Norfolk Southern Q3 Earnings Call Transcript

123jump.com Staff
16 Nov, 2008
New York City

Norfolk Southern, the railroad operator said reported third quarter record revenue of $2.9 billion, up $541 million or 23% from the prior year quarter. Net income was $520 million or $1.37 per diluted share, compared to $386 million or $0.97 per share a year ago.

Norfolk Southern Corp. ((NSC))
Q3 2008 Earnings Call Transcript
October 22, 2008 09:00 a.m. ET

Executives

Leanne Marilley - Director of Investor Relations
Charles Moorman - Chairman, President and Chief Executive Officer
Donald Seale – Executive Vice President and Chief Marketing Officer
James Squires – Executive Vice President, Finance and Chief Financial Officer
Stephen Tobias - Vice Chairman and Chief Operating Officer

Analysts

John Barnes - BB&T Capital Markets
William Green - Morgan Stanley
Jason Seidl - Dahlman Rose & Co.
Ken Hoexter - Merrill Lynch & Co. Inc.
Ed Wolfe - Wolfe Research, LLC
Chris Ceraso - Credit Suisse
Tom Wadewitz - JPMorgan
Gary Chase - Barclays Capital
Randy Cousins - BMO Capital Markets
Arturo Vernon – Macquarie Bank

Presentation

Operator

Greetings and welcome to the Norfolk Southern Corporation third quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press “*0” on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Norfolk Southern''s Director of Investor Relations, Ms. Leanne Marilley. Thank you Ms. Marilley. You may begin.

Leanne Marilley

Thank you and good morning. Before we begin today''s call, I would like to mention a few items. First, I would like to welcome you to our third quarter earnings conference call. We remind our listeners and Internet participants that the slides of the presenters are available for your convenience on our website at nscorp.com in the Investor section. Additionally, mp3 downloads of today''s meeting will be available on our website for your convenience.

As usual, transcripts of the meeting also will be posted on our website and will be available upon request from our Corporate Communications Department. At the end of the prepared portion of today''s call, we will conduct a question-and-answer session. At that time, if you choose to ask a question, an operator will instruct you how to do so from your telephone keypad.

Please be advised that any forward-looking statements made during the course of this presentation represent our best good faith judgment as to what may occur in the future.

Statements that are forward-looking can be identified by the use of the word such as “believe,” “expect,” “anticipate,” and “project.” Our actual results may differ materially from those projected, and will be subject to a number of risks and uncertainties, some of which may be outside of our control. Please refer to our annual and quarterly reports filed with the SEC for discussions of those risks and uncertainties that we view as most important. Now, it is my pleasure to introduce Norfolk Southern Chairman, President and CEO, Wick Moorman.

Charles Moorman

Thank you Leanne and good morning everyone. It is also my privilege to welcome all of you to our third quarter 2008 analyst conference call.

We have with us several members of our management team, including our Vice Chairman and Chief Operating Officer, Steve Tobias; along with Don Seale, our Executive Vice President and Chief Marketing Officer; and Jim Squires, our Executive Vice President for Finance and Chief Financial Officer. We are also joined by Rob Kesler, our Vice President of Taxation; Bill Romig, Vice President and Treasurer; and Marta Stewart, our Vice President and Controller.

When we last met, I indicated that we were optimistic that the momentum we had generated in the first half of the year would continue into the third quarter. Today, I''m pleased to report that that momentum did remain strong as Norfolk Southern delivered record breaking revenues, profitability, and earnings along with a best ever operating ratio in the face of the most volatile economic period in recent history.

Our railway operating revenues were the highest ever, up 23% over last year. We also posted best ever operating profit of 31%, and record net income of $520 million or $1.37 per diluted share, up 35% over the comparable period last year.

The operating ratio was a record low, 69.1%, a two percentage point improvement, and the first time in our history that we have reported a quarterly operating ratio in the 60s. And most importantly, our safety and service metrics remained at industry leading levels even in a quarter punctuated by several weather challenges.

Our strong performance in improvement and efficiency demonstrate that we are continuing to provide the service our customers need to compete in this turbulent economy. Our results are also a confirmation of the strength of our balanced portfolio of businesses, as we were able to largely offset persistent volume pressures and housing related and automotive traffic in the quarter, and maintain the pricing patterns of the first half of the year.

To give you more detail, I''ll now turn the program over to Don Seale, who will walk you through our third quarter results from a revenue and volume perspective. Jim Squires will follow with the financial overview, and then I will return with some closing comments about our longer term goals, and economic outlook, before we take your questions. Don?

Donald Seale

Thank you Wick, and good morning everyone. Despite ongoing weakness in automotive, housing and retail sectors of the economy, third quarter revenue reached a new record of $2.9 billion, up $541 million or 23% over the third quarter of last year. The primary drivers for these record results were improved pricing; higher fuel revenue, which included a favorable lag affect in crude oil prices; and solid transportation service across our diversified business base.

Within the major business sectors, merchandise revenue increased by $167 million or 13%, with record revenues attained by agriculture, metals and construction, paper, and chemicals. Coal revenue was $298 million higher than last year, an increase of 52% and a new quarterly record. And revenues were up 76 million or 16% for intermodal, also a new quarterly record.

As noted in slide three, revenue per unit was an all time high as well reaching $1,527 for the quarter as each of our business groups achieved record performance. We''ve now produced six consecutive years of revenue per unit growth. Of the 24% RPU growth in the quarter, approximately 60% was due to higher fuel surcharge revenue. Strong re-pricing activity and higher contract escalators accounted for the remaining RPU growth, partially offset by a negative mix effect of $25 million due to higher volumes of coal versus lower volumes of higher RPU merchandise traffic.

And coal''s revenue per unit for the quarter was supplemented by a $22 million gain due to a contract volume shortfall payment and increased billing as a result of our new coal inventory management system. Obviously, length of haul and mix of commodities have an implication for revenue per unit as well. For the quarter, revenue ton miles grew 2.3% compared with a 1% decline in volume, reflecting higher shipments of longer haul bulk traffic, which as you know, contributes to overall pricing yield.

Solid and consistent service across our network is also a driver of our capability to improve pricing yield, and in that regard, during September we completed the tabulation of our 2008 customer survey. This latest survey showed a 22% improvement in our customer''s perception of Norfolk Southern''s overall value for the dollar based on higher marks for service, ease of doing business, and value of our service versus trucks. These improved customer service indicators tell us clearly that the value proposition for our service performance continues to move higher in today''s marketplace.

