(1)Amounts expressed in Canadian dollars and prepared in accordance with United States generally accepted accounting principles (GAAP), unless otherwise noted.

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

(3)See the section of this MD&A entitled Non-GAAP measures – Adjusted performance measures for an explanation of these non-GAAP measures.

(4)See the section of this MD&A entitled Liquidity and capital resources – Free cash flow and Adjusted debt-to-adjusted EBITDA multiple for an explanation of these non-GAAP measures.

(5)Operating ratio is defined as operating expenses as a percentage of revenues.

(6)See the section of this MD&A entitled Non-GAAP measures – ROIC and adjusted ROIC for an explanation of these non-GAAP measures.

(7)Statistical operating data, key operating measures and safety indicators are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available. Definitions of gross ton miles, fuel efficiency, train weight, train length, car velocity, through dwell and through network train speed are included within the Company’s Management’s Discussion and Analysis. Definitions of all other indicators are provided on CN's website, www.cn.ca/glossary.

(8)Based on Federal Railroad Administration (FRA) reporting criteria.

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

Forward-looking statements include, but are not limited to, those set forth in the table below, which also presents key assumptions used in determining the forward-looking statements. See also the section of this MD&A entitled 2024 Business outlook and assumptions.

Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors which may cause actual results, performance or achievements of CN to be materially different from the outlook or any future results, performance or achievements implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. Important risk factors that could affect the forward-looking statements include, but are not limited to, general economic and business conditions, including factors impacting global supply chains such as pandemics and geopolitical conflicts and tensions; industry competition; inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; increases in maintenance and operating costs; security threats; reliance on technology and related cybersecurity risk; trade restrictions or other changes to international trade arrangements; transportation of hazardous materials; various events which could disrupt operations, including illegal blockades of rail networks, and natural events such as severe weather, droughts, fires, floods and earthquakes; climate change; labor negotiations and disruptions; environmental claims; uncertainties of investigations, proceedings and other types of claims and litigation; risks and liabilities arising from derailments; timing and completion of capital programs; the availability of and cost competitiveness of renewable fuels and the development of new locomotive propulsion technology; reputational risks; supplier concentration; pension funding requirements and volatility; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the U.S., including its Annual Information Form and Form 40-F. See the section entitled Business risks of this MD&A for a description of major risk factors relating to CN.

Forward-looking statements reflect information as of the date on which they are made. CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement. Information contained on, or accessible through, our website is not incorporated by reference into this MD&A.

This Management's Discussion and Analysis (MD&A) dated January 31, 2024, relates to the consolidated financial position and results of operations of Canadian National Railway Company, together with its wholly-owned subsidiaries, collectively "CN" or the "Company," and should be read in conjunction with the Company's 2023 Annual Consolidated Financial Statements and Notes thereto. All financial information reflected herein is expressed in Canadian dollars and prepared in accordance with United States generally accepted accounting principles (GAAP), unless otherwise noted.

CN's common shares are listed on the Toronto and New York stock exchanges. Additional information about CN filed with Canadian securities regulatory authorities and the United States Securities and Exchange Commission (SEC), including the Company's 2023 Annual Information Form and Form 40-F, may be found online on SEDAR+ at www.sedarplus.ca, on the SEC's website at www.sec.gov through EDGAR, and on the Company's website at www.cn.ca in the Investors section. Printed copies of such documents may be obtained by contacting CN's Corporate Secretary's Office.

CN is engaged in the rail and related transportation business. CN's network of 18,800 route miles of track spans Canada and the United States of America (U.S.), connecting Canada's Eastern and Western coasts with the U.S. South. CN's extensive network and efficient connections to all Class I railroads provide CN customers access to Canada, the U.S. and Mexico. Essential to the economy, to the customers, and to the communities it serves, CN safely transports more than 300 million tons of cargo annually, serving exporters, importers, retailers, farmers and manufacturers. CN and its affiliates have been contributing to community prosperity and sustainable trade since 1919. CN is committed to programs supporting social responsibility and environmental stewardship.

CN's freight revenues are derived from seven commodity groups representing a diversified and balanced portfolio of goods transported between a wide range of origins and destinations. This product and geographic diversity better position the Company to face economic fluctuations and enhances its potential for growth opportunities. For the year ended December 31, 2023, CN's largest commodity group, Intermodal, accounted for 23% of total revenues. From a geographic standpoint, 34% of revenues relate to overseas traffic, 32% to transborder traffic, 18% to Canadian domestic traffic and 16% to U.S. domestic traffic. The Company is the originating carrier for over 85%, and the originating and terminating carrier for over 65%, of traffic moving along its network, which allows it both to capitalize on service advantages and build on opportunities to efficiently use assets.

The Company manages its rail operations in Canada and the U.S. as one business segment. Financial information reported at this level, such as revenues, operating income and cash flow from operations, is used by the Company's corporate management in evaluating financial and operational performance and allocating resources across CN's network. The Company's strategic initiatives are developed and managed centrally by corporate management and are communicated to its regional activity centers (the Western Region, Eastern Region and U.S. Region), whose role is to manage the day-to-day service requirements of their respective territories, control direct costs incurred locally, and execute the strategy and operating plan established by corporate management.

See Note 24 – Segmented information to the Company's 2023 Annual Consolidated Financial Statements for additional information on the Company's corporate organization, as well as selected financial information by geographic area.

•Revenues of $16,828 million, a decrease of $279 million, or 2%.

•Operating income of $6,597 million, a decrease of $243 million, or 4%.

•Operating ratio, defined as operating expenses as a percentage of revenues, of 60.8%, an increase of 0.8 points, or an increase of 0.9 points on an adjusted basis. (1)(2)

•Net income of $5,625 million, an increase of $507 million, or 10% and adjusted net income of $4,800 million, a decrease of $334 million, or 7%. (1)(2)

•Diluted earnings per share (EPS) of $8.53, an increase of 15% and adjusted diluted EPS of $7.28, a decrease of 2%. (1)(2)

•The Company generated free cash flow of $3,887 million, a 9% decrease. (1)(3)

•ROIC of 16.8%, an increase of 1.0-point and adjusted ROIC of 14.5%, a decrease of 1.4 points. (1)(4)

Operating performance - 2023 compared to 2022

•Injury frequency rate at a record low of 0.96 (per 200,000 person hours), an improvement of 13%.

•Accident rate of 1.74 (per million train miles), an improvement of 17%.

•Through dwell of 7.0 (entire railroad, hours), an improvement of 8%.

•Car velocity of 213 (car miles per day), an improvement of 9%.

•Through network train speed of 19.8 (mph), an improvement of 5%.

•Fuel efficiency of 0.874 (US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs)), less efficient by 1%.

•Train length of 7,891 (feet), a decrease of 3%.

•Revenue ton miles (RTMs) of 232,614 (millions), a decrease of 1%.

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

(2) See the section of this MD&A entitled Non-GAAP measures – Adjusted performance measures for an explanation of these non-GAAP measures.

(3) See the section of this MD&A entitled Liquidity and capital resources – Free cash flow for an explanation of this non-GAAP measure.

(4)    See the section of this MD&A entitled Non-GAAP measures – ROIC and adjusted ROIC for an explanation of these non-GAAP measures.

During the year, the Company issued and updated its 2023 financial outlook. The 2023 actual results were in line with the Company's last 2023 outlook that was updated on July 25, 2023.

On December 6, 2023, the Company acquired the shares of the Iowa Northern Railway Company (IANR), a Class III short-line railroad that owns and leases approximately 175 route miles in northeast Iowa that are connected to CN’s U.S. rail network. CN paid US$230 million ($312 million), including transaction costs to date. IANR serves upper Midwest agricultural and industrial markets covering many goods, including biofuels and

grain. This transaction represents a meaningful opportunity to support the growth of local business by creating single-line service to North American destinations, while preserving access to existing carrier options.

On November 1, 2023, the Company acquired from Genesee & Wyoming Inc. a stake in the Cape Breton & Central Nova Scotia Railway (CBNS), a Class III short-line railroad that owns approximately 150 route miles. CN paid $78 million in cash, net of cash acquired and including working capital adjustments. The acquisition was accounted for as a business combination. As a result, the Company’s Consolidated Balance Sheet includes the net assets of CBNS as of November 1, 2023, which were comprised of $101 million in fair value of properties mostly track and roadway assets, partly offset by $18 million in deferred tax liabilities. The remaining net assets were comprised of current assets and liabilities which were individually insignificant and there were no identifiable intangible assets. No goodwill was recognized. The fair value of CBNS's underlying net assets has been estimated on a preliminary basis and may be subject to change as additional information becomes available over the next twelve months.

On June 22, 2023, Bill C-47 an Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023, received Royal Assent and the proposed amendments to the Canada Transportation Act were adopted. These amendments provide for the extension of the interswitching limits located in the Prairie provinces from 30 kilometers to 160 kilometers. This extension will be in force for a trial period of 18 months. On November 24, 2023 the Canadian Transportation Agency (CTA) established interswitching rates for 2024. On December 22, 2023, the Company sought leave to appeal this decision on rates. No assurance can be given that these and any other current or future regulatory or legislative initiatives by the Canadian federal government and agencies will not materially adversely affect the Company's results of operations or its competitive and financial position.

On September 7, 2023, the STB proposed new regulations for reciprocal switching for inadequate service. Under the STB’s proposal, the new rule allows customers to obtain reciprocal switching access to an alternate carrier in a terminal area if the incumbent railroad’s service falls below one of three objective metrics (original estimated time of arrival, transit time, and first-mile/last-mile service) and if certain other conditions are met. The STB has proposed that if a reciprocal switch were granted for a facility in the United States, that switch would be available for a period between two to four years and could be renewed. In addition, the STB also closed consideration of a 2016 proposal to amend its existing regulations for reciprocal switching to increase competition, which was the subject of a public hearing in 2022. Comments were submitted in November and December 2023, and the STB members conducted meetings with stakeholders. No assurance can be given that these and any other current or future regulatory or legislative initiatives by the U.S. federal government and agencies will not materially adversely affect the Company's results of operations or its competitive and financial position.

On May 1, 2023, the collective agreement with Unifor was ratified by its members, renewing the collective agreement for a two-year term, retroactive to January 1, 2023, which will expire on December 31, 2024. Unifor represents approximately 3,400 employees in Canada working in various departments such as Mechanical, Intermodal, Facility Management, and in clerical positions.

On May 26, 2023, the collective agreement with Teamsters Canada Rail Conference (TCRC) was ratified by its members, renewing the collective agreement for a one-year term, retroactive to January 1, 2023, which expired on December 31, 2023. TCRC represents approximately 6,000 employees in Canada working as Locomotive Engineers, Yard Coordinators and Yard Conductors on our mainline, short lines and yards. Bargaining commenced on November 27, 2023.

On September 6, 2023, the United Steel Workers Union (USW) served notice to commence bargaining for the renewal of the collective agreement with the Company, governing approximately 2,500 bridge and structures and work equipment employees in Canada, which expired on December 31, 2023. Bargaining commenced on October 23, 2023.

On January 17, 2024, CN reached a tentative agreement with owner-operators affiliated with Unifor. The four-year agreement covers approximately 750 owner-operator truck drivers in Canada under contract with Canadian National Transportation Limited, a wholly owned subsidiary of the Company, until December 31, 2027. Ratification by the membership is expected in the first quarter of 2024.

The Company’s collective agreements remain in effect until the bargaining process outlined under the Canada Labor Code has been exhausted.

