Edgar Filing: CANADIAN NATIONAL RAILWAY CO

form11k.htm

Securities and Exchange Commission

Washington, D.C. 20549

Form 11-K

ANNUAL REPORT PURSUANT TO SECTION 15(D) OF

THE SECURITIES ACT OF 1934

For the fiscal year ended: December 31, 2011

Commission file number: 333-53422

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

(Full title of the plan)

CANADIAN NATIONAL RAILWAY COMPANY

(Name of issuer of securities)

935 de La Gauchetiere St. West, Montreal, Quebec, Canada H3B 2M9

(Address of issuer’s principal executive offices)

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

Financial Statements and Supplemental Schedule

As of December 31, 2011 and 2010

(With Report of Independent Registered Public Accounting Firm Thereon)

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

INDEX

Report of Independent Registered Public Accounting Firm	1
Statements of Net Assets Available for Benefits as of December 31, 2011 and 2010	2
Statements of Changes in Net Assets Available for Benefits for the years ended December 31, 2011 and 2010	3
Notes to Financial Statements	4
Schedule H, Line 4i – Schedule of Assets (Held at End of Year) – December 31, 2011	17

Report of Independent Registered Public Accounting Firm

The Administrative Committee

Canadian National Railway Company

Management Savings Plan for U.S. Operations:

We have audited the accompanying statements of net assets available for benefits of Canadian National Railway Company Management Savings Plan for U.S. Operations (the Plan) as of December 31, 2011 and 2010, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Canadian National Railway Company Management Savings Plan for U.S. Operations as of December 31, 2011 and 2010, and the changes in net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule H, line 4i – schedule of assets (held at end of year) as of December 31, 2011 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

(signed)

KPMG LLP

Denver, Colorado

June 19, 2012

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

DECEMBER 31, 2011 AND 2010

	2011		2010

Plan interest in Canadian National Railway Master Trust,
at fair value (note 7)	$	128,877,949	$	128,428,680

Receivables:
Participants' contributions		228,125		215,323
Employer's contributions		160,988		147,388
Notes receivable from participants		1,875,789		1,617,640

Total receivables		2,264,902		1,980,351

Net assets available for benefits at fair value		131,142,851		130,409,031

Adjustment from fair value to contract value for interest in
Canadian National Railway Master Trust relating to fully
benefit-responsive investment contracts		(588,773)		(222,236)

Net assets available for benefits	$	130,554,078	$	130,186,795

See accompanying Notes to Financial Statements.

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

		2011		2010

Plan interest in investment income of the Canadian
	National Railway Master Trust (note 7)	$	1,182,168	$	14,319,170

Interest income on notes receivable from participants			79,747		90,629

Contributions:
	Participants'		5,941,818		5,775,575
	Employer's		3,957,175		3,416,704
	Rollovers		103,476		203,119

	Total contributions		10,002,469		9,395,398

Transfer in of plan assets (note 5)			245,909		-

Deductions from net assets:
	Participants’ distributions		11,093,159		12,889,839
	Transfer out of plan assets (note 5)		-		1,753,451
	Administrative expenses		49,851		44,165

	Total deductions		11,143,010		14,687,455

Net increase			367,283		9,117,742

Net assets available for benefits, beginning of year			130,186,795		121,069,053

Net assets available for benefits, end of year		$	130,554,078	$	130,186,795

See accompanying Notes to Financial Statements.

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

1.	THE COMPANY

Canadian National Railway Company (CN or the Company), directly and through its subsidiaries, is engaged in the rail and related transportation business. CN spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans and Mobile, Alabama, and the key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth, Minnesota/Superior, Wisconsin, Green Bay, Wisconsin, Minneapolis/St. Paul, Memphis and Jackson, Mississippi, with connections to all points in North America. CN’s freight revenues are derived from the movement of a diversified and balanced portfolio of goods, including petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal and automotive.

2.	DESCRIPTION OF PLAN

The following description of the Canadian National Railway Company Management Savings Plan for U.S. Operations (the Plan) provides only general information. Participants should refer to the summary plan description for a more complete description of the Plan’s provisions.

General

The Plan, as amended through January 1, 2012, is a defined contribution plan, offering all eligible employees an opportunity to defer annually from 1% to 100% of their eligible earnings, subject to the legal limits allowed by the Internal Revenue Service (IRS), for contribution to various investment funds. These funds and their investment objectives are described in Note 4. Eligible employees may participate in the Plan any time on or after their date of hire.

The Plan covers eligible employees of Illinois Central Railroad Company (ICRR), Grand Trunk Western Railroad Incorporated, IC RailMarine Terminal Company (ICRMT), Chicago, Central and Pacific Railroad Company, Wisconsin Central Limited, Sault Ste. Marie Bridge Company, Bessemer and Lake Erie Railroad Company, the Pittsburgh and Conneaut Dock Company and the Elgin, Joliet and Eastern Railway. Grand Trunk Corporation, which owns directly or indirectly all of the above U.S. affiliates of CN, is the Plan’s sponsor. Grand Trunk Corporation is a holding company owned by CN. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.

On July 31, 2011, the Company sold its interest in the ICRMT. ICRMT employees had future contributions cease as of that date. They had the option of rolling over their account balances into another qualified plan or leaving them in the Plan.

The Plan has an “automatic enrollment feature” permitting employers to automatically enroll new hires in the Plan. Eligible new employees are automatically enrolled in the Plan and treated as having elected to defer 3% of their eligible earnings, unless they make an affirmative election to decline participation in the Plan or to change their deferral percentage. An employee failing to respond within the prescribed notification period (60 days after receiving notification from the trustee) would become an active Plan participant.

Administration of the Plan

The Grand Trunk Corporation Board of Directors has delegated to the Administrative Committee, responsibility for the general operation and administration of the Plan and for carrying out and interpreting the Plan’s provisions.

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

Trustee and Record-keeper

The Administrative Committee has appointed Fidelity Management Trust Company (FMTC) as trustee and Fidelity Investments Institutional Operations Company, Inc. as transfer agent and record keeper of the Plan. Other affiliated Fidelity companies provide certain ministerial recordkeeping and administrative services to the Plan pursuant to an agreement entered into with the Plan Sponsor.

Contributions

Eligible participants may elect to make contributions to the Plan in amounts ranging from 1% to 100% of their annual eligible earnings on a before-tax basis. Such contributions are withheld by the Company from each participant’s compensation and deposited in the appropriate fund in accordance with the participant’s directives.

Consistent with provisions established by the IRS, the Plan’s limit on pre-tax contributions by a participant was $16,500 for 2011 and 2010. Participants who are at least age 50 by the end of a particular Plan year and have contributed the maximum 401(k) deferral amount allowed under the Plan for that year are eligible to contribute an additional portion of their annual eligible earnings on a before-tax basis as “catch-up” contributions, up to the annual IRS limit of $5,500 for 2011 and 2010 such that the total pre-tax contribution limit was $22,000 for 2011 and 2010.

In 2011and 2010, for all eligible employees, the Company contributed to the account balance of the Plan participants a “ matching contribution” equal to 50% of the first 6% of annual eligible earnings the participant defers (a maximum Company match of 3% of eligible earnings). The Company may change the 50% matching rate or the 6% rate to any other percentages, including 0%. The Company does not match the participants’ “catch-up” contributions. Although the Company has not expressed any intent to do so, it has the right under the Plan to amend its matching contribution. Employees employed by the ICRR as yardmasters or dispatchers (ICRR Employees) do not receive the matching contribution.

Participants may elect to rollover amounts from other qualified plans or individual retirement accounts into the Plan provided that certain conditions are met.

Supplemental Contributions

ICRR Employees receive a supplemental employer contribution of 2% of eligible earnings whether they make a pre-tax contribution to the Plan or not.

CN Retirement Contribution

Effective January 1, 2006, certain eligible employees participate in the Plan under a new employer contribution feature referred to as the “CN Retirement Contribution” (the DC Plan Feature). This feature is offered to all eligible new hires, except for ICRR Employees.

The Company makes contributions, on behalf of all new hires subsequent to December 31, 2005 (except for ICRR Employees) and participants who previously participated in certain defined benefit plans of the Company and are now participants in this Plan, equal to 3.5% of the participants’ annual eligible earnings for each year of service beginning January 1, 2006 whether or not the employees make pre-tax contributions to the Plan.

Participant Accounts

Participants direct the investment of their account balance into a broad range of investment funds offered by the Plan. The Plan’s record keeper maintains an account balance in the name of each participant to which each participant’s pre-tax contributions, the Company’s contributions, and share of net earnings, losses and expenses, if any, of the various investment funds, are recorded. Interest, dividends, and realized and unrealized gains and losses on investment of the funds are allocated directly to each participant’s account. The benefit to which a participant is

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

entitled is the benefit that can be provided from the participant’s vested account.

Vesting

All eligible employees are fully vested in their account balance at the time of contribution, including the Company’s matching contribution and related earnings from such contributions, except for account balances under the DC Plan Feature. Starting in 2007, these account balances vest after three years (prior to 2007, these account balances vested after five years) of employment or earlier if the participant reaches the normal retirement age, as defined.

Forfeited unvested balances of terminated participants are used to reduce future Company contributions under the Plan (see Note 3).

Distributions

Participants are eligible for a distribution of the Plan benefits upon termination of service, whether by disability, retirement, death, or leaving the Company. In the event of financial hardship, as defined in the Plan, participants may withdraw money from their accounts (excluding account balances under the DC Plan Feature) while they are still employed. Participants who have attained age 59½ may request a distribution of all or a portion of the value in the account. Withdrawals by the participant before attaining age 59½ are generally subject to a penalty tax of 10%.

Notes Receivable from Participants

Participants may borrow from their accounts by taking one loan (maximum of two loans if one or both were outstanding as of June 30, 2004) with a minimum amount of $1,000, and a total maximum amount equal to the lesser of $50,000 or 50% of their vested account balance. Participants may not borrow from their account balance under the DC Plan Feature. General purpose loans must be repaid within 5 years; if the funds are used to construct or purchase a primary residence, funds must be repaid within 10 years. The interest rate on the loans is equal to the prevailing prime rate as of the beginning of the calendar quarter in which the participant applies for the loan plus 1%, which ranged from 4.0% to 9.25% for loans outstanding at December 31, 2011. Principal and interest are paid in equal installments through payroll deductions. Participants may prepay the entire outstanding loan balance at any time without penalty. Loans deemed to be in default are recorded as distributions.

At December 31, 2011, loans outstanding were $1,875,789 ($1,617,640 in 2010), net of deemed defaulted loans of $83,510 ($62,879 in 2010) with maturity dates through August 2021.

Termination of Service

Upon termination of service, a participant with a vested account balance may leave their account balance in the Plan, or may elect to receive the value of their account in a lump-sum payment or as a direct transfer to another qualified retirement plan subject to certain conditions. However, a participant with a vested account balance of $5,000 or less may select from the latter two options only.

Expenses

Administrative expenses for maintenance of Plan financial records, participant statements, and trustee fees are paid from Plan assets. The Investment Committee, appointed by the Administrative Committee, employs an independent investment consultant to evaluate investment options, conduct fund searches, and monitor fund manager activity, of which the fees incurred are paid from Plan assets. All other administrative expenses of the Plan are paid by the Company. In addition, certain investment related expenses reduced investment income presented in the accompanying statement of changes in net assets available for benefits.

Risks and Uncertainties

The Plan provides for various investment options in any combination of stocks, mutual funds, and other investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit. Due to the

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

level of risk associated with certain investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits and the statement of changes in net assets available for benefits.

Certain of the funds available for investment by participants may contain securities with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations, and commercial mortgage-backed securities, including securities backed by subprime mortgage loans. The value, liquidity, and related income of those securities are sensitive to changes in economic conditions, including real estate value, delinquencies or defaults, or both, and may be adversely affected by shifts in the market’s perception of the issuers and changes in interest rates.

3.	SUMMARY OF ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the Plan are prepared under the accrual method of accounting.

Investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. The statement of net assets available for benefits presents the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The statement of changes in net assets available for benefits is prepared on a contract value basis.

