8F:7,.3EA8F:7479;@@;@9A83 rate replacement activity is expected to be completed. The Company may apply the provisions of the ASU as of the beginning of a reportingD7BADF;@9B7D;A6I:7@F:77>75F;A@E3D7?367 ADBDAEB75F;H7>K8DA?F:763F7I;F:;@3@;@F7D;?B7D;A6F:3F;@5>G67EAD;EEG4E7CG7@FFA period when the elections are made, or prospectively from the date within an interim period that includes or is subsequent to March&3D5:W -:7 A?B3@K5GDD7@F>K:3EAGFEF3@6;@9>A3@E3@68;@3@57>73E7A4>;93F;A@ED787D7@5;@9%"(+FAF3>;@93BBDAJ;?3F7>K 12, 2020. The Company currently has outstanding loans and finance lease obligations referencing LIBOR totaling approximately US$325.,W?;>>;A@ million thatF:3FIAG>64738875F764KF:7BDAH;E;A@EA8F:;E,. -:7 A?B3@K;E7H3>G3F;@9F:778875FEF:3FF:736ABF;A@A8F:7,.I;>> would be affected by the provisions of this ASU. The Company is evaluating the effects that the adoption of the ASU will have:3H7A@;FE A@EA>;63F76 ;@3@5;3>,F3F7?7@FE3@6D7>3F766;E5>AEGD7E 3@6I:7F:7D;FI;>>7>75FFA3BB>K3@KA8F:7ABF;A@3>7JB76;7@FE3@6 on its Consolidated Financial Statements and related disclosures, and whether it will elect to apply any of the optional expedients and exceptions7J57BF;A@EBDAH;676;@F:7,. provided in the ASU. The-:78A>>AI;@9D757@F,.;EEG764K ,:3E3@78875F;H763F738F7D 757?47D 3@6:3E@AF477@36ABF764KF:7 A?B3@K following recent ASU issued by FASB has an effective date after December 31, 2020 and has not been adopted by the Company: ASU$& 6+75-<)@-;%781+ $15841.A16/<0-)++7=6<16/.7:16+75-<)@-; 2019-12 Income taxes (Topic 740): Simplifying the accounting for income taxes The-:7,.366E@7I9G;63@57FAE;?B>;8K355AG@F;@98AD;@5A?7F3J7E 5:3@97EF:7355AG@F;@98AD57DF3;@;@5A?7F3JFD3@E35F;A@E3@6?3=7E ASU adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor?;@AD;?BDAH7?7@FEFAF:75A6;8;53F;A@ -:7,.;@FDA6G57E@7I9G;63@57F:3FBDAH;67E3BA>;5K7>75F;A@FA@AF3>>A53F75A@EA>;63F76;@5A?7 improvements to the codification. The ASU introduces new guidance that provides a policy election to not allocate consolidated income taxesF3J7EI:7@3?7?47DA835A@EA>;63F76F3JD7FGD@;E@AFEG4<75FFA;@5A?7F3J 3@6BDAH;67E9G;63@57FA7H3>G3F7I:7F:7D3EF7B GB;@F3J when a member of a consolidated tax return is not subject to income tax, and provides guidance to evaluate whether a step-up in tax 43E;EA89AA6I;>>D7>3F7EFA34GE;@7EE5A?4;@3F;A@;@I:;5:4AA=9AA6I;>>I3ED75A9@;L76AD3E7B3D3F7FD3@E35F;A@ "@366;F;A@ F:7,.basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. In addition, the ASU changes5:3@97EF:75GDD7@F9G;63@574K?3=;@93@;@FD3B7D;A63>>A53F;A@;8F:7D7;E3>AEE;@5A@F;@G;@9AB7D3F;A@E3@693;@EAGFE;67A85A@F;@G;@9 the current guidance by making an intraperiod allocation if there is a loss in continuing operations and gains outside of continuing operations;AB7D3F;A@E4K67F7D?;@;@9I:7@36787DD76F3J>;34;>;FK;ED75A9@;L7638F7D3@;@H7EFAD;@38AD7;9@7@F;FKFD3@E;F;A@EFAAD8DA?F:77CG;FK by determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method?7F:A6A8355AG@F;@94K355AG@F;@98ADF3J>3I5:3@97E3@6K73D FA 63F7>AEE7E;@;@F7D;?B7D;A6E3@64K67F7D?;@;@9:AIFA3BB>KF:7 of accounting; by accounting for tax law changes and year-to-date losses in interim periods; and by determining how to apply the income;@5A?7F3J9G;63@57FA8D3@5:;E7F3J7E3@6AF:7DF3J7EF:3F3D7B3DF;3>>K43E76A@;@5A?7 tax guidance to franchise taxes and other taxes that are partially based on income. The-:7,.;E78875F;H78AD3@@G3>3@63@K;@F7D;?B7D;A6479;@@;@938F7D 757?47D 3D>K36ABF;A@;EB7D?;FF76 ASU is effective for annual and any interim period beginning after December 15, 2020. Early adoption is permitted. The-:7 A?B3@K:3E7H3>G3F76F:778875FEF:3FF:736ABF;A@A8F:7,.I;>>:3H7A@;FE A@EA>;63F76 ;@3@5;3>,F3F7?7@FE3@6:3E Company has evaluated the effects that the adoption of the ASU will have on its Consolidated Financial Statements and has concluded5A@5>G676;FI;>>@AF:3H73E;9@;8;53@F;?B35F it will not have a significant impact. (F:7DD757@F>K;EEG76,.ED7CG;D76FA473BB>;768ADB7D;A6E479;@@;@9A@AD38F7D#3@G3DK :3H7477@7H3>G3F764KF:7 A?B3@K3@6Other recently issued ASUs required to be applied for periods beginning on or after January 1, 2021 have been evaluated by the Company and are3D7@AF7JB75F76FA:3H73E;9@;8;53@F;?B35FA@F:7 A?B3@KE A@EA>;63F76 ;@3@5;3>,F3F7?7@FE not expected to have a significant impact on the Company's Consolidated Financial Statements. C@@G3>+7BADF2020 Annual Report 73 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements 3D=;16-;;+75*16)<176; - Business combinations 2019 Acquisition#15)3)4)/./&).4%2-/$!,$)6)3)/./& 2!.30/24)-)4%$ of intermodal division of H&R Transport Limited (@ 757?47D F:7 A?B3@K35CG;D76F:7;@F7D?A63>F7?B7D3FGD7 5A@FDA>>76FD3@EBADF3F;A@6;H;E;A@A8F:7>47DF3 43E76!+-D3@EBADFOn December 2, 2019, the Company acquired the intermodal temperature-controlled transportation division of the Alberta-based H&R Transport Limited%;?;F76!+ -:735CG;E;F;A@BAE;F;A@E 'FA7JB3@6;FEBD7E7@57;@?AH;@95GEFA?7D9AA6E4KA887D;@9?AD7 ("H&R"). The acquisition positions CN to expand its presence in moving customer goods by offering more end7@6-to FA 7@6D3;>EGBB>K5:3;@-end rail supply chain solutionsEA>GF;A@EFA3I;67DD3@97A85GEFA?7DE to a wider range of customers. The-:7 A?B3@KE A@EA>;63F763>3@57,:77FE;@5>G67F:73EE7FE3@6>;34;>;F;7EA8!+3EA8 757?47D F:735CG;E;F;A@63F7 ,;@57 Company's Consolidated Balance Sheets include the assets and liabilities of H&R as of December 2, 2019, the acquisition date. Since theF:735CG;E;F;A@63F7 !+RED7EG>FEA8AB7D3F;A@E:3H7477@;@5>G676;@F:7 A?B3@KED7EG>FEA8AB7D3F;A@E -:7 A?B3@K:3E@AFBDAH;676BDA acquisition date, H&R's results of operations have been included in the Company's results of operations. The Company has not provided pro 8AD?3;@8AD?3F;A@D7>3F;@9FAF:7BD7 35CG;E;F;A@B7D;A63E;FI3E@AF?3F7D;3> forma information relating to the pre-acquisition period as it was not material. The-:7FAF3>BGD5:3E7BD;57A8 total purchase price of $105?;>>;A@;@5>G676 million included $95?;>>;A@53E:B3;6A@F:75>AE;@963F73@6EG4E7CG7@F5A@E;67D3F;A@A8 million cash paid on the closing date and subsequent consideration of $10?;>>;A@ million mostly?AEF>KD7>3F76FA8G@6EI;F::7>68ADF:7;@67?@;8;53F;A@A85>3;?E A8I:;5:?;>>;A@D7?3;@EFA47B3;6 related to funds withheld for the indemnification of claims, of which $2 million remains to be paid. The-:78A>>AI;@9F34>7EG??3D;L7EF:75A@E;67D3F;A@FD3@E87DD76FA35CG;D7!+ 3EI7>>3EF:783;DH3>G7A8F:73EE7FE35CG;D763@6>;34;>;F;7E following table summarizes the consideration transferred to acquire H&R, as well as the fair value of the assets acquired and liabilities assumed,3EEG?76 3@69AA6I;>>F:3FI7D7D75A9@;L763FF:735CG;E;F;A@63F7 and goodwill that were recognized at the acquisition date: December 757?47D 2 In ;:6996<;@ millions 2019 Consideration76;1,-:)<176<:)6;.-::-, transferred Cash 3E:B3;63F5>AE;@9 paid at closing 95 Subsequent,G4E7CG7@F5A@E;67D3F;A@ consideration (1) 10 Fair .6?C.9B2<3A (1) Primarily&?6:.?69F0<:=?6@21<33B;1@D6A552913B6@6A6<;1.A2A52=B?05.@2=?602D.@=?296:6;.?F.;1@B/720AA<05.;42 Acquisition#15)3)4)/./&4(% 2!.3 of the TransX 2/50/&/-0!.)%3 Group of Companies (@&3D5: F:7 A?B3@K35CG;D76F:7&3@;FA43 43E76-D3@E1On March 20, 2019, the Company acquired the Manitoba-based TransX GroupDAGBA8 A?B3@;7E-D3@E1 -D3@E1BDAH;67EH3D;AGEFD3@EBADF3F;A@ of Companies ("TransX"). TransX provides various transportation and3@6>A9;EF;5EE7DH;57E ;@5>G6;@9;@F7D?A63> FDG5=>A36 >7EEF:3@FDG5=>A363@6EB75;3>;L76E7DH;57E -:735CG;E;F;A@BAE;F;A@E 'FAEFD7@9F:7@ logistics services, including intermodal, truckload, less than truckload and specialized services. The acquisition positions CN to strengthen its;FE;@F7D?A63>4GE;@7EE 3@63>>AIEF:7 A?B3@KFA7JB3@653B35;FK3@68AEF7D366;F;A@3>EGBB>K5:3;@EA>GF;A@E intermodal business, and allows the Company to expand capacity and foster additional supply chain solutions. The-:7 A?B3@KE A@EA>;63F763>3@57,:77FE;@5>G67F:73EE7FE3@6>;34;>;F;7EA8-D3@E13EA8&3D5: F:735CG;E;F;A@63F7 ,;@57 Company's Consolidated Balance Sheets include the assets and liabilities of TransX as of March 20, 2019, the acquisition date. Since theF:735CG;E;F;A@63F7 -D3@E1ED7EG>FEA8AB7D3F;A@E:3H7477@;@5>G676;@F:7 A?B3@KED7EG>FEA8AB7D3F;A@E -:7 A?B3@K:3E@AFBDAH;676 acquisition date, TransX's results of operations have been included in the Company's results of operations. The Company has not provided proBDA8AD?3;@8AD?3F;A@D7>3F;@9FAF:7BD7 35CG;E;F;A@B7D;A63E;FI3E@AF?3F7D;3> forma information relating to the pre-acquisition period as it was not material. The-:7FAF3>BGD5:3E7BD;57A8 total purchase price of $192?;>>;A@;@5>G6763@;@;F;3>53E:B3K?7@FA8 million included an initial cash payment of $170 ?;>>;A@ 366;F;A@3>5A@E;67D3F;A@A8million, additional consideration of $25?;>>;A@ >7EE3@ million, less an adjustment36 74 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements The-:78A>>AI;@9F34>7EG??3D;L7EF:75A@E;67D3F;A@FD3@E87DD76FA35CG;D7-D3@E1 3EI7>>3EF:783;DH3>G7A8F:73EE7FE35CG;D763@6 following table summarizes the consideration transferred to acquire TransX, as well as the fair value of the assets acquired and liabilities>;34;>;F;7E3EEG?76 3@69AA6I;>>F:3FI7D7D75A9@;L763FF:735CG;E;F;A@63F7 assumed, and goodwill that were recognized at the acquisition date: March&3D5: 20 In ;:6996<;@ millions 2019 Consideration76;1,-:)<176<:)6;.-::-, transferred Cash 3E:B3;63F5>AE;@9 paid at closing 170 Additional66;F;A@3>53E:5A@E;67D3F;A@3@6AF:7D cash consideration and other (1) 22 Fair .6?C.9B2<3A (1) Includes ;09B12@.116A6<;.90.@50<;@612?.A6<;=.61<3 additional cash consideration paid of $25:6996<;92@@.;.17B@A:2;A<3:6996<;A<?23920AA52@2AA92:2;A<3DB6@6A6<;1.A2A52=B?05.@2=?602D.@=?296:6;.?F.;1@B/720AA<05.;42 4D#->-6=-; - Revenues The-:78A>>AI;@9F34>7BDAH;67E6;E399D793F76;@8AD?3F;A@8ADD7H7@G7E following table provides disaggregated information for revenues: In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 Freight:-1/0<:->-6=-; revenues Petroleum)7FDA>7G?3@65:7?;53>E and chemicals $ 2,631 $ 3,052 $ 2,660 Metals&7F3>E3@6?;@7D3>E and minerals 1,409 1,643 1,689 Forest AD7EFBDA6G5FE products 1,700 1,808 1,886 Coal A3> 527 658 661 GrainD3;@3@687DF;>;L7DE and fertilizers 2,609 2,392 2,357 Intermodal"@F7D?A63> 3,751 3,787 3,465 AutomotiveGFA?AF;H7 591 858 830 ) (1) As@.A at December202:/2? 31, 2020,A52<:=.;F5.1?2:.6;6;4=2?3 C@@G3>+7BADF2020 Annual Report 75 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements Contract76<:)+<41)*141<1-; liabilities The-:78A>>AI;@9F34>7BDAH;67E3D75A@5;>;3F;A@A8F:7479;@@;@93@67@6;@943>3@57EA85A@FD35F>;34;>;F;7E8ADF:7K73DE7@676 757?47D following table provides a reconciliation of the beginning and ending balances of contract liabilities for the years ended December 31, 2020, and3@6 2019: In ;:6996<;@ millions 2020 2019 Beginning79;@@;@9A8K73D of year $ 211 $ 3 +7H7@G7D75A9@;L76;@5>G676;@F:7479;@@;@943>3@57Revenue recognized included in the beginning balance (16) (3) "@5D73E76G7FA5A@E;67D3F;A@D757;H76 @7FA8D7H7@G7D75A9@;L76Increase due to consideration received, net of revenue recognized 5 211 End ;1<3F2.? of year $ 200 $ 211 Current GDD7@FBADF;A@ @6A8K73D portion - End of year $ 115 $ 50 D;;-<;0-4,.7:;)4-5 - Assets held for sale In"@F:7E75A@6CG3DF7DA8 F:7 A?B3@K5A??;FF76FA3B>3@3@6;E35F;H7>K?3D=7F;@98ADE3>78ADA@ 9A;@9D3;>AB7D3F;A@E 57DF3;@@A@ 5AD7 the second quarter of 2020, the Company committed to a plan and is actively marketing for sale for on-going rail operations, certain non-core lines>;@7E;@0;E5A@E;@ &;5:;93@3@6(@F3D;AD7BD7E7@F;@93BBDAJ;?3F7>K?;>7E3@6:3E?7FF:75D;F7D;38AD5>3EE;8;53F;A@A8F:7D7>3F763EE7FE in Wisconsin, Michigan and Ontario representing approximately 850 miles and has met the criteria for classification of the related assets as3E3EE7FE:7>68ADE3>7 55AD6;@9>K 3 assets held for sale. Accordingly, a $486?;>>;A@>AEE million loss ($363?;>>;A@38F7D F3JI3ED75AD676FA36 6D!<0-:16+75- - Other income In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 Gain3;@A@6;EBAE3>A8BDAB7DFK on disposal of property $ E $ P $ 338 Gain3;@A@6;EBAE3>A8>3@6 on disposal of land 11 50 27 Other(F:7D (1) (5) 3 11 ) (1) Includes ;09B12@3 Doney<;2F.;1(A ?.;0<6@(=B?@ and St-Francois Spurs (@,7BF7?47D F:7 A?B3@K5A?B>7F76F:7E3>7A8BDAB7DFK>A53F76;@&A@FD73> *G7475F:7S A@7K3@6,F D3@5A;E,BGDET8AD53E:On September 5, 2018, the Company completed the sale of property located in Montreal, Quebec (the "Doney and St-Francois Spurs") for cash BDA5776EA8proceeds of $40?;>>;A@ -:7FD3@E35F;A@D7EG>F76;@393;@A8 million. The transaction resulted in a gain of $36?;>>;A@ million ($32?;>>;A@38F7D F3JF:3FI3ED75AD676;@(F:7D;@5A?7A@F:3F63F7 million after-tax) that was recorded in Other income on that date. 76 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements 2;A?.9(A.A6<;'.69D.F"2.@2Central Station Railway Lease (@BD;> F:7 A?B3@K5A?B>7F76F:7FD3@E87DA8;FE8;@3@57>73E7;@F:7B3EE7@97DD3;>835;>;F;7E;@&A@FD73> *G7475 FA97F:7DI;F:;FEOn April 9, 2018, the Company completed the transfer of its finance lease in the passenger rail facilities in Montreal, Quebec, together with its interests;@F7D7EFE;@D7>3F76D3;>I3KAB7D3F;@939D77?7@FEF:7S 7@FD3>,F3F;A@+3;>I3K%73E7T 8AD53E:BDA5776EA8 in related railway operating agreements (the "Central Station Railway Lease"), for cash proceeds of $115?;>>;A@ -:7FD3@E35F;A@ million. The transaction resultedD7EG>F76;@393;@A8 in a gain of $184?;>>;A@ million ($156?;>>;A@38F7D F3JF:3FI3ED75AD676;@(F:7D;@5A?7A@F:3F63F7 -:793;@;@5>G67EF:76;887D7@57 million after-tax) that was recorded in Other income on that date. The gain includes the difference 47FI77@F:7@7F4AA=H3>G7A8F:73EE7F3@6F:753E:BDA5776E F:77JF;@9G;E:?7@FA8F:78;@3@57>73E7A4>;93F;A@ 3@6F:7D75A9@;F;A@A83between the net book value of the asset and the cash proceeds, the extinguishment of the finance lease obligation, and the recognition of a gain93;@BD7H;AGE>K6787DD768DA?3E3>7 >73E7435=FD3@E35F;A@ previously deferred from a sale-leaseback transaction. .94.?FCalgary Industrial ;1B@A?6.9"2.1 Lead (@BD;> F:7 A?B3@K5A?B>7F76F:7E3>7A8>3@6>A53F76;@ 3>93DK >47DF3 7J5>G6;@9F:7D3;>8;JFGD7EF:7S 3>93DK"@6GEFD;3>%736T On April 6, 2018, the Company completed the sale of land located in Calgary, Alberta, excluding the rail fixtures (the "Calgary Industrial Lead"), 8AD53E:BDA5776EA8for cash proceeds of $39 ?;>>;A@ -:7FD3@E35F;A@D7EG>F76;@393;@A8million. The transaction resulted in a gain of $39?;>>;A@ million ($34?;>>;A@38F7D F3JF:3FI3ED75AD676;@(F:7D;@5A?7A@ million after-tax) that was recorded in Other income on thatF:3F63F7 date. 7D 6+75-<)@-; - Income taxes The-:7 A?B3@KE5A@EA>;63F7678875F;H7;@5A?7F3JD3F76;887DE8DA?F:7 3@36;3@ AD6A?7EF;5 EF3FGFADK8767D3>F3JD3F7 -:778875F;H7F3JD3F7 Company's consolidated effective income tax rate differs from the Canadian, or domestic, statutory federal tax rate. The effective tax rate is;E38875F764KD75GDD;@9;F7?E;@BDAH;@5;3> . , 8767D3> EF3F73@6AF:7D8AD7;9@ In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 Canadian 3@36;3@EF3FGFADK8767D3>F3JD3F7 statutory federal tax rate 15% 15% 15% Income"@5A?7F3J7JB7@E73FF:7 3@36;3@EF3FGFADK8767D3>F3JD3F7 tax expense at the Canadian statutory federal tax rate $ 682 $ 814 $ 852 Income"@5A?7F3J7JB7@E7D7EG>F;@98DA? tax expense resulting from: Provincial)DAH;@5;3>3@68AD7;9@;@5A?7F3J7E and foreign income taxes (1) 416 551 535 Income"@5A?7F3J36 (1) Includes ;09B12@:.6;9FA526:=.0A<3.;.16.;=? C@@G3>+7BADF2020 Annual Report 77 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements The-:78A>>AI;@9F34>7BDAH;67EF3J;@8AD?3F;A@A@36A?7EF;53@68AD7;9@43E;E following table provides tax information on a domestic and foreign basis: In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 Income 6+75-*-.7:-16+75-<)@-; before income taxes Domestic A?7EF;5 $ 3,637 $ 4,162 $ 4,400 Foreign AD7;9@ 907 1,267 1,282 ) The-:78A>>AI;@9F34>7BDAH;67EF:7E;9@;8;53@F5A?BA@7@FEA86787DD76;@5A?7F3J3EE7FE3@6>;34;>;F;7E following table provides the significant components of deferred income tax assets and liabilities: In ;:6996<;@ millions December202:/2? 31, 2020 2019 Deferred-.-::-,16+75-<)@);;-<; income tax assets Pension)7@E;A@>;34;>;FK liability 145 $ 137 Lease%73E7>;34;>;F;7E liabilities 126 127 Net'7FAB7D3F;@9>AEE7E3@6F3J5D76;F53DDK8ADI3D6E operating losses and tax credit carryforwards (1) 70 234 Personal)7DEA@3>;@ (1) As @.A202:/2? A52<:=.;F5.1;2A6;A2?2@A2E=2;@2121B0A6<;0.??F3 (@3@3@@G3>43E;E F:7 A?B3@K3EE7EE7EF:7@776FA7EF34>;E:3H3>G3F;A@3>>AI3@578AD;FE6787DD76;@5A?7F3J3EE7FE 3@6;8;F;EOn an annual basis, the Company assesses the need to establish a valuation allowance for its deferred income tax assets, and if it is 677?76?AD7>;=7>KF:3@@AFF:3F;FE6787DD76;@5A?7F3J3EE7FEI;>>@AF47D73>;L76 3H3>G3F;A@3>>AI3@57;ED75AD676 -:7G>F;?3F7D73>;L3F;A@deemed more likely than not that its deferred income tax assets will not be realized, a valuation allowance is recorded. The ultimate realization ofA86787DD76;@5A?7F3J3EE7FE;E67B7@67@FGBA@F:797@7D3F;A@A88GFGD7F3J34>7;@5A?7 A8F:7@757EE3DK5:3D35F7D 6GD;@9F:7B7D;A6E;@ deferred income tax assets is dependent upon the generation of future taxable income, of the necessary character, during the periods in whichI:;5:F:AE7F7?BAD3DK6;887D7@57E475A?7676G5F;4>7 &3@397?7@F5A@E;67DEF:7E5:76G>76D7H7DE3>EA86787DD76;@5A?7F3J>;34;>;F;7E F:7 those temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities, the available3H3;>34>753DDK435=3@653DDK8ADI3D6B7D;A6E 3@6BDA<75F768GFGD7F3J34>7;@5A?7;@?3=;@9F:;E3EE7EE?7@F E3F 757?47D ;@ carryback and carryforward periods, and projected future taxable income in making this assessment. As at December 31, 2020, in orderAD67DFA8G>>KD73>;L73>>A8F:76787DD76;@5A?7F3J3EE7FE F:7 A?B3@KI;>>@776FA97@7D3F78GFGD7F3J34>7;@5A?7A83BBDAJ;?3F7>K to fully realize all of the deferred income tax assets, the Company will need to generate future taxable income of approximately $2.7 4;>>;A@ 3@6 43E76GBA@F:7>7H7>A8:;EFAD;53>F3J34>7;@5A?7 BDA<75F;A@EA88GFGD7F3J34>7;@5A?7A8F:7@757EE3DK5:3D35F7DAH7DF:7B7D;A6Ebillion, and, based upon the level of historical taxable income, projections of future taxable income of the necessary character over the periods in;@I:;5:F:76787DD76;@5A?7F3J3EE7FE3D7676G5F;4>7 3@6F:7D7H7DE3>A8F3J34>7F7?BAD3DK6;887D7@57E ?3@397?7@F47>;7H7E 8A>>AI;@93@ which the deferred income tax assets are deductible, and the reversal of taxable temporary differences, management believes, following an assessment3EE7EE?7@FA8F:75GDD7@F75A@A?;57@H;DA@?7@F ;F;E?AD7>;=7>KF:3@@AFF:3FF:7 A?B3@KI;>>D73>;L7F:747@78;FEA8F:7E7676G5F;4>7 of the current economic environment, it is more likely than not that the Company will realize the benefits of these deductible 78 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements 6;887D7@57E E3F 757?47D F:7 A?B3@K:3E@AFD75A9@;L7636787DD76;@5A?7F3J3EE7FA8differences. As at December 31, 2020, the Company has not recognized a deferred income tax asset of $259 ?;>>;A@million (2019 - $244?;>>;A@A@ million) on theF:7G@D73>;L768AD7;9@7J5:3@97>AEED75AD676;@55G?G>3F76AF:7D5A?BD7:7@E;H7>AEED7>3F;@9FA;FE@7F;@H7EF?7@F;@. , EG4E;6;3D;7E 3E unrealized foreign exchange loss recorded in Accumulated other comprehensive loss relating to its net investment in U.S. subsidiaries, as theF:7 A?B3@K6A7E@AF7JB75FF:;EF7?BAD3DK6;887D7@57FAD7H7DE7;@F:78AD7E7734>78GFGD7 Company does not expect this temporary difference to reverse in the foreseeable future. The-:78A>>AI;@9F34>7BDAH;67E3D75A@5;>;3F;A@A8G@D75A9@;L76F3J47@78;FEA@F:7 A?B3@KE6A?7EF;53@68AD7;9@F3JBAE;F;A@E following table provides a reconciliation of unrecognized tax benefits on the Company's domestic and foreign tax positions: In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 GrossDAEEG@D75A9@;L76F3J47@78;FE3F479;@@;@9A8K73D unrecognized tax benefits at beginning of year 62 $ 74 74 Increases ;0?2.@2@33F76FAF:75GDD7@FK73D positions related to the current year 17 5 12 Tax-3JBAE;F;A@ED7>3F76FABD;ADK73DE positions related to prior years 28 P 2 Decreases20?2.@2@33F76FABD;ADK73DE positions related to prior years (15) (17) (13) Settlements,7FF>7?7@FE E P (1) ?<@@B;?20<4;6G21A.E/2;236A@.A2;1<3F2.?Gross unrecognized tax benefits at end of year 92 62 74 Adjustments6 AsE3F 757?47D F:7FAF3>3?AG@FA89DAEEG@D75A9@;L76F3J47@78;FEI3E at December 31, 2020, the total amount of gross unrecognized tax benefits was $92?;>>;A@ 478AD75A@E;67D;@9F3JFD73F;7E3@6AF:7D million, before considering tax treaties and other arrangements3DD3@97?7@FE47FI77@F3J3F;A@3GF:AD;F;7E -:73?AG@FA8@7FG@D75A9@;L76F3J47@78;FE3E3F 757?47D I3E between taxation authorities. The amount of net unrecognized tax benefits as at December 31, 2020 was $67?;>>;A@ "8 million. If recognized,D75A9@;L76 $16?;>>;A@A8F:7@7FG@D75A9@;L76F3J47@78;FE3E3F 757?47D IAG>638875FF:778875F;H7F3JD3F7 -:7 A?B3@K47>;7H7E million of the net unrecognized tax benefits as at December 31, 2020 would affect the effective tax rate. The Company believes thatF:3F;F;ED73EA@34>KBAEE;4>7F:3F it is reasonably possible that $15?;>>;A@A8F:7@7FG@D75A9@;L76F3J47@78;FE3E3F 757?47D D7>3F76FA 3@36;3@8767D3>3@6 million of the net unrecognized tax benefits as at December 31, 2020 related to Canadian federal and BDAH;@5;3>;@5A?7F3J?3FF7DE ?3K47D75A9@;L76AH7DF:7@7JFFI7>H7?A@F:E3E3D7EG>FA8E7FF>7?7@FE3@63>3BE7A8F:73BB>;534>7EF3FGF7provincial income tax matters, may be recognized over the next twelve months as a result of settlements and a lapse of the applicable statute ofA8>;?;F3F;A@E 3@6I;>>@AF38875FF:778875F;H7F3JD3F73EF:7KD7>3F7FAF7?BAD3DK6;887D7@57E limitations, and will not affect the effective tax rate as they relate to temporary differences. The-:7 A?B3@KD75A9@;L7E355DG76;@F7D7EF3@6B7@3>F;7ED7>3F76FA9DAEEG@D75A9@;L76F3J47@78;FE;@"@5A?7F3J7JB7@E7;@F:7 Company recognizes accrued interest and penalties related to gross unrecognized tax benefits in Income tax expense in the A?B3@KE A@EA>;63F76,F3F7?7@FEA8"@5A?7 ADF:7K73D7@676 757?47D F:7 A?B3@KD75A9@;L76355DG76;@F7D7EF3@6Company's Consolidated Statements of Income. For the year ended December 31, 2020, the Company recognized accrued interest and B7@3>F;7EA8penalties of $16?;>>;A@ million (2019 ?;>>;A@ - $1 million; 2018 ?;>>;A@ E3F 757?47D F:7 A?B3@K:36355DG76;@F7D7EF3@6B7@3>F;7EA8- $3 million). As at December 31, 2020, the Company had accrued interest and penalties of $27 million?;>>;A@ (2019 - $11?;>>;A@ million). In"@ 3@363 F:7 A?B3@KE8767D3>3@6BDAH;@5;3>;@5A?7F3JD7FGD@E8;>768ADF:7K73DE Canada, the Company's federal and provincial income tax returns filed for the years 2014FA to 2019 D7?3;@EG4<75FFA7J3?;@3F;A@4KF:7remain subject to examination by the taxationF3J3F;A@3GF:AD;F;7E @7J3?;@3F;A@A8F:7 A?B3@KE8767D3>;@5A?7F3JD7FGD@E8ADF:7K73DE3@6 authorities. An examination of the Company's federal income tax returns for the years 2014 and 20153D75GDD7@F>K;@BDA9D7EE3@63D7 are currently in progress and are expected7JB75F76FA475A?B>7F766GD;@9 to be completed during 2021. GD;@9 F:7F3J3GF:AD;F;7EBDABAE7657DF3;@3G6;F36 C@@G3>+7BADF2020 Annual Report 79 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements D):616/;8-:;0):-8 - Earnings per share The-:78A>>AI;@9F34>7BDAH;67E3D75A@5;>;3F;A@47FI77@43E;53@66;>GF7673D@;@9EB7DE:3D7 following table provides a reconciliation between basic and diluted earnings per share: In ;:6996<;@2E02=A=2?@5.?21.A. millions, except per share data -2.?2;121202:/2? Year ended December 31, 2020 2019 2018 Net'7F;@5A?7 income $ 3,562 $ 4,216 $ 4,328 07;9:F76 3H7D39743E;5E:3D7EAGFEF3@6;@9Weighted-average basic shares outstanding 711.3 720.1 734.5 Dilutive ;>GF;H778875FA8EFA5= 43E765A?B7@E3F;A@ effect of stock-based compensation 1.7 2.5 3.2 ,2645A21 .C2?.42169BA21@5.?2@ Basic3E;573D@;@9EB7DE:3D7 earnings per share $ 5.01 $ 5.85 $ 5.89 Diluted ;>GF7673D@;@9EB7DE:3D7 earnings per share $ 5.00 $ 5.83 $ 5.87 Units&61<;-@+4=,-,.:75<0-+)4+=4)<176);<0-1:16+4=;176?7=4,67<0)>-),14=<1>--..-+< excluded from the calculation as their inclusion would not have a dilutive effect Stock,FA5=ABF;A@E options 0.7 0.5 0.6 Performance)7D8AD?3@57E:3D7G@;FE share units 0.3 0.2 0.3 9D++7=6<;:-+-1>)*4- - Accounts receivable In ;:6996<;@ millions December202:/2? 31, 2020 2019 Freight D7;9:F $ 869 $ 1,008 Non'A@ 8D7;9:F-freight 211 233 ?<@@.00 10 D!<0-:+=::-6<);;-<; - Other current assets In ;:6996<;@ millions December202:/2? 31, 2020 2019 Prepaid)D7B3;67JB7@E7E expenses $ 148 $ 142 AssetsEE7FE:7>68ADE3>7 held for sale (Note$ 80 CN 12020C@@G3>+7BADF Annual Report Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements 11 D":78-:<1-; - Properties December-+-5*-: 31, 2020 December 757?47D 31, 2019 Depreciation-8:-+1)<176 Accumulated++=5=4)<-, Accumulated55G?G>3F76 In ;:6996<;@ millions rate:)<- Cost7;< Depreciation-8:-+1)<176 Net -< Cost AEF Depreciation 7BD75;3F;A@ Net'7F Properties":78-:<1-;16+4=,16/.16)6+-4-);-; including finance leases (2) Track-D35=3@6DA36I3K and roadway (1) 2 % $ 39,805 $ 8,717 $ 31,088 $ 39,395 $ 8,502 $ 30,893 Rolling+A>>;@9EFA5= stock 5 % 7,665 2,986 4,679 7,538 2,941 4,597 BuildingsG;>6;@9E 3 % 2,047 727 1,320 1,956 692 1,264 Information"@8AD?3F;A@F75:@A>A9K technology (3) 9 % 2,218 833 1,385 1,972 688 1,284 Other(F:7D 5 % 2,777 1,180 1,597 2,720 1,089 1,631 ) Finance16)6+-4-);-;16+4=,-,168:78-:<1-; leases included in properties Track-D35=3@6DA36I3K and roadway (6) $ 406 $ 90 $ 316 $ 406 $ 85 $ 321 Rolling+A>>;@9EFA5= stock 61 3 58 87 2 85 BuildingsG;>6;@9E 27 10 17 27 9 18 Other(F:7D 107 21 86 128 18 110 ) (1) As@.A at December202:/2? 31, 2020,6;09B12@9.;1<3 includes land of $2,316 :6996<; million (2019 - $2,401 :6996<; million). (2) In ; 2020, A52<:=.;F:.12 the Company made an.;.17B@A:2;A<3 adjustment of $576:6996<;3 In"@F:78;DEFCG3DF7DA8 F:7 A?B3@KD75A9@;L763@7JB7@E7A8 the first quarter of 2019, the Company recognized an expense of $84?;>>;A@D7>3F76FA5AEFEBD7H;AGE>K53B;F3>;L768AD3)AE;F;H7-D3;@ million related to costs previously capitalized for a Positive Train A@FDA>)- 435=A88;57EKEF7?8A>>AI;@9F:767B>AK?7@FA83D7B>357?7@FEKEF7? -:77JB7@E7I3ED75A9@;L76;@ 7BD75;3F;A@3@6Control (PTC) back office system following the deployment of a replacement system. The expense was recognized in Depreciation and amortization3?ADF;L3F;A@A@F:7 A@EA>;63F76,F3F7?7@FEA8"@5A?7 on the Consolidated Statements of Income. D -);-; The-:7 A?B3@K36ABF76,. %73E7E;@F:78;DEFCG3DF7DA8I;F:3@78875F;H763F7A8#3@G3DK GE;@93?A6;8;76D7FDAEB75F;H7 Company adopted ASU 2016-02 Leases in the first quarter of 2019 with an effective date of January 1, 2019 using a modified retrospective approach3BBDA35:I;F:35G?G>3F;H7 78875F36 C@@G3>+7BADF2020 Annual Report 81 Notes 7<-;<7<0-76;741,)<-,16)6+1)4$<)<-5-6<; to the Consolidated Financial Statements The-:78A>>AI;@9F34>7BDAH;67EF:7 A?B3@KRE>73E75AEFE8ADF:7K73D7@676 757?47D 3@6 following table provides the Company's lease costs for the year ended December 31, 2020 and 2019: In ;:6996<;@ millions -2.?2;121202:/2? Year ended December 31, 2020 2019 Finance16)6+-4-);-+7;< lease cost Amortization?ADF;L3F;A@A8D;9:F A8 GE73EE7FE of right-of-use assets 12 $ 11 Interest"@F7D7EFA@>73E7>;34;>;F;7E on lease liabilities 3 8 ) (1) Mainly#.6;9F?29.A2@A<92.@2@<3A?B08@3B6=:2;A?2;A@6 Purchased services and material and Equipment rents in;A52<;@<961.A21(A.A2:2;A@<3 the Consolidated Statements of Income.;0<:2 Rental+7@F3>7JB7@E78ADAB7D3F;@9>73E7E8ADF:7K73D7@676 757?47D I3E expense for operating leases for the year ended December 31, 2018 was $218 ?;>>;A@ million. The-:78A>>AI;@9F34>7BDAH;67EF:7 A?B3@KE>73E7D;9:F A8 GE73EE7FE3@6>73E7>;34;>;F;7E 3@6F:7;D5>3EE;8;53F;A@A@F:7 A@EA>;63F76 following table provides the Company's lease right-of-use assets and lease liabilities, and their classification on the Consolidated Balance3>3@57,:77FE3E3F 757?47D 3@6 Sheets as at December 31, 2020 and 2019: