CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the second quarter ended June 30, 2022. Financial performance improved year-over-year with record adjusted diluted earnings per share (EPS) of C$1.93, up 30%. (1) For the same period, the Company reported diluted EPS up 32% to C$1.92. CN also delivered solid operational performance with improvements in key operating metrics such as origin train performance, car velocity, through dwell and record fuel efficiency, resulting in a lower operating ratio.

“I am proud of our team of railroaders and pleased with our solid performance this quarter. Our team has the network running well, demonstrating improvements in service levels to our customers, driving greater velocity and generating strong financial results. We are preparing for a busy fall and are well positioned to achieve our 2022 outlook.”

– Tracy Robinson, President and Chief Executive Officer, CN

Financial results and operating highlights Second-quarter 2022 compared to second-quarter 2021

  • Record revenues of C$4,344 million, an increase of C$746 million or 21%.
  • Record operating income of C$1,769 million, an increase of 28%, and record adjusted operating income of C$1,781 million, an increase of 29%. (1)
  • Diluted EPS of C$1.92, an increase of 32%, and record adjusted diluted EPS of C$1.93, an increase of 30%. (1)
  • Operating ratio, defined as operating expenses as a percentage of revenues, of 59.3%, an improvement of 2.3-points, and adjusted operating ratio of 59.0%, an improvement of 2.6-points. (1)
  • Free cash flow for the first six months of 2022 was C$1,568 million compared to C$1,280 million for the same period in 2021. (1)
  • Injury frequency rate (3) increased by 43% and the accident rate (4) decreased by 24%.
  • Car velocity (car miles per day) improved by 2% and through dwell (entire railroad, hours) improved by 6%.
  • Fuel efficiency improved by 4% to a record of 0.838 US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs).
  • For the month of June, origin train performance, defined as the percentage of actual train departure time compared to designed train departure time at selected yards, reached 91%, an improvement of 14% compared to 80% for the same period in 2021.

Reaffirming 2022 financial outlook (2) CN confirms its 2022 outlook targeting to deliver approximately 15-20% adjusted diluted EPS growth in 2022. (1) CN continues to target an operating ratio below 60% for 2022 as well as a ROIC of approximately 15%. (1) CN maintains its free cash flow target in the range of C$3.7 billion - C$4.0 billion in 2022. (1)

Second-quarter 2022 revenues, traffic volumes and expenses Revenues for the second quarter of 2022 were C$4,344 million, an increase of C$746 million, or 21%, when compared to the same period in 2021. The increase was mainly due to higher applicable fuel surcharge rates, freight rate increases, higher Canadian export volumes of coal via west coast ports, higher 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.

Revenue ton miles (RTMs), measuring the weight and distance of freight transported by CN, increased by 2% compared to the year-earlier period. Freight revenue per RTM increased by 19% compared to the year-earlier period, mainly driven by higher applicable fuel surcharge rates, freight rate increases and the positive translation impact of a weaker Canadian dollar. Operating expenses for the second quarter of 2022 increased by 16% to C$2,575 million, mainly driven by higher fuel prices and the negative translation impact of a weaker Canadian dollar; partly offset by lower average headcount.

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

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

(2) Forward-Looking Statements Certain statements included in this news release constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws, including statements based on 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 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 in this news release 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 or other types of claims and litigation; risks and liabilities arising from derailments; timing and completion of capital programs; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should also be made to Management’s Discussion and Analysis (MD&A) in CN’s annual and interim reports, Annual Information Form and Form 40-F, filed with Canadian and U.S. securities regulators and available on CN’s website, 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.

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

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

2022 key assumptions CN has made a number of economic and market assumptions in preparing its 2022 outlook. The Company assumes that North American industrial production for the year will increase in the mid single-digit range and assumes U.S. housing starts of approximately 1.6 million units and U.S. motor vehicle sales of approximately 15.5 million units. For the 2021/2022 crop year, the grain crop in Canada was below its three-year average and the U.S. grain crop was in line with its three-year average. The Company assumes that the 2022/2023 grain crop in Canada will be above its three-year average (or in line when excluding the significantly lower 2021/2022 crop year) and that the 2022/2023 U.S. grain crop will be in line with its three-year average. CN assumes total RTMs in 2022 will increase in the low single-digit range versus 2021. CN assumes continued pricing above rail inflation upon contract renewals. CN assumes that in 2022, the value of the Canadian dollar in U.S. currency will be approximately $0.80, and assumes that in 2022 the average price of crude oil (West Texas Intermediate) will be in the range of US$90 - US$100 per barrel. In 2022, CN plans to invest approximately 17% of revenues in its capital program.