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires the Plan Administrator to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Investment Valuation

The Plan’s investments are stated at fair value. The fair value of the Plan’s interest in the Canadian National Railway Master Trust (Master Trust) is based on the specific interest that each plan has in the underlying participant directed investment options. The investments held by the Master Trust are valued as follows: Investments in mutual funds and money market funds are valued at the net asset values of shares held at year-end. Common stocks are valued at the last reported sales price or closing price by the national securities exchange on which it trades. The CN Stock Fund is tracked on a unitized basis, whereby the value of a unit reflects the combined market value of CN common stock and the cash investments held by the fund. The Master Trust’s interest in the Fidelity Managed Income Portfolio II (FMIP II), which is fully benefit-responsive, is presented at the fair value of units held by the Master Trust as of December 31, with separate disclosure of the adjustment from fair value to contract value, which is equal to principal balance plus accrued interest. The fair value of the FMIP II is calculated by the issuer utilizing quoted market prices, most recent bid prices in the principal market in which securities are normally traded, pricing services and dealer quotes. The fair value of underlying wrapper contracts is calculated by the issuer using a discounted cash flow model which considers (i) recent fee bids as determined by recognized dealers, (ii) discount rate and (iii) the duration of the underlying portfolio securities.

The statement of net assets available for benefits includes the fair value of the underlying assets and wrap contracts of the FMIP II based on the proportionate ownership of the Plan.

As of December 31, 2011, there were no reserves against the wrap contracts’ carrying values due to credit risks of the issuers. Effective August 2009, interest rates are reviewed on a monthly basis for resetting instead of being

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

reviewed on a quarterly basis. Certain events could limit the ability of the Plan to transact at contract value with the issuers of the contracts held by the FMIP II. Such events could include, but are not limited to, the following: the establishment of a defined contribution plan that competes with the Plan for contributions, substantive modification to the FMIP II or the administration of the FMIP II, change in law, regulation or administrative ruling applicable to the Plan that could have a material adverse effect on cash flow, transfer to a competing investment option, and failure of the Plan to qualify under the applicable sections of the Internal Revenue Code of 1986, as amended (the Code). Withdrawals initiated by the Plan will normally be provided at contract value as soon as practicable within twelve months following written notice. The Plan does not believe that the occurrence of any of these events, which could limit the Plan’s ability to transact at contract value with participants, is probable.

The average yields earned by the FMIP II were approximately 1.92% and 2.25% at December 31, 2011 and 2010, respectively. The average yields earned by the FMIP II based on the actual interest rates credited to participants were approximately 1.60% and 1.82% at December 31, 2011 and 2010, respectively.

The methods described above may produce a fair value calculation that may not be indicative of net asset value or reflective of future fair values. Furthermore, while the Plan’s valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Notes Receivable from Participants

Notes receivable from participants are measured at their unpaid principal balance plus accrued but unpaid interest. Delinquent participant loans are reclassified as a distribution based upon the terms of the Plan document.

Security Transactions and Related Investment Income

Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date, and interest income is recorded on the accrual basis.

Net appreciation (depreciation) of investments includes the realized gains and losses on the sale of securities and the unrealized appreciation and depreciation in the fair value of investments.

Distributions

Distributions to participants or beneficiaries are recorded upon payment.

Contributions Receivable

Contributions receivable are the amounts due, as of the date of the financial statements, to the Plan from the Company and participants. Participant contributions from employee payroll deductions made subsequent to the Plan’s year-end attributable to the preceding Plan year are accrued, as are Company contributions coinciding with these salary deferrals and the DC Plan Feature, if any.

Forfeited Accounts

Participants’ forfeited unvested accounts, under the DC Plan Feature, are used to reduce Company contributions. At December 31, 2011 and 2010, forfeited unvested accounts available to reduce future Company contributions were $28,406 and $523, respectively. In 2011, the Company did not apply any forfeiture against Company contributions. In 2010, the Company applied forfeitures of $128,484 against Company contributions.

New Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820),” or ASU 2011-04. ASU 2011-04 was issued to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

International Financial Reporting Standards, or IFRS. The guidance in ASU 2011-04 explains how to measure the fair value, but does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. ASU 2011-04 will be effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a material impact on the Plans financial statements.

