reflect a change in the Company's vacation policy. The Company saw volume declines accelerate as we went through the second half of 2008 and first three quarters of 2009. In the third quarter of 2009, LTL tonnage was down 4.4 percent on a per workday basis versus the prior-year quarter. Overcapacity in the LTL industry has also led to a much more challenging pricing environment in 2009. Diluted earnings per share from continuing operations was $0.24 in the third quarter of 2009 compared to diluted earnings per share of $0.21 in the prior-year quarter. Excluding the adjustment to reflect the change in the Company's vacation policy, the loss per share for the quarter ended September 2009 would have been $0.16. The operating ratio (operating expenses divided by operating revenue) was 96.5 percent, 100.3 percent excluding the vacation adjustment, in the third quarter of 2009 compared to 97.3 percent in the third quarter of 2008.
The Company generated $23.4 million in cash from operating activities from continuing operations through the first nine months of the year compared with $56.6 million generated in the prior-year period. There were cash flows used in discontinued operations for the first nine months of 2009 of $3.4 million and cash flows from discontinued operations were $12.9 million for the nine months ended September 30, 2008. The Company had net cash used in investing activities of $6.2 million during the first nine months of 2009 for the purchase of property and equipment compared to $20.5 million in the first nine months of 2008. The Company's cash used in financing activities during the first nine months of 2009 included $20.3 million for debt repayments and $2.6 million for debt issuance costs compared to net debt repayments of $35.1 million in the first nine months of 2008. The Company had no borrowings on its revolving credit agreement, outstanding letters of credit of $57.7 million and cash and cash equivalents balance of $18.2 million as of September 30, 2009. The Company was in compliance with the debt covenants under the Restated Agreements at September 30, 2009.
General
The following management's discussion and analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies of Saia, Inc. (also referred to as Saia or the Company).
The Company is an asset-based transportation company based in Johns Creek, Georgia providing regional and interregional LTL services and selected longer haul LTL, guaranteed and expedited service solutions to a broad base of customers across the United States through its wholly owned subsidiary, Saia Motor Freight Line, LLC.
Our business is highly correlated to non-service sectors of the general economy. It also is impacted by a number of other factors as detailed in the "Forward Looking Statements" section of this Form 10-Q. The key factors that affect our operating results are the volumes of shipments transported through our network, as measured by our average daily shipments and tonnage; the prices we obtain for our services, as measured by revenue per hundredweight (a measure of yield) and revenue per shipment; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits; purchased transportation; claims and insurance expense; fuel and maintenance; and our ability to match operating costs to shifting volume levels. Fuel surcharges have remained in effect for several years and are a significant component of revenue and pricing. Fuel surcharges are an integral part of annual customer contract renewals which blur the distinction between base price increases and recoveries under the fuel surcharge program.

Results of Operations
                           Saia, Inc. and Subsidiary
Selected Results of Operations and Operating Statistics - Continuing Operations
               For the quarters ended September 30, 2009 and 2008
          (in thousands, except ratios and revenue per hundredweight)
                                  (unaudited)

                                                                                                  Percent
                                                                                                 Variance
                                                             2009               2008            '09 v. '08
Operating Revenue                                         $ 222,205          $ 274,181              (19.0 )%
Operating Expenses:
Salaries, wages and employees' benefits                     118,053            139,745              (15.5 )
Purchased transportation                                     18,004             21,026              (14.4 )
Depreciation and amortization                                 9,797             10,299               (4.9 )
Fuel and other operating expenses                            68,599             95,577              (28.2 )
Operating Income                                              7,752              7,534                2.9
Operating Ratio                                                96.5 %             97.3 %             (0.8 )
Nonoperating Expense                                          2,947              3,047               (3.3 )
Working Capital (as of September 30, 2009 and 2008)          19,289             19,765
Cash Flows from Continuing Operations (year to
date)                                                        23,413             56,627
Net Acquisitions of Property and Equipment (year to
date)                                                        (6,233 )          (20,511 )

Operating Statistics:
LTL Tonnage                                                     912                955               (4.4 )
Total Tonnage                                                 1,074              1,147               (6.3 )
LTL Shipments                                                 1,687              1,726               (2.3 )
Total Shipments                                               1,710              1,752               (2.4 )
LTL Revenue per hundredweight                             $   11.39          $   13.28              (14.2 )
Total Revenue per hundredweight                           $   10.34          $   11.93              (13.4 )

