Yellow Corp (YELL) 2009 Q4 法說會逐字稿

Good morning. My name is Chrissy and I will be your conference facilitator today. At this time, I would like to welcome everyone to the YRC Worldwide fourth-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 would now like to turn the call over to Paul Liljegren, Vice President Investor Relations and Treasurer.

Good morning and thank you for joining us for the YRC Worldwide fourth-quarter and full-year 2009 earnings call. Bill Zollars, the Chairman and CEO of YRC Worldwide; Tim Wicks, our President and Chief Operating Officer; and Sheila Taylor, our CFO, will provide comments.

Now for our disclaimers. Statements made by management during this call that are not purely historical facts 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 statements due to a variety of factors.

The format of this call does not allow us to fully discuss all these risk factors. For a full discussion, please refer to this morning's earnings release and our SEC filing including our 10-K and today's 8-K filing.

Now I will turn the call over to Bill.

Thanks, Paul, and good morning. Let me start by saying that 2009 was an important year for YRC Worldwide and our stakeholders. With the headwinds of the general economic recession and the third consecutive year of volume declines in our industry, we developed and executed a comprehensive plan that allowed us to mitigate those obstacles.

During the year, we made significant progress in our comprehensive plan to improve our operating efficiencies, restore financial strength, and position our Company for future success and we have created significant momentum on all fronts.

Most recently on December 30, we successfully completed our debt for equity exchange. As you know, we launched our note exchange in early November and did need to extend the offer several times, which is certainly not uncommon for these types of deals. But we were ultimately successful, these extensions did create uncertainty and noise in the marketplace and caused certain customers to divert their shipments with us especially during the latter part of December when this was all going on. Despite this temporary diversion, we were able to deliver results which improved throughout the quarter.

We have been pleased to see many of those customers returning their shipments to our network following the completion of the exchange and we are grateful to the majority of our customers that had the confidence in our comprehensive plan and maintained their shipment volumes with us during this entire note exchange process.

Compared to December, our shipment trends have improved in January and now into February as well. As Tim is going to provide further comments related to our customer confidence in a minute.

The December exchange removed about one-third of the debt from our balance sheet, so it was extremely significant for us. As we said in our press release, the Company is executing on its plan to raise new capital sufficient to satisfy the remaining 2010 note obligations and we are in advanced discussions with investors. On this subject, we won't be taking any further questions later when we get to the Q&A period.

Moving to our operating results in the fourth quarter, you will see continued significant sequential improvement, which we began in the second quarter. In addition, we now have achieved an operating income improvement on a year-over-year basis.

Pricing in the industry remains competitive and market demand remained weak during the quarter. Our quarter-to-quarter volume changes were 10.7% in National and 8.2% at Regional, about half of that was normal seasonality. While year-over-year yield trends declined due to lower fuel surcharges, the quarter-over-quarter yield for National improved by 1.5% and Regional revenue per shipment was consistent with the third quarter. These volume trends not only reflected the economic environment and the financial noise during the quarter but along with better than industry average yield demonstrated our continued commitment to price discipline and revenue mix management. We're just not chasing bad business.

Moving to our segments and starting with National, our earnings for the National part of our business improved sequentially by more than $40 million from the third quarter to the fourth quarter despite the headwind of a seasonal revenue decline as I mentioned, and has now achieved an improvement year-over-year of $20 million.

Our Regional business improved its earnings by over $20 million from the same quarter a year ago and again was close to breakeven in Q4. When you account for seasonal and volume adjustments, the Regional showed continued sequential operating improvement in the quarter.

Our YRC Logistics Company reported breakeven earnings in the fourth quarter as it continues to prudently manage its pricing and costs while delivering quality service to its customers.

Finally, I will add a few comments on our new Board and our upcoming special shareholder meeting. According to the terms of the note tender, we are in the process of selecting directors to join our Board. We are really pleased with the broad range of skills and experience the successful candidates will bring to the Company. We also acknowledge the dedicated service of our current Board that provided critical guidance and counsel as we developed and executed our comprehensive plan.

We have a special shareholders meeting on February 17. Our Board has recommended that you vote for each of the proposals if you are a shareholder and on behalf of the Board, I encourage you to vote your shares since voting no is the same as a no vote. That's because we need 51% of the shares outstanding to pass for this particular vote.

With that being said, I will now turn it over to Tim to provide some operational details on the fourth-quarter results.

Great. Thank you, Bill. As I mentioned on our last call, one of the keys to successfully executing our comprehensive plan is that we have specifically targeted critical operating areas where we needed to rapidly adjust performance and we put a SWAT team on each area while the existing management team continued to operate the core business. Both the Holland turnaround and our safety improvement were examples of this success.

This quarter, one of our SWAT team's success stories shows up in our DSO number where we achieved a 10% improvement moving from 45 days to just under 41 days. We expect further improvement during the first quarter.

Let me now cover progress on our key performance improvement initiatives. First, I talked about our $200 million cost-reduction objective last quarter and will provide you with an update on our progress. I told you that we expected to achieve an annual run rate benefit of $150 million by December 31. We did that. We actually did slightly better than that. We expect to be at our $200 million run rate objective now by mid-year 2010. This is six months ahead of our original commitment. We are confident we will achieve this objective.