On January 8, 2024, CN announced that Remi G. Lalonde was appointed as CN’s Executive Vice-President and Special Advisor to the CEO, in anticipation of his transition to the role of Executive Vice-President and Chief Commercial Officer (CCO). Mr. Lalonde will succeed Doug MacDonald, Executive Vice-President and Chief Marketing Officer, who will remain in his current role until Mr. Lalonde’s transition is completed later this year.

On October 18, 2023, CN announced that Patrick Whitehead was appointed as CN’s Executive Vice-President and Chief Network Operating Officer and Derek Taylor was appointed as CN’s Executive Vice-President and Chief Field Operating Officer effective November 15, 2023. Mr. Whitehead and Mr. Taylor succeed Edmond (Ed) Harris who has taken on a consultant role until March 31, 2024 to ensure a seamless transition.

On January 23, 2024, the Company's Board of Directors approved a new Normal Course Issuer Bid (NCIB) that allows for the repurchase of up to 32.0 million common shares between February 1, 2024 and January 31, 2025. In addition, on that same day, the Company's Board of Directors approved an increase of 7% to the quarterly dividend to common shareholders, from $0.7900 per share in 2023 to $0.8450 per share in 2024, effective for the first quarter.

The Company assumes slightly positive North American industrial production in 2024. For the 2023/2024 crop year, the grain crop in Canada was below its three-year average (also below when excluding the significantly lower 2021/2022 crop year) and the U.S. grain crop was above its three-year average. The Company assumes that the 2024/2025 grain crop in Canada will be in line with its three-year average (excluding the significantly lower 2021/2022 crop year) and the U.S. grain crop will also be in line with its three-year average.

In 2024, the Company expects to invest approximately $3.5 billion in its capital program, net of amounts reimbursed by customers, to improve the safety, efficiency and integrity of its network. These investments are intended to also enable and support the growth of the Company and will be financed with cash generated from operations or with cash from financing activities.

The forward-looking statements discussed in this section are subject to risks and uncertainties that could cause actual results or performance to differ materially from those expressed or implied in such statements and are based on certain factors and assumptions which the Company considers reasonable about events, developments, prospects and opportunities that may not materialize or that may be offset entirely or partially by other events and developments. In addition to the assumptions and expectations discussed in this section, reference should be made to the section of this MD&A entitled Forward-looking statements for assumptions and risk factors affecting such statements.

CN’s purpose is to power the economy by enabling global supply chains and moving goods sustainably and efficiently, working together with our customers, our people, and the communities in which we operate. CN is committed to delivering a safe, consistent and reliable scheduled service that creates value for customers, shareholders and stakeholders. In 2023, CN continued its “back to basics” approach, re-establishing a disciplined scheduled operation. CN’s “make the plan, run the plan, sell the plan” operating approach has driven strong operational, safety, and customer service outcomes.

CN aims to drive consistent shareholder returns and earnings growth by striving for sustainable financial performance, including profitable top-line growth, strong free cash flow generation and return on invested capital well above the Company’s cost of capital. CN also returns value to shareholders through dividend payments and share repurchases.

Going forward, CN will continue to focus on sustaining and building service excellence, growing the business and developing our people. Providing reliable and efficient customer service is the foundation for growth. CN aims to leverage its strong customer service and operating efficiency of rail to grow the business profitably. CN continues to invest in the safety and fluidity of the network, and in increasing capacity to cost effectively grow volumes. CN is also investing to drive incremental fuel and carbon efficiency and to improve network resiliency. Critical to CN’s long-term success are also the people investments being made to ensure the optimal workforce, with the right skills and leadership capabilities, are available to meet the challenges of tomorrow.

Sustainability is at the heart of how CN is building for the future. Delivering Responsibly is the encapsulation of the Company’s sustainability strategy and commitments. The Company is focused on transporting goods safely and efficiently, doing so in a manner that seeks to minimize the impact on the environment, attracting, retaining and engaging top talent, and helping to build stronger, safer communities, while adhering to the highest governance standards. CN understands that transparency is essential for stakeholder trust concerning the Company’s Environmental, Social and Governance (ESG) commitments. In that regard, CN seeks to align its ESG disclosures with global best practice frameworks, reporting on commitments and performance with focus, clarity and comparability. In 2023, CN published its latest biennial sustainability report, outlining the Company's targets, programs and achievements in corporate governance, environment, safety, people, community involvement and stakeholder engagement. CN is proud of its 2023 accomplishments as the Company's sustainability practices earned it a place on the Dow Jones Sustainability World and North American Indices, for the 12th and 15th consecutive year, respectively.

CN is committed to the health and safety of its employees, the communities and environments in which it operates and the customers it serves. The Company embraces a values-based safety culture. CN’s objective is to reduce serious injuries and fatalities. The Company is employing advanced technologies and innovative training to help achieve this goal. More specifically, CN is:

•Fostering an engaged workforce that understands and respects Life Critical Rules.

•Embedding a mindset whereby employees take ownership for their own safety and the safety of others by Looking Out for Each Other.

•Training employees to identify and mitigate exposures.

•Using advanced technologies to proactively mitigate human error and reduce risk.

•Maintaining reliable and safe equipment and infrastructure.

•Investing in employee training, coaching, recognition and engagement initiatives.

See the section of this MD&A entitled Human capital management - Health and safety for additional information regarding CN's safety initiatives.

The Company's goal is to conduct its operations in a way that seeks to minimize environmental impact, while offering a carbon-efficient and sustainable way to move goods. CN is focused on making a positive contribution in the fight against climate change and playing a key role in the transition to a lower-carbon economy.

With approximately 85% of its direct greenhouse gas (GHG) emissions generated from rail operations, CN focuses on five key strategic areas: fleet renewal, innovative technology, big data, operating practices and cleaner fuels. Over the years, this focus has resulted in significant progress in decoupling volume growth from carbon emissions intensity. CN continues to maintain its leadership position among Class I North American railways, generating approximately 15% less locomotive GHG emissions per gross ton mile than the industry average. CN was also the first North American railway, and among the first 100 companies globally, to announce an approved science-based climate target. CN aims to reduce GHG emissions in line with the Paris Agreement and in 2021, committed to setting a net-zero target by joining the "Business Ambition for 1.5 °C" and the United Nations' "Race to Zero" campaign.

To achieve its decarbonization targets, CN will need to continue improving the fuel efficiency of its fleets, increase its use of sustainable renewable fuels and test, and eventually deploy alternative propulsion locomotive technologies. Collaboration with suppliers, customers, supply chain partners, innovators and regulators is critical for CN to deliver on its climate commitments and to help drive economic prosperity in a lower-carbon emissions environment.

The Company's CDP Report, including a Task Force on Climate-related Financial Disclosures (TCFD) index, is available on CN's website in the Delivering Responsibly section. Information contained on, or accessible through, our website is not incorporated by reference into this MD&A.

CN people have always been the Company's most important differentiator, caring passionately about railroading and bringing optimism, commitment and resilience to daily tasks. CN aims to attract, develop, and retain the very best talent, with a focus on a diverse and inclusive work environment where employees are engaged, inspired and motivated. CN trains its employees with the necessary skills for an increasingly automated and data-driven work environment.

See the section of this MD&A entitled Human capital management for additional information regarding CN's human capital initiatives.

At CN, we are committed to being good neighbors who listen, learn, and do our part to help build safer, stronger, more prosperous communities. Connecting Canada’s Eastern and Western coasts with the U.S. Gulf Coast, CN spans eight provinces, 16 states, and operates within or adjacent to nearly 230 reserve lands of more than 120 First Nations and Métis communities in Canada, seven Tribal communities in the United States, and more than 2,000 towns and cities across its network. CN plays an essential role and contributes to economic prosperity through job creation, investments and freight transportation services. The Company seeks open and proactive engagement to ensure stakeholders and Indigenous communities are aware of its strategy, operations, opportunities and obligations, and aims to foster effective two-way communications that ensures a respectful and beneficial exchange.

CN also partners with communities to enhance railway safety. Under CN's structured Community Engagement program, the Company engages with municipal officers and their emergency responders to assist them in their emergency response planning. During this frequent outreach, CN discusses its comprehensive safety programs and performance, the nature, volume and economic importance of dangerous goods it transports through their communities and emergency response planning. CN annually conducts hundreds of training events for thousands of emergency responders, totaling over 130,000 first responders since 1988. Additional training sites have been constructed to offer onsite full scale dangerous goods training.

The outreach builds on CN's involvement in Transportation Community Awareness and Emergency Response (TRANSCAER®), through which the Company has been working for many years to help communities in Canada and the U.S. understand the movement of hazardous materials and what is required in the event of transportation incidents. All Aboard for Safety is CN’s flagship community education program. Every year, CN employees make hundreds of presentations and talk to thousands of children and adults at schools and community events in Canada and the U.S. about the importance of rail safety and the dangers of walking or playing on or near railway tracks.

As part of CN’s year‑round outreach effort, the CN Police Service continues to be active in communities across the CN network to promote safe behavior around railroad infrastructure. Activities include conducting enforcement initiatives with external agencies and delivering safety presentations to high‑risk groups. During the industry’s annual Rail Safety Week campaign, CN police officers and other employees, in partnership with Operation Lifesaver®, participate in numerous safety initiatives to raise awareness about preventing accidents and injuries around railway property.

CN believes another way to help build more sustainable communities is to actively contribute financially through its CN Stronger Communities Fund to organizations, programs and initiatives that promote diversity and inclusion, innovation and safety, education, environmental protection, and many other causes such as food banks, homeless shelters, domestic violence shelters, healthcare centers, and anti-poverty organizations.

CN is proud of its employees, retirees and their families who volunteer to make their communities better places to live, work and play. The CN Railroaders in the Community program recognizes these acts of kindness by providing grants to the community‑based not‑for‑profit organizations employees (current, retired or family) choose to support through their volunteer efforts. CN also encourages employee community involvement through its annual volunteer CN In Your Community Day.

Working alongside Indigenous communities, CN makes it a priority to strengthen its ties, cultivate respectful and mutually beneficial relationships, and work toward reconciliation. CN continues to engage in open dialogue with Indigenous communities, identify and foster business opportunities, increase our employees’ awareness and understanding of Indigenous culture, and enhance its ability to attract Indigenous talent. CN provides awareness training on Indigenous culture, beliefs, and history to its employees to foster an inclusive work environment. Since the program began in 2014, more than 24,000 employees have completed the training.

CN's success depends on a steady stream of capital investments that are aligned with and support its business strategy. These investments cover a wide range of areas, from track infrastructure and rolling stock to information and operating technologies, as well as other equipment and assets that are intended to improve the safety, efficiency, capacity and reliability of CN's service offering. Investments in track infrastructure are designed to enhance the safety and integrity of the physical plant, increase the capacity and fluidity of the network, promote service excellence, and support growth. New locomotives equipped with distributed power capability increase capacity, fuel and carbon productivity and efficiency, and improve service reliability, particularly in cold weather, while improving train handling and safety. Targeted railcar acquisitions aim to tap growth opportunities, complementing the fleet of privately owned railcars that traverse CN's network. CN is also investing in and deploying advanced technologies to automate labor-intensive tasks like track and railcar inspections, as well as to improve the customer experience through ‘track and trace’ functionality. CN's long-term economic viability depends on the presence of a supportive regulatory and government policy environment that encourages investment and innovation.

The multi-year implementation of CN’s strategic plan requires a disciplined, analysis-driven approach to capital investment. Talent, technology and capital need to be fully aligned. The Company’s capital investment roadmap includes several core elements:

•Investing in the maintenance of a safe and reliable network.

•Investing in asset infrastructure to increase the capacity of its three-coast network.

•Developing a portfolio approach to technology with business-led investment decisions, delivering value at each stage of implementation.