Quarter and nine months ended September 30, 2009 vs. Quarter and nine months ended September 30, 2008
Revenue and volume
Consolidated revenue decreased 19.0 percent to $222.2 million as a result of lower yields resulting from the impact of decreased fuel surcharges and decreased tonnage. Revenue was also negatively impacted by a weak economy and an increasingly competitive pricing environment. Due to overcapacity in the industry, the pricing environment has become more challenging as 2009 progressed. During the third quarter of 2009, the decrease in fuel surcharge revenue outpaced the decline in fuel costs.
Saia's LTL revenue per hundredweight (a measure of yield) decreased 14.2 percent to $11.39 per hundredweight for the third quarter of 2009 including the impact of reduced fuel surcharges and the increasingly competitive pricing environment. Saia's LTL tonnage was down 4.4 percent to 0.9 million tons and LTL shipments were down 2.3 percent to 1.7 million shipments. Approximately 70 percent of Saia's operating revenue is subject to individual customer price adjustment negotiations that occur throughout the year. The remaining 30 percent of operating revenue is subject to an annual general rate increase. On February 9, 2009, Saia implemented a 4.9 percent general rate increase for customers comprising this 30 percent of operating revenue. Competitive factors, customer turnover and mix changes, among other things, impact the extent to which customer rate increases are retained over time. For the nine months ended September 30, 2009, operating revenues were $646.7 million down 19.1 percent from $799.6 million for the nine months ended September 30, 2008 due to lower yields reflecting decreased fuel surcharges, an increasingly competitive pricing environment and decreased tonnage. Consistent with the quarterly results, lower fuel prices and tonnage have resulted in decreases in other operating expenses as well.

Operating expenses and operating income (loss) Consolidated operating income of $7.8 million in the third quarter of 2009 compared to operating income of $7.5 million in the prior year quarter. The third quarter of 2009 includes a favorable adjustment of $8.4 million to reflect a change in the Company's vacation policy. Overall, the operations were significantly impacted by the decreased tonnage. The third quarter of 2009 operating ratio (operating expenses divided by operating revenue) was 96.5 percent, 100.3 percent excluding the adjustment to reflect the change in the Company's vacation policy, compared to 97.3 percent for the same period in 2008. Lower fuel prices, in conjunction with volume changes due to decreased tonnage, caused $24.0 million of the decrease in fuel, operating expenses and supplies. The Company implemented reductions-in-force during the fourth quarter of 2008 and the first quarter of 2009 to bring the Company's workforce in line with business levels and reduced outlook. The Company suspended its 401(k) match effective February 1, 2009. On April 1, 2009, the Company implemented a compensation reduction equal to 10 percent of salary for the Company's leadership team, five percent for hourly, linehaul and salaried employees in operations, maintenance and administration and 10 percent in the annual retainer and meeting fees paid to the non-employee members of the Company's Board of Directors. Estimated annualized savings from the suspension of the 401(k) match is $6 million and $18 million from the compensation and wage reductions. The cost reductions from the above actions have been partially offset by increased health insurance and workers' compensation costs of $1.1 million. Purchased transportation expenses decreased 14.4 percent reflecting lower fuel prices, decreased utilization due to lower volumes and increased usage of Company drivers. The Company recorded pre-tax expense of $0.2 million in the third quarter of 2009 for equity-based compensation compared to a $0.6 million expense in the third quarter of 2008. Equity-based compensation expense includes the expense for the cash-based awards under the Company's long-term incentive plans, which is a function of the Company's stock price performance versus a peer group, and the deferred compensation plan's expense, which is tied to changes in the Company's stock price. However, a plan amendment in November 2008 changed the accounting for the deferred compensation plan and results in fixed equity plan accounting for the plan going forward.
For the nine months ended September 30, 2009, operating loss was $0.1 million with an operating ratio of 100.0 percent, 101.3 percent excluding the adjustment to reflect the change in the Company's vacation policy, compared to operating income of $20.4 million with an operating ratio of 97.5 percent for the nine months ended September 30, 2008. The actions described above, along with decreased volumes, resulted in a $38.6 million decrease in salaries, wages and benefit expense for the nine months ended September 30, 2009. Lower fuel prices and volumes resulted in $71.1 million of the decrease in fuel, operating expenses and supplies. Purchased transportation expenses decreased 20.0 percent during the first nine months of 2009 due to lower utilization and fuel prices. Other
Substantially all non-operating expenses represent interest expense. The interest expense in third quarter 2009 was higher due to increases in interest rates, letter of credit fees and amortization of fees for the June credit agreement amendment. The effective tax rate was 31.5 percent for the quarter ended September 30, 2009 compared to 35.5 percent for the quarter ended September 30, 2008. Fluctuations in the Company's forecasted results for 2009 could potentially have a significant impact on the Company's effective tax rate for an interim period.
Income from continuing operations was $3.3 million or $0.24 per diluted share in the third quarter of 2009 compared to income of $2.9 million or $0.21 per diluted share in the third quarter of 2008. Loss from continuing operations was $4.7 million or $0.36 per diluted share in the first nine months of 2009 compared to income from continuing operations of $8.3 million or $0.61 per diluted share in the first nine months of 2008. Discontinued Operations
In the nine months ended September 30, 2008, the Company recorded a $1.0 million charge, net of tax, as a result of the liabilities associated with the indemnification obligations in connection with the sale of Jevic Transportation, Inc.
Working capital/capital expenditures
Working capital at September 30, 2009 was $19.3 million, which decreased from working capital at September 30, 2008 of $19.8 million primarily due to a decrease in net accounts receivable balances of $24.1 million reflecting lower revenues, offset by a decrease in accounts payable of $8.5 million due to the timing of payments. Cash flows from operating activities for continuing operations were $23.4 million for the nine months ended September 30, 2009 versus $56.6 million for the nine months ended September 30, 2008. For the nine months ended September 30, 2009, cash used in investing activities was $6.2 million versus $20.5 million in the prior-year period, primarily due to lower property and equipment purchases. For the nine months ended September 30, 2009, cash used in financing activities was $22.6 million versus $34.5 million for the prior-year period. The $20.3 million used for financing activities in 2009 for debt repayments included $11.5 million for the redemption of the subordinated debentures.