As you may recall, this cost-reduction initiative is focused on SG&A, safety, and operational process improvements. As part of the SG&A area, we right sized our salesforce and at the same time we redesigned the sales structure to better provide coverage to our customers. While this is an across the enterprise initiative, most of the benefit will show up in the results of our National segment.

In terms of operational cost improvements specific to YRC, we consolidated 25 service centers in the fourth quarter which brought our network to approximately 360 service centers as we ended the year. The annual run rate benefit from this action alone is about $20 million.

Moving to our customers and the customer survey that we did recently, we believe the service level we are delivering to our customers has allowed us to overcome some of the noise and frankly ill-conceived rumors in the marketplace. Bill spoke about customers who stayed with us during the entire note exchange process or those who are planning to return their shipments to us as a result of the successful exchange. However, in transportation the first couple months of the year are seasonally slow times. Couple that with an extended recession and it's hard to tell the true intentions of shippers.

So we decided to ask. In January in conjunction with the research spectrum in San Francisco, California, we surveyed customers on a variety of subjects including their 2010 business outlook and confidence in YRCW. The survey went to representatives across the spectrum of customers from small occasional shippers to large frequent shippers. Of the 5600 respondents, a majority, 62%, is optimistic that their business levels will increase in 2010. And for those who regularly ship with YRCW, an overwhelming majority, 85%, also indicated their intent to increase or maintain their business levels with YRC Worldwide Companies.

These survey results are consistent with the anecdotal feedback we've been hearing. Customers value our simply reliable service, comprehensive network, and our flexibility to respond to their shipping needs. The best example of that is the fact that during the fourth quarter we added 600 new customers and so far during this year, we have added another 400. Just last night we landed three more significant wins that are multimillion dollar customers.

As another example of our simply reliable service, let me talk about cargo claims and how we effectively used one of our SWAT teams that I mentioned earlier. Through a rigorous root cause analysis, we have clearly improved our shipment handling quality process. In addition, we have streamlined the administration and claim processing cycle times by better leveraging our information technology. All of this is with an overriding objective in mind of what's best for the customer.

During the fourth quarter, we reduced our frequency of claims by nearly 20% and reduced our administrative cost to process claims by another -- by a similar amount. We also launched a pilot project designed to reduce the cycle time to resolve claims and the initial results produced a reduction for that pilot of 80%.

We launched a program called Confidence Delivered which is a series of sales initiatives in multiple channels designed to retain and win back existing customers while attracting new ones.

With the recent financial achievements, our sales teams have been actively conveying this good news to our customers, building solutions and leveraging our competitive value to bring shipments back to YRCW. Even with the seasonality we are encouraged by our customers' enthusiasm for our success and are seeing meaningful wins in the market place as a result. This specific program led to a 1000 basis point positive sequential shipment volume improvement compared to the control group in the fourth quarter. We remain optimistic that we will continue to see more volume return to us over the weeks and months ahead.

In the survey results I mentioned earlier, the following are a few of our customers who have expressed their confidence in us and our comprehensive plan. Toys "R" Us, Dole, Gander Mountain, The Louisiana National Guard, Emerson, Neiman Marcus, Avery Dennison, CPG Industries, Anheuser-Busch, and Walmart. We appreciate their support.

In concluding our sales and operations discussion, these activities and initiatives that focus on improving the core operating performance of the Company are critical to the $250 million EBITDA improvement in the fourth quarter versus the first quarter.

Now let me turn it over to Sheila to provide some additional comments.

Thanks, Tim. As Bill mentioned, our successful note exchange removed $464 million of debt from our balance sheet and provided access to the new liquidity provisions within our bank agreement. Specifically, this allowed us to defer a $19 million payment of fourth-quarter lender interest and fees and we expect to defer additional lender interest and fees of $20 million to $25 million per quarter throughout 2010.

We also gained access to revolver reserves of nearly $160 million subject to the terms of our credit agreement, which is in addition to our year-end cash balance of nearly $100 million.

You have probably noticed that we continue to work through the income tax entries related to the December 31 bond exchange and so we did not report a tax provision or earnings per share number in this morning's release. There are numerous complexities to the tax accounting for the bond exchange, but the largest components are determining a fair market value for the equity given in exchange for each tranche of debt and revaluing all of our assets for tax basis purposes. We expect that our 10-K financials will reflect at least initial estimates of these factors.

It's important to clarify that these entries do not impact our estimated Federal tax refund of $85 million that we claimed in early January under the newly available five-year carry-back provision. As noted in this morning's release, we have filed our estimated return for 2009 and expect to receive the $85 million cash refund during the first quarter of 2010, which we would use for operating liquidity.

Another important part of our liquidity is our letter of credit program, which primarily serves to backstop our self-insured workers compensation. As you may recall during the first quarter we increased our letters of credit by $130 million primarily due to changes in our credit rating. We are pleased to report that by year-end, we reduced them by over $50 million and in January of this year, we have reduced LCs by another $9 million. Based upon our improving work comp trends and overall debt reduction, we continue to have additional opportunities to further reduce LCs, thereby increasing operating liquidity and we are actively working on that objective.

