advertisement

---

A month-long strike, strong Canadian dollar and high fuel prices weren't enough to keep Canadian National Railway from recording earnings and operating-ratio improvements during the first quarter.

For the three-month period ended March 31, CN recorded operating income of $290.1 million, a 6 percent increase compared with first-quarter 2003’s $274.7 million. CN's first-quarter operating ratio of 72.5 was 2.5 points better than the prior year's quarterly performance. The railroad also had free cash flow of $199.8 million, compared with $132.9 million for the same 2003 period.

"I am very pleased with CN's performance this quarter," said President and Chief Executive Officer E. Hunter Harrison in a prepared statement. "We overcame a series of stiff challenges — an unfortunate strike, the year-over-year appreciation of the Canadian dollar, and persistently high energy prices — to grow freight volumes by 5 percent and deliver significant improvements in our operating income and operating ratio."

Nevertheless, the Canadian Auto Workers (CAW) strike negatively affected first-quarter net income — particularly due to lost intermodal revenue — by about $17.6 million, and the significant appreciation of the Canadian dollar relative to the United States dollar reduced CN's revenues, operating income and net income by about $88.1 million, $29.4 million and $14.7 million, respectively, Harrison said. As a result, first-quarter revenues declined 4 percent to $1.056 billion, compared with $1.098 billion during the same 2003 period.

First-quarter 2004 operating expenses declined 7 percent to $765.8 million. The decrease largely reflected the translation impact of the stronger Canadian dollar on U.S. dollar-denominated expenses, and lower labor and fringe benefits expenses and equipment rents, according to CN. Higher depreciation and amortization expenses, and the impact of higher fuel prices on fuel expense, partly offset the decreases.

The CAW strike had minimal impact on operating expenses, as lower labor and fringe benefit expenses essentially offset increases in other expense categories.

"CN's intermodal revenues have recovered since the strike and we anticipate continued strength in Canadian grain and forest products volumes during the balance of the year," Harrison said. "On the expense side, we are intent on maintaining a sharp focus on cost reduction and productivity improvement."

Harrison's also intent on steering CN for at least the next five years. On April 22, CN announced that he'd agreed to extend his employment contract through the end of 2008.

"CN's directors are very pleased with Hunter Harrison's agreement to remain the leader of the company for the next five years," said CN Chairman David McLean. "Hunter is an outstanding chief executive officer. Thanks to him, CN is the rail industry's service and efficiency leader, and it continues to outpace the industry in financial performance and sustained growth in shareholder value."

Harrison, who has been president and CEO since January 2003, joined the railroad as executive vice-president and chief operating officer in 1998.