Yellow Corp (YELL) 2008 Q1 法說會逐字稿

Good morning, my name is Taylor and I will be your conference facilitator today. At this time, I would like to welcome everyone to the YRC Worldwide first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

I will now turn the call over to Sheila Taylor, Vice President Investor Relations.

Thank you, Taylor. Good morning and thanks for joining us for the YRC Worldwide first-quarter 2008 earnings call. With us this morning are Bill Zollars, the Chairman, President and CEO of YRC Worldwide; Steve Bruffett, our CFO; Mike Smid, President YRC North America Transportation; and Jim Ritchie, President of YRC Logistics.

Statements made by management during this call that are not purely historical are forward-looking statements within the meaning of the Private Litigation Securities Reform Act of 1995. This includes statements regarding the Company's expectations and intentions on strategies regarding the future. It is important to note that the Company's future results could differ materially from those projected in such forward-looking statements due to a variety of factors. The format of this call does not allow us to fully disclose all of these risk factors. For a full discussion, please refer to our 10-K in last night's earnings release and today's 8-K filings.

Bill Zollars and Steve Bruffett will provide our comments this morning; Mike Smid and Jim Ritchie are available to participate in the Q&A session. I will now turn the call over to Bill.

Thanks, Sheila, and welcome everybody. The first quarter was obviously challenging for YRC and there were external and internal factors that affected our results. You already know about the external factors of a weak economy, recurring bad weather and record fuel prices so I won't belabor those points. However, I think it is important for you to focus on the internal actions we were able to take that permit us to report significantly improved results starting in the current quarter.

Looking internally in the first quarter, we booked $0.24 per share from unfavorable actuarial adjustments on our self-insurance claims and reorganization charges from our regionals which we would not expect going forward. The financial performance of the regional companies with the exception of New Penn was the largest issue in the first quarter. But keep in mind also that Glen Moore, our truckload company is included in the regional segment and for the quarter represented nearly $5 million of the regional loss.

Going forward, we have a new labor contract in place and with it comes the ability to compete on a more level playing field with a more contemporary network design. The regional footprint changes are in place and are behind us so we were able to return our focus to the basics of taking care of our customers. Also we have proactively addressed the concern surrounding our debt covenant and liquidity and Steve will get into that a little bit later.

As a result of all of that, our situation has stabilized and we are back on solid footing after a couple of very challenging quarters. We are now better positioned to effectively leverage the significant resources across our Company.

Let me talk further about what we've done to turn the corner and why we feel confident that the worst is behind us. First, with the new labor contract I mentioned in effect as of April 1, we are hard at work implementing changes to our networks that will improve their speed and efficiency. In the first phase, our customer should benefit from enhanced service in over 28,000 lanes, so this is a major improvement for us on the service side.

The benefits of these changes primarily at Yellow, Roadway and Holland are sizable and will ramp up as we move through the year. This is just one example of how we continue to invest in the future of YRC and one of the reasons we expect to be able to grow the Company going forward.

Regarding our national companies, they were challenged to reduce costs fast enough to offset the volume declines that we experienced. Under the new contract, we believe they will be able to respond better in a tough environment and with their operating leverage, they are well-positioned to deliver significant earnings growth when the economy improves. Also note the nationals recorded nearly a $6 million charge of actuarial adjustments. So without these charges, they would have been a little better than breakeven for the quarter.

Second, the changes that we made to the geographic footprints of Holland and Reddaway have been effective. The larger change was made at Reddaway obviously and as a result, service is back to their typical high standards and their margins have improved significantly. We expect Reddaway to make money in the second quarter since they are now back to their natural market.

The footprint changes at Holland only involve six smaller locations in the South so the network change impact was less. However, other actions have been taken to improve the efficiency of the Holland network. Substantial headway has been made at Holland and we expect them to turn profitable sometime during this quarter. This is significant given the fact that they represented the majority of the first-quarter loss at the regional segment.

It's also important to reinforce the fact that we have completed the footprint changes at the regional companies. Over the course of time, we will fine tune these networks but we now have the most profitable footprints in place for our regional companies.

As I mentioned earlier, Glen Moore had a very challenging quarter dealing with many of the same issues as other truckload companies. With that said, they have -- are having success right now at adding drivers and their trends are improving significantly. In addition, Glen Moore is participating in the purchase transportation flexibilities allowed under the labor agreement by handling loads for Yellow and Roadway, primarily to and from the West Coast. This provides our customers better service than rail and is more cost competitive. We see these opportunities expanding throughout the year and contributing toward profitable growth at Glenmore.

To summarize my comments on the regional companies, we've made the changes we're going to make, the situation has stabilized and margins are improving. Given all that, we expect the regional segment to make money in the second quarter.