During the year, we completed sale leasebacks of $332 million, sold excess property of $133 million, and funded gross CapEx of $37 million. About $130 million of the proceeds from our asset sales were used to pay down our revolving credit facility during the year and we paid about $39 million on our term loan. Overall, we reduced our bank debt by $223 million in 2009.

I would also remind you that the debt service on the sale leasebacks is basically interest only as the underlying real estate satisfies the principal obligations.

In addition to the $464 million of bonds that we exchanged and the $223 million of bank debt reduction, you should also note that we paid down our ABS facility by $41 million during the fourth quarter. This was driven by the improvement in our receivables portfolio as reflected in our DSO metrics that Tim mentioned earlier and the sequential reduction in our receivables. It is important to remember that our ABS borrowing base is linked to the level of our customer AR, so we expect our borrowing base to increase as we move through the second and third quarters of this year.

For the full year, we would expect our gross CapEx to range from $50 million to $100 million, inclusive of any additional operating leases we might enter. We expect sales of surplus property to be $25 million to $50 million and continue to evaluate opportunities for additional sale leasebacks. Currently we have about $50 million of sale leasebacks scheduled for 2010 so we will add or subtract from that as we move through the year.

After the sale leasebacks we did in 2009, we still own about half of our facilities, which is more typical in the industry and about where we want to be.

Let me remind you that by integrating our National networks in 2009, we were able to significantly reduce our fleet size and keep the better equipment. This has allowed us to more effectively manage our CapEx spend without negatively impacting our ability to serve our customers. The 2010 range I provided is fairly wide as it will be dependent on further network adjustments and the speed at which volumes return.

As for interest expense, we expect it to be around $35 million to $40 million per quarter in 2010 depending upon our usage of the credit facilities. Keep in mind though we are deferring most of our lender interest and fees and pension deferral interests so cash interest will be closer to $12 million to $14 million per quarter primarily from interest on sale leasebacks, which we view more as a lease cost.

Before turning it back to Bill, let me comment on the rating agencies. As expected, both S&P and Moody's reacted with positive steps following our successful note exchange. We expect further positive actions as we conclude the transaction with the remaining notes and as we accelerate our year-over-year operating improvements during each quarter of 2010.

With all that said, I will now turn it back to Bill for closing remarks.

Thanks, Sheila. Let's look back on 2009 and let me highlight our accomplishments. First, we invested in and completed the integration of the Yellow and Roadway networks into a single National network with service capabilities and productivities that exceeded either legacy network. Followed by the rightsizing of that network through the phased removal of redundant service centers that Tim mentioned, resulting in exceptional service levels to our customers.

Secondly, we developed and successfully executed a self-help liquidity solution in excess of $600 million in concert with our lenders and pension funds, which consists of the sale of surplus properties from the National network integration, the sale on leaseback of core facilities, and the deferral of union pension contributions.

Third, we implemented cost improvement programs that reduced our breakeven point by lowering our cost per shipment. Such actions included two amendments to our labor contract, nonunion wage and benefit actions, the National network integration and rightsizing efforts, and operational improvements in the Regional business.

Fourth, we implemented a functional organization structure to allow us to remove costs and to accelerate our implementation of business process improvements to increase efficiency.

And finally, we reduced our balance sheet debt by over $200 million as we more than offset the new debt incurred from our self-help liquidity program. And if you count for the new sale leaseback debt which essentially has no future principal payments, we did reduce our cash balance or cash-based debt maturities by over $500 million during this economic turn down. All of these efforts, and this is very important, put us in a position to be able to again generate positive EBITDA earnings beginning in the second quarter.

We would like to thank all of our supporters including our employees, the lender group, and our equity holders, including those debtholders who are now significant new shareholders of the Company. Most notably our customers who have shown their confidence in us throughout this time period.

We will now take your questions. I would like to suggest that the questions be kept to one question and one follow-up so we can make sure that we get as many people into the queue as possible. With that, I will turn it back to Chrissy.

Justin Yagerman, Deutsche Bank.

How are you doing?

Good.

Throughout all this -- that has been going on, what have you guys done from a talent retention standpoint? Where do you stand when you look across your network, your best salespeople, your best Regional managers, how has that trended over the last quarter or so? Have you seen any brain drain from all of this noise in your network? Or have you guys been able to hold on to those people? If so, what did you have to do for them to get them to stay?

That's a great point, Justin, and there has been a little bit of a brain drain throughout 2009, but we have been able to mitigate it really very substantially with retention programs and other kinds of activities.

On the sales side, a lot of the reduction in force there was self-inflicted, because as Tim pointed out, as we restructured the sales force after the integration of the two big companies and the approach to try and equalize the sales force with the business volumes we had, there were a lot of people that left the Company really as a part of that restructuring process.

But all in all, we have been able to hold on to the talents that we wanted to hold on to and we have been able to do that through a number of different programs including some retention programs that we have.