Now turning to volume on slide four, the weakened domestic economy continues to impact our shipments, which fell 1% in the third quarter. The performance of the international economy provided some offsets as our overall export volume grew by 11%, offsetting a 13% decline in the import traffic.

Agricultural shipments set another quarterly record, while metals traffic also posted a solid gain. Intermodal volumes improved modestly year-over-year as increased domestic traffic offset weaker international volume. And coal tonnage reached a quarterly record due to robust shipments to the export and domestic metallurgical markets.

Transitioning to the specific business sectors as shown on slide five, coal revenue reached 876 million, up 52% over the third quarter of 2007, and 13% higher than the previous record set in the second quarter. Revenue per unit increased by $588 per car or 43% due primarily to pricing gains, higher fuel related revenue, and the one-time adjustment of 22 million in the quarter that I reviewed a moment ago. And volume increased by 6% as we reached our highest tonnage quarter ever at 49.7 million tons, and second highest carload quarter as well.

Looking at the individual coal markets as shown on slide six, export car-loadings were up 53% over the third quarter of last year. Global coking coal supply continues to be constrained by Australia''s port and rail capacity issues.

In addition, China''s new record level coke prices have kept coal demand high in Europe. As a result, volume through Baltimore increased by 131% and Lamberts Point volume increased to 40%. Car loadings through the Lamberts Point coal piers exceeded 2007 year-end volume on September 6, and is now almost 12% higher than full 2007 year end volumes.

As I presented to you last quarter, despite these high volumes, additional capacity exist in our Pier 6 terminal in Norfolk to double the current throughput if coal supply and demand should reach that level.

Turning to slide seven, third quarter utility volume was flat compared to the same period in 2007. Utility volume in the northern half of our service territory was up 2% despite supply constraints in the Central App coal fields. Longer haul Colorado Coal handled the several eastern utilities, supplementing tight supply from Central App origins.

Third quarter utility growth was further limited by coal production problems at several mines in the Monongahela district. Volumes were also impacted as higher export demand reduced coal availability for domestic customers.

Looking at the current stockpile situation, coal stockpiles at our southern utilities are below target levels going into the winter season, while stockpiles in our northern service territory are approaching normal targeted levels for this time of the year.

Finally, our domestic met coke and iron ore volume was up 6% due to the start up of production at the recently expanded Haverhill, Ohio coke plant and higher coal shipments to Clairton, Pennsylvania. And industrial coal volume declined by 4% due principally to weaker demand and strong competition from exports for available coal supply.

Turning to slide eight, I will take a moment to comment on some key productivity improvements within our coal network. As pictured here, we continue to replace older, lower capacity coal cars with new composite high capacity equipment. As a result of this ongoing transition, we were able to reach a new payload record of 110.2 tons per car during the quarter and a 6% gain in tonnage with only 5.5% more car loads.

We also continued to increase the use of distributed power on heavy tonnage coal trains which reduces over the road transit times and eliminates the need for pusher crews and power. And we are realizing added productivity improvements with 600 coal cars now equipped with ECP brakes. This braking system allows heavy coal trains to operate at normal track speeds for longer periods of time, which in turn, reduces cycle times.

These types of productivity initiatives, along with the scheduling of our coal network service have resulted in a 9% improvement in transit times, across all major coal lines from January through September of this year and that''s on top of a 23% improvement realized in 2007. Clearly, these faster transit times when coal volumes are at record high levels are indicative of a fluid rail network with capacity for growth and improved customer service ahead.

Now, turning to intermodal business, as shown on slide nine, intermodal revenue reached $560 million for the quarter, up $76 million or 16%, while volume was flat versus third quarter of 2007. Strong domestic volume offset losses in our remaining lines of business. Record revenue per unit of $708 was driven by increased fuel surcharge revenue and improved pricing.

In addition, a more favorable traffic mix contributed to the gains as high rated IMC, LTL volumes increased, while volumes in lower revenue per unit ocean containers declined. Lower rated international empty revenue movements were down 17,000 loads for the quarter.

Looking at the market segments, as depicted on slide ten, domestic intermodal volume increased by 18%. Within this market, local, NS Direct volumes were up 26%, as highway conversions accelerated in the quarter.

Early Crescent Corridor traffic gains and improved services contributed to this local growth, which in total represented three quarters of the overall domestic unit increase.

As I''ve previously indicated to you, our local conversion strategy is focused on both third party shippers and beneficial owners in the heavy volume truckload market east of the Mississippi river. More than ever, beneficial owners in this market are reviewing ways to reduce their carbon footprint, while realizing the efficiency of intermodal versus truckload service.

LTL volume also saw a substantial gain in the quarter and was up 25% due primarily to new business within our local network. This gain partially offset a decline in UPS volume within the premium segment which was down 2% for the quarter. Finally, Triple Crown volume declined 5% due to significant cuts in auto production.

Now turning to slide 11, revenue for our merchandise business sector reached $1.46 billion, up $167 million, or 13%, over third quarter of last year. Improved pricing and higher fuel revenue resulted in record revenue per car up $2,232 per unit, which is an increase of $366, or 20%, over third quarter 2007. Volume declined by 6% driven by a 30% reduction in automotive volume, and continued softness in the manufacturing and housing sectors of the economy.

Looking at our individual merchandise markets on slide 12, agricultural products continued to produce revenue and volume records. Ethanol led growth in this sector, improving 55% for the quarter based on higher volumes to southeastern destinations. Distillers Dried Grains, or DDG''s, a derivative of ethanol manufacturing grew 41% in the quarter. We now serve 17 ethanol plants and 45 active ethanol terminals in our region with three additional plants and four terminals scheduled to open over the next few months.

Our metals and construction sector reached record revenue as a 5% volume gain in our metals business effectively offset a 2% decline in construction materials. This reduction was partially offset by a 14% gain in limestone shipments to NS served coal fired utility plants. We now serve 18 power plants that are equipped with scrubber technology that will require scrubber stone going forward.

The improvement in metals volumes was driven by a 23% increase in our scrap metals business. Strong global demand resulted in increased east coast export volumes of scrap. Our paper business continues to feel the impact of the projected 30% decline in US housing starts.