This earnings news release, as well as additional information, including the Financial Statements, Notes thereto and MD&A, is contained in CN’s Quarterly Review available on the Company's website at www.cn.ca/financial-results and on SEDAR at www.sedar.com as well as on the U.S. Securities and Exchange Commission's website at www.sec.gov through EDGAR.

About CN CN is a world-class transportation leader and trade-enabler. Essential to the economy, to the customers, and to the communities it serves, CN safely transports more than 300 million tons of natural resources, manufactured products, and finished goods throughout North America every year. As the only railroad connecting Canada’s Eastern and Western coasts with the U.S. South through a 18,600-mile rail network, CN and its affiliates have been contributing to community prosperity and sustainable trade since 1919. CN is committed to programs supporting social responsibility and environmental stewardship.

Contacts:  
Media Investment Community
Jonathan Abecassis Paul Butcher
Senior Manager Vice-President
Media Relations Investor Relations
(438) 455-3692 (514) 399-0052
media@cn.ca investor.relations@cn.ca

Selected Railroad Statistics – unaudited

  Three months ended June 30   Six months ended June 30
  2022 2021   2022 2021
Financial measures          
Key financial performance indicators (1)          
Total revenues ($ millions) 4,344 3,598   8,052 7,133
Freight revenues ($ millions) 4,195 3,452   7,803 6,875
Operating income ($ millions) 1,769 1,382   2,996 2,709
Adjusted operating income ($ millions) (2)(3) 1,781 1,382   3,018 2,572
Net income ($ millions) (4) 1,325 1,036   2,243 2,012
Adjusted net income ($ millions) (2)(3)(4) 1,334 1,060   2,259 1,934
Diluted earnings per share ($) (4) 1.92 1.46   3.22 2.83
Adjusted diluted earnings per share ($) (2)(3)(4) 1.93 1.49   3.25 2.72
Free cash flow ($ millions) (2)(5) 997 741   1,568 1,280
Gross property additions ($ millions) 707 729   1,086 1,141
Share repurchases ($ millions) 1,173 123   2,466 414
Dividends per share ($) 0.7325 0.6150   1.4650 1.2300
Financial ratio          
Operating ratio (%) (6) 59.3 61.6   62.8 62.0
Adjusted operating ratio (%) (2)(3) 59.0 61.6   62.5 63.9
Operational measures (7)          
Statistical operating data          
Gross ton miles (GTMs) (millions) 120,742 116,735   231,808 237,515
Revenue ton miles (RTMs) (millions) 60,551 59,246   117,105 120,700
Carloads (thousands) 1,474 1,469   2,820 2,900
Route miles (includes Canada and the U.S.) 18,600 19,500   18,600 19,500
Employees (end of period) 22,783 24,376   22,783 24,376
Employees (average for the period) 23,137 24,410   22,928 24,459
Key operating measures          
Freight revenue per RTM (cents) 6.93 5.83   6.66 5.70
Freight revenue per carload ($) 2,846 2,350   2,767 2,371
GTMs per average number of employees (thousands) 5,219 4,782   10,110 9,711
Operating expenses per GTM (cents) 2.13 1.90   2.18 1.86
Labor and fringe benefits expense per GTM (cents) 0.56 0.59   0.62 0.62
Diesel fuel consumed (US gallons in millions) 101.2 101.4   202.3 211.8
Average fuel price ($ per US gallon) 5.82 3.24   5.12 3.06
Fuel efficiency (US gallons of locomotive fuel consumed per 1,000 GTMs) 0.838 0.869   0.873 0.892
Train weight (tons) 9,512 9,840   9,478 9,623
Train length (feet) 8,427 8,749   8,320 8,536
Car velocity (car miles per day) 209 205   185 195
Through dwell (entire railroad, hours) 7.2 7.7   8.1 8.0
Through network train speed (miles per hour) 19.3 19.5   18.0 18.8
Locomotive utilization (trailing GTMs per total horsepower) 203 204   195 201
Safety indicators (8)          
Injury frequency rate (per 200,000 person hours) 1.39 0.97   1.36 1.30
Accident rate (per million train miles) 1.52 1.99   2.03 1.68