Got it. And you guys have talked about customers coming back and some of your competitors have said that they haven't seen it yet. Obviously it's still a somewhat fragmented industry, so they may not see everything going on. But can you talk about customer wins in January? You said some numbers but are there specific large accounts that have come back to you guys?

And then when you think about how you've been attracting those customers back given how competitive the LTL market has been, is there any price to that or have you guys been able to stay disciplined on that?

Well, I think you have hit on one of the key points in not only the fourth quarter report but also what's going on now in the first quarter of this year, and that is we've continued to be very disciplined on pricing and have been very focused on customer mix management. That's why I think you saw pretty close to industry-leading metrics around our yield. We refuse to chase bad business because we really don't want any empty calories in our network.

We have had, as Tim said, a lot of success in getting customers to return and attracting new customers. We're probably not going to want to get into any specific customers at this point because that's probably not the right thing to do. But we are seeing now the beginning of a pretty aggressive move back to the Company on the part of customers that had diverted some or all of their shipments and are being successful in attracting new customers to all of our networks at the same time.

I think the leading indicator for that is the great service that is being provided by all of the companies. We've got a great product to sell and we have now gotten ourselves past the majority of the noise that was created around the bond exchange.

With that, I will turn it over to Tim. He probably wants to add a few comments.

Sure, Justin, it's Tim. Just a few quick comments. One of the things that has been helpful as it relates to customer growth has been a significant amount of focus on the quantity of touches that we have with each customer and making sure that the midsized customers are getting touched as frequently as we need them to. And frankly the success that I pointed to, the 600 new customers in the fourth quarter and the 400 plus new customers in the first quarter, while they go across the full spectrum of all of our segments from very small customers to very large customers, we are having tremendous success in the midsized area as well.

And what Bill was mentioning a few moments ago around yield, we have not been in the business of pricing irrationally in order to obtain that business. We have been driving the value proposition and it's just basic blocking and tackling from a sales organization perspective in order to get the value proposition out there and win the business.

Tim, all that said and done, where do you think you stand right now from a network utilization standpoint? You obviously have done a lot of rationalization on the brick and mortar and getting some customer traction, it sounds like. Where are you before you start focusing less on trying to get back that market share you lost and focus maybe that on picking up yield even more so and because that is going to drive the margin more I guess as you look out at this year?

That's another good point. I think all the work we've done has resulted as I said in my comments in blurring our breakeven point substantially because of the balance we now have between capacity and the volumes we are handling. So that creates a situation where we are going to be able to move into a positive EBITDA in the second quarter of this year and take advantage of the incremental margins in this business, which have historically been in the 20% plus range. So that was a very important part of getting us in a position where we can start to generate positive cash flow.

The other part, Justin, that I think is important is we are not hungry to have every single customer that we could get and what I mean by that is we are very careful about what we believe is a profitable customer versus an unprofitable customer. And we have put an enormous amount of energy and effort into rightsizing our network to match the demand in the marketplace and we are not anxious to refill that capacity with customers that don't provide a great return to our shareholders.

So we are in the process as we move forward, we look forward, we obviously want to commit all of the capacity that we can to our current customers. But we will be very careful about bringing on customers that won't be as profitable as we need them to be in the future.

What's a new normal size for YRCW? What do you guys think of yourselves now -- if you get back to normal, you are an X billion dollar topline company. What are you guys thinking is the right size in market share for this Company at this point in time?

Tell me what the economy is going to do.

You know, I have no idea. I think it will get gradually better over the course of this year hopefully. Assuming that we stay the same on a run rate basis from where you guys are right now, what do you think?

I think, you know, it's a matter of really the question I just asked you in terms of the economic environment we are operating under. I can tell you that I think we're very confident we can grow this business. How fast we grow it I think does depend on the economy. We have a lot of upside in the networks to allow us to be able to grow as the economy returns to more of a normal pace and as the customers return to us. So I would not want to throw a number out there. It's bigger than we are today and probably smaller than we were when we were $10 billion, somewhere in that range.

Okay. Thanks, guys. I appreciate the time.

Tom Wadewitz, JPMorgan.

Yes, good morning. I wanted to see if you could work through some of the cash burn numbers and how cash changed through the quarter. I guess if I look at kind of simple analysis, I say look at what the cash did moving over 163 at the end of third down to 98, so does that implies something like $65 million used and then you've got I think $53 million in asset sales and sale leaseback. I don't know how much of that you kept.

But I come up with a number that's on the order of $40 million per month that you would have been burning in the quarter, but I don't know if I have full granularity on what you keep on the asset sales and other factors. So I was wondering if you could just comment on that analysis and what the cash burn might have looked like in the quarter.

Tom, I will start and then Paul can add to it. But I think we mentioned that from EBITDA perspective our -- operationally we improved throughout the quarter despite the fact that volumes were declining. We did have some working capital swings that I think significantly impacts the quarter when compare third quarter to fourth quarter from a cash flow standpoint.

We do typically see some usage there at the end of the year from accrued vacation and things like that that I think came through. As far as asset sales, through the end of the year we were still in the 50-50 range with the lenders, so 50% stayed with us and 50% went to them or went into the block, as you know it. We will probably trigger that here in the first of the year. But as of the end of the year, we were still at the 50-50.