Lumber volume fell 21% below third quarter 2007. Printing paper volume declined due to a reduction in imports, and kaolin volume continues to be impacted by paper mill shutdowns over the past year, as well as weak demand for coated paper. These volume declines were offset somewhat by a gain in pulpboard due to increased export activity.

And record chemicals revenue was achieved despite a 5% decline in volume as increased petroleum volume could not offset declines in the other chemicals markets. Volumes were impacted by a plant closure in Evans City, Alabama, and production problems at another Alabama plant which jointly accounted for a 2000 carload decline.

Finally, we estimate the impact of Hurricane Ike to be over 1000 cars in the third quarter with more than 800 of those shipments expected to be made up in the fourth quarter.

Now turning to automotive, on slide 13, we see the continued impact of production cutbacks in this sector. This unfavorable trend is expected to continue in the fourth quarter and our volumes will be further impacted by the closure of General Motors at Doraville, Georgia near Atlanta at the end of September and the indefinite idling of the Chrysler St. Louis South plant in October.

General Motors also recently announced the closure of its Janesville, Wisconsin assembly plant, along with the Moraine, Ohio assembly plant, both scheduled to close December 23rd, two years earlier than previously announced.

On a positive note, beginning in the fourth quarter, Toyota will begin producing the new small car, Venza at their Georgetown, Kentucky plant and Honda will begin Civic production at their new Greensburg, Indiana plant. We should begin handling rail shipments out of these two facilities by the end of the year or early 2009.

Now, in conclusion, faced with the current economic backdrop, we are somewhat cautious going forward. As we have stated many times, our strong and balanced portfolio of businesses should continue to help us generate solid results during this prolonged downturn. With this said we expect to see further auto plant closures and manufacturing weakness along our merchandised network.

Much of these losses will be offset by project growth in scrubber stone, ethanol and bio-diesel. For intermodal, we expect to see continued growth in our domestic market as we collaborate with truckload carriers, beneficial owners, and third parties to convert traffic from road to rail. These gains should more than offset weakness in import traffic. We also expect our coal business to remain strong due to worldwide demand for US coal, and domestic metallurgical volume growth will be led by business from the expanded Haverhill coke plant. And finally, we expect our service levels and overall value in the marketplace to continue to support pricing improvement through the next quarter and into the coming year.

Thank you for your attention and I will now turn the program over to Jim for our financial report.

James Squires

Thank you Don, and good morning everyone. Let''s start with our operating results on slide two of my presentation. As Don described, railway operating revenues were $2.9 billion, up $541 million or 23%.

Also as Don mentioned, the quarter''s revenue includes $22 million for one-time adjustments related to our coal business. With respect to the timing effect of our fuel surcharges, as you know, many of our contracts have a 60 day lag. And therefore, the quarter includes a $55 million favorable timing effect. However, for the nine months, this lag effect is unfavorable.

Slide three shows you the corresponding operating expenses which rose by 20%. The resulting railway profitability of $894 million is another record breaking quarter and the 69.1 operating ratio is two points better than last year.

Slide four exhibits the year-over-year change by major expense category. The largest increase was once again in fuel, which rose $185 million or 64%, and has been a consistent theme in 2008.

Slide five breaks down the fuel expense components. Consumption decreased slightly. As you would expect, it was higher prices that drove the increase.

Delving deeper into the price analysis, slide six shows the components of diesel fuel price comprised of crude oil in green and other costs in gold. These other costs include crack spread, transportation costs, and availability premium. What we see here is that while crude oil prices rose 57% compared to 2007, our other costs per gallon increased by 103%. The result is that the average price per gallon rose 65%. Some of this inflated spread in diesel fuel prices versus crude reflects supply constraints in the Gulf Coast region due to hurricane activity, NS sources about 50% of its diesel fuel from the Gulf Coast market.

The next largest expense increase was in compensation and benefits which rose $89 million or 14%. Slide eight presents the major components driving this increase. First, $28 million relates to the two lump sum payments that are in our new labor contract with our locomotive engineers. This amount includes related payroll taxes. The new agreement covers approximately 5,000 employees and provides each engineer the opportunity for an annual bonus payment based on the company''s financial and service performance metrics, and for the first time, his or her work availability.

Second, the accrual for incentive compensation increased commensurate with the strong performance reflected this quarter. Third, increased wage rates of $18 million reflect higher contract labor rates. Next, stock-based compensation rose $9 million in the quarter due primarily to an up tick in price as of September 30th. Finally, pay roll taxes increased $6 million.

Slide nine depicts the $28 million or 7% rise in purchase services and rents. This increase includes a mix of relatively small items including increased intermodal terminal and transportation operating costs as well as increased professional and legal services. These were partly offset by lower equipment rents. A continued strong focus on asset utilization enabled a 10% decline in equipment rents.

The next largest expense increase was in materials and other which rose $19 million or 11%. The primary components are higher maintenance related material costs, including higher prices for materials, and the absence of a favorable 2007 adjustment. And finally, depreciation expense increased by 7 million or 4%, reflecting continuing investment in our network and equipment.

Now let''s turn to our non-operating items. First, gains on property sales and investments were $20 million lower this quarter. Second, synthetic fuel investments, the tax benefits for which expired at the end of 2007 contributed $18 million to the change. Third, interest on tax deficiencies added $11 million to the change as the IRS concluded its review of our 2004 and 2005 tax returns.

A note on interest expense on debt; since 98% of our debt is under fixed rates, we don''t anticipate interest rate volatility to impact us.

Slide 13 depicts our pre-tax results, income before income taxes increased 36%. Income taxes for the third quarter as shown on slide 14 were $302 million, which compares with $219 million last year. The effective tax rate of 36.7% compares with the rate of 6.2% in 2007. The effective tax rate increase was largely due to the absence of synthetic fuel related credits, offset by both an Illinois tax law change that increased deferred taxes by $19 million in the third quarter of 2007, and the tax benefit from the donation of a conservation easement for 12,000 acres in South Carolina. The slightly lower effective tax rate this quarter compared to the second quarter is largely to the conservation easement donation.

Slide 15 depicts our bottom line results. Net income for the quarter was a record breaking $520 million, an increase of $134 million or 35% percent. Diluted earnings per share for the quarter were $1.37, which was $0.40 per share or 41% more than last year. The greater percentage increase in EPS is reflective of our share repurchase program which is updated for you on our next slide.

