Yellow Corp (YELL) 2009 Q1 法說會逐字稿

Good morning. My name is Leslie 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.

Thanks, Leslie. Good morning and thanks for joining us for the YRC Worldwide first-quarter 2009 earnings call. Bill Zollars, the Chairman, President, and CEO of YRC Worldwide, and Tim Wicks, our CFO, will provide our comments this morning. Our operating Company Presidents, Mike Smid, Keith Lovetro, and Jim Ritchie, are available for questions. I would also like to welcome Jeff Scheibel, our new Director of Investor Relations, to the call. Jeff has been with YRC for a few years in our forecasting area and I am pleased to have him on the team.

Now for our disclaimers, statements made by management during this call that are not purely historical are forward-looking statements. 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 statement due to a variety of factors. The format of this call does not allow us to fully discuss all of these risk factors. For a full discussion, please refer to last night's earnings release and our SEC filings, including our 10-K and today's 8-K filings.

I will now turn the call over to Bill.

Thanks, Sheila. Good morning. The first quarter was historic not only for YRC but for the LTL industry as we successfully integrated Yellow and Roadway into the most comprehensive single network in the market. This did require a lot of hard work and effort by our employees and a lot of patience and support from our customers. The process wasn't perfect and we had some hurdles in the first couple of weeks, but given the size of the integration and the history of our industry, we feel very good about what we accomplished in a relatively short period of time.

In a minute I will give you some more color about where and when we expect to see the benefits of the integration, but first, let me touch on the first-quarter results and the operating environment. As we commented recently, the economy progressively weakened throughout the first quarter. This led to more volume decline than we initially expected at all of our operating companies.

We have effectively removed a significant amount of cost from the business, but with an unprecedented economic environment coupled with separate national networks, it was challenging for us to get ahead of the declining volumes. This was the clear driver behind our operating loss after taking out the nonrecurring charges from our internal initiatives and significant accrual adjustments. We provided detail of these charges at our recent analyst meeting but Tim can give you an update in a minute.

In addition to the economy, we believe we are still experiencing some customer diversion due to concerns surrounding the integration. It is difficult to quantify this volume, but we believe it is about one-third of our year-over-year decline in national or about 10%. We believe much of that volume will return and in fact some of it already has but we can't predict how quickly or what levels the rest will come back.

With respect to yield, our national company continues to see trends better than the current market given the customer mix improvements we initiated prior to the integration and our ability to obtain contractual increases. If you exclude fuel, the national's LTL revenue per hundredweight was up more than 1% in the first quarter compared to a year ago. This is also about a 2% improvement from the fourth quarter trends.

We continue to feel good about the ability of our national company to secure price increases even in the current competitive environment.

As for pricing at the regional companies, it remains competitive given the overcapacity in the regional markets and the economic recession that is significantly impacting Holland's core territory. For the quarter, yields at the regionals was down a couple of percent after excluding fuel. We are encouraged by some initiatives in the early stages of the regional companies to expand and diversify their customer base and improve their contractual increases. Given that, all the regional brand services now consistently in the high 90s, which obviously is a great leading indicator for future business.

Before getting back to our national integration, let me quickly say that YRC Logistics and Glen Moore, our truckload company, continue to make adjustments for the economic environment. Logistics reported declines in revenues as the global economy worsened, but in response moved a significant amount of costs from the business. Keep in mind that we continue to record our investments in Jiayu and JHJ through the equity method, which means their results are not reflected in the Logistics results. We remain pleased with our opportunities these investments in China provide our US-based customers.

Glen Moore reported revenues similar to last year and was still able to reduce its operating loss by nearly $3 million for the quarter. Most of that improvement was due to lower fuel costs and the driver teams that now support the national transcontinental business.

Now I would like to take a few minutes and give a current update on the national integration. We shared a lot of details at the analyst meeting, so I don't want to be repetitive, but I would like to remind you of a few key points. First, the integration caused some large changes in the first quarter -- I'm sorry -- large charges in the first quarter primarily related to employee severance relocation costs and facility closures. We may continue to have smaller charges of this nature as we right size business in relation to the economy. The charges related to the integration are now behind us.

We also recognized significant declines in productivity in the short term as about half of the workforce was using unfamiliar technology, driving different routes, and working in a new environment. We expected these declines and are encouraged by how quickly the trends have recovered and improvements continue -- and have continued throughout April. In total, we estimate the integration costs of at least $65 million in the first quarter, but we don't expect that to reoccur.

As far as the financial benefits of the integration, earlier this month we increased our run rate savings from $200 million annually to $250 million annually. This additional savings was always built into our expectations, but we wanted to be conservative in our external commitments until we were confident the integration was complete and that we were on the right path. We now have that confidence.

