MONTREAL, Que. — CN has reported a 9% increase in its revenues and a 21% increase in its net income for the third quarter.

E. Hunter Harrison, president and chief executive officer, described CNs results as exceptional and said they reflected substantial revenue growth, asset utilization and cost control accomplishments. In addition to the nine per cent increase in revenues, freight volume was up 6%, and carloadings improved by 2%.

“The top line benefited from the underlying strength of the diverse and balanced portfolio of commodities that CN transports, as well as freight rate increases. Cost control was again outstanding — operating expenses declined one per cent during the quarter despite an increase in workload and much higher fuel expenses. Our revenue, cost performance and asset utilization focus all came together in producing a record quarterly operating ratio of 57.4%, Harrison said.

Third-quarter revenues increased nine per cent due to rate increases, higher fuel surcharges, and volume growth, particularly in the grain, intermodal, and metals and minerals commodity groups. Partly offsetting these gains was the unfavourable C$65-million translation impact of the stronger Canadian dollar on U.S. dollar-denominated revenues.

Six of CN’s seven commodity groups experienced revenue increases during the quarter, while revenue ton-miles – a measure of the rail freight volume carried by the company – rose by six per cent.

CN’s operating expenses for the third quarter declined one per cent to C$1,137 million, owing largely to lower casualty and other expense, lower labour and fringe benefits expense, and the favourable C$40-million translation impact of the stronger Canadian dollar on U.S. dollar-denominated expenses. Partly offsetting these factors were increased fuel costs, and purchased services and material expense.

The continued appreciation in the Canadian dollar relative to the U.S. dollar reduced third-quarter net income by approximately C$15 million, or approximately three cents per diluted share.

Net income for the first nine months of 2006 increased by 41% to C$1,588 million, with diluted earnings per share increasing 48 per cent to C$2.95. Included in net income was a second-quarter deferred income tax recovery of C$250 million (C$0.46 per diluted share) resulting primarily from the enactment of lower federal and provincial corporate tax rates in Canada.

Revenues for the nine-month period increased by eight per cent to C$5,774 million due to rate increases, higher fuel surcharges, and volume growth, particularly in the grain, intermodal, and metals and minerals commodity groups. Partly offsetting these gains was the unfavourable C$220-million translation impact of the stronger Canadian dollar on U.S. dollar-denominated revenues.

Operating expenses for the first nine months of 2006 increased one per cent to C$3,500 million. The increase was largely due to increased fuel costs, purchased services and material expense, and depreciation. Partly offsetting these factors was the favourable C$130-million translation impact of the stronger Canadian dollar on U.S. dollar-denominated expenses, lower casualty and other expense, and lower labour and fringe benefits expense.

Operating income increased 19% to C$2,274 million, while the company’s operating ratio improved by 3.8 percentage points to 60.6 per cent.

The continued appreciation of the Canadian dollar relative to the U.S. dollar reduced nine-month 2006 net income by approximately C$50 million, or approximately nine cents per diluted share.

CN is revising upwards its full-year 2006 earnings guidance because of the strong year-to-date financial performance of the company. CN now expects 2006 adjusted diluted earnings per share to be approximately C$3.40.” Building on the strength of CN’s 2006 financial track record, the company expects 2007 diluted earnings per share to grow in the 10 per cent-plus range, consistent with the company’s long-term vision.