I don't know if you want anything to that, Paul.

Sure, Tom, this is Paul. Kind of mixing operating cash flow and total liquidity, we also paid back as Sheila mentioned on the ABS facility $40 million, which some of those asset proceeds funded that. If you think about our business and the operations, if you look at operating cash flow for the quarter, it was $68 million. And to Sheila's point, the $68 million included some of the changes in working capital that occurred during the fourth quarter that are more volume or activity level, things like vacation pay and the like. But it is largely -- that's the starting point is $68 million plus working capital adjustments.

So that's $68 million that you burned in the quarter or that --?

That was our operating cash flow during the quarter. Obviously we had EBITDA of about $22 million and we had working capital changes that accounts for the difference.

Okay, I guess just to go to back to the comment on the sale leasebacks and surplus assets sales, you kept of that total of 53, you kept half of that in the quarter. Is that right?

Not necessarily, Tom. You have to get into the details. There are pension properties in there so to the extent that they are first lien collateral on the pension deferral, 100% of that goes to pay down the pension. So you've got some of that in there.

Yes, that was about a $3 million number for the quarter for pensions. But the rest of the -- the bulk of it was 50-50 between the banks and the Company.

Okay, all right, in terms of your current liquidity situation, you have got I guess $98 million in cash and then $160 million. Is that essentially, that $160 million, the revolver escrow? And have the banks voted to allow you to access all of that or is it still $106 million that you really have access to?

There are different conditions for each tranche. There are basically three tranches that make up the $160 million and they each have different conditions to get to them. The first $56 million we can basically access if we are meeting EBITDA or rolling forward EBITDA conditions and our SG&A targets that Tim mentioned, we are well ahead of. $50 million we can access based on our operating expenses and how those are trending. And then the other $54 million we can basically gets to with a two-thirds vote from the lenders.

Okay, and then one more related to liquidity. This is Paul. The other part of the liquidity opportunity for us is our ABS facility. Our borrowing base there moves up and down with receivables. And as Sheila mentioned, as that borrowing base moves up as we move through the year into second and third quarter, we would create some availability within the ABS facility as well for working capital.

Okay, and then one question on the operating side and I will pass it along. You know, there's this sense from some of your competitors that it's -- I guess I might as well identify them, Conway and FedEx that have grown their freight that the networks are closer to being full or at least fuller than they were. And that I think they want to transition to trying to take rates up.

So the big question is with the excess capacity in the market, some of which you have, as competitors try to take rates up, do you maybe take in some of the freight if the customers don't want to pay rate increases or how do you respond as others may take rates up? So what are your thoughts about that?

Would you be inclined to take business back or would you say, hey, we like the freight level we have and we would rather really focus on getting our rates up?

Well, it's encouraging to hear there is going to be more pricing discipline in the market. That would be really a positive step forward I think for the industry. And going back to what Tim said, we are going to be very careful about the business we take on at the prices we take it on. I think if you compare our yield with the two competitors you mentioned, you will see a big difference in strategy there.

So we are going to continue to look at customers on a case-by-case basis and make sure they make sense for us going forward particularly as we move into March and the seasonality in the business picks up and customers continue to return to us. So it will be a customer-by-customer type of analysis but we are going to continue to stick to our guns in terms of being price disciplined.

Okay, great. Thanks for the time.

Jason Seidl, Dahlman Rose.

Good morning, guys. How is everyone? Getting back to the size of the network, you are down to about 360 facilities. Given the trends that you guys are seeing, Bill and Tim, are you comfortable with the network at this size or do you think there still might be some additional rightsizing going forward?

I think networks never stay the same for very long and there will be additional tweaking, but I think we feel like we've got a good balance now in the volumes we are handling and the capacity and the network. So for now I think we're in pretty good shape.

Jason got to the extent of me make changes, it is less at this point around a capacity issue as much as it is around efficiency and our ability to better serve our customers in those markets with more enhanced services as well as better transportation speed.

Okay and when you talked about the customers returning, you rattled off a list of pretty impressive list of large customers. Are those some people that gave back freight or are those the guys that are just sticking by you? I am trying to sort of get a feel for what customers came back, had they been the large type or are they more transactional type that might have run away late in the quarter?

I would take that as a multiple-choice question and say it is all of the above. It is all of the above and the 600 that we have mentioned from the fourth quarter and the 400 in the first quarter so far are also all of the above, some who had lost and have returned and then we have a number of just what I would call raw new customers who are responding to the actions that we are taking. The ones that are new customers that are responsive to our actions are a very significant proportion of those numbers that we shared.

And to follow on that raw new customer, did you put a dollar figure out there where you think annualized business might be from those guys even if it's a broad range?

No, we have not put that out publicly.

Jason, this is Sheila. Not that it's not obvious who it is, but I completely get the focus on the customers that left and bringing customers back. The only thing I would point out that I haven't seen in reports from your peers or from the media is the customers that actually stayed with us, our top customers are some of the most sophisticated, largest retailers out there and it was their most critical time of the year in December. And I think the fact that they decided to stay with us and to not divert freight even during the bond exchange gets a little but overlooked and I think that people should look to the point that they stood with us for a reason and I just would ask you to not overlook that.