(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 supplementary schedule entitled Non-GAAP Measures – Adjusted performance measures for an explanation of these non-GAAP measures.
(4) In the first quarter of 2022, the Company changed its method of calculating market-related values of pension assets for its defined benefit plans using a retrospective approach. Comparative figures have been restated to conform to the change in methodology. See Note 2 – Change in accounting policy to CN's unaudited Interim Consolidated Financial Statements for additional information.
(5) See the supplementary schedule entitled Non-GAAP Measures – Free cash flow for an explanation of this non-GAAP measure.
(6) Operating ratio is defined as operating expenses as a percentage of revenues.
(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.

Supplementary Information – unaudited

  Three months ended June 30   Six months ended June 30
  2022 2021 % Change Fav (Unfav) % Change at constant currency Fav (Unfav) (1)   2022 2021 % Change Fav (Unfav) % Change at constant currency Fav (Unfav) (1)
Revenues ($ millions) (2)                  
Petroleum and chemicals 829 685 21 % 18 %   1,585 1,346 18 % 16 %
Metals and minerals 466 377 24 % 20 %   872 745 17 % 15 %
Forest products 513 451 14 % 11 %   939 880 7 % 5 %
Coal 249 158 58 % 56 %   444 284 56 % 55 %
Grain and fertilizers 604 609 (1 %) (3 %)   1,208 1,322 (9 %) (10 %)
Intermodal 1,326 1,037 28 % 26 %   2,382 2,005 19 % 18 %
Automotive 208 135 54 % 50 %   373 293 27 % 25 %
Total freight revenues 4,195 3,452 22 % 19 %   7,803 6,875 13 % 12 %
Other revenues 149 146 2 % %   249 258 (3 %) (5 %)
Total revenues 4,344 3,598 21 % 18 %   8,052 7,133 13 % 12 %
Revenue ton miles (RTMs) (millions) (3)                  
Petroleum and chemicals 12,330 10,054 23 % 23 %   23,889 20,786 15 % 15 %
Metals and minerals 7,149 6,652 7 % 7 %   13,412 12,945 4 % 4 %
Forest products 6,650 6,957 (4 %) (4 %)   12,469 13,627 (8 %) (8 %)
Coal 6,127 4,648 32 % 32 %   11,495 8,674 33 % 33 %
Grain and fertilizers 12,453 14,922 (17 %) (17 %)   25,804 32,763 (21 %) (21 %)
Intermodal 15,070 15,409 (2 %) (2 %)   28,626 30,642 (7 %) (7 %)
Automotive 772 604 28 % 28 %   1,410 1,263 12 % 12 %
Total RTMs 60,551 59,246 2 % 2 %   117,105 120,700 (3 %) (3 %)
Freight revenue / RTM (cents) (2)(3)                  
Petroleum and chemicals 6.72 6.81 (1 %) (4 %)   6.63 6.48 2 % 1 %
Metals and minerals 6.52 5.67 15 % 12 %   6.50 5.76 13 % 11 %
Forest products 7.71 6.48 19 % 16 %   7.53 6.46 17 % 15 %
Coal 4.06 3.40 19 % 18 %   3.86 3.27 18 % 17 %
Grain and fertilizers 4.85 4.08 19 % 16 %   4.68 4.04 16 % 15 %
Intermodal 8.80 6.73 31 % 29 %   8.32 6.54 27 % 26 %
Automotive 26.94 22.35 21 % 17 %   26.45 23.20 14 % 12 %
Total freight revenue / RTM 6.93 5.83 19 % 16 %   6.66 5.70 17 % 16 %
Carloads (thousands) (3)                  
Petroleum and chemicals 162 143 13 % 13 %   321 293 10 % 10 %
Metals and minerals 236 241 (2 %) (2 %)   445 464 (4 %) (4 %)
Forest products 86 90 (4 %) (4 %)   164 176 (7 %) (7 %)
Coal 129 100 29 % 29 %   247 169 46 % 46 %
Grain and fertilizers 142 162 (12 %) (12 %)   287 338 (15 %) (15 %)
Intermodal 664 691 (4 %) (4 %)   1,253 1,367 (8 %) (8 %)
Automotive 55 42 31 % 31 %   103 93 11 % 11 %
Total carloads 1,474 1,469 % %   2,820 2,900 (3 %) (3 %)
Freight revenue / carload ($) (2)(3)                  
Petroleum and chemicals 5,117 4,790 7 % 4 %   4,938 4,594 7 % 6 %
Metals and minerals 1,975 1,564 26 % 23 %   1,960 1,606 22 % 20 %
Forest products 5,965 5,011 19 % 16 %   5,726 5,000 15 % 13 %
Coal 1,930 1,580 22 % 21 %   1,798 1,680 7 % 6 %
Grain and fertilizers 4,254 3,759 13 % 11 %   4,209 3,911 8 % 6 %
Intermodal 1,997 1,501 33 % 32 %   1,901 1,467 30 % 29 %
Automotive 3,782 3,214 18 % 14 %   3,621 3,151 15 % 13 %
Total freight revenue / carload 2,846 2,350 21 % 19 %   2,767 2,371 17 % 15 %