•Deepening supply chain partnerships with its customers, including road-to-rail conversion.

•Investing in data analytic systems, including artificial intelligence (AI), to support data-driven decision-making.

•Investing in technologies and capital assets to support decarbonization of its footprint.

•Growing its physical and commercial reach through strategic partnerships and acquisitions.

CN'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 right people, no matter how good a service plan or business model a company may have, it will not be able to fully execute. The Company continues to focus on hiring the right people, onboarding them successfully, helping them build positive relationships with their colleagues and supporting all employees to grow and develop, while deepening its commitment to develop talent and plan for the future.

CN’s Senior Vice President and Chief Human Resources Officer has leadership accountability for the Company’s workforce policies and programs and reports directly to the CEO. CN’s Board and its committees, including the Governance, Sustainability and Safety Committee and Human Resources and Compensation Committee (HRCC) provide oversight of the Company's human capital management strategies, programs, practices and performance. The HRCC is responsible for monitoring executive management’s performance assessment, compensation and succession planning as well as ensuring effective talent management and monitoring union relations and strategy for consistency with CN’s strategic direction. The HRCC also has the mandate to review human resources practices and policies by ensuring, amongst other things, that appropriate human resources programs, practices and systems are in place so that the Company can attract, motivate and retain the quality and diversity of employees required to meet its business objectives. The Company’s senior management provides regular briefings on human capital matters to the Board and its committees to facilitate oversight.

The Board of Directors and management are committed to maintaining and instilling a strong ethical culture at CN, and as such, have developed a solid ethics program based on CN’s core values of integrity and respect. Each director, executive officer and management employee must certify annually their compliance with the Code of Business Conduct and employees are required to complete an online training course on the Code of Business Conduct. Integrity training is also part of every new employee’s onboarding program. In addition, Anti-Fraud Policy and Guidelines apply to all employees of CN and its wholly owned subsidiaries and set out steps to be taken in response to reported or suspected fraud in all its forms, as well as measures that are taken to identify, prevent and manage fraud-related risks.

As at December 31, 2023, CN employed a total of 18,162 employees in Canada (2022 – 17,392), of which 13,346, or 73%, were unionized employees (2022 – 12,841, or 74%) and 6,825 employees in the U.S. (2022 – 6,579) of which 5,786, or 85%, were unionized employees (2022 – 5,571, or 85%).

As of January 31, 2024, three of the eight collective agreements in Canada are open for negotiation. See the section of this MD&A entitled 2023 Highlights - Recent developments for additional information regarding labor negotiations. The Company’s collective agreements remain in effect until the bargaining process outlined under the Canada Labor Code has been exhausted.

As of January 31, 2024, collective agreements covering all non-operating and operating craft employees at Grand Trunk Western Railroad Company (GTW), companies owned by Illinois Central Corporation (ICC), companies owned by Wisconsin Central Ltd. (WC) and Bessemer & Lake Erie Railroad Company (BLE), and all employees at Pittsburgh and Conneaut Dock Company (PCD) were ratified and remain in place. The agreements in place have various moratorium provisions, which preserve the status quo with respect to the given collective agreement during the terms of such moratoriums. Where negotiations are ongoing, the terms and conditions of existing agreements generally continue to apply until new agreements are reached or the processes of the Railway Labor Act have been exhausted. The general approach to labor negotiations by U.S. Class I railroads is to bargain on a collective national basis with the industry, which GTW, ICC, WC and BLE currently participate in, for collective bargaining agreements covering all union-represented employees.

CN has an uncompromising commitment to the health and safety of its employees, the customers it serves, and the communities and environments in which it operates. The Company's long-term safety improvement is driven by continued investments in infrastructure, rigorous safety processes and exposure reduction efforts, as well as efforts to continue deepening the Company’s safety culture. The attainment of annual accident and injury targets is a component of management’s annual incentive bonus plan. The Company’s injury frequency rate and accident rate, defined according to the criteria of the Federal Railroad Administration (FRA), are provided for the entire company’s operations and are publicly disclosed on a quarterly basis. See the section of this MD&A entitled Selected railroad statistics for additional information on CN’s safety measures.

CN’s culture and commitment to safety is supported by its focus on training, leadership, and technology. CN's Safety Management System is the framework for putting safety at the center of its day-to-day operations. This proactive plan is designed to minimize risk, drive continuous improvement in the reduction of injuries and accidents, and engage employees at all levels of the organization.

The Looking Out For Each Other peer-to-peer engagement program focuses on raising awareness among all employees of the top causes of incidents and injuries, identifying and reviewing safe work procedures, training employees to be aware of their surroundings and recognize potential at-risk work practices, teaching employees how to provide constructive feedback to their peers and learning from past incidents. The Company's Life Critical Rules address the day-to-day activities that have the potential to cause serious harm or even loss of life. They are based on past incidents and are designed to help ensure they do not happen again. CN's safety leadership training program is heavily focused on teaching employees the importance of controlling exposures to risk and on developing the attitudes and behaviors required for a values-driven safety culture.

CN also continues to leverage new technology to drive improved safety performance including installing powerful sensor and AI technology into specially equipped autonomous track inspection cars positioned in existing train service, enabling track inspections at normal track speed. AI technology is also enhancing how CN inspects its railcar fleet. Automated inspection portals feature ultra-high-definition cameras that capture a 360° view of a train as it travels through at track speed. Both these innovations in automation increase inspection frequency and quality and play an important role in preventing incidents. CN has also implemented Electronic Track Authority Verification (ETAV), a geospatial navigation aid application that improves safety by leveraging precise location information to warn track maintenance vehicle operators of approaching or exceeded limits of Track Authority (TA).

CN strives for continuous improvement in our environmental, health, safety, and security (EHS&S) performance and is proud to be a long-standing Responsible Care® Partner. Triennially, CN undergoes a Responsible Care® audit conducted by an external audit team to ensure CN’s processes, programs and policies meet the rigorous Responsible Care® Management System Specifications, Guiding Principles and Stewardship Codes.

CN works closely with all of its customers and suppliers to ensure adherence to Life Critical Rules where applicable, and to encourage a shared commitment to a values-based safety culture.

CN continues to align its talent strategies to the business objectives, by focusing on acquiring as well as developing the various skills and capabilities required to meet its commitments, address challenges, and ensure a solid bench of talent to mitigate risk. CN recruits and hires talent with a broad range of strengths, perspectives and experiences, while also engaging with partners across our network, including Indigenous and other equity-seeking groups to ensure CN reflects the communities it crosses. Over the last year, similar to other organizations, CN has had to compete extensively to attract talent, however its refreshed early career strategy with partner universities and its community engagement and partnerships with diversity organizations across Canada and the U.S., has helped create strong visibility of our jobs and opportunities.

Once again in 2023, CN was recognized as one of Canada’s Top 100 Employers and Montreal’s Top Employers and also listed as one of Canada’s best Diversity Employers by Mediacorp Canada Inc.

CN offers a variety of training programs, which cover regulatory or CN mandated requirements or are part of an employee's learning journey and development. This ensures that its employees are equipped to perform in their roles and prepare for career advancement opportunities, as required.

The Company offers trainings in technical, business and leadership programs, with either online, e-learning or virtually-led courses, and, when possible, through in-person sessions. People leaders are supported in building the skills and knowledge needed to successfully perform at each level and this includes a focus on enhancing communication skills, increasing collaboration across teams and creating a strong base of inclusive leadership throughout our workforce. In 2023, CN continued to provide an expanded offering of online and curated playlists/curricula for more self-guided and self-paced learning to allow for development tools to be available throughout the year and to be self-directed by the employee, when it is most convenient. For the Operations group, CN has various entry-level supervisory programs, to onboard front-line management with a focus on providing those leaders with an understanding of railway operations, safety leadership, people leadership and a perspective on customer service. Furthermore, CN also supports its employees through a structured performance management process. At the beginning of each year, non-unionized employees set goals for the year that align to its business strategy and objectives. At mid and year-end, there is a formal discussion and review of progress against these goals as well as how they were achieved. CN continues to emphasize the

importance of a performance-based culture. In 2023, CN also introduced development planning tools and launched the “Aspire to develop yourself” campaign where the Company encourages and equips our employees to own their career and build actionable development plans for growth. In addition, there are also development discussions with key talent to enhance skills, capabilities and experience across the talent pools.

CN’s approach to compensation continues to be driven by our goal to deliver sustainable value creation, while ensuring that target compensation supports the attraction and retention of talent. Compensation programs are designed to encourage appropriate behaviors and include appropriate risk mitigation mechanisms. In addition, compensation best practices adopted by CN include industry benchmarking and pay positioning as well as pay equity reviews.

CN offers a competitive compensation portfolio that consists of base salary, employee share investment plan, short-term and long-term incentives (applicable to certain employees only), benefits, retirement plans and other non-monetary elements.

At CN, employees are the Company's single greatest asset and the importance of creating a work environment that welcomes the contribution and uniqueness of every employee is recognized. CN is committed to creating a workforce of top talent that reflects the diversity of the population and stakeholders it serves. The Diversity, Equity and Inclusion Plan ("Diversity Plan") focuses on developing a more inclusive workplace by increasing the representation of women, people of color, Indigenous peoples, persons with disabilities and veterans. The plan applies at all levels within the organization and includes strategies on sourcing (among others, early career sourcing through internships, co-op and new graduate programs), selection, hiring, training and development of diverse candidates, anchoring CN’s commitment to Diversity, Equity and Inclusion (DE&I).

The Company has embedded diversity in its policy regarding composition of the Board and executive management. The Diversity Policy, which also applies to executive management, states that in fulfilling its oversight role, the HRCC regularly reviews CN’s integrated approach to executive and high-potential talent management and succession planning, in order to ensure that CN has diverse candidate pools for potential successors for executive roles.

CN is undertaking various initiatives aimed at better promoting and reinforcing diversity, equity and inclusion which are strongly supported through active involvement by management and the Board. Some examples include:

•building on established DE&I fundamentals by conducting a DE&I diagnostic and creating a revised multi-year DE&I strategy and vision;

•running regular reviews of pay equity and defining a roadmap to address identified gaps;

•refocusing our sponsorships and donations budget to better align with our strategic DE&I vision;

•continually assessing hiring practices to leverage diversity focused recruitment agencies and requiring diverse candidate slates for all recruitment mandates;

•developing inclusive leaders through targeted training and education, including unconscious bias and inclusive leadership training, as leaders will be critical in creating and sustaining an inclusive environment;

•continuing to support and leverage the Employee Resource Groups (ERGs) that are backed by executive sponsors (currently eight ERGs); and

•having sufficient resources to support our DE&I vision.

In January 2024 CN established that moving forward it aspires to maintain a Board composition in which independent Board members are comprised of at least 40% of each gender (male and female) and at least two members come from the broader underrepresented groups, beyond gender. Currently, five out of 10, or 50% of independent Board members are women and two, or 20% of independent Board members are from underrepresented groups. CN has also elected to revise the gender diversity target for executive management (comprising all Vice-Presidents and more senior positions), whereby by the end of 2027, and thereafter, CN aspires to maintain an executive management team in which at least 35% of this group are women. As at December 31, 2023 27%, or eight of the 30 executive management roles, were held by women.

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

(2)See the section of this MD&A entitled Non-GAAP measures – Adjusted performance measures for an explanation of these non-GAAP measures.

(3)Operating ratio is defined as operating expenses as a percentage of revenues.

(4)See the section of this MD&A entitled Liquidity and capital resources – Free cash flow for an explanation of this non-GAAP measure.

(5)Total long-term liabilities is the difference between Total liabilities and Total current liabilities.