The substantial upfront investments are behind us and we can focus entirely on running the new network, servicing our customers, and improving the operating results. We feel pretty good about the national integration and the fact that it improves our position as the market leader and will significantly enhance the service we provide to our customers, which hopefully they are already seeing.

Our daily trends show that we are improving every day and that productivity, load average, and service are approaching all-time highs.

I will now turn it over to Tim to provide some more details on the first-quarter results and our financial conditions.

Great. Thank you, Bill. While it has clearly been a busy quarter from an operational standpoint, we have also taken some significant steps to manage our financial position. As everyone knows, we finalized our bank amendment in mid-February that provided substantial relief from a leverage ratio standpoint and permitted us flexibility in terms of generating and using liquidity. Since we already hosted a separate call on the amendment, I won't spend our time going through it this morning.

I would, however, like to talk about the amendment we just finalized last week, which allows us to more effectively use our real estate to manage cash. As we announced recently, we are in negotiations with the union pension plans to temporarily defer our monthly pension payments of around $40 million per month and in exchange, we will provide real estate as collateral.

It is important to understand that this does not change any of the benefits earned or paid to our employees. It does however, give us more flexibly to manage cash during the seasonally slow cash period and provides the pensions with security that could appreciate in value.

As of now, we have worked with our lending group to amend the credit facility and released a set of properties to provide as collateral to the pension funds. We accomplished this in a matter of days, which demonstrates the continued support of our lending group. We are in the midst of negotiations with the pensions and expect to provide you more details in the near future.

It is important for you to think about the pension deferral as incremental to the sale-leaseback transactions we are completing. It allows us to effectively accomplish the same goal with a little more predictability on cash flow. With regard to the sale leasebacks, we closed $157 million during the quarter, including $111 million with NAT and $24 million with Estes. And we completed $19 million of other property sales for a total of $176 million during the quarter.

As NAT was completing some final surveys and inspections on the remaining properties, they informed us that their underwriting would take longer than originally planned for their remaining properties valued at over $40 million under the agreement and would not have it completed prior to expiration. I want to point out that we appreciate and value the partnership we have with NAT and we expect to complete further deals with them in the future.

But it was in our best interests not to extend the entire amount remaining under the contract since we are able to secure agreements with other investors. In fact, this week we just signed an additional $32 million deal with Estes and just yesterday, signed additional agreements with other investors for $70 million in sale leasebacks. We did however mutually agree to extend the contract with NAT as it relates to the $16 million of properties that remain under the original contract and we expect them to close during the second quarter.

So when you think about all of this, it is important to understand that the new transactions we are entering are very attractive to us as the cap rates are better, the real estate values are higher, and the investors already have financing secured. We continue to evaluate additional opportunities in this area and will execute more if the market conditions remain favorable.

Before moving on, I would like to point out one other notable item in this most recent amendment. There was some question in the market regarding how we would satisfy the 2010 8.5% notes and the 5% converts given certain limits under the credit agreement. We felt confident we would work out additional options with our lending group prior to those maturities and in fact this latest amendment now provides the flexibility to complete debt for equity exchanges in addition to issuing equity in the open market as options to satisfy that debt prior to their maturity. We will continue to monitor the financial markets and evaluate these opportunities as the year progresses.

Now I would like to spend a few minutes on the financials we released last night and the steps we have taken and continue to take to improve them going forward. We realize the numbers at face value may be a little overwhelming, but I would urge you to remember the significant investments we made this quarter in changing our networks and enhancing our position in the market.

First, Bill already talked about the national integration that had an upfront cost of more than $65 million but should generate run rate benefits of at least $250 million by early in the fourth quarter. So we are expecting a nearly 4 to 1 ROI on that investment in under a year. At least $20 million of benefit should be recognized in the second quarter. That is a sequential operating income improvement of more than $85 million compared to the first quarter.

Second, we also addressed the overlap between Holland and New Penn in the upper northeast. This resulted in charges of $6 million during the first quarter, but is expected to save the regional companies $25 million to $30 million annually. Again, another ROI of over 4 to 1 in less than 12 months. These one-time charges were lower than our initial $8 million to $10 million estimate as the [Warren] Act liability was less than anticipated. We continue to implement additional cost and business mix improvements at Holland that we believe will improve their results as we progress through the year.

Another item to note is the union employee stock awards, of which we recorded a one-time non-cash charge of $30 million in the quarter. This investment provides each of our union employees another way to benefit when the Company performs well. The associated 10% wage reduction should reduce costs around $240 million annually or nearly $1 billion over the life of the contract. Salary and benefit reductions for nonunion employees should add another $75 million in annual savings. In the first quarter, these actions saved the Company about $90 million in actual operating expense reductions.