Okay, that's a very fair point. Really last think before I turn it over to somebody else, did you guys give your on time performance numbers for the National and Regional guys in the quarter?

No. We don't normally share those, Jason, because everybody counts the service performance differently and so you get into a huge discretion about comparing apples and oranges. What we can tell you is that the service we are providing out of all of the companies has never been better than it is today and that was really supported in the survey that we took.

Okay, fair enough. I will turn it over to somebody else. Thanks for the time, guys, as always.

Jon Langenfeld, Robert W. Baird.

Good morning. Could you talk about what your available lending capacity would be or your available liquidity, excuse me, you had it at $171 million at the end of the third quarter. What would be the comparable number and the components here in the fourth quarter?

Well, when I would look at liquidity at the end of the year, Jon, I'd look the $100 million of cash that we had on the books and then the $160 million that we now have access to under the credit facilities. And then I would take into account the $85 million that we expect to get back on our refund.

And is that apples-to-apples? I mean, you had kind of restricted this cash, the revolver reserve out of the 170 at the end of the third quarter, but I guess you are saying given the swap you feel like the 160 is more accessible?

Actually, Jon, we had an amendment, an October amendment with our bank group that was effective in October. It was not effective as of the end of September. That is why it wasn't in the September numbers.

Yes, typically -- historically, Jon, we were not counting the revolver reserves in our liquidity, you might recall, prior to that bank amendment. The reason being is those revolver reserves were supposed to go away under the old agreement. They were supposed to go away in July, then we extended that a few months so we never counted it.

You will recall now those are in existence until basically the end of 2012.

Got you. And do you have -- what is your cash range? You had a minimum and maximum cash liquidity range in your covenants.

We don't right now. We have a $25 million minimum available cash that kicks in April 1 and then it goes up to $50 million on October 1. And it a little bit different definition. I would look at it as the old, traditional liquidity that does not include the revolver reserves.

Okay. And then was your ABS -- was that maxed at the end of the fourth quarter?

Yes. As Paul mentioned, we paid about $41 million down through the fourth quarter as our receivables balance went down. Some of that is seasonality and some of it is actually the quality of our receivables that caused some of that payback.

Okay, and then can you give us some visibility to the cash burn in the first quarter? Not necessarily related to the net income line, but more related to the moving pieces of working capital and asset sales, things like that? Where should that trend in the first quarter?

Well, as you know, traditionally in the first quarter we do use cash and so from a seasonality standpoint I wouldn't expect that to be any different. Given where we are after the bond exchange and kind of coming back from that trajectory, I would expect us to use cash during the first quarter.

Will it be worse in the fourth or are there other improvements on the operating line that can help mitigate that?

No, I think we continue to make improvements on the operating line. I think what Tim talked about as far as SG&A, I don't think you got the full benefit of those in the fourth quarter, so we expect us we go through the first quarter.

Yes, and keep in mind, Jon, that March is a huge part of the first quarter. Particularly with the dynamics we have going on in terms of customers returning and some of the other things that Tim talked about, March may be even a bigger part of the story in the first quarter than it has traditionally been.

And then is it still the thought -- I think you may have said this in your prepared remarks, still the thought that you can be cash flow breakeven or positive in the second quarter?

Yes.

Great. I will be mindful of your time. Thank you.

Chris Ceraso, Credit Suisse.

Good morning. This is Allison Landry in for Chris. Just a question on the CapEx. Could you maybe just talk about what the average age of your fleet looks like right now just given that 2009 CapEx was quite below normal.

Yes can I think the short answer is it's probably as good as it has ever been and that is a function of the integration that we went through in the Nationals, which freed us up to really downsize the fleet but keep the newest equipment. So it is about a four-year average across the fleet.

Okay, and then I remember in the prospectus in terms of the ABS covenants there was maximum CapEx for certain quarters in the year. So is that still about 1.15 for 2010?

Yes, that's the covenant full year.

Okay, and then just a quick question just to clarify the interest expense. You guys said 35 to 40 per quarter, but that's including or gross of the deferrals, so then actually it should be about 12 to 14. Did I hear that right?

Well the expense is not going to change. It's the cahs so that will still be 35 to 40 but from a cash basis, we will pay $12 million to $14 million.

Okay, makes sense. Thank you.

That's different compared with the sale-leasebacks.

Okay, thank you.

Edward Wolfe, Wolfe Research.

Thanks, good morning. Can you take us through the sequence of the long-haul shipments that were reported down 40%? If the average for the quarter was $47,700 a day, how did that look through the quarter and into January now that business is coming back?

I think kind of the general answer to that, Ed, is that shipments were tracking pretty well against our forecast until we got to probably the middle of December and we started to generate a lot of noise around the bond exchange and then we had, as I mentioned, some temporary diversion of that. And then that flattened out and has picked up since that point in time.

Can you put numbers around it? I would think that if business is coming back there's a lot of skepticism about that, that that would be the kind of numbers that would help certainly help us model and certainly help build some more credibility in the market. Can you give us December shipments versus January?