Another item that contributes to us turning the corner quickly is that of overhead costs. We have taken out about $40 million of overhead costs in the past six months and we have identified several other sizable opportunities to further reduce overhead costs in the next couple of quarters.

We are constantly striving to be as efficient an organization as possible. Just to give you an example of some of the other things we are looking at, we are evaluating the final steps in what has been a transition to a common employee benefits platform across all of our companies. These changes will likely result in a combination of near-term gains and ongoing cost reductions both of which serve to provide additional cushion as we manage our way through this downturn. The specific amounts related to these actions will be determined once the detailed plans are established. But that is an example of the additional infrastructure approaches we are taking.

So given these action plans and in spite of the continuing challenges we are facing due to the weak economic environment, we decided to provide investors with greater clarity to our expected performance over the near-term. And as a result, we are confident in our ability to deliver between $0.30 and $0.40 per share in the second quarter. This is an improvement of about $1.15 per share from the first quarter. So it's very significant.

Changes in the economic environment will probably determine which end of the range we end up at but we will be somewhere between $0.30 and $0.40 we believe.

Before turning it over to Steve, let me remind you that we continue to expand our global presence, logistics is working toward closing the acquisition of Shanghai Jiayu Logistics, one of the world's -- or one of the largest LTL providers in China for an estimated $40 million. We believe this acquisition provides the right platform for our growth in China to more effectively service our increasingly global customer base and that $40 million is also baked into our forecast going forward.

Steve will now comment on our financial position. Steve?

Thanks, Bill. Good morning everyone. I'm going to focus my comments on our debt covenants and liquidity since there's been a lot of attention on those topics lately. As you know, we proactively amended our credit agreement last week and that increased our leverage ratio from the previous 3 times to now 3.7 times, taking us through September 30th, 2008 and then it will be 3.5 times thereafter for the remainder of the term of the credit facility.

We did this to provide the financial flexibility that we need to remain solid throughout this economic downturn. We also successfully renewed our ABS facility concurrently with the credit facility. And given the status of the credit markets we view our ability to retain this capital structure and keep our current lending group intact as a significant positive.

The combined size of the two credit facilities is $1.7 billion. If you subtract from that our borrowings, our letters of credit and other uses of the facility, there is about $762 million available at the end of March. Of course that availability is governed by the leverage ratio itself, so if you apply the new covenant level of 3.75 times to our trailing 12-month EBITDA, we had nearly $400 million of liquidity available for our use at the end of the quarter. So while we don't expect to need it, we do have a significant liquidity cushion in place.

And it's also important to note that we did not exceed our 3 times leverage ratio in the first quarter. It was a proactive amendment. The ratio at the end of the quarter was just under 2.8 times at March 31.

That was primarily the results of our ability to reduce debt by nearly $60 million from year end and that is mostly through continued DSO improvement, capital expenditure management and tightened controls on cash. We will continue to aggressively manage cost of cash and therefore expect debt to remain at or near current levels for the next couple of quarters. But we also remain confident that even in this environment we should be able to generate meaningful free cash flow in the fourth quarter and further reduce debt by year end.

The seasonality of our business is such that working capital is a strong source of free cash in the seasonally slower fourth quarter as we collect from the relatively stronger third quarter. So we are very focused on reducing debt and we will continue to assess a variety of alternatives to help us achieve that objective over the next several quarters. These alternatives range from additional leasing to disposition of excess assets to numerous other ideas that we have on the table.

The key point here is that we are not easing up simply because we have amended and renewed our credit facilities. We will continue to take proactive and prudent actions that both increase earnings and/or reduce our debt.

Moving now briefly to our capital expenditures, we spent about a net amount of $33 million in the first quarter. That is down significantly from last year. This is a combination of increased leasing; we had about $38 million of leasing that was incurred during the quarter. It is improved asset utilization and there's some marginal reductions in the fleet as well. With the (technical difficulty) across our asset base, companies were able to redeploy equipment where needed and remove older units as appropriate.

So for the full year, we now expect our gross capital expenditures to be around $200 million. That's slightly lower than our initial guidance for the year, our net CapEx should be about this same range of $200 million since the proceeds from property sales are expected to offset the Jiayu acquisition.

I will not turn it over to Bill for some closing comments.

Thanks, Steve. Let me wrap up by saying we are well on our way to realizing the run rate of $100 million of performance improvement that I mentioned before the end of the year. About half of that will be coming from our regional companies as they continue to rebound and the other half will be spread across the remainder of the organization. Also our corporate sales groups have made significant progress in their integration, in creating a single point of contact for our larger customers.