Third quarter share repurchases totaled 6.2 million shares and $405 million. Over the past three years, we have repurchased 60.5 million shares for $3.1 billion. As shown on slide 17, we will pay dividends approximating $1.1 billion to our owners for this three-year period. When added to our share repurchase program by the end of this year, we will have returned over $4 billion to our shareholders.

Thank you for your attention and I will now turn the program back to Wick.

Charles Moorman

Thank you Jim. Well, as you have heard, this is an exceptional quarter for our company. As we said, our results continue to showcase our balance portfolio of businesses, our superior service product and our ability to realize value from strategic investments in our franchise.

In wrapping this up, let me first say a couple of more words about service. We had another good quarter for service delivery from a metric standpoint and our overall metrics improved year-over-year, although weather-related disruptions hampered some of our operations.

Our goal is always to offer a premium level of service to customers across our network and we are focused across all facets of the enterprise to support that goal. The purchase of additional locomotives and our decision to accelerate program track work earlier this year are but two examples of this effort to continually drive further operating efficiencies and deliver better financial results for our shareholders.

As Don mentioned, we track our customers’ opinions of our service in an annual customer satisfaction survey, and the fact that we achieved across-the-board improvements in all major categories, as well as overall performance, is a great indication that our investments, hard work, and focus are paying dividends.

Service improvement also lies at the heart of Track 2012, our longer range plan to take Norfolk Southern to the next level of performance and shareholder returns. We continually strive to improve our service performance by intensively managing all of our assets, people, infrastructure, equipment and information.

Because of the long lives of many of our assets and the time it takes to deploy capital, it is essential that we think in terms of where our business will be longer term. Track 2012 is the process that we have put in place to provide the road map for our company to continuously improve in these important areas over the next four years.

As part of the process, we''ve set aggressive goals in terms of safety and financial performance and to achieve these goals we are focusing and Track 2012 is all about focus on the four keys to improving railroad performance; service delivery along with our three major cost drivers - fuel consumption, asset utilization and work force productivity.

We have significant improvement projects underway in each of these areas. Some are relatively short-term in nature and some will require more time along with the introduction of new technology. I will tell you that we''re all very excited about these initiatives. We''ve seen some early signs of success in areas like equipment utilization as Jim mentioned, and I am optimistic that you will be seeing even more improvement as 2009 unfolds.

Looking at the fourth quarter and on into 2009, we''re obviously concerned along with everyone else about the economy. While our portfolio of businesses will buffer us from much of the impact should the economy deteriorate further, we are making plans to ensure that we can react appropriately in that event.

As all of you know, we''ve worked diligently to ensure that our infrastructure assets and workforce are being maintained at the appropriate levels and we''re confident that we have the flexibility to respond to whatever economic conditions arise and still operate safely and efficiently at high service levels.

Looking at the longer term, we believe that the fundamental drivers of our success over the past few years are still in place and that the rail industry and Norfolk Southern in particular have a bright future. I''m confident that Norfolk Southern will continue to leverage our operational momentum, improve our service quality and pursue new business and margin improvement as we do, reaffirming our position as a benchmark company characterized by excellent performance and execution across the enterprise.

Thanks everyone and I will now turn the program over to the operator, so we can begin the Q&A session.

Question-and-Answer Session

Operator

Thank you ladies and gentlemen. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press “*1” on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press “*2” if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the “*” keys. Our first question today comes from the line of John Barnes with BB&T Capital Markets. Please proceed with your question.

John Barnes - BB&T Capital Markets

Hey, good morning guys. First Don, looking ahead, as you discuss the various commodity types, you talked about some of the new production ramping up on the auto side, but you then talked about just weakness in automotive. Is there enough of an offset on some of this new business development that''s coming on to the Norfolk Southern rail to offset the other weakness or is the other weakness with the big three just too much to overcome at this point, and therefore auto is going to just be weak for the foreseeable future.

Donald Seale

Good morning John. Certainly, across all of our businesses as Wick mentioned, the diversity of our business base, we will see the puts and takes, but we will see volume somewhere around the level that we saw in the third quarter going forward in our view.

With respect to automotive itself, the new production that I mentioned with Toyota and Honda and the third production shift for Honda that will favor us that I didn''t go into detail will help us offset some of the plant closures but it will not overcome the overall effect of those plant closures.

John Barnes - BB&T Capital Markets

Okay. All right. More specifically in terms of the balance between your pricing gains and the volume levels, at what point and we have obviously seen the rail sector as a whole has experienced some decline in total carloads over the last couple of years. You''ve been feeling more of a freight recession I think between rail and trucks. You''ve been feeling more of a freight recession than the actual economy showed for a couple of years now, but, at what point does volume begin to dictate what you can do on price? Legacy contracts notwithstanding that type of thing. At what point would you see enough of a decline in carloads where pricing gain would be much tougher to come by?

Donald Seale

John, at this point we continue to see a pricing environment for our service which that continues to improve, and the value of our service in the marketplace continues to move up. We don’t see any significant change in our price position going forward. I mentioned our domestic intermodal conversions were up 18% in the quarter, 26% up within our local network, and those are being done in a collaborative fashion with our motor carrier and IMC, and beneficial owner partners. And that tells us the value of what we’re offering vis-à-vis the motor carriers, where as you well know, most of the intercity freight in this country still dwells. There’s a large opportunity for continued upward pricing as well as conversion of freight from road to rail.

John Barnes - BB&T Capital Markets

Okay, very good. And then one question on wages and compensation; I just want to make sure I understand that the $28 million paid during the quarter was one-time, that was a catch-up payment; there are not any other lump sum payments to be made. Then secondly, could you walk us through what to expect in terms of labor inflation for 2009?

James Squires

Sure. As you mentioned, the special BLET payments are one-time phenomenon this year and very early next year, on Jan. 1, in fact. In terms of the inflationary impact of negotiated wage rate increases, the rate is at 3.5% per the collectively bargained arrangement for the industry. So that’s what you can expect in terms of the contract wage increases. Other elements of compensation and benefits obviously also have inflationary elements, but those are somewhat less predictable.

John Barnes - BB&T Capital Markets

Okay. And the 3.5% is across all of your union agreements?

Charles Moorman

Yes, we''ll look at that, it''s across all of the union agreements. We think it’s 3.5 there. It varies by year. We do have one year of four coming up, but I think that may be. The next year we''ll double-check that and let you know. But it''s in that range, it''s between 3.5 and 4.