Outlook
Our business remains highly correlated to the general economy and competitive pricing pressures, as well as the success of Company-specific improvement initiatives. There remains considerable uncertainty as to the direction of the economy for the remainder of 2009 and into 2010, including the timing of any economic recovery. We are evaluating further initiatives to reduce costs in line with declining volumes and yields. Additionally, we are closely monitoring financing alternatives for capital and other needs, if required. We plan to continue to focus on providing top quality service and improving safety performance.
The Company plans to continue to pursue revenue and cost initiatives to improve profitability. Planned revenue initiatives include, but are not limited to, building density and improving performance in our current geography, targeted marketing initiatives to grow revenue in more profitable segments, as well as pricing and yield management. The extent of success of these revenue initiatives is impacted by what proves to be the underlying economic trends, competitor initiatives and other factors discussed under "Risk Factors." Planned cost management initiatives include, but are not limited to, seeking gains in productivity and asset utilization that collectively are designed to offset anticipated inflationary unit cost increases in healthcare, workers' compensation and all the other expense categories. Salary and wage cost initiatives include reductions-in-force and suspension of the Company's 401(k) match effective February 1, 2009. Additional cost reduction actions effective April 1, 2009 consisted of a reduction in compensation equal to 10 percent of salary for the Company's leadership team and a five percent wage reduction for hourly, linehaul and salaried employees in operations, maintenance and administration. The Company also reduced the annual retainer and meeting fees paid to the non-employee members of the Company's Board of Directors by 10 percent. Other specific cost initiatives included linehaul routing optimization, reduction in costs of purchased transportation, expansion of wireless dock technology and an enhanced weight and inspection process. The Company expects the change in vacation policy will result in a reduction of approximately $3 million in vacation expense in the fourth quarter of 2009 when compared to 2008. The Company's vacation expense is expected to return to historical levels in 2010. If the Company builds market share, there are numerous operating leverage cost benefits. Conversely, should the economy soften from present levels, the Company plans to attempt to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage. The success of cost improvement initiatives is also impacted by the cost and availability of drivers and purchased transportation, fuel, insurance claims, regulatory changes, successful implementation of profit improvement initiatives and other factors discussed under "Risk Factors." See "Risk Factors" and "Forward-Looking Statements" for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.
New Accounting Pronouncements
In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (Statement 168). Statement 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force, and related accounting literature. Statement 168 reorganizes the thousands of pages of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. Statement 168 is effective for interim and annual periods ending after September 15, 2009. The adoption of Statement 168 had an effect on the Company's consolidated financial statements since all references to authoritative accounting literature are references in accordance with Statement 168.
Financial Condition
The Company's liquidity needs arise primarily from capital investment in new equipment, land and structures and information technology, letters of credit required under insurance programs, as well as funding working capital requirements.
On June 26, 2009, the Company entered into a Third Amended and Restated Credit Agreement with its banking group (the Restated Credit Agreement) and an Amended and Restated Master Shelf Agreement with its long-term note holders (the Restated Master Shelf Agreement and together with the Restated Credit Agreement, the Restated Agreements).