And we are actively working toward getting Yellow and Roadway on a single technology platform which provides a lot more flexibility going forward in terms of managing the resources comprehensively. We are also very excited about the opportunity to reap the benefits of the new labor contract which will be beginning here in a couple of weeks.

With all these items in motion and our confidence in our second quarter turnaround, we are excited about the future of YRC and what we can do for our customers, employees and our investors.

With that, we will take some questions.

(OPERATOR INSTRUCTIONS) John Barnes, BB&T Capital.

Good morning. Just the real question I have is just walk me through -- I listened to your call, I hear what you are doing in terms of the cost reductions and things like that but I guess I have two questions. Number one, to swing from the kind of operating loss you had in the first quarter to the kind of profits you are forecasting in the second quarter, without a material uptake in volumes, I'm not sure I get that. I mean to me, yes, you can take out a lot of cost but all of these models still require pumping additional volumes through a fixed cost system to realize -- and I recognized there's a tremendous amount of leverage to the model. I don't dispute that. Just explain to me how -- why such a wide variance from first quarter into second quarter?

Sure, let me see if I can help. The primary driver for that is the elimination of the losses at the regional company. The new footprints we have in place as well as the changes we've got from a network standpoint, particularly at Holland, are driving really good improvement at the regional companies and having them go from a very significant loss in the first quarter to a gain in the second quarter is a big driver for the turnaround.

The other thing is that national companies will return to a more historical performance in this kind of an economy. If you go back and look at how they performed during 2001 and 2002, I think you will see that they performed better than they have in the first quarter and we'd expect that performance to rebound in the second quarter and we will not have the $7 million worth of insurance adjustment.

And then finally, although this probably won't impact the second quarter very much, we've got the new labor contract which will be implemented during the second quarter. So that is kind of on the operating side and then you layer on top of that, John, the continued infrastructure cost reductions that we've got. And given about the same volume level that we had in the first quarter in terms of year-over-year comparisons, and given about the same pricing we have which was about plus one across all of our companies if you exclude fuel, we expect that we will be solidly within the $0.30 to $0.40 range.

We could end up doing a little more toward the upper end if we get any kind of economic wind in our back and we could probably end up a little more toward the lower end if we don't. But those are really the things that are driving the turnaround in performance.

Okay, and then in terms of the regional business, anytime other companies have gone through similar struggles in trying to rightsize the footprint and that type of thing, to me it looks like some of the volume loss while there's a direct relation to you guys rightsizing and moving out of certain markets, that is fine. But some of it also looks like a little bit of market share loss to me as well, especially given some of the volume results out of the regional players.

How confident are you that you can eventually stem that bleeding and keep the regionals from -- my fear is that a little bit more market share loss and all of a sudden you are kind of right back in -- the losses continue because there's just another stair step function down in the volumes and the regional business. How confident are you that you can eventually stem that loss?

A couple of things, John. First of all, they are going back to where they were so it's not like we've had to create a whole new network and they performed extremely well in those previous footprints. Secondly, you are right, we did lose a little bit more business than we expected through the halo effect. I think customers are very concerned that maybe there was another step coming and that we had another set of terminals we were going to close. And so I think we did suffer a little bit more loss there then we expected to have.

Having said that, that's stabilized, we continued to repeat as we have this morning that the network changes are complete and that we are very happy with the footprint. So I think that is behind us. The situation has stabilized and now it is a matter of getting back to work on the footprint that we've had historically at those two companies.

Okay, very good. Thanks for your time, Bill.

Justin Yagerman, Wachovia Securities.

Good morning, guys. How are you? Walk me through what your cash outlays aside from CapEx are this year? You mentioned Jiayu but how much in the way of union and nonunion pension contributions are you guys going to have this year?

As far as the nonunion pension contributions, we have targeted a $55 million contribution in September. We have up until that time to make the final decision on that. But to date we've assumed that we are going to make that contribution. We do have significant flexibility with the timing and amount of that contribution. As far as the union pension contributions they are just a normal part of our cost structure. They are paid kind of by the drink, by the hour, by the mile as those benefits are accrued. So the flow through salaries, wages and benefits and we would expect those total amounts to be in a similar range to where they have been historically on an annual basis.

Got it. I guess and then from -- you spoke a bit about the debt covenants and how things have changed. How does your bank group view Q1 in terms of if we were to take it into the total trailing EBITDA, how should we be thinking about that in terms of the number that they are looking at? Do they exclude any of the extraordinary items or is it the full loss for the quarter?

There is not a lot of difference between the GAAP calculation of EBITDA versus the bank. The only notable exception is there is a $20 million annual carve out for restructuring charges so with that exception, it is pretty similar.

When do you lose that $20 million benefit?