John Barnes - BB&T Capital Markets

And are there any other agreements outside of BLET that requires any kind of make payment like this?

Charles Moorman

No. The BLET and then the recent agreement has been done, the recent settlement of the machinists which did not require a catch-up payment really have concluded this round of collective bargaining.

John Barnes - BB&T Capital Markets

All right, very good. Hey nice quarter. Thanks for your time.

Charles Moorman

Thanks John.

Operator

Thank you. Our next question comes from the line of William Green with Morgan Stanley. Please proceed with your question.

William Green - Morgan Stanley

Yeah. Hi, good morning. You had some positive comments and have had those in the past as well about export coal and your conviction that the strength there can continue. The financial markets would seem to disagree. Can you talk a little bit about maybe how much is already contracted, where you have confidence in both the volume and the price for 2009, or what other items give you that kind of confidence?

Donald Seale

Good morning Bill. We have visibility into 2009 with respect to the business. We expect to handle into the export market, and now we point out that the EIA this year is projecting total US export coal to be in the range of 84 million tons and their forecast based on the collective research that they do, their forecast for next year is somewhere in the range of 86 million tons going up another 2 million tons. But it''s notable that metallurgical coal, which as you know is the majority of what we handle into the export market is projected to grow another 4.5 million tons next year. And that backdrop as well as the visibility we have with our contracts and with the arrangements that we have with transshippers as well as receivers give us comfort that our 2000 numbers will look fine.

William Green - Morgan Stanley

What percentage of the business is under contract on the met coal side for you?

Donald Seale

We re-price as you know our export coal every April, and then we have some other arrangements that are beyond that. But it''s a year-to-year, April-to-April pricing scenario.

William Green - Morgan Stanley

Okay. And then when you look at the automotive business, what percentage of your total carload, including that which you don''t classify technically as auto sort of the inbound and the outbound? What percent of the total volume is auto?

Donald Seale

Obviously Bill the automotive market impacts paints, pigments, plastics, chemicals of some sort but we don''t track it that way. We look at auto parts and finished vehicles. And certainly as plants are closed, we''re impacted with inbound auto parts as well as outbound vehicles. But, I think the automotive impact in the economy is very visible, it''s playing out, and I''m not sure it has a lot more to play out after the kind of production cuts we''ve seen in the past year and the plant closures.

So, while it''s impacted us, I don''t think that we will continue to see a comparable level of impact coming into the next year.

William Green - Morgan Stanley

All right, one last question. If you look at carloads being down, RTMs being up, how do you think about the capacity utilization of the network? How full are you?

Charles Moorman

Well, I think we have capacity across our network, and clearly as RTMs go up, that''s a measure of efficiency. That means that we are able to move more tons on a given train and more tons per car, and that''s increasing capacity in the network. So that''s a very positive sign of efficiency for us.

If you look at our network work right now, we''re clearly running at volumes that are below where they were a couple of years ago and we were providing a high service level then. So we think we have room to grow and we don''t know when it will come, but we know growth will come and we''ll be ready for it.

William Green - Morgan Stanley

Thanks for your help.

Charles Moorman

Thank you.

Operator

Thank you. Our next question comes from the line of Jason Seidl with Dahlman Rose. Please proceed with your question.

Jason Seidl - Dahlman Rose & Co.

Good morning everyone. Getting to the Crescent Corridor comments about taking freight off the highway system, at what level of WTI do you think that becomes difficult going forward?

Charles Moorman

We don''t think that barring WTI going to levels where it was six or eight years ago that that''s really a factor. We are seeing even as oil prices have come down, we are seeing the momentum continue in terms of domestic freight wanting to move to rail. When we talk with our trucking partners, they are telling us that they are committed to making that move because over the long-term they see energy prices as continuing to go up and they see a lot of other advantages to rail in terms of sustainability, which is important to a lot of their customers as well. So we felt for a while that''s continuing, that would be a trend. I will tell you I think that when diesel did spike a little while ago that provided a little more impetus, but we think the impetus will continue.

Jason Seidl - Dahlman Rose & Co.

And with that spike, did you lose any business back when it came down, or because the rail services has been more consistent, did you maintain it?

Charles Moorman

No. Our services have maintained very good and we have seen the volumes continue to grow even as we''ve seen diesel fuel prices start to soften a little bit. I think that that''s a long-term, very positive trend for us, and I think as long as we can maintain the superior service levels that we''re offering, we''re going to continue to convert truck traffic to the rail.

Jason Seidl - Dahlman Rose & Co.

Okay, great. Let me hop to export coal in terms of, if you are projecting that it grows still next year off of record levels this year, all things being equal, should we expect a fairly good pricing environment for that come April?

Donald Seale

We expect pricing in April will continue to be favorable.

Jason Seidl - Dahlman Rose & Co.

Okay. Well, thank you for the time as always, gentlemen.

Charles Moorman

Thank you Jason.

Operator

Thank you. Our next question comes from the line of Ken Hoexter with Merrill Lynch. Please proceed with your question.

Ken Hoexter - Merrill Lynch & Co. Inc.

Great. Good morning. Jim, could you clarify for a quick second on the average revenue per car. I know Don was going over some numbers before with, if you pull out mix and then the $25 million for high coal volumes and then $22 million for coal gain, if you strip all that out and the 60% that was due to fuel surcharge, what were you looking at on a pure pricing kind of same-store sales basis?

James Squires

Ken, we don''t track on a same-store sales. We don''t publicize that type of a number, but our yield was 9.5% in the quarter.

Ken Hoexter - Merrill Lynch & Co. Inc.

Yeah. I got the 9.6%. Is that relative to, you know, when quarters past you''ve targeted, I believe it was 4% entering this year was the kind of pure pricing rate you were aiming for.

James Squires

Well, we''ve announced 7%, 9%, now 9.5%. So I think you need to look at that trend, Ken.

Ken Hoexter - Merrill Lynch & Co. Inc.

Okay. I just want to make sure those were the same numbers that you were referring to.

This morning there was a decent size article in the Journal about kind of farmers really cutting forecast for grain production and looking at maybe delaying equipment sales. What do you down look for as far as the impact on the grain market or the Ag market in total as you move forward?