And finally, in response to declining volumes and the need to further streamline the organization, we continue to reduce headcount by a meaningful number. It gets a little blurry when determining whether a position was eliminated due to integration or volumes, so let me break it down for you.

We eliminated over 800 nonunion positions due to integration, which resulted in about $13 million of severance during the first quarter. This cost and the associated benefits were a subset of the integration numbers I just shared. What is not included in those numbers is the additional 900 nonunion positions eliminated due to lower volumes. This resulted in another $19 million in severance but should provide cost savings of over $70 million annually.

While we are discussing headcount, I would also mention that we are down over 4000 union positions due to integration and the lower volumes compared to the fourth quarter and nearly 9000 compared to the first quarter of last year. As you know, our contract allows us to flex labor in relation to volumes. We believe with our consolidated national networks we could now add a significant amount of volume without additional labor, which means a very healthy incremental margin as the economy improves.

So when you think about all of this, we invested over $120 million in the first quarter to generate future benefits of over $600 million a year, an ROI of 5 to 1, which is a fairly decent return in our minds. Every day as we move forward, we will continue to adjust our operating capacity and structure to match market demand. This is a critical component of our short-term tactical operating plan while we simultaneously invest for long-term success when the economy recovers.

Before turning it back to Bill, let me remind you that our focus remains on liquidity as we manage through this economic recession. At the end of March, we had $266 million in cash and we anticipate completing nearly $200 million more of sale leasebacks during the second quarter. We expect to negotiate deferring multiple months of pension payments to our multi-employer funds and plan to finalize these arrangements soon.

We also expect our gross CapEx to be more than offset by excess property sales during the second quarter, which means there really is not a cash impact from CapEx. Our nonunion pension payments in 2009 will be about $10 million mostly paid in third and fourth quarters. We do not expect any large unusual cash outflows this year, so you can basically model cash using your operating assumptions.

I will now turn it back to Bill for additional remarks.

Thanks, Jim. I think it is important for all of our stakeholders to understand that we consciously made some pretty tough decisions that we feel will put us in a really different position going forward and provide tremendous benefits. It is easy to get caught up in the numbers and forget what we really accomplished here. But I would urge you to think beyond that and realize that this Company is an industry-leading organization with hundreds of thousands of very loyal customers and dedicated employees.

We've gone through significant transformation over the last year and yet our core business remains solid. With a national network that is unmatched in the industry, strong regional brands, a global reach, and significant employee ownership, you can expect us to go on the offense now in the marketplace. We have taken a significant amount of cost out of this business including over 150 facilities and more than 11,000 people since the first quarter of last year.

Our new integrated network and significantly reduced infrastructure have lowered our breakeven point, which gives us the ability to significantly reduce our cost per shipment. When you combine that with the improvements in our service, the result is an even stronger position in the market which we begin -- which we are beginning to leverage in the marketplace. Because of the continuing economic uncertainty, it's too early in the second quarter to provide guidance, but we will update you as we move through the next few months.

We will now take your questions.

(Operator Instructions) Tom Wadewitz, JPMorgan.

Yes, good morning. Let's see, so there are -- the information you presented is helpful and obviously a lot of moving parts. I'm wondering if you can give us a sense of how things look in April and in terms of profitability and, you know, whatever kind of metrics you can give us to get a sense of what the profitability trend looks like in second quarter based on first couple of weeks of April.

Sure, well let me start with kind of the macro environment. We don't see much change there, so the volumes being driven for business activity are about the same. If you move into the more Company-specific kinds of focus, the integration of the national companies has gone better than expected from probably the three or four most important perspectives. First of all, our service, as I mentioned, is approaching all-time highs. That is obviously critical. Our productivities are better-than-expected thus far, including load average, which as you know is a key component of that.

So from a cost standpoint and a service standpoint, integration is going very well. We are starting to see business that had been diverted temporarily return. We expect that to pick up momentum here as we move through the rest of the month of April. So that's kind of the situation on national. I will turn to Mike here in a second and he can talk about it in a little bit more detail.

On the regional side of the business, obviously Holland is still struggling with really kind of the nuclear impact of the economy in the Midwest and the ripple effect from what's going on in the auto industry. Having said that, we have a lot of plans in place at Holland as well as the other regional companies to make sure that we have a solid recovery plan in place. So I expect that you will see much improved performance in the regional companies in the second quarter as well.