Revenues for the year ended December 31, 2023 were $16,828 million compared to $17,107 million in 2022. The decrease of $279 million, or 2%, was mainly due to lower shipments of intermodal, crude oil, U.S. grain and forest products as well as lower container storage fees and lower fuel surcharge revenues as a result of lower fuel prices; partly offset by freight rate increases, higher Canadian grain export shipments and higher shipments of potash and the positive translation impact of a weaker Canadian dollar.

Operating expenses for the year ended December 31, 2023 were $10,231 million compared to $10,267 million in 2022. Operating expenses remained flat mainly due to lower fuel prices; offset by the negative translation impact of a weaker Canadian dollar and higher labor and fringe benefits expense mainly driven by general wage increases and higher average headcount.

Operating income for the year ended December 31, 2023 decreased by $243 million, or 4%, to $6,597 million, when compared to the same period in 2022. The operating ratio was 60.8% in 2023, compared to 60.0% in 2022, a 0.8-point increase.

Net income for the year ended December 31, 2023 was $5,625 million, an increase of $507 million, or 10%, when compared to 2022, and diluted earnings per share increased by 15% to $8.53. The increase was mainly due to a net deferred income tax recovery of $713 million resulting from tax filings consistent with a ruling that the Company received in a non-U.S. foreign jurisdiction in connection with prior taxation years; partly offset by lower revenues.

(1)GTMs: 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 number is an indicator of more traffic (and thus more revenue) being moved.

(2)Train weight: An efficiency measurement on how much tonnage each mainline train handles on average as it crosses the network. Calculated as the total of GTMs and divided by total train miles, this measure provides insight on how well each train was maximized in terms of its capacity to move traffic. This operating measure was formerly named Train productivity.

(3)Train length: An efficiency measurement on average trailing length of each mainline train on the network. Calculated as the total of car foot miles (the sum of car length multiplied by miles travelled for each trailing car) divided by total train miles, this measure provides insight on how well each train was maximized in terms of its capacity to move traffic.

(4)Through network train speed: A measure of the line-haul movement from origin to destination, including time at terminals. The average speed is calculated by dividing train miles by total hours operated, excluding yard and local trains, passenger trains, maintenance of way trains, and foreign trains. This measure represents the fluidity of trains on the network, with a higher value also indicating a more fluid network.

(5)Fuel efficiency: This measure represents how efficient the Company is in the generation and utilization of locomotive horsepower in freight train operations, with a lower number indicating improved performance. Fuel efficiency is defined as US gallons of locomotive fuel consumed per 1,000 GTMs. Annual fuel efficiency metrics for 2021 have been revised as more complete information became available.

(6)Through dwell: The average time a car resides within terminal boundaries expressed in hours. The measurement begins with a customer release, received interchange, or train arrival event and ends with a customer placement (actual or constructive), delivered or offered in interchange, or train departure event. This excludes stored, bad ordered, maintenance of way cars, or cars with dwell greater than 10 days. This measure represents the efficiency of handling cars within the terminal, with a lower value indicating higher performance.

(7)Car velocity: The average miles per day traveled by loaded and empty cars (including all active cars whether private, foreign or CN owned) on company lines. This measure represents the fluidity of cars on the network, calculated by the sum of miles each car traveled divided by the sum of all of the cars’ active time, with a higher value indicating a smoother and more fluid operation.

The Company’s continued focus on scheduled railroading in 2023, helped by more favorable winter operating conditions partly offset by operational disruptions related to Canadian wildfires and the Canadian West Coast dock workers strike, resulted in improvements in car velocity, train speed and through dwell when compared to 2022. GTMs were negatively impacted in 2023 when compared to 2022 primarily due to weaker demand for freight services. Fuel efficiency decreased by 1% mainly due to running shorter trains.

For the year ended December 31, 2022, when compared to 2021, the Company’s focus on scheduled railroading resulted in improvements in car velocity, through dwell and fuel efficiency, as well as a decrease in train length and train weight, despite negative impacts from the harsh winter in the first quarter of 2022. In addition, the Company's fuel initiatives allowed it to achieve a new record for fuel efficiency.

This MD&A makes reference to non-GAAP measures including adjusted performance measures, constant currency, return on invested capital (ROIC) and adjusted ROIC, free cash flow, and adjusted debt-to-adjusted EBITDA multiple that do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. From management's perspective, these non-GAAP measures are useful measures of performance and provide investors with supplementary information to assess the Company's results of operations and liquidity. These non-GAAP measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

For further details of these non-GAAP measures, including a reconciliation to the most directly comparable GAAP financial measures, refer to the sections of this MD&A entitled Non-GAAP measures: Adjusted performance measures, ROIC and adjusted ROIC and Constant currency, as well as the section entitled Liquidity and capital resources: Free cash flow and Adjusted debt-to-adjusted EBITDA multiple.

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

i.operating expense adjustments: workforce reduction program, depreciation expense on the deployment of replacement system, advisory fees related to shareholder matters, losses and recoveries from assets held for sale, business acquisition-related costs;

ii.non-operating expense adjustments: business acquisition-related financing fees, merger termination income, gains and losses on disposal of property; and

iii.the effect of changes in tax laws including rate enactments, and changes in tax positions affecting prior years.

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

For the year ended December 31, 2023, the Company's adjusted net income was $4,800 million, or $7.28 per diluted share, which excludes:

•a gain on disposal of property within the Bala Subdivision located in Markham and Richmond Hill, Ontario, Canada of $129 million, or $112 million after-tax ($0.17 per diluted share) recorded in the fourth quarter in Other income within the Consolidated Statements of Income; and

•a net deferred income tax recovery of $713 million ($1.08 per diluted share) recorded in the fourth quarter resulting from tax filings consistent with a ruling that the Company received in a non-U.S. foreign jurisdiction in connection with prior taxation years.

For the year ended December 31, 2022, the Company's adjusted net income was $5,134 million, or $7.46 per diluted share, which excludes advisory fees related to shareholder matters of $22 million, or $16 million after-tax ($0.02 per diluted share) of which $12 million, or $9 million after-tax ($0.01 per diluted share) was recorded in the second quarter and $10 million, or $7 million after-tax ($0.01 per diluted share) was recorded in the first quarter in Other expense within the Consolidated Statements of Income.

For the year ended December 31, 2021, the Company reported adjusted net income of $4,225 million, or $5.95 per diluted share, which excludes:

•employee termination benefits and severance costs related to a workforce reduction program of $39 million, or $29 million after-tax ($0.04 per diluted share) recorded in the third quarter in Labor and fringe benefits within the Consolidated Statements of Income;

•advisory fees related to shareholder matters of $20 million, or $15 million after-tax ($0.02 per diluted share) of which $13 million, or $10 million after-tax ($0.01 per diluted share) was recorded in the fourth quarter and $7 million, or $5 million after-tax ($0.01 per diluted share) was recorded in the third quarter in Other expense within the Consolidated Statements of Income;

•the recovery of $137 million, or $102 million after-tax ($0.14 per diluted share) recorded in the first quarter related to the loss on assets held for sale in the second quarter of 2020, to reflect an agreement for the sale for on-going rail operations, certain non-core rail lines in Wisconsin, Michigan and Ontario to a short line operator;

•transaction-related costs, consisting of an advance to Kansas City Southern (KCS) and a related refund, net of transaction costs, of $84 million, or $70 million after-tax ($0.10 per diluted share), recorded in the third quarter resulting from the terminated CN Merger Agreement with KCS;

•amortization of bridge financing and other fees of $97 million, or $84 million after-tax ($0.11 per diluted share), of which $65 million, or $60 million after-tax ($0.08 per diluted share) was recorded in the third quarter and $32 million, or $24 million after-tax ($0.03 per diluted share) was recorded in the second quarter, resulting from the KCS transaction, recorded in Interest expense within the Consolidated Statements of Income; and

•merger termination fee paid by KCS to CN of $886 million, or $770 million after-tax ($1.08 per diluted share), recorded in the third quarter resulting from KCS' notice of termination of the CN Merger Agreement with KCS.

Adjusted net income is defined as Net income in accordance with GAAP adjusted for certain significant items. Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted-average diluted shares outstanding. The following table provides a reconciliation of Net income and Earnings per share in accordance with GAAP, as reported for the years ended December 31, 2023, 2022 and 2021, to the non-GAAP adjusted performance measures presented herein:

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

(2)Relates to the impacts resulting from tax filings consistent with a ruling that the Company received in a non-U.S. foreign jurisdiction in connection with prior taxation years.

Adjusted operating income is defined as Operating income in accordance with GAAP adjusted for certain significant operating expense items. Adjusted operating expenses is defined as Operating expenses in accordance with GAAP adjusted for certain significant operating expense items. Adjusted operating ratio is defined as adjusted operating expenses as a percentage of revenues. The following table provides a reconciliation of Operating income, Operating expenses and operating ratio, as reported for the years ended December 31, 2023, 2022 and 2021, to the non-GAAP adjusted performance measures presented herein:

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

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

(1)The effective tax rate, defined as Income tax expense as a percentage of Income before income taxes, used to calculate the tax on Interest expense for 2023 was 24.5% (2022 - 24.3%; 2021 - 22.8%). Due to the significantly lower effective tax rate reported by the Company in 2023, tax on interest expense for 2023 was calculated using an adjusted effective tax rate.

(2)This non-GAAP measure does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. See the section of this MD&A entitled Non-GAAP measures – Adjusted performance measures for an explanation of this non-GAAP measure.

(3)Relates to amortization of bridge financing and other fees resulting from the KCS transaction, recorded in Interest expense within the Consolidated Statements of Income.

(4)The adjusted effective tax rate is a non-GAAP measure, defined as Income tax expense, net of tax adjustments as presented in Adjusted performance measures as a percentage of Income before taxes, net of pre-tax adjustments as presented in Adjusted performance measures. This measure does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to a similar measure presented by other companies. The adjusted effective tax rate used to calculate the adjusted tax on interest expense for 2023 was 24.5% (2022 - 24.3%; 2021 - 24.0%).

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

The average foreign exchange rates were $1.350 and $1.301 per US$1.00, for the years ended December 31, 2023 and 2022, respectively. On a constant currency basis, the Company's Net income for the year ended December 31, 2023 would have been lower by $96 million ($0.15 per diluted share).

The following table provides a reconciliation of the impact of constant currency and related percentage change at constant currency on the financial results, as reported for the year ended December 31, 2023:

(1)This non-GAAP measure does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. See the section of this MD&A entitled Non-GAAP measures – Constant currency for an explanation of this non-GAAP measure.

(2)RTMs is a measure of volumes and is calculated by multiplying the weight in tons of the shipment lading being transported by the number of miles that the shipment is transported on company lines. CN uses RTMs as the primary measure of volumes as compared to Carloads, since RTMs also takes into account the length of haul and weight in the movement.

(3)Freight revenue per RTM is an indicator of yield and represents revenue earned for transporting one ton of freight over a distance of one mile.

Revenues for the year ended December 31, 2023 totaled $16,828 million compared to $17,107 million in 2022. The decrease of $279 million, or 2%, was mainly due to:

•lower RTMs of 1% mainly due to lower shipments of intermodal, crude oil, U.S. grain and forest products; partly offset by higher Canadian grain export shipments and higher shipments of potash.

•lower Freight revenue per RTM of 1% due to lower container storage fees and lower fuel surcharge revenues as a result of lower fuel prices; partly offset by freight rate increases, a decrease in the average length of haul and the positive translation impact of a weaker Canadian dollar.