Donald Seale

Well, ethanol is a big driver in agricultural rail shipments. And as I mentioned, our ethanol volume was up 55% and our revenues were up substantially higher than that. And then, the downstream products, the DDGs and inbound corn and other materials that are generated to haul as a result of that activity, the Federal Renewable Fuel Standards this year will generate about 9 billion gallons of ethanol. That will increase as each of the years go forward, unless that 10% blend in gasoline requirement of the Federal Renewable Fuel Standards are modified. We don''t see anything on the horizon at this point that would indicate a change in those standards. So I think, one, corn production will continue to target that market. And I think as far as food demand that will continue to be a driver for plantings and production as well. So we see good things ahead for the agricultural market.

Ken Hoexter - Merrill Lynch & Co. Inc.

And if I get a quick question on for Wick. Can you throw out some thoughts on the upcoming election and maybe even drill down to what you think the democratic view is of coal burning and the prospects for growth of coal generation going forward?

Charles Moorman

That''s an interesting question but not one that I really think that we''re prepared to speculate on right now. Clearly both political parties have transportation platforms. We look at both of them. We think that each probably offers some advantage to the rail business and maybe also poses some problems as well. But we''re just going to wait like everyone else to let see how that plays out.

Ken Hoexter - Merrill Lynch & Co. Inc.

Can you at least maybe educate us as to some of the biggest risks on some of the platforms for volumes?

Charles Moorman

Well, I don''t know that it''s part of either party''s platform. I will tell you which we state all the time that purely from a political/legislative perspective, we have the worries about some of the legislation in Congress that would re-regulate the industry, and that''s something obviously that we are working hard to make sure it doesn''t happen. So we always keep an eye or maybe an eye and a half on some weeks on Washington to make sure that we are active and out presenting the story of why the railroad industry is so important to the economy.

Ken Hoexter - Merrill Lynch & Co. Inc.

Great. Thanks Wick.

Operator

Thank you. Our next question comes from the line of Ed Wolfe with Wolfe Research. Please proceed with your question.

Ed Wolfe - Wolfe Research, LLC

Thanks, good morning guys. Don, before you talked about some forecasts for export tons. Clearly, the coal stocks aren''t acting like those forecasts are real. Can you talk a little bit about your visibility, that is, the backlog for export coal that the companies have actually signed-up for under their multiyear contracts, the three year deals that you''ve talked about that they have with the mines relative to your one year deals?

Donald Seale

Good morning Ed. Our export as I mentioned was up 53% in terms of carloads. In the third quarter it was up 55% in tons. Now just to give you a little more color, I will tell you that it wasn''t evenly distributed through the three months of the quarter. Our export loadings accelerated in our portfolio in September and that continues in October and based on the commitments that our receivers are telling us that they have with the trans-shippers, we are comfortable that the ongoing current trend in volumes on export will continue with some upward trend going into 2009 as we move forward.

Pricing market as I mentioned earlier will continue to be favorable as we repriced. We''re already having those discussions with the trans-shippers and the receivers, and we will have that wrapped up by April 1st and effective April 1st.

Now the stockpiles, I think Ed, you mentioned, we''re watching those more closely with respect to domestic utility stockpiles. And as I mentioned, in the north, we are approaching stockpile targets, but in the south, in the southern portion of our system, it''s still well below target. Probably in the range of 6 to 10 million tons below target, and coal supply has had an impact on that. So, at this point we don''t see anything that indicates to us that we will see a material slowdown in current volumes of export coal.

Ed Wolfe - Wolfe Research, LLC

Just to that level, obviously you have some visibility that we don''t. When you say we have visibility of it actually accelerating into ''09, so is it fair to say you have at least three months visibility? Do you have six or nine months visibility based on some of these contracts in the backlog?

Donald Seale

Yes we do.

Ed Wolfe - Wolfe Research, LLC

Can you give some sense of what we''ve got?

Donald Seale

What was the last part of your question, Ed?

Ed Wolfe - Wolfe Research, LLC

Can you give some directional sense, in other words, do you feel like you have 75% or 80% visibility three months into export?

Donald Seale

No, I won''t try to dissect it that precisely.

Ed Wolfe - Wolfe Research, LLC

Fair enough. Are there any new export deals from coal companies not under contract that you can see?

Donald Seale

We are aware of some of that and obviously I can''t disclose that.

Ed Wolfe - Wolfe Research, LLC

Is that in your expectations when you talk about visibility or is that potentially extra?

Donald Seale

That''s in our expectations.

Ed Wolfe - Wolfe Research, LLC

Okay. Just generally, more broad based; the 9.5% real pricing, and obviously we have seen that improve throughout. As you think about next year in ''09, it''s not fair to assume 9.5 going in obviously, but what is a visibility to ''09 real pricing level? Is it 4, 5 or is it closer to 9 again?

Donald Seale

We are going to re-price, a little shy of 60% of our book of business in the first half, about 58% of the total book will be re-priced for the year, and about 60% of that will take place in the first half, and the balance of the 40% or the 58% will be concluded in the third and fourth quarter.

We are well along into the pricing for the first quarter and the visibility is very obviously good there. As I said earlier, we don''t expect any material change in our pricing outlook, our service value and the value proposition in the marketplace in our eyes and based on our survey continues to move upward, so we see no change in our outlook with respect to pricing at this point in time.

Ed Wolfe - Wolfe Research, LLC

Okay. Jim, just in terms of the incentive comp, how do we think about the fourth quarter, assuming should it be a similar kind of level or similar?

James Squires

I''m trying to recall the comparison in the fourth quarter of last year. Generally speaking, you will, depending in part on the stock price performance in the quarter, tend to see some additional incentive compensation in the fourth quarter versus last year.

But of course with the stock price trend for the quarter to-date at least, we don''t know of course where it''s going to close at the end of the quarter. There could be some favorability in stock-based compensation, that component of compensation benefits versus last year.

Ed Wolfe - Wolfe Research, LLC

Nothing gets reset relative to what the goals were in third quarter, it should be similar kind of goals you were trying to obtain in these and so forth?

James Squires

I would expect so. Our Board has not actually set the performance criteria for next year''s incentive compensation, but I think it will probably be similar benchmarks, similar targets to this year.

Ed Wolfe - Wolfe Research, LLC

So you''re saying ''09 will be similar to ''08. I was just making sure fourth quarter wasn''t reset.

James Squires

No.

Ed Wolfe - Wolfe Research, LLC

Okay. One last kind of bigger question, Wick have you or anybody else had a chance to absorb the safety bill impact and look at between positive training control, training, reduced limbo time, all of these different buckets kind of where the biggest impact could be and how severe the impacts could be to earnings as you go out?