4.	DESCRIPTION OF INVESTMENT FUNDS

Participants direct the investment of their account balance into a broad range of investment funds offered by the Plan, within the Master Trust. The objectives of the various investment funds, effective December 31, 2011, are described below. The Plan Administrator may add, remove or replace any investment funds as appropriate and as allowed by the Plan document and the Plan Administrator’s Investment Policy Statement.

Mutual funds

American Funds EuroPacific Growth

This investment seeks to provide long-term growth of capital. The fund invests primarily in common stock of issuers in Europe and the Pacific Basin that the investment adviser believes has the potential for growth. Growth stocks are stocks that the investment adviser believes have the potential for above average capital appreciation. It normally invests at least 80% of net assets in securities of issuers in Europe and the Pacific Basin. The fund may invest a portion of its assets in common stock and other securities of companies in countries with developing economies and/or markets.

American Funds Investment Company of America

This investment seeks long-term growth of capital and income. The fund invests primarily in common stocks, most of which have a history of paying dividends. It may invest up to 15% of its assets, at the time of purchase, in securities of issuers domiciled outside the United States. Although the fund focuses on investments in medium to larger capitalization companies, the fund’s investments are not limited to a particular capitalization size.

Fidelity Capital Appreciation

This investment seeks capital appreciation. The fund invests primarily in common stocks of domestic and foreign issuers. It may invest in either growth stocks or value stocks or both. The fund uses fundamental analysis of factors such as each issuer’s financial condition and industry position, as well as market and economic conditions to select instruments.

Fidelity Freedom Income Fund

This investment seeks high current income; capital appreciation is a secondary objective. The fund invests in a combination of Fidelity domestic equity funds, international equity funds, bond funds, and short-term funds using a moderate asset allocation strategy designed for investors already in retirement.

Fidelity Freedom Funds

This investment seeks high total return. The fund uses a moderate assets allocation strategy designed for investors expecting to retire around the year targeted (the Fidelity Freedom 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045, and 2050 funds are targeted to investors expected to retire around those years). It normally invests in a combination of Fidelity domestic equity funds, international equity funds, bond funds, and short-term funds. The fund uses an asset allocation strategy that becomes increasingly conservative until it reaches 15% in domestic equity funds, 5% in international equity funds, 40% in bond funds, and 40% in short-term funds (approximately 10 to 15 years after the year targeted).

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

Fidelity Spartan International Index – Investor Class

This investment seeks to provide investment results that correspond to the total return of foreign stock markets. The fund normally invests at least 80% of the assets in common stocks included in the Morgan Stanley Capital International (MSCI) Europe, Australasia, and Far East (EAFE) index, which represents the performance of foreign stock markets. It uses statistical sampling techniques based on such factors as capitalization, industry exposures, dividend yield, price earnings ratio, price per book ratio, earnings growth and country weightings to attempt to replicate the returns of the MSCI EAFE Index.

Fidelity Spartan 500 Index – Investor Class

This investment seeks to provide investment results that correspond to the total return performance of common stocks publicly traded in the U.S. The fund normally invests at least 80% of assets in common stocks included in the S&P 500 Index, which broadly represents the performance of common stocks publicly traded in the U.S. In addition, the fund lends securities to earn income.

ICM Small Company

This investment seeks maximum, long-term total return. The fund normally invests at least 80% of its net assets in common stocks of companies that have market capitalizations that are under $2 billion at the time of purchase. It may invest in equity securities listed on the New York Stock Exchange (NYSE) and the NYSE Alternext US or traded on the over-the-counter markets operated by the Financial Industry Regulatory Authority.

Northern Institutional Small Company Index

This investment seeks to provide investment results approximating the aggregate price and dividend performance of the securities included in the Russell 2000 Index. The fund normally invests at least 80% of net assets in the equity securities included in the Russell 2000 Index, in weightings that approximate the relative composition of securities contained in the Russell 2000 Index, and in Russell 2000 Index futures approved by the Commodities Futures Trading Commission. It tries to duplicate the investment composition and performance of the Russell 2000 Index by using computer programs and statistical procedures.