We never lose it. It's just you look at your trailing four quarters worth of actual results and if there is up to $20 million of restructuring charges, you can subtract those out of the math?

Just to be clear obviously, the bank group new where the quarter was going to be during our discussions on the credit agreement adjustment.

I would imagine. As you go through the year, obviously your goal is to stay around where you are or improve on the debt covenants. But if you guys get up to 3.5 or above, you begin to have bigger collateralization events. At that point do you consider more drastic cost steps and could you walk us through what those would be offset getting in breach of those covenants over the course of the year?

We clearly earned -- like I tried to indicate in my comments, just because we have this in place doesn't mean we are going to sit back and just wait and see what happens. We are still very aggressively and proactively looking at a number of alternatives to ensure that we retain significant cushion under that leverage ratio and never get into that dialog. So we will be executing a number of things over the next couple of quarters. There is no one big silver bullet in there but we will do a variety of things to help ourselves out -- get through the tough patch here.

You mentioned that you are using Glen Moore for truckload freight on the substitution line haul. Can you tell us how much of a percent of your line haul you used Glen Moore for and how much you are expecting to use it for this year? Are you maxing out what you can under the contract? And then I guess I'm curious if you guys are using other truckload carriers as well?

We are just really getting that up and running because obviously the ability to do that didn't start until April 1. So we are just in the early stages. But Mike can give you more details on that.

As the year progresses, at this point right now just in the first couple of weeks of the contract, we've got about 20 teams up and running. As we progress through the remainder of this year, we would hope to ramp to 4 percentage points of our overall transportation or intercity transportation. Primarily right now between the middle of the country and to the West Coast and in particular to the Pacific Northwest.

And we are not using anybody other than Glen Moore (multiple speakers)

No, at this point right now we've not used anybody other than Glen Moore.

All right. And I guess when you look at the impact on Glen Moore, how is that -- their utilization -- has it helped them move toward -- were they profitable in the quarter? Or do you expect them to -- I guess how do you expect that to change the operating results at Glen Moore?

They were not positive for the quarter, still kind of trailing from the issues that they had last year. But two things have begun to happen. One is that particular type of business is very attractive in the truckload market and that it is predictable, it has helped their recruiting efforts significantly. And in their particular case, recruiting, retaining and drivers in position are critical.

Secondly, they have had some nice results in the market, some business that they have attracted that will be coming on line over the course of the next couple of weeks and months that we feel begins to push them back over to a point. That their fixed costs and overhead portions of the companies are well covered and positions them to have a broader range and reach as a truckload carrier as well.

Got it. All right, I appreciate it. On just a conceptual question. On guidance, I mean, Bill, I don't know what kind of light you can shed on this but I'm just a little perplexed because diesel going up the way that is and we have seen carriers that have had much stronger performance over the last year or two revise their annual guidance. Why give guidance with the kind of operating leverage you have within your Company? I mean if diesel goes to $4.50, it is going to be very hard for you to make these numbers.

Well, I think in our particular case, we have suspended guidance because our view of the economy was not very good and we had internal issues to fix. I think we felt that it was really important for investors to understand that we have turned the quarter. And I think if we hadn't made some sort of comment around that and quantified it that it would have been difficult for people to really understand that. So it was really more our intention to provide more clarity to the investment community that we have turned the corner here.

It's more of an internal comment than trying to make any call on the external environment.

It doesn't mean we're going to do it again make quarter, but we just thought it was very important in the near-term to provide as much transparency as possible.

Thanks, guys. I appreciate the time.

Tom Wadewitz, JPMorgan.

Guess, good morning. I wanted to first to follow onto the last question that Justin posed to you. Can you give us a sense of how much of your business does have fuel caps on it? I think some of the others that have reported have implied that the number is probably between 5% to 10% of their total book that has these fuel caps that have really begun to hurt them as fuel has continued to run up. And I'm trying to get a sense of if is representative for you or if you have really avoided some of the fuel risk from those caps?

Tom, first of all, we need to be careful about our terminology. We have very few customers that have actual caps on the fuel surcharge. We do have some that we would call substandard in the sense that they are not paying the full fuel surcharge above a certain level although they are still paying a fuel surcharge. And so with fuel where it is now, it was probably not in anybody's head to spend too much time worrying about that level. So we've got to customers that are not paying the full fuel surcharge and we are attacking that gap as best we can.

We are having an impact there probably pretty consistent with the rest of the peers in the group. But very few have actual caps.

So if we look at your sensitivity to fuel, I know historically there was a period of time where LTL companies might make a little money when fuel moved up and that dynamic had changed. But are you now actually in a position whereas fuel moves up you are not fully recovering and you are losing a little money?