Logistics is struggling with the worldwide global downturn, but doing a good job of adjusting their infrastructure to be consistent with the business lines. So that's kind of a snapshot. Let me go back to the integration and let Mike talk for a couple minutes about that.

Tom, there are really two areas. First of all from an operating standpoint, it has been exciting to move from the pure phases of integration into progress as we begin to build the service performance as well as the momentum from an operating standpoint. From a revenue standpoint, in the course of the last couple of weeks, we have begun to initiate some significant programs with our customers based on recovery and development of new business.

I think the most encouraging part of that is that as we release new and different programs from a customer perspective, we have not only seen some recovery, but have had some winds from the standpoint of new and different business. I think that's probably the best example of making our way through a really complex integration and then onto the beginnings of leveraging the integration from a market standpoint.

So if we think an OR turn at national and regional, is there any rough since you can give us of what the OR might look like in the first couple of weeks of April? There's so many moving parts in first quarter, it's kind of hard to work through all that and have really an idea of what the trend might look like in second quarter.

I think that's right, Tom. It's just too early and we've got a couple of things that we are assuming will continue in the right direction, productivities and the return of business that was temporarily diverted. Then of course you got the wild card of the economy. We've been sort of given a couple of head fakes in the past where we thought the economy stabilized and then it took another step down. So still a lot of moving parts here and too early to make any kind of call on the second quarter.

Have you seen the operating ratio improve in the first couple of weeks of April versus the reported levels in March? Can you comment that way directionally?

Well, the cost per shipment is obviously coming down as we continue our productivities. But I think the most exciting thing to see right now is the level of service we are providing because that as I said earlier is a great leading indicator for everything. And all of our companies are providing terrific service which going forward will be the most important thing.

Okay, I guess one more. The banks seem to -- you seem like you work through pretty quickly with the banks regarding what you want to do with the Teamsters and the pension contribution and the deferral there. And so is that an indication that if you need to go back to the banks in terms of the minimum EBITDA requirement, which might appear to be challenging given how bad the economy has gotten? I mean, is that something where you also think you get flexibility on those covenants?

Tom, it's Tim. I appreciate the question. I think it's fair to say that very broadly we have a very productive and positive working relationship with the lender group. And as we identify opportunities that relate to just about anything related to liquidity improvement opportunities, operating improvement opportunities, we have a very open dialogue with the lending group and come to them to talk about ideas and approaches. And as you saw last week in our ability to work together to amend the agreement in really frankly just about 24 hours to free up that property for the pension funds, that really is a good characterization of the relationship that we have. And I would say it covers many dimensions.

Right, okay. Thank you. I appreciate it.

Justin Yagerman, Wachovia.

Good morning. I wanted to get a sense of -- I guess it would be helpful to hear the tonnage per month trends in national and get a sense from that I guess how much volume has come back, if you are seeing any kind of diversion coming back to you in April?

Yes, I think we saw the tonnage weaken as we went through the quarter. I think we have said that a couple of times and part of that I think was economic softness getting worse and part of it was people having a little bit of concern around the integration timetable. That's behind us at least the integration piece of it is and we have seen business start to return.

The question is how fast and how much? As we said, we think about 10% of our volume decline in the first quarter was related to business that had been diverted temporarily. So as that business comes back, that 10% should return. It's just kind of tough to tell the pace of that business returning.

With trends in April then, Bill, what are you seeing there? Is it sequentially up from March in national?

It's a little bit too early to tell. I would say there's been no meaningful change at this point but we expect that to change as we go forward through the second quarter.

Okay, one of the things you guys talked about in your analyst meeting was an insurance captive that could free up about $160 million in liquidity. I was wondering where you guys are with that? I didn't hear you mention it and was curious what the timing looks like on that liquidity chunk?

Sure, Justin, it's Tim. We actually did the wind down of that captive coincident with signing the amendment back on February 12. So when we closed that amendment, we wound down the captive from liquidity purposes right in time with the amendment. So that liquidity was received at that point in time.

So that is a lever that is already pulled in other words?

That is correct.

Okay. When you guys are talking with the pension plans, you already got the approval from the collateral -- for the uncollateralization of the assets from your bank group. What would prevent the pension plans from allowing you guys to put up these assets as collateral for your payment obligations to them? Is there anything holding up those negotiations or is that just a matter of time? If so, what do you think timing is for when we get resolution on that?

Justin, it is we believe a matter of time and it's just a part of the process of negotiating and making sure that everybody's interests are well represented as we work through that. We are negotiating with several phones simultaneously and it's important as we do that to make sure that everybody is well represented and that everybody's needs are met to the best of our ability as we work through it. That just takes time to get done and we are actively engaged in those discussions on a daily basis.