No, we're not going to get into the month by month numbers specifically but I can tell you the trend has improved in January and February and part of the impact that we got was obviously from the noise created around the bond exchange.

Ed, it's Tim. What I would tell you is the trends have improved sequentially month over month and they have improved in terms of the year-over-year decline that we saw getting smaller as we move forward in terms of annual changes.

So you would expect first-quarter shipments when we see them in three months, they will be above the 47.7?

Should be, yes, and the other thing I would point out is the yield trends have continued as well.

Can you just talk about were there any benefits from reversing workers comp or any other changes in reserves or accruals in the quarter that might not be ongoing we should be aware?

We always have year-end accounting (inaudible), but as I look across them, the actually washed out for the most part so the only ones that we broke out were the standard ones, the severance and the lease termination. But everything else really washed.

So nothing on workers comp?

Our expectation, Ed, is as we move forward with the impact of the safety programs that we are in the midst of and the successes that we are seeing there significant reduction in the incidence rate and control that we are driving there, that I would anticipate you will continue to see improvements on workers comp in the future.

To that Ed, I think we had a little bit of favorability from work comp but it was offset by our bodily injury and property damage.

What expense line do we see that improvement come through?

On work comp?

Yes.

It comes through the (inaudible), the sellers and wages.

Okay and the other piece that you said, the claims and that kind, where does that come through?

It would come through operating expenses.

Sheila, on the liquidity side, I thought I heard you say that the equivalent of the $171 million number that you gave us at the end of the third quarter was take the 98, add the $160 million from the revolver reserve, and then add the $85 million for the expected refund. Since you didn't have the refund, if I just added the $160, you are saying it's the equivalent of $258 million. Did I hear that right?

I'm trying to follow your math. Basically the $170 million that we had at the end of the third quarter would be comparable to the $100 million that we had at the end of the fourth quarter. But then when you add on the $160 million at the end of the fourth quarter you would also add on the revolver reserves that we had at the end of the third quarter, which I think was 106.

I'm confused. Apples to apples, the $170 million equals $258 million or $98 million?

170 would equal about 100 at the end of the year and if you go back and you pro forma the 170, I would add the revolver reserves at that time which I believe was about 106. So you get $276 million if I can do the math in my head versus taking the $100 million now plus $160 million.

Okay, that makes sense, so the $260 million on that (inaudible). Okay, so that $160 million becomes critical in how you are thinking about this. You talked about there being three tranches to access that, one on EBITDA on a four-week rolling, one on operating trends, and I guess two-thirds of the lender vote. Can you tell us a little bit more about how the four-week EBITDA is set and the operating trends, what those metrics are, and also if they are fixed targets or if they change?

We're not going to go into detail but they were based on our forecast with the lenders. So the rolling four-week EBITDA would only change to the point that we reset our forecast with the lenders.

Ed, it's both EBITDA on a rolling four-week basis as well as the improvements that we are making in SG&A, where I mentioned that we are substantially ahead of target on the SG&A as well.

Okay, so you gave them kind of 12 months forward plan and it moves with the plan, but -- so the only thing that would change is if your plan changed?

Yes, yes.

Then you would need approval or you wouldn't be able to access basically?

Correct or we would go back and reset them like we have done. As the environment changes and we have gone back and reset covenants previously we would go back and have the discussion with the lenders to reset covenants to the extent the environment changes.

Ed, just a clarification on the [EBITDA], it goes through other operating expenses, so the (inaudible) line.

Thank you, I appreciate that. So Sheila, it sounded like before you said you are very confident of the 160 piece of the 56 tied to the EBITDA. Is that correct?

I am.

And then next traunch it feels like their confidence is strong but not as strong or did I hear that wrong?

No, I wouldn't take that wrong. We just -- like I said, we set it up in three different tranches and so to the extent that we need to get two-thirds vote on the last tranche, I can't give you 100% assurance that the lenders would do it. However, they clearly continue to work through -- work with us and as we go through these credit amendments.

Okay and last one. Chicago Teamsters, can we get an update on the nonconforming Teamsters who haven't agreed to the last wage concession? What's the plan there?

As you probably saw, Ed, 705 voted and agreed to the deferral on the pension side. 710 we expect to vote shortly.

And do they agree to the wages too or just the pension?

Just the pension on the 705. The impact I think of those two is like $1 million a quarter so it's not all that significant.

So what's left behind is $1 million a quarter, basically?

That was before 705 voted but it's around maybe 70% of that in 710, two-thirds.

Okay, but it was $2 million for the 2 million and about 70% of the 2?

From a cash standpoint, it was about $1 million all in and then we've gotten approval for about one-third of that so there's about $700,000 left to get.

Then the strategy is either keep pounding at them to get it or let them be, but you're not closing them or anything like that?

No, we think we'll get the vote.

Thanks for the time, everybody. I appreciate it.

John Barnes, RBC Capital Markets.

Good morning, guys. Bill, on your customer survey that you did post the debt for equity exchange understanding that there is a little bit of a difference between maintaining volumes and growing volumes, can you give us a little bit more color around that? I mean was there a [glider] percentage that they intended to maintain versus grow or was it opposite? Could you just give us a little bit more color there?