Restated Credit Agreement
The Restated Credit Agreement continues to provide for a revolving credit facility of $160 million, subject to a borrowing base described below with a maturity date of January 28, 2013. Under the Restated Credit Agreement, interest rate margins on revolving credit loans, fees on letters of credit and the unused portion fee increased from the interest rate margins and fees in place under the prior agreement but continue to be based on the Company's leverage ratio. Prior to the Restated Credit Agreement, the LIBOR rate margin and letter of credit fee ranged from 62.5 basis points to 162.5 basis points, the base rate margin ranged from minus 100 basis points to zero basis points and the unused portion fee ranged from 15 basis points to 25 basis points. Under the Restated Credit Agreement, the LIBOR rate margin and letter of credit fee range from 275 basis points to 400 basis points, the base rate margin ranges from 50 basis points to 175 basis points and the unused portion fee ranges from 40 basis points to 50 basis points, effective as of June 26, 2009. The Restated Credit Agreement provides for a 3.0% interest rate floor.
The Restated Credit Agreement provides relief from certain financial covenants through December 31, 2010 at which time they return to previous levels. Under the Restated Credit Agreement, the Company is required to maintain a minimum fixed charge coverage ratio, a maximum leverage ratio, an adjusted leverage ratio and a minimum tangible net worth. The Restated Credit Agreement also provides for a pledge by the Company and its subsidiary of certain land and structures, certain tractors and trailers, accounts receivable and certain other personal property, as defined in the Restated Credit Agreement. Total bank commitments under the Restated Credit Agreement remain at $160 million but are now subject to a borrowing base calculated utilizing certain property, equipment and accounts receivable as defined in the Restated Credit Agreement.
The Restated Credit Agreement provides that if the Company prepays any portion of principal of the term notes under the Restated Master Shelf Agreement prior to December 31, 2010 (other than any regularly scheduled payments of principal), the revolving credit commitments in the Restated Credit Agreement will be reduced by the amount of the prepayment.
At September 30, 2009, the Company had no borrowings and $57.7 million in letters of credit outstanding under the Restated Credit Agreement. Restated Master Shelf Agreement
The Restated Master Shelf Agreement amends and restates the Company's existing master shelf agreement pursuant to which the Company issued 7.38% Senior Notes, Series A, due December 31, 2013 in the aggregate principal amount of $100 million, 6.14% Senior Notes, Series B, due January 1, 2018 in the aggregate principal amount of $25 million and 6.17% Senior Notes, Series C, due January 1, 2018 in the aggregate principal amount of $25 million (collectively, the Notes). The maturities and interest rates on the Notes were not changed by the Restated Master Shelf Agreement. However, if the holders of a majority of the principal amount of any series of Notes are required by applicable insurance regulations for U.S. life and health insurance companies to increase the amount of reserves with respect to such Notes above the amount of reserves required as of June 26, 2009, then the per annum interest rate on such Notes increases by 150 basis points until such time as the amount of reserves required with respect to such Notes decreases to the amount required initially.
The amendments included in the Restated Master Shelf Agreement modify the financial covenants to match the covenants now included in the Restated Credit Agreement. The Restated Master Shelf Agreement further provides that note holders share equally in the collateral granted by the Company to the lenders . . .