PIMCO Total Return

This investment seeks maximum total return, consistent with preservation of capital and prudent investment management. The fund normally invests at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. It invests primarily in investment-grade debt securities, but may invest up to 10% of total assets in high-yield securities (“junk bonds”). The fund may invest up to 15% of its total assets in securities and instruments that are economically tied to emerging market countries.

Vanguard Balanced Index

This investment seeks to track the performance of a broad, market-weighted bond index and a benchmark index that measures the investment return of the overall U.S. stock market. The fund employs a “passive management” – or indexing – investment approach designed to track the performance of two benchmark indexes. With approximately 60% of assets, it seeks to track the investment performance of the MSCI US Broad Market Index, which represents 99.5% or more of the total market capitalization of all U.S. common stocks. The fund also seeks to track the investment performance of the Barclays U. S. Capital Aggregate Float Adjusted Index with 40% of assets.

Vanguard Mid Capitalization Index

This investment seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks. The fund employs a “passive management” – or indexing - investment approach designed to track the performance of the MSCI US Mid Cap 450 index, a broadly diversified index of the stocks of medium-size U.S. companies. It attempts to replicate the target index by investing all, or substantially all, of its assets in the

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

CN common stock

This represents shares of the common stock of CN.

CN Stock Fund

This fund primarily invests in the common stock of CN and also holds short-term investments sufficient to meet the fund’s daily cash needs.

Common collective trust fund

Fidelity Managed Income Portfolio II

This stable value fund is a commingled pool of the Fidelity Group Trust for Employee Benefit Plans. The portfolio invests in investment contracts issued by insurance companies and other financial institutions, fixed income securities, and money market funds to provide daily liquidity. Some investment contracts are structured solely as a general debt obligation of the issuer. Other investment contracts (i.e., wrap contracts) are purchased in conjunction with an investment by the portfolio in fixed income securities, which may include, but are not limited to, U.S. Treasury and agency bonds, corporate bonds, mortgage-backed securities, asset-backed securities, and bond funds. The portfolio may also invest in futures contracts, option contracts, and swap agreements (see Note 3).

Money market fund

Fidelity Retirement Government Money Market

This fund seeks as high a level of current income as is consistent with the security of principal and liquidity. The fund normally invests at least 80% of assets in U.S. government securities and repurchase agreements for those securities.

5.	TRANSFER OF PLAN ASSETS

In 2011 and 2010, transfers of Plan assets to/from a CN-related employee plan, the Canadian National Railway Company Union Savings Plan for U.S. Operations, relate to employees who changed participation between plans.

6.	PLAN TERMINATION

Although the Company has not expressed any intent to do so, it has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event the Plan is terminated, participants will receive the full amount of Plan assets in their respective accounts.

7.	INTEREST IN MASTER TRUST

The Master Trust was created pursuant to a trust agreement between the Plan Sponsor and FMTC, as trustee of the funds, for investment and administrative purposes. The Master Trust includes all of the investment assets of the following plans:

·	Canadian National Railway Company Management Savings Plan for U.S. Operations (Management Plan)

·	Canadian National Railway Company Union Savings Plan for U.S. Operations (Union Plan)

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

The Plan’s record keeper maintains supporting records for the purpose of allocating net gains or losses to each of the plans and to each participant’s accounts. The net investment income or loss of the investment assets is allocated to each plan and to each participant’s account based on the investments held in their account.

The Master Trust applies the provisions of FASB ASC 820, for its financial assets and liabilities carried at fair value on a recurring basis in the financial statements. FASB ASC 820 defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. FASB ASC 820 also establishes a fair value hierarchy, which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as follows:

Level 1 – Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical or similar assets and liabilities in inactive markets

Level 3 – Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances

Certain investments are reported at fair value on a recurring basis in the statements of net assets available for benefits. The following methods and assumptions were used to estimate the fair values:

Money market funds, mutual funds and common stocks – These investments consist of various publicly-traded money market funds, mutual funds and common stock. Money market funds and mutual funds are valued at their net asset values. Common stocks are valued at the last reported sales price or closing price by the national securities exchange on which it trades.