Well, in aggregate I think the fuel prices where they are right now are probably not good for anybody including us. So we are probably not recovering at the same rate we were when fuel was at a lower level.

So you think you are recovering less surcharge revenues than the increased expense? Or closer to neutral on it?

Yes, it really depends on the specific situation and our ability to follow the fuel prices up. Lately they've been going up so fast and they are so high it is tough to catch them. But it has had an impact on our profitability.

Okay, fair enough. Your comments and your guidance on the regionals, I wanted to see if you could talk a little bit about what you saw in March after you had put in place some of those terminal changes in February. I know that the seasonality probably makes it a little difficult. But if you looked at the year-over-year operating ratio performance in regional through the quarter, did you see a significant improvement in the March OR performance in the regionals? Because you are implying obviously in second quarter that you are going to see a lot of that improvement. I wonder if you already have seen really evidence of that in March or not?

Yes, I think we would be very careful about giving guidance unless we had seen some pretty significant movement there. And kind of break it up into two pieces and then I'll let Mike kind of provide additional color.

The changes that we made at Reddaway had an almost immediate impact. There's a little bit of trailing costs associated with closures but we did see a very quick turnaround there in terms of moving back toward profitability pretty quickly. And that is understandable given the size of the closures that we did at Reddaway. So we do get weekly information on profitability from the regional company so we can track that on almost a real-time basis and at Reddaway, it snapped back pretty quickly.

At Holland, as we mentioned, there weren't as many terminal closures so the impact from the terminal closures was not nearly as significant but we've been doing a lot of other things at Holland on both the network side as well as the customer side that have given us good traction there. And we've got several weeks of improvement that is very significant going on at Holland. So we've got pretty good momentum in both companies and that is really what led us to the comments that we made. But I will let Mike give you a little more detail on that.

I think with Reddaway because of the territories and areas that were closed, you had extreme imbalances and an extreme excess of miles versus tonnage. As soon as we got those closed, there was an opportunity to refocus on their network, get their processes in line and their efficiencies back in and very, very quickly saw the types of performance both from an efficiency and service standpoint that they had experienced historically.

From a Holland standpoint, while the actual facility closures and tightening of the network was not nearly as significant to the side of that we've also made a significant number of changes in how their line haul system, their connecting system works on a daily basis. And as we move toward a change of operations to leverage the contract, we've made significant adjustments in equipment and resources in that company to where their performance has improved significantly.

As we go through this quarter and we actually through a change of operations kind of hard [code] those changes going forward, you see the next levels of results. The actual closures occurred with a little bit of a week or several week opportunity for customers to make adjustments at the very end of August. And as we moved through the second weeks of March and got into better position, the results began to change dramatically.

End of February.

I'm sorry, end of February was the closure and as we got into March, we started to see the types of results we expected.

So just to put some numbers and a little more clarity behind that, are you willing to talk about what the operating ratio in Reddaway was for example in February and then what it was in March? And then also that type of a number for Holland? Just to get a sense of that improvement.

No, we are probably not going to -- be willing to share a lot more detail than we already have. Suffice it to say that we expect both of those companies to be in the black during the second quarter and then depending on how effective some of these actions continue to be will determine how far into the black they go. But they are definitely headed in the right direction now and by the end of the second quarter, I think you'll have a pretty good feel for the level of profitability going forward.

Okay, one last question and I will pass it along. On the national side, you haven't talked as much about that. Can you see a substantial improvement in operating ratio -- let's say the next two quarters if tonnage remains down 9% year-over-year? Do you really need to see some tonnage deterioration slow down in order to get that operating ratio moving significantly in the right way?

Well in the second quarter, we have a more historical performance from the national companies baked into our guidance. The changes of operations to implement the new contract really won't have any impact in the second quarter but should start to have an impact in the third quarter. So we are going to get a little bit of a bounce in the third quarter as a result of that. But we are not assuming any improvement in the economy in the numbers that we are providing.

Right. Okay, thank you for the time.

Jon Langenfeld, Robert W. Baird.

Good morning, all. Question for you on the leverage side. It looks like if you hit low end of your guided range, you end up at about a 3 3 on that debt covenant. And I know 3 5 is kind of the place you want to avoid if you want to pledge those assets. But if things deteriorate, how much flexibility, how quickly can you [impact] the denominator of that debt side of the equation? Or I should say the numerator.

Right. I understand the question and if you just literally take the guidance and assume the same debt level, you do end up with those types of leverage ratio type numbers. I would tell you referencing back to my earlier comments, there are a variety of things that we are working on to help ourselves out in addition to the earnings -- increased earnings in the second quarter. Our target internally is to keep that leverage ratio below three and so there are a variety of other things that we are working on to manage that situation as we go forward.