Fuel surcharge revenues decreased by $368 million in 2023 when compared to 2022, mainly due to lower fuel prices and lower volumes; partly offset by the positive translation impact of a weaker Canadian dollar.

The petroleum and chemicals commodity group comprises a wide range of commodities, including chemicals and plastics, refined petroleum products, natural gas liquids, crude oil and sulfur. The primary markets for these commodities are within North America, and as such, the performance of this commodity group is closely correlated with the North American economy as well as oil, gas production, petroleum refining activity, pipeline capacities and related petrochemical commodity prices. Most of the Company's petroleum and chemicals shipments originate in the Alberta Industrial Heartland, a key oil and gas development area and a major center for natural gas feedstock and world-scale petrochemicals and plastics. In addition to servicing the Louisiana petrochemical corridor between New Orleans and Baton Rouge as well as Sarnia’s "Chemical Valley" in Southwestern Ontario, the Company also supplements pipeline capacity by moving petroleum products from facilities in Saskatchewan, British Colombia, Quebec, and Illinois.

For the year ended December 31, 2023, revenues for this commodity group decreased by $34 million, or 1%, when compared to 2022, mainly due to:

•lower RTMs of 5%, mainly due to lower shipments of crude oil due to unfavorable crude oil price spreads;

•partly offset by higher Revenue per RTM of 4%, mainly due to a decrease in the average length of haul, freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by lower fuel surcharge revenues.

RTMs decreased more than Carloads in 2023 when compared to 2022, mainly due to lower shipments of crude oil, which has a longer length of haul.

The metals and minerals commodity group consists primarily of materials related to oil and gas development such as frac sand, drilling pipe and large diameter pipe, steel, iron ore, non-ferrous base metals and ores, raw materials including scrap metal, industrial materials including aggregates, construction materials such as roofing and railway equipment, machinery and dimensional (large) loads. The Company provides unique rail access 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 America. This strong origin franchise, coupled with the Company's access to port facilities and the end markets for these commodities, has made CN a leader in the transportation of metals and minerals products. The key drivers for this market segment are oil and gas development, automotive production, and non-residential construction.

For the year ended December 31, 2023, revenues for this commodity group increased by $137 million, or 7%, when compared to 2022, mainly due to:

•higher Revenue per RTM of 4% mainly due to freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by lower fuel surcharge revenues; and

•higher RTMs of 3% mainly due to higher shipments of frac sand and metals; partly offset by lower exports of iron ore.

The forest products commodity group includes various types of lumber, panels, paper, board and wrapping paper, wood pulp and other fibers such as logs, recycled paper, wood chips, and wood pellets. The Company has extensive rail access to the western and eastern Canadian fiber-producing regions, which are among 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. corridors with interline connections to other Class I railroads. The key drivers for the various commodities are: for lumber and panels, housing starts and renovation activities primarily in the U.S.; for fibers (mainly wood pulp), the consumption of paper, pulpboard and tissue in North American and offshore markets; for newsprint, advertising lineage, non-print media and overall economic conditions, primarily in the U.S.; and for board and wrap packaging, growth in eCommerce consumer driven demand and the replacement of plastics by fiber-based packaging.

•lower RTMs of 8% mainly due to weaker demand for forest products, primarily lumber and panels, and the negative impact of Canadian wildfires on customer supply chains;

•partly offset by higher Revenue per RTMs of 5% mainly due to freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by lower fuel surcharge revenues.

The coal commodity group consists of thermal grades of bituminous coal, metallurgical coal and petroleum coke. Canadian thermal and metallurgical coal are largely exported via terminals on the west coast of Canada to offshore markets. In the U.S., thermal coal is transported from mines served in southern Illinois, or from western U.S. mines via interchange with other railroads, to major utilities in the Midwest and Southeast U.S., as well as offshore markets via terminals on the U.S. Gulf Coast and inland river system. Petroleum coke, a by-product of the oil refining process, is exported to offshore markets via terminals on the west coast of Canada, the U.S. Gulf Coast and inland river system, as well as shipped to industrial users in domestic markets. The key drivers for this market segment are weather conditions, environmental regulations, global energy, coal and steel supply and demand conditions, and for U.S. domestic utility coal, the price of natural gas.

For the year ended December 31, 2023, revenues for this commodity group increased by $80 million, or 9%, when compared to 2022, mainly due to:

•higher Revenue per RTM of 8% mainly due to freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by lower fuel surcharge revenues.

•RTMs remained flat mainly due to higher shipments of Canadian coal and U.S. petroleum coke; offset by lower shipments of U.S. coal exports.

RTMs remained flat while Carloads increased in 2023 when compared to 2022, mainly due to higher Canadian coal export shipments, which have a longer length of haul; partly offset by lower U.S. coal export shipments which have a longer length of haul.

The grain and fertilizers commodity group depends primarily on crops grown and fertilizers processed in Western Canada and the U.S. Midwest. The grain segment consists of wheat, oats, barley, flaxseed, rye, peas, lentils, corn, corn meal, ethanol, dried distillers grain, canola seed and canola products, soybeans, soybean products, sweeteners and animal fat. Production of grain varies considerably from year to year, affected primarily by weather conditions, seeded and harvested acreage, the mix of grains produced and crop yields. Grain exports are sensitive to the size and quality of the crop produced, international market conditions and foreign government policy. The majority of grain produced in Western Canada and moved by CN is exported via the ports of Vancouver, Prince Rupert and Thunder Bay. These rail movements are subject to government regulation that establishes a maximum revenue entitlement that railways can earn. Although railway companies are free to set freight rates for western grain shipments, total revenue is limited based on a formula that takes into account tonnage, length of haul, and a specified price index. Shipments of grain 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 facilities and feed markets. The Company also serves major producers of potash in Canada, as well as producers of ammonium nitrate, anhydrous ammonia, urea and other fertilizers across Canada and the U.S. The key drivers for fertilizers are input prices, demand, government policies, and international competition.

For the year ended December 31, 2023, revenues for this commodity group increased by $482 million, or 17%, when compared to 2022, mainly due to:

•higher RTMs of 15% mainly due to higher Canadian grain export shipments primarily as a result of a larger 2022/2023 crop versus the prior year and higher shipments of potash due to a major outage at a competitor's export terminal and stronger domestic demand, partly offset by reduced U.S. grain shipments as a result of increased global grain supply; and

•higher Revenue per RTM of 2% mainly due to freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by an increase in the average length of haul and lower fuel surcharge revenues.

RTMs increased more than Carloads in 2023 when compared to 2022, mainly due to higher Canadian grain export shipments, which has a longer length of haul.

The intermodal commodity group includes rail and trucking services and is comprised of two markets: domestic intermodal and international intermodal. Domestic intermodal transports consumer products and manufactured goods, serving retail, wholesale and logistics provider channels, within domestic Canada, domestic U.S., Mexico and transborder, while international intermodal handles import and export container traffic, serving the major ports of Vancouver, Prince Rupert, Montreal, Halifax, Saint John, New Orleans and Mobile. CN's network of inland intermodal terminals, located near ports and large urban centers, and a number of interline partnerships with other Class I railroads, connects customers to major markets in North America and overseas. Domestic intermodal is driven by consumer markets, with growth generally tied to the economy. International intermodal is driven by North American economic and trade conditions as well as global trade patterns. Revenues for CN owned trucking businesses, including TransX, are included in this commodity group within the domestic market.

For the year ended December 31, 2023, revenues for this commodity group decreased by $1,083 million, or 22%, when compared to 2022, mainly due to:

•lower RTMs of 15% mainly due to decreased shipments in the international and domestic segments driven by weaker demand for consumer goods and the lingering negative impact of the Canadian West Coast dock workers strike; and

•lower Revenue per RTM of 9% mainly due to lower container storage fees compared to significantly higher container storage fees in 2022 resulting from customer supply chain challenges, reduced trucking services and lower fuel surcharge revenues; partly offset by a decrease in the average length of haul, freight rate increases and the positive translation impact of a weaker Canadian dollar.

The automotive commodity group moves both domestic finished vehicles and parts throughout North America, providing service to certain vehicle assembly plants in Ontario, Michigan and Mississippi. The Company also serves vehicle distribution facilities in Canada and the U.S., as well as parts production facilities in Michigan and Ontario. The Company serves shippers of finished vehicle imports via the ports of Halifax and Vancouver, and through interchange with other railroads for vehicles produced outside CN’s directly served network, including in Mexico. CN's broad network of auto compounds is used to facilitate distribution of vehicles throughout Canada and the U.S. Midwest. The primary drivers for this market are automotive sales in North America, which are driven by population growth, age of vehicles and household spending.

For the year ended December 31, 2023, revenues for this commodity group increased by $148 million, or 19%, when compared to 2022, mainly due to:

•higher RTMs of 11% mainly due to higher shipments of finished vehicles as a result of automotive dealership restocking; and

•higher Revenue per RTM of 7% mainly due to freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by lower fuel surcharge revenues and an increase in the average length of haul.

For the year ended December 31, 2023, Other revenues increased by $54 million, or 10%, when compared to 2022, mainly due to higher vessel and dock revenues from the iron ore supply chain, increased automotive logistics revenues and the positive impact of a weaker Canadian dollar; partly offset by lower freight forwarding revenues.

Operating expenses for the year ended December 31, 2023, amounted to $10,231 million compared to $10,267 million in 2022. Operating expenses remained flat mainly due to lower fuel prices; offset by the negative translation impact of a weaker Canadian dollar and higher labor and fringe benefits expense mainly driven by general wage increases and higher average headcount.

(1)This non-GAAP measure does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. See the section of this MD&A entitled Non-GAAP measures – Constant currency for an explanation of this non-GAAP measure.

Labor and fringe benefits expense includes wages, payroll taxes and employee benefits such as incentive compensation, including stock-based compensation, health and welfare, current service cost for pensions and postretirement benefits. Certain incentive compensation plans are based mainly on financial performance targets and the related expense is recorded in relation to the attainment of such targets.

Labor and fringe benefits expense increased by $215 million, or 7%, in 2023 when compared to 2022. The increase was mainly due to higher general wage increases, higher average headcount and the negative translation impact of a weaker Canadian dollar; partly offset by lower pension expense, lower incentive compensation and the incremental wage accrual in 2022 for the agreements with the U.S unions.

Purchased services and material expense includes the cost of services purchased from outside contractors; materials used in the maintenance of the Company's track, facilities and equipment; transportation and lodging for train crew employees; utility costs; and the net costs of operating facilities jointly used by the Company and other railroads.

Purchased services and material expense increased by $63 million, or 3%, in 2023 when compared to 2022. The increase was mainly due to higher contracted services, higher material costs and the negative translation impact of a weaker Canadian dollar; partly offset by lower freight forwarding expense.

Fuel expense includes fuel consumed by assets, including locomotives, vessels, vehicles and other equipment as well as federal, provincial and state fuel taxes.

Fuel expense decreased by $421 million, or 17%, in 2023 when compared to 2022. The decrease was mainly due to lower fuel prices, lower volumes and the negative translation impact of a weaker Canadian dollar.

Depreciation and amortization expense includes the costs associated with the use of properties and intangible assets over their estimated service lives. Depreciation expense is affected by capital additions, railroad property retirements from disposal, sale and/or abandonment and other adjustments including asset impairments.

Depreciation and amortization expense increased by $88 million, or 5%, in 2023 when compared to 2022. The increase was mainly due to a higher depreciable asset base and the negative translation impact of a weaker Canadian dollar.

Equipment rents expense includes rental expense for the use of freight cars owned by other railroads (car hire) or private companies and for the lease of freight cars, locomotives and intermodal equipment, net of rental income from other railroads for the use of the Company's freight cars (car hire) and locomotives.