Charles Moorman

Well, we’ve clearly been watching this and thinking about it. Steve and his team have been tracking the impacts very closely. If you look at the various components of the bill, we don''t think limbo time has a big impact at all on us. The training provisions, I think are things that we''re comfortable with. Clearly the big item in it is PTC, and we have been working for quite a while. We, along with the other rails, we have our own train control pilot down in South Carolina. We''ve made some significant breakthroughs, I think, within the past months. You may have seen the press release that we put out with the western carriers, about the use of spectrum and interoperability and I think that''s important, because it really sets the stage for PTC to move ahead in a meaningful way across the country.

Interoperability is always been the thing that we''ve had to achieve before it could move ahead. Having said that, it is clearly an unfunded mandate and something that we are going to have to figure out how to pay for? There are internal benefits and clearly in terms of safety and operations, but it''s very unclear in fact I think that has an adequate IRR. In fact I think it''s fairly clear that it doesn''t.

One of the things that we will be pursuing with the industry next year with renewed vigor is our infrastructure tax credit which is designed to mitigate the cost of positive train control as well as additions to railroad infrastructure. We think this is an important piece of the campaign for the infrastructure tax credit, the new PTC legislation and I''m optimistic that we''ll get something done there. PTC rollout for a major portion of railroad has to be done by the end of 2015 and we''ll be kind of digesting the financial impact of that and the capital requirements over the next couple of years.

Ed Wolfe - Wolfe Research, LLC

Do you think there is a chance that in the new proposed stimulus package Congress is looking at, that the tax credit bill can sneak its way in there? Have you heard anything about that?

Charles Moorman

Well, I don''t know if there is any chance or not. I think any time we hear something about a bill like that, we certainly have our folks in Washington advance that idea, whether there is any meaningful chance of that in this stimulus package they are talking about for the lame-duck session, I do not know.

Ed Wolfe - Wolfe Research, LLC

Okay. Thanks so much for the time, everybody.

Operator

Thank you. Our next question comes from the line of Chris Ceraso with Credit Suisse. Please proceed with your question.

Chris Ceraso - Credit Suisse

Hey, thanks good morning, a couple of items, just a quick one on the call. Are there any limits beyond market forces that will affect your pricing for coal in the export market?

Donald Seale

Limits beyond market forces?

Chris Ceraso - Credit Suisse

Yeah; i.e. regulatory?

Donald Seale

We don''t anticipate, we don''t foresee any regulatory hurdles that would impact coal, certainly not visible in 2009.

Chris Ceraso - Credit Suisse

Okay. Can you comment at all on pricing in the intermodal business? Revenue per carload there grew slowest of all the other commodities. Has there been any change even at the margin from quarter-to-quarter in terms of competitiveness of trucks. I know that the volume is still strong and it''s still converting from truck to rail but has pricing held up as well?

Donald Seale

Well, pricing continues to be stable. I would say it''s not escalating at this point, but it''s certainly stable.

Chris Ceraso - Credit Suisse

Stable, meaning you''re growing at the same rate or stable meaning that it''s flat?

Donald Seale

Stable in terms of growing at the same pace that we did in the first three quarters.

Chris Ceraso - Credit Suisse

Okay. And then, can you just give us an update on the Heartland Corridor project?

Charles Moorman

Well, it''s moving ahead very well. We have work -- Steve, how many tunnels?

Stephen Tobias

Nine.

Charles Moorman

We have work underway now on nine tunnels. We are still projecting a completion in the first half of 2010. We have, thanks to a lot of hard work by our operating team in terms of planning for this, really had no service issues at all moving across the corridor even though there is a lot of train traffic and we are shutting it down four days a week for 10 hours to do the tunnel work. So we are very pleased so far with how that work is progressing.

Chris Ceraso - Credit Suisse

If you can just remind us, what sort of incremental volume do you anticipate relative to your overall intermodal business once this corridor is up and running at full rate?

Charles Moorman

We certainly expect volume to grow in that corridor. As volume increases, the container volume through the Port of Hampton Roads increases. As you know, we have the big new Maersk terminal now in operation over here and it''s slowly beginning to ramp up.

But remember too that in addition to volume what Heartland Corridor is really all about is service and operational efficiency. We''ll take a full day in transit time out of our service between the Port of Hampton Roads and our new intermodal facility, Rickenbacker facility in Columbus, Ohio and we think that service advantage will be very important in the operational efficiencies that we''ll achieve will drive the returns for the project.

Chris Ceraso - Credit Suisse

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Tom Wadewitz with JPMorgan. Please proceed with your question.

Tom Wadewitz – JPMorgan

Good morning and congratulations, results obviously very impressive. Let''s see. I wanted to ask Don or Wick about coal yields. I know you had a lot of yield questions but I''m not sure if you mentioned this specifically on the coal yields. Can you give us any sense of what within that line the breakdown would have been between price and fuel? Was it similar to the 60/40 mix you talked about across the total yield or was it meaningfully different from that?

Donald Seale

Tom, good morning it would be comparable, and also we had the favorable impact in coal of some continued repricing of contracts that manifested itself in the third quarter as well and will going forward.

Tom Wadewitz – JPMorgan

I mean, if you take out the $22 million from the contract adjustment, it''s like 40% yield growth, and you are saying you think about 60 of that is fuel and 40 is pricing or is a lot more of that contract repricing?

Donald Seale

No, I think that''s a good ratio to use.

Tom Wadewitz – JPMorgan

Okay. What do you think about coal yields in 2009? It seems like this type of pace is hard to imagine, this type of pace is sustainable, but your comments have been pretty consistent about you don''t see a change in the pricing environment. Any thoughts on that? In terms of how much of your coal book you would touch in ''09 versus what you''ve touched in ''08?

Donald Seale

Tom, on the latter question, in ''09 we have about a quarter of the coal book of business that will be repriced in 2009, about 25% of the book. But I would remind you that as we have repriced coal, we have obviously brought the prices to the current market levels, but also we have addressed escalators, as I mentioned in my remarks and those escalators are more robust reflecting today''s marketplace.

Tom Wadewitz – JPMorgan

So that''s favorable for coal pricing in ''09 or you''re saying it''s kind of that something you''ve already pulled forward and realized in ''08?