(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 supplementary schedule entitled Non-GAAP Measures – Constant currency for an explanation of this non-GAAP measure.
(2) Amounts expressed in Canadian dollars.
(3) Statistical operating data and related key operating measures are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available.

Non-GAAP Measures – unaudited

In this supplementary schedule, the "Company" or "CN" refers to Canadian National Railway Company, together with its wholly-owned subsidiaries. Financial information included in this schedule is expressed in Canadian dollars, unless otherwise noted. CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). The Company also uses non-GAAP measures that do not have any standardized meaning prescribed by GAAP, including adjusted performance measures, constant currency, free cash flow and adjusted debt-to-adjusted EBITDA multiple. These non-GAAP measures may not be comparable to similar measures presented by other companies. From management's perspective, these non-GAAP measures are useful measures of performance and provide investors with supplementary information to assess the Company's results of operations and liquidity. These non-GAAP measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.

Adjusted performance measures

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

  1. 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;
  2. non-operating expense adjustments: business acquisition-related financing fees, merger termination income, gains and losses on disposal of property; and
  3. the effect of tax law changes and rate enactments.

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 three and six months ended June 30, 2022, the Company's adjusted net income was $1,334 million, or $1.93 per diluted share, and $2,259 million, or $3.25 per diluted share, respectively. The adjusted figures for the three and six months ended June 30, 2022 exclude advisory fees related to shareholder matters of $12 million, or $9 million after-tax ($0.01 per diluted share), and $22 million, or $16 million after-tax ($0.03 per diluted share), respectively, recorded in Casualty and other within the Consolidated Statements of Income.For the three and six months ended June 30, 2021, the Company's adjusted net income was $1,060 million, or $1.49 per diluted share, and $1,934 million, or $2.72 per diluted share, respectively. (1) The adjusted figures for the three and six months ended June 30, 2021 exclude amortization of bridge financing and other fees of $32 million, or $24 million after-tax ($0.03 per diluted share) recorded in the second quarter, resulting from the Kansas City Southern ("KCS") transaction, recorded in Interest expense within the Consolidated Statements of Income. The adjusted figures for the six months ended June 30, 2021 also exclude 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 of on-going rail operations, certain non-core rail lines in Wisconsin, Michigan and Ontario to a short line operator.

(1) In the first quarter of 2022, the Company changed its method of calculating market-related values of pension assets for its defined benefit plans using a retrospective approach. Comparative figures have been restated to conform to the change in methodology. See Note 2 – Change in accounting policy to CN's unaudited Interim Consolidated Financial Statements for additional information.

Adjusted net income is defined as Net income in accordance with GAAP adjusted for certain significant items. Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted-average diluted shares outstanding. The following table provides a reconciliation of Net income and Earnings per share in accordance with GAAP, as reported for the three and six months ended June 30, 2022 and 2021, to the non-GAAP adjusted performance measures presented herein:

  Three months ended June 30 Six months ended June 30
In millions, except per share data   2022     2021     2022     2021  
Net income (1) $ 1,325   $ 1,036   $ 2,243   $ 2,012  
Adjustments:        
Operating expense adjustments:        
Advisory fees related to shareholder matters   12         22      
Recovery of loss on assets held for sale               (137 )
Non-operating expense adjustments:        
Amortization of bridge financing and other fees       32         32  
Tax adjustments:        
Tax effect of adjustments (2)   (3 )   (8 )   (6 )   27  
Total adjustments   9     24     16     (78 )
Adjusted net income (1) $ 1,334   $ 1,060   $ 2,259   $ 1,934  
Diluted earnings per share (1) $ 1.92   $ 1.46   $ 3.22   $ 2.83  
Impact of adjustments, per share   0.01     0.03     0.03     (0.11 )
Adjusted diluted earnings per share (1) $ 1.93   $ 1.49   $ 3.25   $ 2.72  

(1) In the first quarter of 2022, the Company changed its method of calculating market-related values of pension assets for its defined benefit plans using a retrospective approach. Comparative figures have been restated to conform to the change in methodology. See Note 2 – Change in accounting policy to CN's unaudited Interim Consolidated Financial Statements for additional information.
(2) The tax impact of adjustments is based on the nature of the item for tax purposes and related tax rates in the applicable jurisdiction.
   

Adjusted operating income is defined as Operating income in accordance with GAAP adjusted for certain significant operating expense items. Adjusted operating expenses is defined as Operating expenses in accordance with GAAP adjusted for certain significant operating expense items. Adjusted operating ratio is defined as adjusted operating expenses as a percentage of revenues. The following table provides a reconciliation of Operating income, Operating expenses and operating ratio, as reported for the three and six months ended June 30, 2022 and 2021, to the non-GAAP adjusted performance measures presented herein:

  Three months ended June 30 Six months ended June 30
In millions, except percentages   2022     2021     2022     2021  
Operating income $ 1,769   $ 1,382   $ 2,996   $ 2,709  
Operating expense adjustments:        
Advisory fees related to shareholder matters   12         22      
Recovery of loss on assets held for sale               (137 )
Total operating expense adjustments   12         22     (137 )
Adjusted operating income $ 1,781   $ 1,382   $ 3,018   $ 2,572  
Operating expenses $ 2,575   $ 2,216   $ 5,056   $ 4,424  
Total operating expense adjustments   (12 )       (22 )   137  
Adjusted operating expenses $ 2,563   $ 2,216   $ 5,034   $ 4,561  
Operating ratio   59.3 %   61.6 %   62.8 %   62.0 %
Impact of adjustments   (0.3 %)   %   (0.3 %)   1.9 %
Adjusted operating ratio   59.0 %   61.6 %   62.5 %   63.9 %

Constant currency

Financial results at constant currency allow results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Measures at constant currency are considered non-GAAP measures and do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. Financial results at constant currency are obtained by translating the current period results denominated in US dollars at the weighted average foreign exchange rates used to translate transactions denominated in US dollars of the comparable period of the prior year.The average foreign exchange rates were $1.28 and $1.27 per US$1.00 for the three and six months ended June 30, 2022, respectively, and $1.23 and $1.25 per US$1.00 for the three and six months ended June 30, 2021, respectively.On a constant currency basis, the Company's Net income would have been lower by $20 million ($0.03 per diluted share) for both the three and six months ended June 30, 2022.The following table provides a reconciliation of the impact of constant currency and related percentage change at constant currency on the financial results, as reported for the three and six months ended June 30, 2022:

  Three months ended June 30 Six months ended June 30
In millions, except per share data   2022 Constant currency impact   2021   % Change at constant currency Fav (Unfav)   2022 Constant currency impact   2021   % Change at constant currency Fav (Unfav)
Revenues                
Petroleum and chemicals $ 829 $ (19 ) $ 685   18 % $ 1,585 $ (19 ) $ 1,346   16 %
Metals and minerals   466   (13 )   377   20 %   872   (13 )   745   15 %
Forest products   513   (14 )   451   11 %   939   (14 )   880   5 %
Coal   249   (3 )   158   56 %   444   (3 )   284   55 %
Grain and fertilizers   604   (13 )   609   (3 %)   1,208   (13 )   1,322   (10 %)
Intermodal   1,326   (15 )   1,037   26 %   2,382   (15 )   2,005   18 %
Automotive   208   (6 )   135   50 %   373   (6 )   293   25 %
Total freight revenues   4,195   (83 )   3,452   19 %   7,803   (83 )   6,875   12 %
Other revenues   149   (3 )   146   %   249   (3 )   258   (5 %)
Total revenues   4,344   (86 )   3,598   18 %   8,052   (86 )   7,133   12 %
Operating expenses                
Labor and fringe benefits   681   (10 )   692   3 %   1,434   (10 )   1,477   4 %
Purchased services and material   557   (8 )   527   (4 %)   1,095   (8 )   1,076   (1 %)
Fuel   672   (23 )   380   (71 %)   1,197   (23 )   744   (58 %)
Depreciation and amortization   423   (6 )   406   (3 %)   843   (6 )   810   (3 %)
Equipment rents   87   (3 )   83   (1 %)   182   (3 )   172   (4 %)
Casualty and other   155   (5 )   128   (17 %)   305   (5 )   282   (6 %)
Recovery of loss on assets held for sale           %         (137 ) (100 %)
Total operating expenses   2,575   (55 )   2,216   (14 %)   5,056   (55 )   4,424   (13 %)
Operating income   1,769   (31 )   1,382   26 %   2,996   (31 )   2,709   9 %
Interest expense   (128 ) 4     (158 ) 22 %   (254 4     (288 ) 13 %
Other components of net periodic benefit income (1)   124       98   27 %   249       197   26 %
Other loss   (10 )     51   (120 %)   (24     49   (149 %)
Income before income taxes (1)   1,755   (27 )   1,373   26 %   2,967   (27 )   2,667   10 %
Income tax expense (1)   (430 )  7     (337 ) (26 %)   (724 7     (655 ) (9 %)
Net income (1) $ 1,325 $ (20 ) $ 1,036   26 % $ 2,243 $ (20 ) $ 2,012   10 %
Diluted earnings per share (1) $ 1.92 $ (0.03 ) $ 1.46   29 % $ 3.22 $ (0.03 ) $ 2.83   13 %

(1) In the first quarter of 2022, the Company changed its method of calculating market-related values of pension assets for its defined benefit plans using a retrospective approach. Comparative figures have been restated to conform to the change in methodology. See Note 2 – Change in accounting policy to CN's unaudited Interim Consolidated Financial Statements for additional information.

Free cash flow

Free cash flow is a useful measure of liquidity as it demonstrates the Company's ability to generate cash for debt obligations and for discretionary uses such as payment of dividends, share repurchases, and strategic opportunities. The Company defines its free cash flow measure as the difference between net cash provided by operating activities and net cash used in investing activities, adjusted for the impact of (i) business acquisitions 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 three and six months ended June 30, 2022 and 2021, to the non-GAAP free cash flow presented herein:

  Three months ended June 30 Six months ended June 30
In millions   2022     2021     2022     2021  
Net cash provided by operating activities $ 1,713   $ 1,475   $ 2,283   $ 2,427  
Net cash used in investing activities   (716 )   (1,642 )   (817 )   (2,055 )
Net cash provided before financing activities   997     (167 )   1,466     372  
Adjustments:        
Cash income taxes for merger transaction-related payments and cash receipts (1)           102      
Transaction-related costs (2)       63         63  
Advance for acquisition (2)       845         845  
Total adjustments       908     102     908  
Free cash flow $ 997   $ 741   $ 1,568   $ 1,280  

(1) Relates to income tax payments of $102 million for KCS merger transaction-related payments and cash receipts. See Note 3 – Acquisitions, Terminated CN KCS merger agreement, to the Company’s 2021 Annual Consolidated Financial Statements and the section entitled Adjusted performance measures to the Company's 2021 Annual MD&A filed on February 1, 2022 which may be found online on SEDAR at www.sedar.com, 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 for additional information.
(2) Relates to an advance to KCS and other transaction costs paid. See Note 4 – Acquisition to the Company's unaudited Interim Consolidated Financial Statements for further information.