I'm assuming based on the fact we know kind of what the denominator is based on your guidance, that would imply potentially paying down some debt yet I think you said in your prepared remarks that you probably aren't going to pay down much debt. So I'm trying to rationalize the two statements.

Well we want to -- part of it just depends on the specific timing and the specific actions that we end up taking. So there is a little margin of error in there. But circle back to the fact that we are trying to keep the ratio below 3. Is there a possibility it could temporarily pop a little above 3? Sure, that is a possibility but we certainly see maintaining plenty of adequate cushion under that leverage ratio.

Is there anything on the external fund-raising, the market you would look to to raise cash?

We are pretty opportunistic and looking at any ideas that make sense for the corporation. We view the renewal of the credit facilities as a first step but not a final step. And like I've indicated, there is pretty much a laundry list and we are pretty receptive to ideas and have been for the last couple of quarters. So we have plenty on our plate to look at and a lot of feasible things to execute as we move forward here.

Okay, good, good. And then on the need or the potential need to pledge the remaining facilities and rolling stock to the bank, if you violate the 3.5 times, can you just walk -- and I know that is not in your planning horizon -- but can you walk us through what is the logistics behind that? What does that do to your financial flexibility if that were to occur?

The logistics behind it are basically just a lot of administrative work and some costs associated with retitling tractors and trailers principally and the remaining real estate. So that is that. The financial flexibility does become a bit more limited in that scenario. I would point out that if you just roll the clock back a couple of years post the Roadway transaction, we were a fully secured credit and worked our way out of that environment quite successfully and anticipate doing so again.

And then Bill, can you talk about the pricing environment just as you've seen it progress both in the national and regional? We've heard for most of the regional players. I think all of them basically saying, look, it got worse in the last two months. How would you characterize that?

I think there are a couple of comments to make there. First of all, as you can see from our relative yield number and our relative volume number, we've been a little bit more disciplined maybe than some of our competitors. On top of that, we had the impact of the volume that hit us because of the changes in the footprints at the regional company. We've had some unusual things going on there.

I would say that the pricing environment hasn't changed a lot, still very competitive, still positive for us. One of the things that may not be apparent in the regional yield number is that they had as a results of the footprint changes a significant change in length of haul which if you adjust for that gives them yield a little bit closer to what the nationals had. So our yield is pretty consistently positive for the last couple of quarters in the kind of plus 1% range and we see that as a trend that will continue through the second quarter.

Great, thank you.

David Ross, Stifel Nicolaus.

Good morning everyone. Can you talk a little bit about the recent turnover you've seen at the executive level at both Yellow and at Holland? What has been going on there?

Sure. Let me start and then Mike can talk. The situation at the regionals has obviously been challenging and the one that we wanted to make sure we could turn so we made a couple of changes there. Keith Lovetro is basically day-to-day full-time in charge of Holland and we're making really good progress there now.

We've had some changes also on the national side which have been consistent with our ability to try and make sure that we implement all the change effectively. And by that I mean we had a retirement -- Maynard Skarka decided to retire. We thought about how to implement a change there and decided that Mike (inaudible) being in that job temporarily would be very effective in terms of making sure that we get all the changes in the contract made effectively and stayed really close to that and not end up with a learning curve and a new person in that job. So those are the two primary ones. Mike, I don't know if you want to add to that.

Bill, I think the most important aspect of this is over the course of the next couple of months and as we go into the second part of this year, the number of changes and the speed of those changes just felt that the current assignments, Keith's role and the role that I've taken on with Yellow offered the most seamless opportunity to move forward. Having been involved in the network designs, selling organization efforts that we are putting in place as we move through this year as well as having been involved in negotiation of contract, it just made a more fluid, more reasonable change.

You also talked about -- you've had about I think a $40 million of (inaudible) reduction year-to-date. Can you give a little more color on where that's been?

Yes, it's a whole long list of stuff that we've attacked and includes trying to make sure that we've got the right span of control and that we have the right infrastructure to support the volume of business that we currently have. There is no one really big thing in there. It's more a list of a couple million here and a couple million there.

Do you currently still have a Yellow Transportation sales force and Roadway express sales force?

There has been no changes to the local sales force in any of the companies. We are in the process of integrating our corporate sales forces into one sales force to give the larger customers a single point of contact which is something they've been asking for for some time and has been in our plan since we made the acquisition. But the local sales forces remain exactly as they were.

Do you think it makes any sense down the road as you are combining operating systems and operating under a national transportation platform to maybe consolidate the Yellow and Roadway sales forces?

Well, you never say never. I think for now we are convinced that the best approach is to have those separate sales forces representing each one of the brands. They have equity and market presence in their own right. But I would never say never. But for right now, I think we are convinced that is the best approach.