No, understood. And I guess the implication there is that the bank group feels there's excess collateral relative to the loan value that is outstanding on the credit facility. Do you guys have a sense of where you would peg that excess collateral number? Where are you above and beyond the value of the loan obligation you have to the credit group?

Justin, I don't know that there is a good way to peg that value precisely. I think the way I would characterize our relationship with the banks is we each come into those discussions knowing what we are trying to accomplish and each has a sense of the room each has around the various parameters that we are negotiating on. And clearly we are working together to ensure that we have the liquidity that we need to get through this tough spot in the economy because we all believe that when you look at the historical performance of the Company, that we are going to be in a position to perform well moving forward.

Frankly a lot of that is driven by the actions that the management team has taken to take significant operating expense out of the business. And as you see the tonnage declines that we have shared with you, we have invested an enormous amount of both resources and energy in right sizing the capacity of the business to match the demand. When we continue to enter those discussions with the bank group and demonstrate those areas where we have taken out expenses in order to ensure that we have the right operating structure in this economy, there continues to be support to help us through the liquidity time particularly as we are in a period of the year that is seasonably slow related to cash flow.

Okay. Bill, you alluded to the economy in the Midwest and obviously Holland has struggled with some of the issues. Now can you talk a little bit in light of the plant's extended shutdowns and the potential bankruptcies at GM and Chrysler, what your auto exposure looks like to date?

Sure, let me start it and Keith is here and he can give you more color around that. Our corporate exposure to the auto companies is not significant, but there is more exposure in Holland not only directly but probably more importantly indirectly in terms of the impact that the auto industry has on that part of the country. We've tried to build in some analysis that would take into consideration some of the things that are going on within the auto industry as we look at our forecast going forward and have also got some plans in place to continue to diversify the customer base there. But I will let Keith add to that.

Yes, excuse me, in fact, that's exactly how we are attempting to mitigate some of that business cycle risk, which is through to diversification that we actually talked about at the analyst day. So by penetrating or targeting other industry segments as a way to mitigate that risk and to diversify Holland's customer base, that's a key way for us to offset whatever might occur in the auto industry. So that's a key step for us.

Okay, lastly and then I will turn it over someone else, Tim, can you just talk about working trend -- working cap trends and what you expect for the year? This quarter looks like accounts receivable is a pretty healthy help to you guys. How do you see that playing out as we normalize that throughout the year for cash puts and takes?

Sure, again I would come back to how I finished my comments, Justin, in that we don't expect any large swings one way or another as it relates to significant cash obligations. We will continue to work the working capital side of the business to be able to continue to produce liquidity there just as we did in the first quarter.

I think in terms of probably the most straightforward way to think about it is as we get into a part of the year where revenue tends to grow more significantly based on the overall just seasonality of the business, as accounts receivable goes back up, we also find that under the ABS facility, the borrowing base expands as well. So we have an ability to finance ourselves during that time when accounts receivable is increasing.

Having said that, we had a significant amount of energy placed around our working capital and managing the working capital and really focused on producing cash from working capital just like you saw in the first quarter and we will continue to drive hard in that direction through the remainder of the year.

It makes a lot of sense. Thanks for the time, guys. I appreciate it.

Edward Wolfe, Wolfe Research.

Good morning, guys. Tim, can you talk to when you look at the internal plan you've got to get to $45 million in EBITDA, how much in your plan comes from April, how much comes from May, how much June? You know, we are 24 days into this already on that plan. How does that plan feel?

I think, Ed, obviously great question but very much like Bill mentioned earlier to Tom's question, it's pretty early into the quarter to be able to address that as we think through achieving that plan for the quarter.

All right, but instead of in terms of what's happened so far -- and I know it's only 24 days and Easter is there and all that -- is the plan back ended? Is there more cost savings in June than April? Is the seasonality better in April than May? How do we think about where you are looking at the strength to come from?

Yes, I think we are assuming normal seasonality, Ed, and obviously the more we get into fine-tuning the network on the national side of the business, the better we expect the productivities to be and the more business that had been diverted, we expect to return. So things should get better as we move through the quarter pretty much on all fronts.

Can you talk little bit about the availability on the revolver as of March 31 to now?

So the key area, Ed, is less around the revolver and more around the ABS. What happens when we sell assets, real estate, excess equipment, we are under obligations through credit agreement around the portions that we prepay. And so a good example of that is as you to look at the balance sheet for Q1 and you see the approximately $245 million of cash on hand, you see the incremental $17 million of restricted cash, that restricted cash is the portion that we put into an escrow account that then gets freed up on July 15.

So as we move forward and we continue with asset sales, we will be under the appropriate split outs that are detailed in the credit agreement around when we sell assets that we do a 50-50 split on those assets for the first $300 million above and beyond what we call the scheduled transaction, which was the $150 million under NAT. That will then be available under the revolver and it is available under the escrow account, and then that escrow account gets released on July 15.

Does that escrow keep moving six months?

I'm sorry, Ed?

If you put new money in the escrow, how long is it supposed to stay in the escrow? For six months?

No, the total period, the escrow period ends on July 15.

So if you sold some real estate and closed on it today, that would go into escrow 50% of it theoretically and that would be released July 15 too?

Yes, yes.

Okay. So there's $500 million. Is that the new ABS facility? What's available on that if you wanted to draw down today?

So you are correct, the ABS facility has a size of $500 million in terms of capacity. The borrowing base is approximately $300 million based on where AR is and we are not fully drawn on that.

Can you tell us how much room there is there?

There is approximately $20 million.

So you've got the $20 million plus you've got the $245 million in cash minus the $17 million which will come back to you in July?

No, you are almost there. It's the $245 million plus the escrow amount, the $17 million. So take that as $266 million of cash and then if you want to do a math of backing out the escrow, you would back that out from there.

Okay. When you talked about some of the sales that you have entered into yesterday and so forth, do those include the New Penn? We're hearing they are selling some terminals as well, or is that just related to Yellow and Roadway?

There are -- they are really across the board in terms of the operation and we probably won't get into the specifics of those facilities as to where they are until the transactions are completed. But they really are all across the board across the various operating companies.

Okay. Can you give us more details about what happened with national terminals? It felt like this was closing in February, then it didn't do it -- and just a couple of weeks ago it is closing, but within 60 days and now it's not closing.

Yes, and that's probably not exactly how I would characterize it. We did enter into extensions with them, Ed, as we continued to move through the periods that you referenced, the February and March periods. Essentially what was happening was it just really reflective of their underwriting process and many different facets of what's going on in the credit markets. We continued to work together and we frankly continue today to work together around a number of properties that they still have options on.

But in each of those extensions, we had the option at the conclusion of those extension periods to pull properties from that list and as we got to this latest extension, what we did was we pulled a number of those properties where we knew we had negotiating opportunities with other potential sale-leaseback investors.

So we did that at the end of this last extension and we were able to sign the additional agreement that we did with Estes as well as other investors for this incremental $70 million. NAT will continue to close on approximately $16 million out of that $40 million that remained, so they are still a very important partner to us and we continue to look at future opportunities as well because we have a lot of confidence in that relationship.

And what is the sense of timing on both the $16 million from NAT and the $70 million from Estes and others?

We are really working together to close them during the second quarter.

Both of those separate ones?

Yes.

Okay, just one last one. Can you talk a little bit in terms of you look out and you say we've got the ABS to renew next February. Do you start -- are you in still constant dialogues with the banks or they have gone on to somebody else and you are not having those conversations all the time? When do you start those negotiations?

I would say, Ed, just like what we did last week in terms of amending the credit facility, it's very hard to go back to the banks and make a request like we did around the release of the real estate if you are not in continual dialogue with them. We continue to be in dialogue with them which we believe is very important. As we continue to move forward, we will continue to be in dialogue about each dimension of the credit agreement.

Okay, Tim, is there a way to think of extra cash flow coming in in the quarter because you are not making payments into the Teamsters because of this new agreement that you are reaching? What would that look like if we thought about it?

If I understand your question, Ed, I would focus on referencing the approximate $40 million that I mentioned earlier in my comments and three months of that deferral. Do I understand your question correctly?

Yes you do, I think. And so on other words, if you didn't have this agreement, $40 million would be due over second quarter that you are not going to have to pay in second quarter. Is that a way to think about it?

No, $40 million each month during the quarter, so approximately $120 million.

And that is during second quarter?

Yes.

Okay, thank you so much for the time. I appreciate it.

Jon Langenfeld, Baird.

Good morning. Could we just follow up on that last point? As far as the deferral versus the using of assets to pay the pension, are there two different things going on there? One they are allowing you or potentially allowing you to defer the payment. The other is part of the payment is being settled through essentially pledging of an asset?

I think that is essentially the way to think about it, Jon, is that we are really deferring the payment and offering collateral so that the pension fund has coverage of that amount of payment being deferred.

But the amount that you can pledge, if we think of $120 million roughly that you talked about, are you going to pledge assets worth $120 million?

We are working through that as we talk.

Okay, because the credit -- the revised credit agreement only allowed for $50 million, did it not?

That is not how I would interpret it at all.

Okay, so what was the --? I thought in the revised debt agreement last week or the week before last it was basically a $50 million limit. Am I misunderstanding that?

No, the $50 million limit really relates to the way we looked at essentially describing the scheduled transaction and pulling $50 million off of what we were able to sell during the year. So under the credit agreement, we hade the ability this year to sell $400 million of assets and essentially what we negotiated is that in doing this real estate transfer of collateral in lieu of payments, we pulled $50 million off of that total $400 million. One should not construe that as related to the value of the real estate at all.

I got you, so in effect the bank has freed up more liquidity for you. You are net down $50 million on that but potentially up as much as $120 million to the positive on the facilities?

That's exactly how I would think about it, Jon.

Okay, good, good clarification there. Then what was the tonnage trend year-over-year in March for national and regional?

Say that again, Jon. Sorry.

The year-over-year tonnage growth, daily tonnage growth in the month of March for national and regional?

We really haven't broken it out by month, but it really -- March was the worst month because of the integration in addition of the weakening economy.

Orders of magnitude, is it 10 percentage points worse, 5 percentage points worse than the --?

You know, on the national side, it was probably 10% worse and on the regional side, it got a little bit better.

Oh, it did, okay. Thoughts behind why -- so when you say 10%, I was thinking relative to what was reported. Is that how you were interpreting the question?

I was talking about from February to March on the national side and again, that reflected in large part the temporary diversion of business as a result of concern around the integration.

Got you. And your previous comments was April -- too early to tell, haven't necessarily seen -- haven't necessarily seen it come back but have indications that it will start to come back.

I would describe it, Jon, as a slight uptick. We expect more than slight.

Jon, this is Sheila. But the overlap from the regional from the prior year footprint changes, that happened in late February. So we are starting to see the comps get a little bit easier for the regional companies.

I got you, right, so that's the reason for it getting a little bit better. Okay, and then what -- your restricted cash, you have a minimum $100 million required cash balance. Does the restricted cash count towards that $100 million?

Yes, it does. It's a part of total liquidity.

Okay, then what else is part of total liquidity that is not cash as it relates to that $100 million?

Its total availability under the facility, so availability under the revolver, the ABS, escrow and then the cash on hand.

Okay. And then that restricted cash presumably the availability comes after the debt covenant date or in conjunction with the debt covenant date?

I'm not sure what you mean by the debt covenant --

Well, I guess I'm wondering -- you talk about that being available in mid July, but doesn't that also require or I guess it assumes that the debt covenant is hit for March or for July, excuse me.

I think if I understand your question, essentially what it means is we are in compliance with the credit agreement at that point, yes.

Okay, and then what would be a good interest expense number to be using for the second quarter?

You know, Jon, that's going to vary depending on -- if we complete these sale leasebacks, we obviously pay down part of the revolver, so I'm going to have to give you kind of a wide range. But I would say between $35 million and $40 million.

$35 million and $40 million, okay. Then of the $176 million in proceeds that you've already obtained here in the most recent quarter, how many facilities would that represent roughly?

So in the first quarter it was 27 facilities in total that we did sale leasebacks on during the quarter.

Okay, great. Then the last question I had was just thinking about a bridge. I know you are not giving guidance too early. But if I'm looking at national, the national operating income line, you had about $300 million of operating losses. I think if I net out the charges, would a good starting base be kind of $175 million of operating losses?

Yes, that's close, Jon.

Okay. And then to build on that, we of the cost savings, the $90 million run rate cost savings. We have seasonality and then we have whether or not the business comes back and how fast it comes back.

That's pretty close to the total number of things.

Great, all right, thanks a lot.

David Ross, Stifel Nicolaus.

Good morning, gentlemen and Sheila. A quick question I guess on the charges. Most of them, the network integration, Holland are easier to allocate but can you give us a sense of split of the severance, reserve accruals, and union employee stock awards between the regional and national group so we get kind of better OR comp?

Yes, Dave, on the national, I would split the total significant charges like $125 million would go to national, $29 million would go to the regional and then $11 million goes to corp. And as far as the breaking out the pieces, you and I can go over that after we got off the phone if you want. But it's basically about $20 million of the stock comp goes to national and then most of the rest goes to the regional company.

Okay, and then what would the EBITDA in the first quarter have been that would be consistent with the bank covenant as kind of a base to start from to build for a second-quarter EBITDA number?

We don't even calculate that anymore since we are not under that covenant calculation. We didn't calculate that at the end of first quarter either, David.

So you have to come up with that calculation in the second quarter?

I'm sorry?

Yes, I mean we would calculate it starting in second quarter and as we talked about when we did the amendment, the bank EBITDA number is pretty clean now from my cash standpoint so they're looking for cash earnings. So there's not much excluded for bank purposes versus GAAP.

Right. It is a very clean definition under the credit agreement, David.

Okay, so we can kind go with EBITDA number on the statement in the release?

I think you get very close by doing that.

Are you talking about first quarter?

Yes.

Yes, I mean you would definitely add the union stock comp back though. That is purely non-cash.

Okay, and then also can you talk a little bit about the availability left on the revolver? I think you said $20 million was left on the ABS facility but how about the revolver?

The revolver is essentially drawn with the exception of the restricted cash.

Then I think this was talked about earlier. The real estate needed to pledge, I mean if you are looking to forego $360 million of pension payments this year, would that imply $360 million of real estate that would need to be pledged to the pension funds?

First, let me come back and address your assumption. What we are seeking is three months of deferrals of those pension payments that are approximately $40 million per month. So it's $120 million and in what we walked through a few moments ago with Jon, it really is to free the amount of real estate that allows us to collateralize those payments.

Okay, and you talked earlier about the captives. I guess it was renegotiated or drawn down in February. Does that mean your insurance renewal next comes up in February or do you have an earlier insurance renewal for your self-insured retention and everything else?

The insurance renewals really focus around what happens in any individual state at any point in time and the captive was really a structure that enabled us to take the benefit. It was really a timing mechanism to take the benefit for the claims when the claims are to pay -- take the benefit when the premiums were paid versus when the claims were actually paid. So the unwind of the captive just changes that timing around.

Okay, so your broader insurance policy at the Company wasn't affected by that. When does that expire or you renegotiate?

Again as I mentioned earlier, they come up in each particular state with regard to the plans that we have in each individual state.

Okay. Also we heard that there was issues around the health and welfare plan or one of the pension plans with spending employee benefits temporarily that a lot of employees got notices in the mail that their insurance was going to expire. But that that got resolved kind of at the last minute. Can you talk a little bit about what happened there I guess in the first quarter?

This is really just a part of the overall negotiation that we're working through right now and just making sure that everybody had the same communication at the same timeframe. And that really is all that is happening there.

Okay, thank you very much.

Thom Albrecht, Stephens, Inc.

Guys, I just want to make sure I heard you correctly. So the pension deferral you are really only looking at it as a 90-day solution, not a nine-month or even a year solution?

That's exactly what we are working through right now with the pension funds is a 90-day approach.

And when would you catch up on that payment? Would it be like the second half of 2010? If you are going to defer it, you wouldn't really probably want to turn around and have to make that payment just six months later necessarily.

Right, what we are working on are those terms as we speak. So we are working through every last aspect of that potential arrangement right now. It includes both the amount of payments that we can defer as well as the timeframe in which we would repay them. So it would probably be premature to go through it in any greater detail than that.

Okay. And then on the pension expense for nonunion folks, you gave that figure early on but I was writing so quickly. Was that -- how much was that per quarter?

Well, we gave the cash funding, Tom, which was $10 million and it is going to be split between third and fourth quarter, so $4 million to $5 million a quarter in those two quarters.

Tom, I am glad to know we had you writing so quickly.

Yes, but my brain works slower than my writing. So --

I definitely wasn't going there.

And then so I just want to make sure kind of piggybacking on David's question, you are current on your health and welfare payments at this time.

We are.

Okay, and there was no issue or you don't want to quite go there?

I don't think there was an issue, so I'm not sure what you are referring. There has not been any issue.

Okay, that's all I have. Thank you.

[Greg Oliff], BB&T Capital Markets.

Most of my questions have been answered. I just have two things. Just curious in terms of volumes, you talked about deferral there or diversion there, but I just wanted to see what you thought you needed to have come back in Q2 in order to get a little bit closer to be in accordance with the covenants and how many customers you need to return?

Well, it's more than just returning diverted business that has an impact on the EBITDA for the second quarter. As I said, the other pieces to that are the economy and whether we continue to see the expected improvement in our productivities, how the regionals do. So I think there are a lot of moving parts there and so there isn't any one specific answer to that question. It's a combination of all those things.

So the 10% you mentioned earlier, you guys are seeing that, you said you are seeing that come back rather slowly, but you anticipate the vast majority of that coming back? Correct?

Yes, that's correct.

Okay. And last thing, were there any fees associated with the property deferral agreement with your banking group in the quarter?

No, there were not.

Okay, thanks a lot.

Thank you and this concludes our question-and-answer session for today. I will turn it back to Ms. Taylor for any additional or closing remarks.

This is Bill. We appreciate you joining us and we will see you at the end of the next quarter. Thanks.

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