Adjusted debt-to-adjusted EBITDA multiple

Management believes that the adjusted debt-to-adjusted EBITDA multiple is a useful credit measure because it reflects the Company's ability to service its debt and other long-term obligations. The Company calculates the adjusted debt-to-adjusted EBITDA multiple as adjusted debt divided by the last twelve months of adjusted EBITDA. Adjusted debt is defined as the sum of Long-term debt and Current portion of long-term debt as reported on the Company’s Consolidated Balance Sheets as well as Operating lease liabilities, including current portion and pension plans in deficiency recognized on the Company's Consolidated Balance Sheets due to the debt-like nature of their contractual and financial obligations. Adjusted EBITDA is calculated as Net income excluding Interest expense, Income tax expense, Depreciation and amortization, operating lease cost, Other components of net periodic benefit income, Other income (loss), and other significant items that are not reflective of CN's underlying business operations and which could distort the analysis of trends in business performance. Adjusted debt and adjusted EBITDA are non-GAAP measures used to compute the Adjusted debt-to-adjusted EBITDA multiple. These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.The following table provides a reconciliation of debt and Net income in accordance with GAAP, reported as at and for the twelve months ended June 30, 2022 and 2021, to the adjusted measures presented herein, which have been used to calculate the non-GAAP adjusted debt-to-adjusted EBITDA multiple:

In millions, unless otherwise indicated As at and for the twelve months ended June 30,   2022     2021  
Debt $ 14,372   $ 13,719  
Adjustments:    
Operating lease liabilities, including current portion (1)   419     379  
Pension plans in deficiency (2)   443     545  
Adjusted debt $ 15,234   $ 14,643  
Net income (3) $ 5,130   $ 4,010  
Interest expense   576     559  
Income tax expense (3)   1,512     1,308  
Depreciation and amortization   1,631     1,603  
Operating lease cost (4)   135     135  
Other components of net periodic benefit income (3)   (459 )   (343 )
Other loss (income)   30     (48 )
Adjustments:    
Workforce reduction program (5)     39      
Advisory fees related to shareholder matters (6)     42      
Recovery of loss on assets held for sale (7)       (137 )
Transaction-related costs (8)     84      
Merger termination fee (9)   (886 )    
Adjusted EBITDA $ 7,834   $ 7,087  
Adjusted debt-to-adjusted EBITDA multiple(times)   1.94     2.07  

(1) Represents the present value of operating lease payments.
(2) Represents the total funded deficit of all defined benefit pension plans with a projected benefit obligation in excess of plan assets.
(3) In the first quarter of 2022, the Company changed its method of calculating market-related values of pension assets for its defined benefit plans using a retrospective approach. Comparative figures have been restated to conform to the change in methodology. See Note 2 – Change in accounting policy to CN's unaudited Interim Consolidated Financial Statements for additional information.
(4) Represents the operating lease costs recorded in Purchased services and material and Equipment rents within the Consolidated Statements of Income.
(5) Relates to employee termination benefits and severance costs related to a workforce reduction program, recorded in Labor and fringe benefits within the Consolidated Statements of Income.
(6) Relates to advisory fees related to shareholder matters recorded in Casualty and other within the Consolidated Statements of Income.
(7) Relates to the recovery of $137 million of the $486 million loss on assets held for sale recorded in the second quarter of 2020, resulting from the Company entering into an agreement for the sale of non-core lines. See Note 6 – Assets held for sale to the Company's unaudited Interim Consolidated Financial Statements for further information.
(8) Relates to transaction costs incurred as a result of the terminated CN Merger Agreement of $84 million, consisting of $125 million of transaction-related costs, partially offset by $41 million of income generated as a result of the applicable foreign exchange rates prevailing at the time of payment and related receipt of the US$700 million advance to KCS. See Note 4 –Acquisitions to the Company's unaudited Interim Consolidated Financial Statements for further information.
(9) Relates to the termination fee resulting from KCS terminating the CN Merger Agreement and entering into a merger agreement with CP. See Note 4 –Acquisitions to the Company's unaudited Interim Consolidated Financial Statements for further information.
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