Equipment rents expense increased by $21 million, or 6%, in 2023 when compared to 2022. The increase was mainly due to higher rail car lease costs and the negative translation impact of a weaker Canadian dollar.

Other expense includes operating taxes; software, support and cloud computing costs; insurance; environmental; freight and property damage; personal injury claims; travel expenses; advisory fees related to shareholder matters; bad debt; as well as other general expenses.

Other expense remained flat in 2023 when compared to 2022 mainly due to lower incident costs and advisory fees related to shareholder matters of $22 million in 2022; offset by higher personal injury claim provisions, higher software and support costs and the negative translation impact of a weaker Canadian dollar.

In 2023, Interest expense was $722 million compared to $548 million in 2022. The increase was mainly due to the higher average level of debt, higher average interest rates and the negative translation impact of a weaker Canadian dollar.

In 2023, Other components of net periodic benefit income was $479 million compared to $498 million in 2022. The decrease was mainly due to higher interest cost; partly offset by lower amortization of net actuarial loss and higher expected return on assets. These effects primarily resulted from changes to discount rates, lower actual returns compared to expected returns, as well as an increase to the Company’s expected long-term rate of return assumption in 2023.

In 2023, Other income was $134 million compared to Other loss of $27 million in 2022. The favorable variance of $161 million was mainly due to a gain on disposal of property within the Bala Subdivision located in Markham and Richmond Hill, Ontario, Canada of $129 million.

In 2023, the Company recorded an income tax expense of $863 million compared to an income tax expense of $1,645 million in 2022.

The effective tax rate for 2023 was 13.3% compared to 24.3% in 2022 and the adjusted effective tax rate for 2023 was 24.5%. (1)

In addition, the Organization for Economic Co-operation and Development (OECD) finalized its Pillar Two guidelines on some key components of global tax reform which include a global minimum corporate tax rate of 15% and the application of a top-up tax. These guidelines are effective in 2024 and have been or are expected to be enacted in a number of OECD member countries, which include the main jurisdictions in which CN operates (other than the U.S.), and as a result will affect the Company’s effective tax rate for 2024 and thereafter.

For 2024, the Company anticipates the estimated annual effective tax rate to be approximately 25.0%, and reflects the impacts of the foregone tax deductions and the Pillar Two guidelines of approximately 0.5%.

The Company’s net income tax payments for taxation years 2021 to 2023 were not affected and are not expected to be affected for 2024 and the next six years thereafter as a result of the tax-deductible goodwill available to be amortized in those years.

(1)   Adjusted effective tax rate is a non-GAAP measure, defined as Income tax expense, net of tax adjustments as presented in Adjusted performance measures as a percentage of Income before taxes, net of pre-tax adjustments as presented in Adjusted performance measures. This measure does not have any standard meaning prescribed by GAAP and therefore, may not be comparable to a similar measure presented by other companies.

Revenues for the year ended December 31, 2022 were $17,107 million compared to $14,477 million in 2021. The increase of $2,630 million, or 18%, was mainly attributable to higher fuel surcharge revenue as a result of higher fuel prices, freight rate increases, the positive translation impact of a weaker Canadian dollar, higher Canadian export volumes of coal via west coast ports and higher volumes of U.S. grain; partly offset by lower international container traffic volumes via the port of Vancouver as a result of supply chain congestion and significantly lower export volumes of Canadian grain in the first half of 2022.

Operating expenses for the year ended December 31, 2022 were $10,267 million compared to $8,861 million in 2021. The increase of $1,406 million, or 16%, was mainly as a result of higher fuel prices, the negative translation impact of a weaker Canadian dollar as well the recovery of the loss on assets held for sale of $137 million recorded in the first quarter of 2021 resulting from the Company entering into an agreement for the sale of non-core lines; partly offset by transaction-related costs of $84 million recorded in the third quarter of 2021 resulting from the terminated CN Merger Agreement with KCS.

Operating income for the year ended December 31, 2022 increased by $1,224 million, or 22%, to $6,840 million, when compared to the same period in 2021. The operating ratio was 60.0% in 2022, compared to 61.2% in 2021, a 1.2-point improvement.

Net income for the year ended December 31, 2022 was $5,118 million, an increase of $219 million, or 4%, when compared to 2021, and diluted earnings per share increased by 8% to $7.44. The increase was mainly driven by higher operating income in 2022, partly offset by a merger termination fee of $886 million ($770 million after-tax) received from KCS in 2021.

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

The average foreign exchange rates were $1.301 and $1.254 per US$1.00, for the years ended December 31, 2022 and 2021, respectively.

On a constant currency basis, the Company's Net income for the year ended December 31, 2022 would have been lower by $90 million ($0.13 per diluted share).

The following table provides a reconciliation of the impact of constant currency and related percentage change at constant currency on the financial results, as reported for the year ended December 31, 2022:

(1)This non-GAAP measure does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. See the section of this MD&A entitled 2022 Results of operations – Constant currency for an explanation of this non-GAAP measure.

Revenues for the year ended December 31, 2022 totaled $17,107 million compared to $14,477 million in 2021. The increase of $2,630 million, or 18%, was mainly attributable to higher fuel surcharge revenue as a result of higher fuel prices, freight rate increases, the positive translation impact of a weaker Canadian dollar, higher Canadian export volumes of coal via west coast ports and higher volumes of U.S. grain; partly offset by lower international container traffic volumes via the port of Vancouver as a result of supply chain congestion and significantly lower export volumes of Canadian grain in the first half of 2022.

Fuel surcharge revenues increased by $1,592 million in 2022, mainly as a result of higher fuel prices.

In 2022, RTMs, measuring the weight and distance of freight transported by the Company, increased by 1% relative to 2021. Freight revenue per RTM increased by 18% in 2022 when compared to 2021, mainly driven by higher fuel surcharge revenue as a result of higher fuel prices, freight rate increases, a decrease in the average length of haul and the positive translation impact of a weaker Canadian dollar.

    

For the year ended December 31, 2022, revenues for this commodity group increased by $413 million, or 15%, when compared to 2021, mainly due to higher fuel surcharge revenue, increased volumes of refined petroleum products, natural gas liquids and petroleum crude, freight rate increases and the positive translation impact of a weaker Canadian dollar.

Revenue per RTM increased by 5% in 2022 when compared to 2021, mainly due to higher fuel surcharge revenue, freight rate increases and the positive translation impact of a weaker Canadian dollar.

For the year ended December 31, 2022, revenues for this commodity group increased by $363 million, or 23%, when compared to 2021, mainly due to higher fuel surcharge revenue, freight rate increases, the positive translation impact of a weaker Canadian dollar, more revenue generating moves of empty customer-owned cars and increased volumes of frac sand.

Revenue per RTM increased by 20% in 2022 when compared to 2021, mainly due to higher fuel surcharge revenue, freight rate increases, the positive translation impact of a weaker Canadian dollar, and more revenue generating moves of empty customer-owned cars; partly offset by an increase in the average length of haul.

For the year ended December 31, 2022, revenues for this commodity group increased by $266 million, or 15%, when compared to 2021, mainly due to higher fuel surcharge revenue, freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by lower volumes of lumber and woodpulp as a result of continuing supply chain challenges.

Revenue per RTM increased by 20% in 2022 when compared to 2021, mainly due to higher fuel surcharge revenue, freight rate increases and the positive translation impact of a weaker Canadian dollar.

For the year ended December 31, 2022, revenues for this commodity group increased by $319 million, or 52%, when compared to 2021, mainly due to higher Canadian export volumes of thermal and metallurgical coal via west coast ports due to the re-opening of two mines in November 2021 and favorable market conditions due to rising energy prices, as well as higher fuel surcharge revenue.

Revenue per RTM increased by 23% in 2022 when compared to 2021, mainly due to higher fuel surcharge revenue and a decrease in the average length of haul.

For the year ended December 31, 2022, revenues for this commodity group increased by $308 million, or 12%, when compared to 2021, mainly due to higher fuel surcharge revenue, freight rate increases and increased volumes of U.S. grain and the positive translation impact of a weaker Canadian dollar; partly offset by significantly lower export volumes of Canadian grain in the first half of 2022 compared to record volumes in the prior year and reduced potash shipments.

Revenue per RTM increased by 19% in 2022 when compared to 2021, mainly due to higher fuel surcharge revenue, freight rate increases, a decrease in the average length of haul and the positive translation impact of a weaker Canadian dollar.

For the year ended December 31, 2022, revenues for this commodity group increased by $791 million, or 19%, when compared to 2021, mainly due to higher fuel surcharge revenue, an increase in ancillary services including container storage, freight rate increases and the positive translation impact of a weaker Canadian dollar; partly offset by lower international container traffic volumes via the port of Vancouver as a result of supply chain congestion.

Revenue per RTM increased by 24% in 2022 when compared to 2021, mainly due to higher fuel surcharge revenue, an increase in ancillary services including container storage, freight rate increases and the positive translation impact of a weaker Canadian dollar.

For the year ended December 31, 2022, revenues for this commodity group increased by $221 million, or 38%, when compared to 2021, mainly due to higher fuel surcharge revenue, higher volumes of finished vehicles, the positive translation impact of a weaker Canadian dollar and freight rate increases.

Revenue per RTM increased by 17% in 2022 when compared to 2021, mainly due to higher fuel surcharge revenue, the positive translation impact of a weaker Canadian dollar, a decrease in the average length of haul and freight rate increases.

For the year ended December 31, 2022, Other revenues decreased by $51 million, or 9%, when compared to 2021, mainly due to lower revenues for international freight forwarding as a result of closing down CN Worldwide.

Operating expenses for the year ended December 31, 2022, amounted to $10,267 million compared to $8,861 million in 2021. The increase of $1,406 million, or 16%,was mainly as a result of higher fuel prices, the negative translation impact of a weaker Canadian dollar as well the Recovery of the loss on assets held for sale of $137 million recorded in the first quarter of 2021 resulting from the Company entering into an agreement for the sale of non-core lines; partly offset by Transaction-related costs of $84 million recorded in the third quarter of 2021 resulting from the terminated CN Merger Agreement with KCS.

(1)This non-GAAP measure does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. See the section of this MD&A entitled 2022 Results of operations – Constant currency for an explanation of this non-GAAP measure.

Labor and fringe benefits expense increased by $56 million, or 2%, in 2022 when compared to 2021. The increase was mainly due to general wage increases, an incremental wage accrual for the tentative agreements with the U.S. unions and the negative translation impact of a weaker Canadian dollar; partly offset by lower average headcount, lower pension expense and employee termination benefits and severance costs related to a workforce reduction program in the third quarter of 2021.

Purchased services and material expense increased by $109 million, or 5%, in 2022 when compared to 2021. The increase was mainly due to higher material costs, the negative translation impact of a weaker Canadian dollar and higher snow clearing and utility costs driven by harsher winter operating conditions; partly offset by lower international freight forwarding expense as a result of closing down CN Worldwide.

Fuel expense increased by $1,005 million, or 66%, in 2022 when compared to 2021. The increase was mainly as a result of higher fuel prices and the negative translation impact of a weaker Canadian dollar.

Depreciation and amortization expense increased by $131 million, or 8%, in 2022 when compared to 2021. The increase was mainly due to a higher depreciable asset base and the negative translation impact of a weaker Canadian dollar.

Equipment rents expense increased by $2 million, or 1%, in 2022 when compared to 2021. The increase was mainly due to the negative translation impact of a weaker Canadian dollar; partly offset by higher locomotive horsepower-hour income.