Common collective trust funds – The fair value is calculated by the issuer utilizing quoted market prices, most recent bid prices in the principal market in which the securities are normally traded, pricing services and dealer quotes. The fair value of the underlying wrapper contracts is calculated using a discounted cash flow model which considers recent fee bids as determined by recognized dealers, discount rate and the duration of the underlying portfolio securities. The Master Trust’s fair value is based on the Master Trust’s proportionate ownership of the underlying investments.

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

The following table summarizes the Master Trust’s investment assets measured at fair value on a recurring basis at December 31, 2011 and 2010:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value


December 31, 2011
Mutual funds:
Large cap funds	$	87,426,244	$	-	$	-	$	87,426,244
Mid cap funds		11,924,081		-		-		11,924,081
Small cap funds		17,198,635		-		-		17,198,635
International funds		22,950,100		-		-		22,950,100
Fixed income funds		35,923,150		-		-		35,923,150
Balanced funds		14,871,677		-		-		14,871,677
Lifestyle funds		37,973,874		-		-		37,973,874
Total mutual funds		228,267,761		-		-		228,267,761
Common stock		44,998,980		-		-		44,998,980
Money market fund		15,587,596		-		-		15,587,596
Common collective trust fund		-		40,952,497		-		40,952,497
Cash		1,048,389		-		-		1,048,389
	$	289,902,726	$	40,952,497	$	-	$	330,855,223
December 31, 2010
Mutual funds:
Large cap funds	$	94,558,276	$	-	$	-	$	94,558,276
Mid cap funds		12,789,057		-		-		12,789,057
Small cap funds		19,966,589		-		-		19,966,589
International funds		29,763,896		-		-		29,763,896
Fixed income funds		36,935,900		-		-		36,935,900
Balanced funds		15,126,567		-		-		15,126,567
Lifestyle funds		34,880,583		-		-		34,880,583
Total mutual funds		244,020,868		-		-		244,020,868
Common stock		36,112,725		-		-		36,112,725
Money market fund		16,285,069		-		-		16,285,069
Common collective trust fund		-		39,934,780		-		39,934,780
Cash		1,098,455		-		-		1,098,455
	$	297,517,117	$	39,934,780	$	-	$	337,451,897

During 2011 and 2010, there were no transfers between Level 1 and 2 investments.

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

The fair value of investments, by significant investment type, in the Master Trust at December 31 is as follows:

	2011	2010

Investments in Master Trust, at fair value:
Mutual funds	$ 228,267,761	$ 244,020,868
Common stock	44,998,980	36,112,725
Money market fund	15,587,596	16,285,069
Common collective trust fund	40,952,497	39,934,780
Cash	1,048,389	1,098,455
Total investments in Master Trust	330,855,223	337,451,897
Pending trades receivable and other	2,178,557	426,163
Total assets of Master Trust	$ 333,033,780	$ 337,878,060

Management Plan, interest in Master Trust	$ 128,877,949	$ 128,428,680
Percentage interest	38.7%	38.0%

Union Plan, interest in Master Trust	$ 204,155,831	$ 209,449,380
Percentage interest	61.3%	62.0%

Investment income for the Master Trust for the year ended December 31 is as follows:

	2011	2010

Dividends and interest	$ 7,373,276	$ 7,006,140

Net appreciation (depreciation) of investments:
Mutual funds	(10,387,110)	22,962,598
Common stock	7,784,504	7,484,416
	(2,602,606)	30,447,014

Net investment income	$ 4,770,670	$ 37,453,154

Plan interest in investment income of the Master Trust:
Management Plan	$ 1,182,168	$ 14,319,170

Union Plan	$ 3,588,502	$ 23,133,984

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

Investments that represent 5% or more of the Master Trust’s net assets as of December 31 are as follows:

	2011	2010

American Funds Investment Company of America	$ 33,537,429	$ 37,483,708
PIMCO Total Return	35,923,151	36,935,900
Fidelity Spartan 500 Index - Investor Class	34,485,543	35,778,793
Fidelity Capital Appreciation	19,403,272	21,295,776
Fidelity Managed Income Portfolio II	40,952,497	39,934,780
CN Common Stock	44,998,980	36,112,725
American Funds EuroPacific Growth	21,105,246	27,666,014
ICM Small Company	*	19,100,874

* Not greater than 5% at respective date

8.	FEDERAL INCOME TAXES

The Plan has received a favorable determination letter from the IRS, dated April 21, 2003, indicating that it is qualified under Section 401(a) of the Code, as amended, and therefore, the Plan and related trust are exempt from taxation. Although the Plan has been amended since receiving the determination letter, the Plan Administrator continues to believe the Plan and related trust are designed to be in compliance with the applicable requirements of the Code. The Plan Administrator has applied for a new determination letter from the IRS.

Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2011, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2007.

9.	RELATED-PARTY TRANSACTIONS

A significant portion of the Master Trust’s assets was invested in FMTC funds. FMTC also acts as the trustee for the Plan, and therefore, these investments qualify as party-in-interest transactions.

The Master Trust held shares of CN common stock valued at $44,998,980 and $36,112,725 at December 31, 2011 and 2010, respectively.

10.	DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND FORM 5500

The Plan’s investments, within the Master Trust, include the FMIP II, which is stated at contract value on the financial statements whereas it is stated at fair value on the Form 5500.

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500 as of December 31:

	2011	2010

Net assets available for benefits per the financial statements	$ 130,554,078	$ 130,186,795
Add : Adjustment from contract value to fair value for
interest in Master Trust relating to fully
benefit-responsive investment contracts	588,773	222,236
Net assets available for benefits per the Form 5500	$ 131,142,851	$ 130,409,031

The following is a reconciliation of investment income, including interest income on notes receivable from participants, per the financial statements to Form 5500 for the years ended December 31:

	2011	2010

Total investment income per the financial statements	$ 1,261,915	$ 14,409,799
Add : Change in contract value to fair value for
interest in Master Trust relating to fully
benefit-responsive investment contracts	366,537	518,959
Total investment income per the Form 5500	$ 1,628,452	$ 14,928,758

11.	SUBSEQUENT EVENTS

As of the date of filing these financial statements, there were no material subsequent events affecting any conditions that existed at the date of the financial statements, including any estimates inherent in the process of preparing financial statements.

New Investment options

Effective February 3, 2012, two new investment options were added to the Plan. Fidelity Spartan International Index Fund – Fidelity Advantage Class replaced Fidelity Spartan International Index Fund – Investor Class and Fidelity Spartan 500 Index Fund – Institutional Class replaced Fidelity Spartan 500 Index Fund – Investor Class.

A description of these new investment options is as follows:

Fidelity Spartan International Index Fund – Fidelity Advantage Class

This investment seeks to provide investment results that correspond to the total return of foreign stock markets. The fund normally invests at least 80% of its assets in common stocks included in the MSCI EAFE Index, which represents the performance of foreign stock markets.

Fidelity Spartan 500 Index Fund – Institutional Class

This investment seeks to provide investment results that correspond to the total return (i.e., the combination of capital changes and income) performance of common stock publicly traded in the U.S. The fund normally invests at least 80% of its assets in common stocks included in the S&P 500 index, which broadly represents the performance of common stocks publicly traded in the U.S.

CANADIAN NATIONAL RAILWAY COMPANY

MANAGEMENT SAVINGS PLAN FOR U.S. OPERATIONS

EIN: 13-2673944 Plan #002

Schedule H, Line 4i – Schedule of Assets (Held at End of Year)

DECEMBER 31, 2011

Identity of issue, borrower, lessor, or similar party	Description of investment, including maturity date, rate of interest, collateral, par, or maturity value	Current value

* Notes receivable from participants	4.00% to 9.25%, maturing through August 2021	$ 1,875,789
		$ 1,875,789

* Party-in-interest transaction

See accompanying Report of Independent Registered Public Accounting Firm.

Pursuant to the requirements of the Securities Act of 1934, the trustees (or other persons who administer the employees benefit plan) have duly caused this annual report to be signed by the undersigned hereunto duly authorized.

Canadian National Railway Company

Management Savings Plan for U.S. Operations

Name of Plan

Date: 6/19/2012 /s/ Karyne L’Ecuyer

Plan Administrator