Donald Seale

We have seen the positive impact of the escalators in ''08. And as we reprice the available book, we will continue to see the price improvement plus escalators continuing to reflect today''s market?

Tom Wadewitz – JPMorgan

Okay. If you can just remind me how much of the coal book you repriced in ''08?

Donald Seale

I don''t have that number right here handy, but we can get that for you.

Tom Wadewitz – JPMorgan

Okay. I mean, do you think it was a lot different than the 25% in ''09?

Donald Seale

Not really.

Tom Wadewitz – JPMorgan

Not really? Okay.

Donald Seale

We''ll get you the specific number.

Tom Wadewitz – JPMorgan

Okay, great. I appreciate it. Just one more and I''ll pass it along if anybody else is left. Volumes have been weak for a while for the railroads, and I guess you look at prior downturns and you don''t typically see a period where rail volumes are down 10% or anything. It''s maybe 4%, 5% when things are typically bad.

So, Wick or Don, if we do have a recession that lasts a few quarters, bearing in mind you got some growth initiatives and visibility on ethanol and other things, I mean how bad do you think rail volumes for you could be in ''09 if the economy is particularly weak. Is it down 2% or 3% or it might be down 4% or 5%?

Charles Moorman

I will tell you, Tom that you''ve heard us say before our crystal ball is never particularly good, and I would hesitate to put a number on it because no one knows exactly what this economy is going to do. We went into the beginning of this year as you can remember thinking that because of our project growth that we might actually see volumes up a little bit. We were surprised, as I think everybody else has been, by the downturn in automotive traffic, which has really driven our volume decline. And so next year we''re just going to watch the economy with everyone else and see where it might go. I think your point is well taken that we do have a lot of buffers in our mixture of businesses. So we would hope we wouldn''t see a radical decline in volumes but as to whether it''s one or two or three, I just think that is purely a function of where this economy goes and we''re like everyone else. We are just kind of watching and our major focus here right now is to be ready to react to wherever the economy and our volumes go.

Tom Wadewitz – JPMorgan

Right. Okay, great. Well thank you for the time.

Operator

Thank you ladies and gentlemen. As a reminder, if you would like to ask a question you may do so by pressing “*1” on your telephone keypad. Our next question comes from the line of Gary Chase with Barclays Capital. Please proceed with your question.

Gary Chase - Barclays Capital

Good morning everybody. Don, I wonder if you could elaborate a little bit on the answer you had given to that last question. I think you said that you were addressing escalation clauses to make them more consistent with today''s marketplace. Should we be thinking that that is predominantly on the fuel side, i.e., better fuel surcharge mechanisms instead of relying on RCAF or are you sort of enhancing the escalators to be more than we would normally expect?

Donald Seale

It is the latter because as you know, we have developed fuel surcharge coverage that is fairly comprehensive across our book of business. And so, our fuel has been there. What I''m referring to are escalators that better reflect today''s transportation market coming off of a three-year deal or four-year deal where the escalator might have been a little more modest in previous cycles.

Gary Chase - Barclays Capital

Can you give us a sense of the magnitude of change on these? Is it going from a couple of percent to 4% or 5% or is it smaller than that?

Donald Seale

I can''t comment on the magnitude but I think the sense that you should take away from the discussion is that they reflect the current market dynamics as opposed to what might have been there two years ago or three years ago and four years ago. We continue to see a migration of the value proposition for our service and we are tracking that very closely.

Gary Chase - Barclays Capital

Okay, so you are re-pricing to market and you''ve got higher escalation in future years?

Donald Seale

That is correct.

Gary Chase - Barclays Capital

Okay. Also, I wonder if maybe you could just give a little more color. I know you spent time on this as well, but were there any particularly powerful or significant coal re-pricings during the quarter, because pricing was solid across the board but that is the one place where we’re very surprised with how strong things were, exclusive obviously of the $22 million. Were there any particular contracts there or is that sort of the trend we can expect looking forward?

Donald Seale

As you''ll recall, as we reported last quarter, export coal certainly plays into that in terms of the length of haul. We average about 440 miles per car on export coal and about 280 per car for utility coal. So that factors into that. The export pricing that went into effect this past April of 2008 that factors into it and we did have some renegotiated utility contracts that went into effect in August which also had a favorable impact in the quarter.

Gary Chase - Barclays Capital

Okay. Were those August renegotiations a material part of it or no?

Donald Seale

They were a part of the overall mix that I just mentioned.

Gary Chase - Barclays Capital

Okay. And then just one last quick one, sorry. The new auto business, as you replace some of the plants we''re talking about closing down, is that mix positive from a revenue per unit perspective? Is that more profitable business?

Donald Seale

That will be good business for us and there are new products and products which hopefully will sell better in the current environment. So we think it will be positive with respect to volume and certainly be positive for revenue per unit in contribution.

Gary Chase - Barclays Capital

Okay, great. Thanks very much guys.

Operator

Thank you. Our next question comes from the line of Randy Cousins with BMO Capital Markets. Please proceed with your question.

Randy Cousins - BMO Capital Markets

Good morning. Jim, I think you mentioned in your remarks that the lag in the fuel surcharge was a $55 million win in the third quarter. Could you give us a sense of oil prices just holding where they are, what the magnitude of the favorable variance would be in the fourth?

James Squires

Of course, depending on where oil settles this month, I do think you will see another favorable lag effect in the fourth quarter calculated on the same basis as we calculated the 55.

Randy Cousins - BMO Capital Markets

So, are you saying it''s another 55 or you just saying the methodology is the same?

James Squires

I would say that again depending on where oil settles this month, it will be at least that much.

Randy Cousins - BMO Capital Markets

Okay, at least that much. Okay. And I guess the other question I have is, this is the best operating ratio number you''ve ever had or you mentioned you’ve ever had. Congratulations. When you look at that OR number, do you think if that is remotely sustainable or is it really just a flash in the pan caused by a confluence, a sort of favorable event? How do you guys think about that OR?

Charles Moorman

Well, we are very happy with it but we have been posting operating ratios approaching that for some period of time and we had a sustained period of doing that back in the 90s. And I can tell you, I have said before, our longer-term goal is to post operating ratios every quarter that begin with the six and we are intent upon doing that, that''s why I''ve talked about all of the initiatives that we have under way in Track 2012. Operating ratios vary by quarter because business conditions vary by quarter but our goal is to continue the operating ratio mome