And is we could just move to the tonnage losses we saw year-over-year at the national level. How much of that would you say is maybe due to a couple of larger accounts? Is it just broad-based? I guess where are you seeing the tonnage losses the most?

Did you say on the national side, Dave?

Yes, of the national side.

Yes. A couple of things there. First of all, we have our normal -- if you can call it that -- leakage that we experience as we go through the contract renewal timeframe. So that was part of the impact in the first quarter. The weather obviously did not help us. And then we did have a couple of customer specific things where we have a couple of our larger retail customers that are implementing changes to their logistic system and going more to a consolidation model which eliminates LTL. Those were two unusual situations. The rest of it really fell into the other two categories.

Last question on the regional level, the tonnage losses there. How much do you attribute to pull back from the Holland and Reddaway territories and how much do you consider just normal year-over-year same-store sales tonnage losses?

Well, I think if you looked at the 10% that you have in there, we were saying yesterday to ourselves about 7% of it is probably related to the footprint changes. And on a go forward basis, that will probably be around the right number.

Thank you very much.

Neal Deaton of Stephens.

It's Thom Albrecht here on Neal's line. I'm certainly glad to hear that things are moving in the right direction for the first time in a while. If we step back and just talk strategically within the Yellow Regional offerings, Holland and Reddaway now are in 32 states, look like they are going to regain some level of profitability. But as you think about who you are competing against, most of those stronger regional competitors have maybe 38 to 48 state coverage and you've obviously pulled back.

What do you feel you need to be over the next three to four years in terms of states offerings for the regional company? Obviously I'm excluding New Penn.

Sure. That is a really good question. I think it has been surprising to me to see the amount of business that has been able to be transferred to Yellow and Roadway as we removed ourselves from some of the territory that Reddaway served. We think that the core markets that Reddaway and Holland are now serving are really the right core markets. I would never again say never about going back into the territories that we've left but at least for now we are very happy with the coverage we have.

Okay. As you look at your guidance for the second quarter, does that mean that you expect all of your main operating companies regional, national and logistics to each post a profit or will one perhaps still have a loss and be carried by the others?

We expect them all to post a profit.

Okay. And you mentioned, Bill, as well in the national company, that you expected to perform more consistent with at this point in the cycle -- I forget exactly what you referenced -- at this point in the cycle, the old Yellow and Roadways usually were a kind of 98, 99 OR company. Is that kind of what you are alluding to?

Yes, the way I would describe it is we expect the national companies to be somewhere between a 95 and a 99 and hopefully closer to a 95. But if you go back and look at the 2001, 2002 performance, that is kind of where they were. So given no further deterioration in the economy, that kind of 95 to 99 range is where they should end up.

Okay. There is so much to digest today but -- and I don't know if you addressed this head on but obviously there has been a lot of discussion about the competitive pricing landscape deteriorating the last five, six, seven weeks. Can you talk about that particularly as separate comments for national and then for regional?

Sure. I think there has been a lot of noise lately but as someone once said, facts are stubborn things and if you look at the numbers, the yield that we are getting is fairly consistent with what we have been getting. So at an aggregate level, there hasn't been a lot of change. There obviously is always stuff going on at the account level that may or may not be a lot more aggressive than it has been. But in aggregate, on either the regional side or the national side, it really doesn't look to us like there has been much of a shift.

Okay. And a moment ago obviously you offered a range on the national OR. Do you want to take a stab at that for the regional?

I will say that it will be profitable. As I said, I'm not going to try and predict any further than that because we got a lot of things in motion there. Most of them are very encouraging but I don't want to get to far out in front of our skis there.

Sure. And the, so to make sure I understood you right, so probably ex the pull back at regional, the tonnage levels at Holland and Reddaway would have probably been down 3% to 4%?

That is about right, yes.

Okay. And then in terms of guidance and that, did the banks have a hand in perhaps prompting you to offer guidance or was that your own decision?

I have to take full responsibility for that, that was our idea.

Okay.

Just to clarify that a little bit, we really did feel like the investors deserved to know that we turned the corner. We didn't want to go through another quarter of uncertainty in the minds of the investors. And so we thought it was important to provide more clarity around that and try and quantify it so that we could give them a sense for the kind of change that is taking place here.

And then last question. I assume that we should continue to forecast losses at Glen Moore? I think you mentioned a $5 million first-quarter loss. No reason to believe that one would be profitable in the environment the truckload carriers are facing?

Yes, I think that one is going to be close to profitable as well by the end of the quarter. So that loss will continue to lessen as we continue to implement the contract opportunity there and rebuild the driver force there. So that -- the worst is over there as well we think.

I keep saying last one, but were any of your key entities regional or national profitable during the month of March?

Yes, sure --

March?

Yes.

Both or primarily national?

Well we had during the month of March, we had to -- well obviously New Penn continues to be profitable every month so you can take them out of the equation because they are doing a terrific job. The national companies were profitable in March and we had moments of profitability at the other two companies as well.

Okay. All right, thanks for the color.

Ed Wolfe, Wolfe Research.

Thanks, good morning. Let's start if we could just with some cash flow questions. In the quarter, it looks like Steven, there was $93 million of operating cash flow despite the $46 million net loss. Can you just get us from the $46 million net loss to the $93 million positive operating cash?

Yes, like I mentioned earlier in my comments, the DSO performance was strong so receivables or working capital were in fact the source of cash in the quarter.

Do you have an amount for that?

It was around $20 million, going from the top of my head. And so that was important. And a number of other things that took place in the quarter there was a tax refund received during the quarter of about $20 million and a Federal income tax receipt. And a variety of other things just with prudent cash management make up the difference there.

I guess we will see the rest on the Q then?

Right.

Can you talk what the trailing 12-month EBITDA is including the first quarter since that seems to be a big bogey that you are talking about and everything? What is the trailing EBITDA?

It is just under $400 million.

And similarly, when you look at the debt for purposes of that 3.75 debt to EBITDA, what's included in there in terms of off-balance sheet leases or is there any potential pension liability or anything else that we need to include in there?

No, it's straight off the balance sheet, which our ABS facility is on balance sheet so it is the [1.175] number that is listed in the release.

Okay, that is great. Is there going to be a number in the quarter for what the withdrawal liability has gone to given the weak stock market or is that not every quarter or just in the case? How do we -- when do we see those numbers?

It's an annual and it's an estimate at that point in time. There is no new information coming there.

Okay. Interest expense as we try to model going forward. How should we look at it? There are some puts and takes here with the new agreement and everything. Is there a pretty good number that we could use going forward?

Yes, you kind of take the interest expense from the first quarter and add a couple of million per quarter to that. There's about an $8 million or so increased interest expense on an annual basis that has been added as a result of these amendments.

So take the 18.6, add about 2, so about $20 million to 21 million, that kind of a range?

In that range, yes.

Okay, that is helpful. You talked about CapEx coming down to $200 million this year. You only spent 30-something in the quarter. How do we think longer-term, Bill, in terms of when the economy comes back and things start humming again? What is a more normalized CapEx number and what is a strong CapEx when you are growing number?

Yes, it is kind of tough to zero in on that at this point but it will be less than what we historically have had in there for the same amount of volume because the contract will allow better asset utilization as well as better labor utilization. But we had a number of about 300 to 350 historically and it will probably be in that range.

That is a more normalized number or is that kind of when things are really humming number?

That is kind of a more normalized number.

Okay.

But you know on fleet -- our fleet is in really good shape. We still have an average age of about four years. So we haven't got any real catch up to do there. It would be more supporting higher volumes.

That is the tractor fleet for both national and regional kind of a combined fleet?

Yes, that is about right.

And how about on the trailer side?

About 10. I'm getting 10 from a couple of people so that must be about right.

One last one. The Teamster contract you talked a couple times and it's in your release about improved flexibility, you talked about it with the truckload side. There are also some increased costs on the pension side -- I'm particularly. That went into effect when? On April 1 -- or (inaudible) going to have a lag versus some of the other costs of the contract?

Yes, that kicks in I believe in August, doesn't it, Mike?

August 1. The hourly and per mile increases kicked in April 1 and then the benefits increases kicked in August 1.

And what are those two increases? What is the April 1 increase and then what is the August 1 increase?

In terms of -- percentage?

Percent would be helpful.

I believe it is about 1.9% that kicked in April 1 and the total was about 3.8, 3.9 and so it is about -- it would be about 2% on the same basis as the 1.9% was stated.

So it's a higher number but on a smaller number because pension is not as much as wages? When you do it as points, it all adds up to about 3.8?

Right, it is a higher percentage increase on the benefits but against the lower number.

Right, okay. That makes sense.

-- same terms -- that about --

And just to remind everybody, there is a cap on the benefit side of this which is important in the sense that there's no additional liability regardless of what happens to the pension funds over the next five years.

Thanks a lot for all the time, I appreciate it. This was helpful. Thank you.

Jason Seidl, Independent Transport.

Are you there Jason?

Jason, please go ahead.

Maybe Jason had to leave. I think that was our last call so again, thanks for listening and we will talk to you at the end of the second quarter.

Thank you. This concludes today's conference call. You may now disconnect.