Other expense increased by $50 million, or 10% in 2022 when compared to 2021. The increase was mainly due to higher cloud computing costs, travel costs and operating taxes as well as the negative translation impact of a weaker Canadian dollar; partly offset by higher passenger train recoveries.

Recovery of loss on assets held for sale of $137 million in the first quarter of 2021 resulting from the Company entering into an agreement with a short line operator, for the sale of non-core lines in Wisconsin, Michigan and Ontario representing 850 miles that were classified as assets held for sale plus an additional 50 miles of track and roadway assets. See Note 6 – Assets held for sale to the Company's 2022 Annual Consolidated Financial Statements for additional information.

For the year ended December 31, 2021, the Company incurred transaction costs related to the terminated CN Merger Agreement of $84 million, consisting of $125 million of transaction-related costs; US$700 million ($845 million) paid to KCS and reported as an advance to KCS in the second quarter and expensed in the third quarter; and the related refund received of US$700 million ($886 million) in the third quarter. See Note 4 – Acquisition to the Company's 2022 Annual Consolidated Financial Statements for additional information.

In 2022, Interest expense was $548 million compared to $610 million in 2021. The decrease was mainly due to amortization of bridge financing and other fees of $97 million recorded in 2021 (see Note 4 – Acquisition to the Company's 2022 Annual Consolidated Financial Statements for additional information); partly offset by a higher average level of debt and a negative translation impact of a weaker Canadian dollar.

In 2022, Other components of net periodic benefit income was $498 million compared to $407 million in 2021. The increase was mainly due to lower amortization of net actuarial loss and higher expected return on assets; partly offset by higher interest cost.

In 2021, the Company received a US$700 million ($886 million) termination fee resulting from KCS terminating the CN Merger Agreement and entering into a merger agreement with CP. See Note 4 – Acquisition to the Company's 2022 Annual Consolidated Financial Statements for additional information.

In 2022, Other loss was $27 million compared to Other income of $43 million in 2021. The unfavorable variance was mainly due to fluctuations in the fair value of an equity investment in autonomous driving technology.

In 2022, the Company recorded an income tax expense of $1,645 million compared to an income tax expense of $1,443 million in 2021.

The effective tax rate for 2022 was 24.3% compared to 22.8% in 2021. The increase in the effective tax rate was mainly attributable to the merger termination fee, transaction-related costs, and bridge financing and other fees resulting from the KCS transaction recorded in the 2021 Consolidated Statements of Income, taxed at a lower inclusion rate.

(1)Certain quarters include items that management believes do not necessarily arise as part of CN's normal day-to-day operations and can distort the analysis of trends in business performance. See the section of this MD&A entitled Non-GAAP measures – Adjusted performance measures for additional information on these items.

Revenues generated by the Company during the year are influenced by seasonal weather conditions, general economic conditions, cyclical demand for rail transportation and competitive forces in the transportation marketplace (see the section entitled Business risks of this MD&A for additional information). Operating expenses reflect the impact of freight volumes, seasonal weather conditions, labor costs, fuel prices, and the Company's productivity initiatives. Fluctuations in the Canadian dollar relative to the US dollar have also affected the conversion of the Company's US dollar-denominated revenues and expenses and resulted in fluctuations in Net income in the rolling eight quarters presented above.

Revenues for the fourth quarter of 2023 were $4,471 million compared to $4,542 million in 2022. The decrease of $71 million, or 2%, was mainly due to lower shipments of intermodal and grain, primarily as a result of weaker demand for freight services to move consumer goods, the lingering negative impact of the Canadian West Coast dock workers strike and increased global grain supply; as well as lower container storage fees and lower fuel surcharge revenues as a result of lower fuel prices; partly offset by freight rate increases and higher shipments of potash, natural gas liquids and refined petroleum products.

Fuel surcharge revenues decreased by $114 million in the fourth quarter of 2023 when compared to 2022, mainly due to lower fuel prices.

Operating expenses for the fourth quarter of 2023 increased by $23 million, or 1%, to $2,653 million, when compared to the same period in 2022. The increase was mainly due to higher Labor and fringe benefits expense mainly driven by general wage increases and higher average headcount and higher personal injury and legal claim provisions; partly offset by lower fuel prices.

Operating income for the fourth quarter of 2023 decreased by $94 million, or 5%, to $1,818 million, when compared to the same period in 2022. The operating ratio was 59.3% in the fourth quarter of 2023 compared to 57.9% in the fourth quarter of 2022, a 1.4-point increase.

Net income for the fourth quarter of 2023 was $2,130 million, an increase of $710 million, or 50%, when compared to the same period in 2022, and diluted earnings per share increased by 57% to $3.29. The increase was mainly due to a net deferred income tax recovery of $713 million resulting from tax filings consistent with a ruling that the Company received in a non-U.S. foreign jurisdiction in connection with prior taxation years.

The following tables provide an analysis of the Company's balance sheet as at December 31, 2023 as compared to 2022. Assets and liabilities denominated in US dollars have been translated to Canadian dollars using the foreign exchange rate in effect at the balance sheet date. As at December 31, 2023 and 2022, the foreign exchange rates were $1.3243 and $1.3554 per US$1.00, respectively.

The Company's principal source of liquidity is cash generated from operations, which is supplemented by borrowings in the money markets and capital markets. To meet its short-term liquidity needs, the Company has access to various financing sources, including unsecured revolving credit facilities, commercial paper programs, and an accounts receivable securitization program. In addition to these sources, the Company can use equipment loans or issue debt securities to meet its longer-term liquidity needs. The strong focus on cash generation from all sources gives the Company increased flexibility in terms of meeting its financing requirements.

The Company's primary short-term and long-term cash requirements are discussed below:

•Short-term cash requirements: includes working capital requirements, such as labor and fringe benefits, fuel, income tax instalments, pension contributions, and contractual obligations; interest and principal payments on current debt financing; dividends; and share repurchases.

•Long-term cash requirements: includes capital expenditures relating to track infrastructure and other, interest and principal repayments of long-term debt financing, operating and finance lease obligations; business acquisitions and long-term contractual obligations.

The Company sets priorities on its uses of available funds based on short-term operational requirements, expenditures to continue to operate a safe railway and pursue strategic initiatives, while also considering its long-term contractual obligations and returning value to its shareholders; and as part of its financing strategy, the Company regularly reviews its capital structure, cost of capital, and the need for additional debt financing. For a summary of short-term and long-term contractual obligations, including material cash requirements related to such obligations, refer to the table within this section entitled Contractual obligations.

The 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. The Company maintains adequate resources to meet daily cash requirements, and has sufficient financial capacity to manage its day-to-day cash requirements and current obligations. As at December 31, 2023 and 2022, the Company had Cash and cash equivalents of $475 million and $328 million, respectively; Restricted cash and cash equivalents of $449 million and $506 million, respectively; and a working capital deficit of $1,946 million and $625 million, respectively. (1) The increase in the working capital deficit was mainly due to higher commercial paper. The cash and cash equivalents pledged as collateral for a minimum term of one month pursuant to the Company's bilateral letter of credit facilities are recorded as Restricted cash and cash equivalents. There are currently no specific requirements relating to working capital other than in the normal course of business as discussed herein.

The Company's U.S. and other foreign subsidiaries maintain sufficient cash to meet their respective operational requirements. If the Company should require more liquidity in Canada than is generated by its domestic operations, the Company could decide to repatriate funds associated with undistributed earnings of its foreign operations, including its U.S. and other foreign subsidiaries. The impact on liquidity resulting from the repatriation of funds held outside Canada would not be significant as such repatriation of funds would not cause significant tax 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 effect between them.

The Company expects cash from operations and its various sources of financing to be sufficient to meet its ongoing obligations. The Company is not aware of any trends or expected fluctuations in its liquidity that would impact its ongoing operations or financial condition as of the date of this MD&A.

(1)The Company defines working capital as current assets of $3,089 million (2022 - $3,217 million) less current liabilities of $5,035 million (2022 - $3,842 million).

On May 4, 2022, the Company filed a shelf prospectus with Canadian securities regulators and a registration statement with the SEC, pursuant to which CN may issue up to $6.0 billion of debt securities in the Canadian and U.S. capital markets over a 25-month period following the filing date. This shelf prospectus and registration statement replaced CN's previous shelf prospectus and registration statement that expired on March 11, 2022.

As at December 31, 2023, the remaining capacity of this shelf prospectus and registration statement was $1.5 billion. Access to the Canadian and U.S. capital markets under the shelf prospectus and registration statement is dependent on market conditions.

The Company's access to long-term funds in the capital markets depends on its credit ratings and market conditions. The Company 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, the Company could borrow under its credit facilities, draw down on its accounts receivable securitization program, access the pledged cash under its letter of credit facilities, raise cash by disposing of surplus properties or otherwise monetizing assets, reduce discretionary spending or take a combination of these measures to assure that it has adequate funding for its business.

The Company has unsecured revolving credit facilities with a consortium of lenders. The unsecured credit facility of $2.5 billion is available for general corporate purposes and backstopping the Company's commercial paper programs. The facility consists of two tranches of $1.25 billion and was amended on March 17, 2023 to extend its tenor by one year to March 31, 2026 and March 31, 2028. This revolving credit facility agreement is structured as a sustainability linked loan whereby its applicable margins are adjusted up or down based on the Company's performance under certain sustainability targets. The unsecured credit facility of $1.0 billion is available for general corporate purposes and was amended on March 17, 2023 to extend its tenor by one year to March 17, 2025. Both credit facilities provide borrowings at various benchmark interest rates, such as the Secured Overnight Financing Rate (SOFR) and the Canadian Dollar Offered Rate (CDOR), plus applicable margins, based on CN's credit ratings. The facilities were also amended in March 2023 to include fallback language that addresses the cessation of CDOR and adoption of the Canadian Overnight Repo Rate Average (CORRA) as the alternative benchmark.

As at December 31, 2023 and 2022, the Company had no outstanding borrowings under these revolving credit facilities.

On March 31, 2023, the Company entered into new loan supplements to the existing agreement for an additional principal amount of US$304 million, which is available to be drawn, in Canadian or U.S. dollars, through March 31, 2024. On November 3, 2023, the Company entered into a new term loan facility for a principal amount of $366 million, which is available to be drawn through November 4, 2024. Borrowings under the non-revolving term loan facilities are provided at SOFR and/or CDOR, plus applicable margins. On March 31, 2023, outstanding loans referencing the London Interbank Offered Rate (LIBOR), were transitioned to SOFR. The facilities also include fallback language that addressed the cessation of CDOR and adoption of CORRA as the alternative benchmark. The Company made no draws under these facilities in 2023.

As at December 31, 2023, the Company had outstanding borrowings of $677 million (2022 - $734 million) and had $769 million (2022 - $nil) available to be drawn under this these facilities.

The Company has a commercial paper program in Canada and in the U.S. Both programs are backstopped by the Company's revolving credit facility. The maximum aggregate principal amount of commercial paper that can be issued is $2.5 billion, or the US dollar equivalent, on a combined basis. The commercial paper programs, which are subject to market rates in effect at the time of financing, provide the Company with a flexible financing alternative, and can be used for general corporate purposes. The cost of commercial paper and access to the commercial paper market in Canada and the U.S. are dependent on credit ratings and market conditions. If the Company were to lose access to its commercial paper program for an extended period of time, the Company could rely on its revolving credit facilities to meet its short-term liquidity needs.

As at December 31, 2023 and 2022, the Company had total commercial paper borrowings of US$1,360 million ($1,801 million) and US$594 million ($805 million), respectively, presented in Current portion of long-term debt on the Consolidated Balance Sheets.