I think the numbers broke out, John, it was like 60% maintain and 40% grow, something like that.

Yes, it was on the order of 85% in total and then what Bill just broke out was those who intended to grow was the 60% plus.

Okay, very good. The second thing is if you go through and need to do more cash raise, not capital raise, but need to just generate cash, given that you have I guess estimated $85 million on the NOLs, some stuff like that. Once that is exhausted, kind of what's left? I know you still own real estate. Is there any excess left that you can sell? What is the bank's appetite for further sale leaseback transactions? If you had to come up with another slug of cash, how easy is it to accomplish that?

Let me start by saying we do expect to generate positive cash flow in the second quarter, so that's the best source of cash, if you will. We are going to be looking at opportunistically sale leaseback opportunities or other asset sales that makes sense for us. So we've got those, and then of course down the road there's always the opportunity for new equity.

So there are lots of places to go get cash if we need it, but those are a few of the most usual suspects.

I was going to say just to add to what Bill was referencing around operating cash flow, clearly that's the largest priority for the Company. This is why we are focused on maintaining our discipline on a pricing basis. The rest of the industry seems to be catching up to that. The focus that we have around new customer acquisition is successful and we are being very successful taking out operating expense in SG&A areas.

The other operating expenses that are directly volume-driven, they come out very quickly as we have volume changes and we have been very successful driving very good operating improvements, process improvements that are allowing us to hit new productivity levels that will help us maintain a good cost basis as the market continues to improve.

So the long and short of that is our real focus is around making sure that we have the ability to be operating cash flow positive as that is the largest source and the largest priority for us.

Okay, my last question would be given you have got some deferred payments that you're going to have to start making once you kind of hit I guess January of 2011, I guess that is good news that we are thinking about January 2011, but given that you've got those deferrals, you've got this clean up of the bonds that didn't tender. From an equity standpoint, the debt for equity diluted the existing shareholders. Am I to assume that any additional equity raised to take care of these other things are going to be further dilutive to the new equity holders?

I don't want to get too far out in front of our skis here. I think our immediate effort is to retire the remaining stub that exists of $45 million and we are working hard on that. As far as the 2011 challenge is concerned, we are on that as well and we are working hard to solve that. We think we will be able to do that before we get too close to that 2011 date.

You know, the equity that might come in in the future would depend on a lot of factors I think, John, and I don't want to try and hypothesize about what those might be. I just throw that out there as another opportunity to generate some liquidity and cash if needed.

And just as clarification, how much is due kind of once you hit 2011? What's the total of the deferreds that you would have to raise either cash flow or some kind of other source of cash to pay off?

Well, it's going to depend on how much we actually defer. I mean we started deferring interest and fees at of the end of the year, which was $19 million, and we are expecting to defer about $20 million to $25 million from the lender's perspective throughout this year. That balloon is actually a December of 2011 and we still have the potential to defer into 2011 if the economy remains tough and the lenders vote to do that. From the pension deferral, it's about $1 million a month, so not very significant but potentially $12 million-ish through the year.

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

Jack Waldo, Stephens, Inc.

Good morning, gentlemen and Sheila. I wanted to talk a little bit more about the multiemployer pension plans, specifically when does the pension payment come back on line? How much is it a month? And I guess how much is it a month if we look historically on your employee count and how much would you expect it to be based on your current employee count?

Yes, it comes back on in January of 2011. Historically I would say it was between $35 million to $40 million from a pension standpoint. I would expect it to be closer to the $30 million, obviously don't know what headcount is going to look like or volumes next January but it could be around that number.

Okay. Could you talk a little bit about the proposed pension legislation and how it might impact you guys?

Jack, it's Tim. Before you go there, I think the other thing that's important as we operate the business clearly while we are focused on strategies around 2011, I think we would be remiss if we didn't make sure everyone is aware that we operate the business with a forecast that anticipates those payments returning in 2011 as opposed to believing that we have it solved until we do have it solved.

Do you want to share what that forecast is?

Of course not.

Nice try.

Jack, on your question around legislation, we have been working for some time on an effort to partition off the orphans from the total requirements. I think as everyone knows, about 40% of what we pay into the pension funds on a regular basis goes to people that never worked for us and we see that as kind of an unfair burden in the marketplace. And so we have been working with Capitol Hill on getting legislation started there.

We've got two pieces of legislation, one in the Senate and one in the House, that have been launched and we are continuing to work with the supporters of that legislation to see if we can't get it passed.

Okay, any idea when the outcome will be?

No, we'd like it sooner rather than later obviously, but it's hard to predict what's going on in Washington right now.

And then last question on the USF, the remaining USF notes due I guess in April, how do you plan to pay that? Can you pay it with cash or do you have to find an alternative source of funding to pay those?

As we said in our remarks and in the press release, we are in active discussion with investors on that subject right now and that's all we are going to be able to say.

Can you pay it with cash on hand?

No, we will not use our cash on hand.

Okay, so it's contingent on finding an alternative source?

Correct.

Okay, thank you guys very much for your time.

That concludes our remarks and we appreciate you being with us this morning and we will see you at the end of the next quarter.

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