The Company has an agreement to sell an undivided co-ownership interest in a revolving pool of accounts receivable to unrelated trusts for maximum cash proceeds of $450 million. On January 19, 2023, the Company extended the term of its agreement by one year to February 1, 2025. The trusts are multi-seller trusts and the Company is not the primary beneficiary. Funding for the acquisition of these assets is customarily through the issuance of asset-backed commercial paper notes by the unrelated trusts.

The Company has retained the responsibility for servicing, administering and collecting the receivables sold. The average servicing period is approximately one month and the interest on borrowings under the accounts receivable securitization program is renewed based on commercial paper rates then in effect or SOFR or CDOR if the commercial paper market is inaccessible and includes fallback language that allows for the succession of CDOR to an alternative rate consistent with market convention. Subject to customary indemnifications, each trust's recourse is limited to the accounts receivable transferred.

The accounts receivable securitization program provides the Company with readily available short-term financing for general corporate use. In the event the program is terminated before its scheduled maturity, the Company expects to meet its future payment obligations through its various sources of financing including its revolving credit facilities and commercial paper program, and/or access to capital markets.

As at December 31, 2023, and 2022 the Company had no outstanding borrowings under the accounts receivable securitization program.

Additional information relating to the Company's financing sources is provided in Note 16 – Debt to the Company's 2023 Annual Consolidated Financial Statements.

The 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. Rating downgrades could limit the Company's access to the capital markets, or increase its borrowing costs.

In the second quarter of 2023 the rating agencies took the following actions:

•DBRS maintained the outlook at stable and confirmed CN's long-term and short-term ratings at current levels at A and R-1 (low).

•Moody's Investors Service changed their outlook from negative to stable and confirmed the long-term and short-term debt ratings at A2 and P-1 respectively.

•S&P Global Ratings changed their outlook from negative to stable and downgraded the long-term debt rating from A to A- and the commercial paper rating from A-1 to A-2.

The following table provides the Company's long-term debt and commercial paper credit ratings as of the date of this MD&A:

(1)These credit ratings are not recommendations to purchase, hold, or sell the securities referred to above. Ratings may be revised or withdrawn at any time by the credit rating agencies. Each credit rating should be evaluated independently of any other credit rating.

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

The following table provides a reconciliation of Net cash provided by operating activities in accordance with GAAP, as reported for the years ended December 31, 2023, 2022 and 2021, to the non-GAAP free cash flow presented herein:

(1)Relates to the acquisition of the shares of Iowa Northern Railway Company for $312 million and the business combination of Cape Breton & Central Nova Scotia Railway for $78 million. See Note 4 – Business acquisitions and combinations to the Company's 2023 Annual Consolidated Financial Statements for additional information.

(2)Relates to income tax payments of $102 million for KCS merger transaction-related payments and cash receipts. See Note 4 – Business acquisitions and combinations to the Company's 2023 Annual Consolidated Financial Statements for additional information.

(3)Relates to transaction-related costs of $125 million paid. See Note 4 – Business acquisitions and combinations to the Company's 2023 Annual Consolidated Financial Statements for additional information.

(4)See Note 4 – Business acquisitions and combinations to the Company's 2023 Annual Consolidated Financial Statements for additional information.

Net cash provided by operating activities increased by $298 million in 2023 when compared to 2022, mainly due to the reduction in accounts receivable and lower income tax payments; partly offset by lower cash earnings.

The Company's contributions to its various defined benefit pension plans are made in accordance with the applicable legislation in Canada and the U.S. and such contributions follow minimum and maximum thresholds as determined by actuarial valuations. Pension contributions for the years ended December 31, 2023 and 2022 were $51 million and $70 million, respectively. For 2022, given the fully funded status of the CN Pension Plan as determined by the latest actuarial valuation for funding purposes as at December 31, 2021, the Company was prohibited from making contributions once the actuarial valuation report was filed in April 2022. For 2023, based on the results of the December 31, 2022 funding valuations, the CN Pension Plan remained fully funded and at a level such that the Company continues to be prohibited from making contributions to the CN Pension Plan.

Based on the anticipated results of the Company's next actuarial valuations for funding purposes, the CN Pension Plan is expected to remain fully funded and at a level such that the Company would continue to be prohibited from making contributions to the CN Pension Plan in 2024. As such, the Company expects to make total cash contributions of approximately $70 million in 2024 for all other pension plans, and includes the impact of affected non-unionized members transferring from the Company's defined benefit pension plans to defined contribution pension plans effective April 1, 2024.

See the section of this MD&A entitled Critical accounting estimates – Pensions and other postretirement benefits for additional information pertaining to the funding of the Company's pension plans. Additional information relating to the pension plans is provided in Note 18 – Pensions and other postretirement benefits to the Company's 2023 Annual Consolidated Financial Statements.

The Company is required to make scheduled instalment payments as prescribed by the tax authorities. In Canada, the Company's domestic jurisdiction, tax instalments in a given year are generally based on the prior year's taxable income whereas in the U.S., the Company's predominant foreign jurisdiction, they are based on forecasted taxable income of the current year.

In 2023, net income tax payments were $1,197 million (2022 - $1,288 million). The decrease was mainly due to lower required instalment payments in the U.S. mainly caused by lower pre-tax income.

For 2024, the Company's net income tax payments are expected to be approximately $1.4 billion. The increase is mostly due to higher required instalment payments mainly caused by higher expected pre-tax income.

Net cash used in investing activities increased by $958 million in 2023 when compared to 2022, mainly due to the higher property additions as well as the acquisition of IANR and the business combination of CBNS. See the section of this MD&A entitled 2023 Highlights - Recent developments for additional information pertaining to the IANR and CBNS transactions.

(1)In 2023, approximately 76% (2022 - 80%) of the Track and roadway property additions were incurred to renew basic infrastructure. Costs relating to normal repairs and maintenance of Track and roadway properties are expensed as incurred, and amounted to approximately 10% of the Company's total operating expenses in 2023 (2022 - 10%).

(2)In 2023 and 2022, property additions included expenditures of $66 million and $16 million, respectively, related to construction obligations in freight contracts for which the Company has received contract consideration (or such consideration is due) from its customers. Such consideration is recorded in Contract liabilities in the Consolidated Balance Sheets and recognized in Revenues over the life of the freight service obligation.

In 2023, CN spent approximately $3.2 billion in its capital program, of which $1.6 billion were invested to maintain the safety and integrity of its network, particularly track infrastructure. CN's capital spending also included $0.9 billion for strategic initiatives to increase capacity, enable growth and improve network resiliency, including line capacity upgrades and information technology initiatives, and $0.7 billion on equipment, including the acquisition of 500 new grain hopper cars.

Net cash used in financing activities decreased by $1,261 million in 2023 when compared to 2022, mainly due to higher net issuance of debt including commercial paper and lower repurchases of common shares.

Debt financing activities in 2023 included the following:

•On November 1, 2023, issuance of US$300 million ($416 million) 5.85% Notes due 2033 and US$300 ($416 million) 6.13% Notes due 2053, in the U.S. capital markets, which resulted in total net proceeds of $824 million;

•On May 15, 2023, repayment of US$150 million ($203 million) 7.63% Notes due 2023 upon maturity;

•On May 10, 2023, issuance of $550 million 4.15% Notes due 2030, $400 million 4.40% Notes due 2033 and $800 million 4.70% Notes due 2053 in the Canadian capital markets, which resulted in total net proceeds of $1,730 million;

•Repayment of equipment loans of $41 million;

•Net issuance of commercial paper of $908 million; and

•Repayment of finance leases of $2 million.

Debt financing activities in 2022 included the following:

•On November 15, 2022, repayment of US$250 million ($332 million) 2.25% Notes due 2022 upon maturity;

•On August 5, 2022, issuance of US$800 million ($1,028 million) 3.85% Notes due 2032 and US$700 million ($900 million) 4.40% Notes due 2052, in the U.S capital markets, which resulted in total net proceeds of $1,901 million;

•Repayment of equipment loans of $40 million;

•Net issuance of commercial paper of $563 million; and

•Repayment of finance leases of $7 million.

Cash obtained from the issuance of debt was used for general corporate purposes, including the redemption and refinancing of outstanding indebtedness and share repurchases. Additional information relating to the Company's outstanding debt securities is provided in Note 16 – Debt to the Company's 2023 Annual Consolidated Financial Statements.

The Company may repurchase its common shares pursuant to a NCIB at prevailing market prices plus brokerage fees, or such other prices as may be permitted by the Toronto Stock Exchange (TSX). The Company repurchased 26.6 million common shares under its NCIB effective between February 1, 2023 and January 31, 2024, which allowed for the repurchase of up to 32.0 million common shares. Previous NCIBs allowed for the repurchase of up to 42.0 million common shares between February 1, 2022 and January 31, 2023, and up to 14.0 million common shares between February 1, 2021 and January 31, 2022.

(1)Includes brokerage fees.

(2)The Company suspended its share repurchase at the end of April 2021 in connection with the CN Merger Agreement with KCS. Following the termination of the CN Merger Agreement, the Company resumed share repurchases at the end of September 2021.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (IRA). The IRA imposes a one percent excise tax on specified repurchases of stock by certain publicly traded corporations, effective for repurchases after December 31, 2022. The amount on which the tax is imposed is reduced by the value of any stock issued by such corporation during the tax year. This provision currently does not impact CN. Future regulations and interpretations are expected to be issued to clarify how the excise tax will be applied in practice and may alter the Company’s initial assessment. Payments of this excise tax, if it became applicable, would increase the cost of making repurchases. It would not, however, affect the Company’s results of operations as they would be accounted for as direct costs of common share repurchases and recorded within Total shareholders’ equity.

On March 28, 2023, the Canadian government introduced draft legislation as part of the 2023 federal budget to implement a new two percent tax on repurchases of stock effective in 2024. If this proposed two percent tax on repurchases of stock is enacted, it is expected to affect the Company. Payments of this excise tax would increase the cost of making repurchases. It would not, however, affect the Company’s results of operations as they would be accounted for as direct costs of common share repurchases and recorded within Total shareholders’ equity. The Company continues to monitor the developments of this draft legislation.

The Company’s NCIB notices may be found online on SEDAR+ at www.sedarplus.ca and on the SEC's website at www.sec.gov through EDGAR. Printed copies may be obtained by contacting the Corporate Secretary’s Office. Information contained on, or accessible through, our website is not incorporated by reference into this MD&A.

The Company's Employee Benefit Plan Trusts ("Share Trusts") purchase CN's common shares on the open market, which are used to deliver common shares under the Share Units Plan and the Employee Share Investment Plan (ESIP). Shares purchased by the Share Trusts are retained until the Company instructs the trustee to transfer shares to participants of the Share Units Plan or the ESIP. Additional information relating to Share Trusts is provided in Note 19 – Share capital to the Company's 2023 Annual Consolidated Financial Statements.

During 2023, the Company paid quarterly dividends of $0.7900 per share amounting to $2,071 million, compared to $2,004 million, at the rate of $0.7325 per share, in 2022 and $1,740 million, at the rate of $0.6150 per share, in 2021. On January 23, 2024, the Company's Board of Directors approved an increase of 7% to the quarterly dividend to common shareholders, from $0.7900 per share in 2023 to $0.8450 per share in 2024.

The following is a summary of the dividends paid and dividends per share for the last five one-year periods ended December 31, 2023, 2022, 2021, 2020 and 2019. CN's dividend growth rate has increased at a compound annual growth rate (CAGR) of 10% over the last 5 years:

In the normal course of business, the Company incurs contractual obligations. The following table sets forth the Company's contractual obligations and related cash requirements for the following items as at December 31, 2023: