Yellow Corp (YELL) 2010 Q1 法說會逐字稿

Good morning. My name is Melissa 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 Paul Liljegren, Vice President Investor Relations and Treasurer.

Good morning and thank you for joining us for the YRC Worldwide first-quarter 2010 earnings call. Bill Zollars, Chairman, President, and CEO of YRC Worldwide, and Sheila Taylor, our CFO, will provide comments this morning. In addition, Mike Naatz, President of our Customer Care Division and Chief Customer Officer for YRC Worldwide, and Mike Smid, President YRC and Chief Operations Officer for YRCW are with us today and will be available to take questions during the Q&A section of this call.

Now for our disclaimers. Statements made by management during this call that are not purely historical facts are forward-looking statements. This includes statement regarding the Company's expectations and intentions on strategies regarding the future. It is important to note that the Company's future results could materially differ 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 full discussions, please refer to this morning's earnings release and our SEC filings, including our 10-K and today's 8-K filings.

In addition, please see today's release for a reconciliation of our GAAP measures to non-GAAP financial measures such as operating loss to adjusted EBITDA. During this call, we will refer to the non-GAAP measure of adjusted EBITDA simply as EBITDA. We have also provided monthly EBITDA in this release and monthly volumes in prior releases to substantiate our comments regarding sequential improvements through the quarter. It is important to note that we do not intend to provide monthly data going forward unless the Company deems it to be appropriate at that time.

I will now turn the call over to Bill.

Thanks, Paul. Good morning. Let me start by saying that we are pleased with the confidence demonstrated by our customers who have returned their business to us or have increased their shipments with us and the operating momentum we achieved as we exited the quarter. The general economic outlook is modestly positive, but the LTL industry dynamics remain unique due to excess capacity and specific competitor strategies.

I will make a few comments on legislative reform related to multiemployer pension plans and our new Board members, but first I want to introduce Mike Naatz, President of our Customer Care Division and Chief Customer Officer of YRC Worldwide. Mike has spent many years in transportation and logistics and has served in a variety of operating and support positions. He was the Chief Information Officer at USF at the time of our acquisition of that company.

Since then, he has served in various leadership roles including our Chief Technology Integration Officer responsible for the successful technology integration all Yellow and Roadway. Mike was recently serving as our Chief Information and Service Officer, where he led all of our customer facing functions with the exception of sales. Now with his expanded responsibilities, he will include our sales organization. Mike?

Thanks, Bill. Good morning, everyone. While this may be a new role for me here at YRCW, I have been in transportation and logistics for the past 17 years. My background includes sales, operations, and technology. An important part of our plan is to create an exceptional customer experience for our client base at every point of contact.

By aligning our customer facing sales and service teams with technology all under one functional leader, we are surrounding our customers with key resources that will enable us to build an exceptional customer experience.

Our account relationships at every touch point always remain vital. We continue to maintain solid business ties between key customers and the YRC Worldwide management team. We also appreciate the strong partnerships in the field that are so important to consistent, profitable business relationships. I am looking forward to working with the team and our customers.

Thank you. I will return it to Bill.

Thanks, Mike. We really feel that this change will continue to improve alignment across operating companies and place decision-making and accountability closer to the customer, where it is most effective.

I'm now going to move on and talk a little bit about the multiemployer pension plan, starting with our joint labor management coalition. This coalition has conducted literally hundreds of visits to congressmen and senators. The International Brotherhood of Teamsters, working as part of the coalition, continues its push in Congress and the with the administration for multiemployer pension reforms.

The legislation introduced in the House with bipartisan support, the Preserve Jobs and Benefit Act, now has nearly 40 co-sponsors. The coalition continues to work with House leadership and committee chairs on the best possible way to advance this legislation.

When we last talked to you, we did not have legislation introduced in the Senate. That all changed on March 22 when Senator Bob Casey held a press conference at our YRC service center located in Carlisle, Pennsylvania and subsequently introduced the Create Jobs and Save Benefits Act in the Senate. YRC President Mike Smid and a representative from the Teamsters were on hand for the press conference with the Senator. Our work with the Senator and his staff is now focused on securing bipartisan support for the legislation.

The Joint Labor Management Coalition also continues its work with Senate leadership and committee chairs to advance this legislation.

We believe there is a growing realization in Congress and the administration that a system that forces YRCW and thousands of other businesses to support retirees who have never worked for them is unfair and unsustainable. Our message to Congress is very clear. We do want to support the retirement of our own employees. Congress has heard our message and for the first time, legislation has been introduced to remove retirees from multiemployer plans that did not work for current employers.

Just as we did with our debt for equity exchange, this legislation can allow qualifying multiemployer plans to clean up their balance sheets, which ultimately will benefit our employees, our retirees, and our Company.

Moving now to our Board of Directors, we have selected successfully eight directors to join our new Board from nominees recommended by the subcommittee of our former bondholders and from the Company. We are pleased with the broad range of skills and experience the five new directors bring to the Company, including their knowledge of and experience in the capital markets and in operations.

We will also have the continuity provided by three of the current Board. One of the actions our new Board is expected to consider is the timing and the ratio of our reverse stock split. Right now our market cap is spread over more than one billion shares, which results in a price per share below the NASDAQ minimum threshold. We expect that the reverse stock split will allow us to satisfy the NASDAQ requirements and move our stock price to a level that is consistent with the price per share parameters used by institutional investors.

Moving to our operating results for the first quarter, you will see continued year-over-year improvement which began in the fourth quarter but was significantly muted in the first quarter due to the impact of winter during January and February. Our consolidated results did improve significantly as we progressed through the quarter as our EBITDAR went from negative $27 million in January to a negative $5 million in March. We still have a lot more work to do but we are encouraged with our trends.

Price in the industry remains competitive, but we are seeing it tighten and our retention on the general rate increase and profit improvement accounts has been better than the last few years. Our quarter-over-quarter volume changes were down 10.4% at National and 3.6% at Regional. The quarter-over-quarter yield for National actually improved by 2.8% and Regional revenue per shipment grew by 2.3% while its yield was consistent with the fourth quarter.

Volume trends not only reflect the unusually bad winter weather that many of you probably experienced and the financial noise from the note exchange at the end of the fourth quarter, but demonstrate our continued commitment to price discipline and revenue mix management.

On the topic of specific customers, we continue to be a leading carrier for Walmart and Home Depot. In addition, during the first quarter, we grow our business levels with a number of the most well-known brands in North America, including Anheuser-Busch, General Electric, [Salisbury], Ferguson, Leggett & Platt, Emerson, and of course, Target.

And as our financial and operating positions have stabilized, many other accounts have given us the opportunity to gain more business that represents growth opportunity for YRC Worldwide.

Moving to our segments and starting with National, EBITDA for National improved by more than $175 million from the first quarter of last year despite the reduction in our revenue base. This improvement includes the benefit of the union pension cessation, which cost us about $95 million in the first quarter of last year.

Our Regional business improved its EBITDA by over $50 million from the same quarter a year ago and was EBITDA positive for the third straight quarter as we have improved the revenue mix in this business, reduced operating costs by eliminating the geographical overlap in the Northeast between Holland and the New Penn networks, and we froze the union pension costs, which cost us about $25 million in the first quarter of last year.

YRC Logistics reported a higher loss for the quarter from a year ago due to a 30% lower revenue base and the absence of the earnings from their dedicated fleet business, which was sold during the fourth quarter of last year. That fleet business generated about $1 million of operating income and $2 million of EBITDA in the first quarter of last year, just to give you some perspective on that.

Glen Moore, our truckload business, reported a modest loss on consistent revenue comparisons as rising fuel prices were a headwind on its earnings.

Last quarter we talked about our $200 million cost reduction objective and will provide you an update on our progress as we have now increased that objective to $300 million. As you may recall, this cost reduction initiative is focused on SG&A, safety, and some operational process improvements.

We mentioned on the last call that we achieved an annual run rate benefit of $150 million by the end of the fourth quarter. We now have exceeded a $200 million run rate at the end of this first quarter, but the change in our revenue base and the harsh winter weather makes these reductions harder to see in our results.

One specific example of these savings includes more than 2000 fewer nonunion employees at the average cost of about $75,000 per employee since the third quarter of last year. We now believe we will achieve a $300 million run objective by the end of the year.

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

Thanks, Bill. As Bill mentioned earlier, our EBITDA improved significantly throughout the quarter, which resulted in a much lower use of cash as the quarter progressed and into April. Given the timing of our $82 million tax refund and fluctuations in working capital, I would look to EBITDA as the best proxy for sequential monthly operating cash through the quarter.

As expected, our first-quarter asset sales were relatively small in the quarter. We filled $3 million of surplus and completed sale leasebacks of $4 million. With the proceeds we (technical difficulty) paid down pension debt of $1 million, increased a new block under our revolver by $3 million, and paid down the remaining $3 million on the unrestricted portion of the revolver.

As it relates to the split of proceeds with our lenders, we have surpassed the $300 million mark so we will now split the proceeds 25/75 with the lenders. During April, we sold another $13 million of surplus property, of which $10 million permanently paid down the pension note.

As you know, on February 23, we issued approximately $50 million in new 6% notes and used the net proceeds to retire the remaining 8.5% US [up] notes. The remaining $20 million from the $70 million private placement funding we received in February is on deposit in escrow pending the outcome of the put rights litigation.

We expect to issue the remaining $20 million 6% notes upon the outcome of that litigation, which could be concluded during the second quarter. If we are successful in that suit, the Company would use the $20 million for working capital and if we are unsuccessful, it would be used to refinance the remaining contingent convertibles which are putable in August. Either way, the (inaudible) from the note exchange would be addressed.

Another important part of our liquidity is our letter of credit program, which primarily serves to backstop our self-insured workers' compensation program. We have reduced LCs by another $15 million this quarter and are working diligently to further reduce them over the balance of this year.

In addition, during the first quarter, we funded transaction costs associated with the note exchange of $14 million, retired the $6 million IDB obligation, and repaid $29 million on our [ABS] facility. At March 31, our balance sheet cash was $130 million, unused revolver reserves were $107 million, and unrestricted availability was $4 million.

Obviously the bond exchange and weather during the quarter caused us to use more cash from operations than we initially expected. In order to preserve the liquidity under our credit facility, we have initiated an at-the-market stock program that will allow us to use our existing shelf registration to take advantage of the volume activity in our stock.

This makes even more sense for us now that our lender group has amended our credit facility so the Company can retail 100% of net proceeds from equity issuances up to $100 million through the end of 2010. You might recall that before this amendment, the lenders would have received 50% of the proceeds.

Let me take this opportunity to once again thank our lender group for remaining supportive of the Company and their flexibly to the changing environment. As part of this most recent amendment, we also revised our EBITDA covenants through 2010. This, too, was a reflection of the delayed bond exchange and slower return of customers that have impacted the timing of our momentum.

To be clear, we did not revise the covenants beyond 2010 since we will meet with our lenders later this year to discuss 2011 interest and would expect to have better insight into appropriate covenant levels at that time.

We also announced in early April that during March we issued equity-based awards to our union employees who participated in the ratification of significant changes to the labor contract last year. We have initially issued the equity-based awards as stock appreciation rights or SARS with a stock price of $0.48 per share.

We recorded a non-cash accounting charge of $108 million which is included in the equity-based compensation expense line on our income statement. The accounting cost of this equity-based award will be adjusted each quarter based upon the change in the fair value of the SAR until shareholder approval is obtained, when the equity-based award will convert to stock options with the same $0.48 strike price.

We also booked a $5 million non-cash impairment charge related to tradings at New Penn and Reimer as the result of our challenges over the last few years and how that impacts our projections going forward when completing our impairment testing. New Penn and Reimer continued to perform relatively well and we believe there is substantial value in these companies.

Moving into some guidance for the full year, we would expect our growth CapEx to range from $50 million to $75 million inclusive of new operating leases we might enter and would expect those expenditures to largely be in the second half. We expect sales of surplus property to be $25 million to $50 million and continue to evaluate opportunities for additional sale leasebacks.

Given the current split of proceeds with the lenders, I would expect our appetite for sale leasebacks to be minimal going forward. Currently we have about $50 million of sale leasebacks scheduled for 2010, but may subtract from that as we move through the year.

As for interest expense, we expect it to be around $40 million to $45 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 interest, so cash interest will be closer to $10 million to $12 million per quarter primarily from our sale leasebacks.

Finally, we expect our tax benefit recognized on our pretax results to be at a fairly nominal level during the year as the accounting rules do not allow us to accrue a normal tax benefit given our recent losses.

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

Thanks, Sheila. With the sequential growth of shipments from February to March of 7.1% for National and 8.1% for the Regional, followed by the sequential increases from March to April for National and Regional, both of which were slightly better than normal seasonal patterns, we believe our operating momentum continues to gain traction, which put us in a position to generate positive EBITDA earnings beginning in the second quarter.

I would like to wrap up our prepared remarks by reminding everyone that we worked through a lot of challenges over the past 12 months and every one of our stakeholders took the necessary steps for us to be here today. We recognize that there are additional actions that will be needed to take -- need to be taken prior to the end of this year and we can assure you that we will be proactive in addressing them and believe those stakeholders will continue to be very supportive.

We will now take your questions.

(Operator Instructions) Justin Yagerman, Deutsche Bank.

I appreciate you taking the question. Can you go through April tonnage a bit and maybe how tonnage trended through the quarter? You know, in both Regional and National?

For the quarter, it was two pretty bad months in January and February, impacted by the weather and also impacted by how long it took us to get the bond exchange done. March turned out to be a much better month for us and I think as you can see in the press release and what we just talked about, we did much better in March in terms of tonnage, down only about 23% compared to 35% for the quarter. So March was much better.

We continue to see good traction in April. We are doing better than we would expect to do from a seasonal standpoint, Justin, which we think is a pretty good indication that we continue to see customers return. But tonnage has been headed in the right direction now since the end of February.

The pricing environment has definitely been talked about a lot over that last several months and it had gotten fairly predatory in the back half of last year. I was wondering if you could comment around whether or not you have seen a little bit more rationality I guess come back into the pricing market here in this space and what your expectations are as we move through the quarter and the rest of the year?

We've seen a little bit of light at the end of the tunnel there in terms of better pricing discipline. We have heard a lot of rhetoric from some of our competitors that they are going to be more disciplined on the price side and anecdotally, we've begun to see that. So we are hopeful.

It hasn't become I would say consistent across the market at this point, but there are early indications that that is happening. We're going to continue to be very disciplined on our side, as you can see from the yield at the National company being up about 0.4%. I think that is a demonstration of our discipline on the yield side there. We're going to continue to be pretty selective and pretty disciplined on yield. But we have started the see some change there.

You mentioned at the end of your prepared remarks, Bill, that you realize you still have stuff to work through. With the IOUs that you guys have out there over the next several quarters and coming due especially next year, I guess it would be very helpful -- a lot of this stuff has come down to the wire for you guys. But I think maybe you are in the process of trying to not keep this so tight in terms of a time schedule. When should we expect to hopefully get a little bit more clarity in terms of what your future holds? Because the material amounts of payments that you guys have coming up, at various points in time are obviously significant and it would be helpful to kind of get a sense from you when you would like to have these things done and when it's realistic to expect that we should get some clarity on when they will be done.

Well, first of all, we don't want to make this year as exciting as last year was so we are very focused on that and have a pretty effective plan I think in place to deal with the challenges of 2011 well before we get there. It's pretty hard to predict specifically when we will be able to address those challenges, but I can tell you that we are very focused on that and we would like to get those challenges behind us before we start to approach the end of the year. I have a lot of confidence in our ability to get that done.

Can you list those off in terms of priority and maybe how big of a nut each one represents?

Well, obviously, the biggest challenge we face is the potential snap back on the pension side. That's obviously the biggest number for us. So the legislation that is moving through Congress now is a piece of the solution there, a very important piece we think. So that's the biggest single cost that would return to us in 2011. But again, we feel pretty confident we'll be able to handle those obstacles when we get there.

Justin, this is Sheila. If I could just add, I mean obviously, we will be working with numerous stakeholders again being the lenders, the pension funds, the union. Those will have to happen concurrently and we are not going to do one and then go to the other. We will work with all of them together and come up with a solution that works for everyone.

Okay, I guess my last question you guys put out in your EBITDA covenant along side of your adjusted credit facilities. How should we take these? Because honestly up until now these haven't been met for the most part, which is why we've continued to see credit amendments. Should these be taken as guidance relative to what you guys think you can do over the next several quarters or do these remain still moving targets and its kind of more hopeful than guidance would kind of belie?

Keep in mind second quarter is the first time we have had an EBITDA covenant in a while, so I wouldn't say that they continue to get revised. But clearly the bond exchange and the weather that we saw in the first quarter impacted the momentum and the ramp-up that we will see. But I would not look at that as guidance to us. We are going to set a covenant that we feel good that we can meet. So I would look at that more as the threshold or the floor.

Just to remind you, we have been saying for some time now that we expected to be EBITDA positive in the second quarter. We are still saying that, so we haven't backed away from that.

Great. Thanks for your time, guys. I really appreciate it.

Tom Wadewitz, JPMorgan.

Yes, good morning. I wanted to get a sense of what you see as some of the key drivers to getting to that EBITDA positive in second quarter. And if you could just work through in some detail on whether it's primarily cost side or whether you've got some assumptions for tonnage accelerating a bit or whether it's pricing accelerating? So kind of those three or if there is something else, what would really be the key drivers to transitioning to positive EBITDA performance in second quarter?

Sure, I will start and then Sheila might want to add. I think it's both cost and revenue so we would expect customers to continue to return. We would expect a little bit of a lift from seasonality and probably a little bit of a lift from economic growth, although we haven't built in much. We also would expect to continue to execute on the cost side. We've got a number of programs that make up that $300 million target that I mentioned and we are tracking on or ahead of schedule for all of those.

So it will be a little bit of both, Tom.

Can you identify a little more specifically what some of the cost drivers would be? Obviously you have taken out a tremendous amount of costs in the system so far. So what is it that's left that are meaningful drivers on the cost side?

Well, we've got a bunch of things going on. I would just point first of all that we've taken out a significant amount of capacity, which has lowered our breakeven point substantially from where it was a year ago or even six months ago. But the $300 million cost reduction is in the area of SG&A reductions. It's also what I would call institutionalizing best practices on the operations side. There's some savings in there for safety as well.

So there are some pretty big opportunities there and we are, as I said, tracking pretty well against both the quantity and the timeframe there.

So is that actions that you've already taken in first quarter that you would see the run rate impact in second? Or there are still things that you have to execute in second quarter to get that further cost savings?

Some of each, Tom, but we've got some underway right now. Some have already kind of delivered their savings that we expected, and we've got some that are beginning to be implemented right now. So a mix of both.

Okay, where do you think your capacity utilization is in terms of looking at the terminal network that you have right now?

I think we're getting close to what I would call a stabilized situation. We have taken significant capacity out and I think for the first time in a while, we've got a pretty good balance between our business volumes and the capacity available. Mike Smid is here. He may want to comment more on that from a National Network standpoint.

I think what we've been successful in doing is creating a much more flexible network. We're really in a position now to let it run a little bit and to execute. That said, there are continuing plans as we go forward to look for ways to minimize the number of connections, the number of facilities, and get it to the right size. The key is the flexibility that we built into the network to expand or contract.

And when you look at the approach to the market, assuming you've got some excess capacity, you could try to drive margin improvement by getting more shipments in the system or alternatively you could keep the shipments and really try to get rates up. It doesn't -- I guess it's not that clear from the first quarter performance which of those you would be favoring.

Can you give any sense of -- or which the market would be more receptive to either? So can you give a sense of how you would approach the price versus volume and how you might expect that to show up in second quarter?

Yes, I think it's going to be a balanced approach, Tom. We always try and take a balanced approach. I think you've got a lot of moving parts in this particular instance. We've got an economy that appears to be recovering. We've got competitors who appear to be more disciplined on the pricing side, and we have got customers retuning to us that have previously moved some or all of their business. So that makes for a fairly dynamic situation.

What I can tell you is that we will continue to try and be balanced. We will continue to try and be disciplined on the price side, but we expect to grow volume and we expect yield to firm as we move through the year.

Okay, all right, thank you for the time.

Jason Seidl, Dahlman Rose.

Hey, Bill, hey Sheila, hey rest of team, how is everyone this morning? Bill, can you touch a little bit on pricing a little bit more in depth? You mentioned that the GRIs are sticking better than you've seen in the previous year. Can you talk about sort of contractual business that you guys are renewing and at what rates? And how aggressive you think you can be in the marketplace at getting your pricing structure up?

Sure, Jason. Let me kind of talk in general terms. Obviously we are not going to get into too many specifics here, but I can tell you that --

Understood.

-- but from a contractual standpoint, we are seeing things get better there. We're getting more price than we had been getting. I think that's a combination of things. As I mentioned, it's probably a comment on change in competitive behaviors. It's a comment on people feeling much better about our financial stability. It's probably also a comment on both economic recovery and seasonal growth.

So we are getting better pricing on our contract renewals. As you know, those come up throughout the year, so it's a continuing process. And as I mentioned at the outset, our general rate increase is holding better than it has in recent years. So all in all we are cautiously optimistic there.

When you said you were getting better rates on contract renewals, is this in the 1% to 2% range? 2% to 3%? 3% to 5%? Can you ballpark it for us?

I don't want to get into too many specifics there. I can just tell you that it is much improved over a year ago because of those factors and it is positive.

Okay, fair enough. Sheila, can you remind us again about the ATM that you guys have out there? How much above the $100 million can you spend and once you go beyond $100 million, is it split 50-50 or is it a different split now?

Yes, beyond the $100 million or past the end of year, which ever would comes first, it would be 50-50 the lender. The real restriction comes through our authorized shares and what we have under the shelf. So we would have authorization from the lenders to go above $100 million, but obviously we're going to watch that closely and just be opportunistic as the market allows us to.

Just a comment on the ATM, I think its -- one of the beauties of that particular tool is it allows you to meter up and down depending on market reaction and the need for liquidity. So we will, as Sheila said, be very opportunistic there. We've got $100 million opportunity there. Whether we use some or all of that, it's going to be based on what the needs are inside the Company and what's going on in the marketplace. But it is an opportunity. It kind of flex that ATM as needed over the balance of the year.

Bill, I've got one more question and I'll turn it over to somebody else here. If we look sort of beyond 2010 and just even forget the cost and add backs for a moment, can you talk little bit about where YRCW is from a personal standpoint. There have been a lot of moving parts and a lot of changes that you guys have had from near the very top of senior management to right down through your sales force. And I just wanted to get your perspective on where the YRCW team is right now.

Sure, I think -- I'm kind of looking around the room. Everybody in this room has been here for a long time. We've only lost one or two people, and those have been what I would consider more personal decisions on their part to pursue career opportunities. So there's no question that most of the leadership team has been here and will continue to be here. We are all very energized particularly given the recent progress that we've made.

There has been some impact on the sales force, which really has come in a couple of different ways. One is as we integrated the two big companies, there was obviously a need to downsize the sales force because of the size of the business, so we've done that. I think there have also been some people that we would have liked to have held onto that have left for various reasons along the way. But all in all, I feel pretty good about the team and we have got I'd say 95% of it still intact.

Guys, I appreciate the time as always.

Edward Wolfe, Wolfe Trahan.

Thanks, good morning. Can we just start, Sheila, on the depreciation, $52.3 million in the quarter is a big drop from fourth quarter. I know it's been going down, you haven't been spending a lot of money, but was there some kind of change in the D&A and how do we think about that going forward?

Yes, I would view the $52 million as a good proxy, Ed. In prior year we did have some technology right off that we did throughout the year after we did integration there was some projects that were no longer pursuing and those kind of trickled through in 2009.

So $52 million and it doesn't go much lower than that per quarter this year?

Probably not, no. $50 million to $52 million is a good proxy.

Okay, and the revolver reserve, while we are doing this, what was drawn down in first quarter and what is left on the revolver reserve and what covenants are on the remaining tranches?

We borrowed $56 million under the revolver in January. We had $160 million at December 31. We are now at $107 million, so obviously we added a little bit to the new block from asset sales. As I mentioned earlier, there are two tranches. One is a basically kind of a working capital tranche which is $50 million and it's based purely on a mathematical test. And then the remainder is the new block and it would take a two-thirds vote from the lenders to access that.

Can you do to remainder without doing the working capital?

Yes.

Okay, and the working capital, are you at that level yet or not yet?

You know, it would fluctuate on a daily basis depending on our working capital. But overall, no, we're not where I would borrow on that.

Okay, and the asset sales go into tranche three?

They go into the new block, the 75% that goes to the lenders goes into the new block.

New block is the $57 million right now?

Yes, it's the two-thirds vote block.

Okay, that's helpful. I saw that you recently amended your S3, the risk section, as you noted the potential liquidity risk from the $160 million deferred pension payments and also those obviously the pension funds in the $100 million that potentially is owed to bank at year-end. Why was that added in the amendment and what is the plan for addressing those?

I think just as we approach 2011, we wanted to make it more clear to investors that that risk is out there. Obviously as we talked about earlier, we intend to work with all of those stakeholders prior to 2011 as we go through this year to work out a global solution for next year and it will take all three of those parties to work through that with us.

But keep in mind those are the same stakeholders that worked through the plan with us last year and did what it took to support this Company. So as Bill mentioned earlier, I would not expect our position to be different.

I don't think anything was new other than you added it to the risk. Was it a lawyer saying we needed to add this or why add it now when it wasn't in the original?

Yes, it's always been out there. I just think again as we get closer to 2011, the timing gets closer and so they just want to make sure that it's a little bit more prominent as the time window gets near.

Okay, Bill said of all the things that are coming and I think it's pretty clear that the biggest elephant in the room is the Teamster pension forgiveness, the 18 months. Is this something that can be extended, in your opinion? And if so, are you prepared to grant more equity for that?

I don't think it's probably the right time to be talking about what solution we are going to try and find on the pension front, Ed. As I said, the legislative piece of this we think is a great step in the right direction and if we can get that through it forms the foundation for some other things.

But we're looking at a lot of different options in terms of how to handle the ongoing pension costs for the Company, and as we move through the next few months, we will come to a conclusion there.

Okay, when do you start the talks with the Teamsters because in the past, when you've had the Master freight contracts, a lot of the issue is how soon you can start this stuff happening. Are you in those negotiations yet or you don't even go there, you are waiting for the legislation?

We are not in negotiations, Ed. What I will tell you is that we've been talking to the Teamsters for a long, long time and they have been very supportive of getting us to where we are, but we have not started negotiations with them yet.

Okay, what month do you expect to turn EBITDA positive?

We will turn EBITDA positive sometime in the second quarter. As we said, maybe some weeks we are, some weeks we aren't, rather than a specific month, depending on how the calendar flows and how the volume flows. But we will be EBITDA positive during the second quarter.

I think, Ed, if you look at we were about $5 million in March and as we talked about, volumes kind of continued to go up or at least hold study, so that's probably good proxy as we go through the next few months.

We've heard from a lot of the LTLs March was better than April. There was some snow recovery and things like that. I'm assuming you would have reported it if it was EBITDA positive in April. So is the assumption June is the month?

I would say that seasonally June is going to be our stronger month of the quarter but I would still expect us to show some improvement as we go throughout the quarter.

Remember that the Regionals continue to be EBITDA positive and part of what's kind of hard to forecast is how quickly they're going to grow and become a bigger driver in terms of becoming EBITDA positive. So lots of good things going on on the Regional side of the business as well.

So in first quarter, do you expect the National guys to also be EBITDA positive?

You mean the second quarter?

I'm sorry, second quarter, yes.

It's hard to tell. We're getting closer all the time on the National, but our commitment is to be EBITDA positive as a Company during the second quarter.

Okay, for April I didn't hear you give the [Shim] account. Is it above where we were tracking on the first day of 427,000 a day for National?

You know, just a comment. Normally April is lower than March from a seasonal standpoint by about 1.5%. It's not lower this year, which is a good sign. I think that means that we've got customers coming back, so we're probably a couple of percent better than we expected to be in April from a volume standpoint.

Okay, and just last question. Can you give an apportionment of the $109 million equity charge in this quarter that you had relative to what went to Regional and what went to long-haul?

We're looking.

I can get with you a few off-line if you don't have it here.

It's here. We just have a lot of numbers here.

We just have to figure out which piece of paper it is on. But yes, why don't we have Paul call you back, Ed, and give you that information?

I appreciate it. Thanks for the time.

Neal Deaton, BB&T Capital Markets.

Good morning, everyone. I just had a couple of quick questions here. You guys ended 2009 with about 360 terminals. How many do you have now at the end of March?

In the National network, we've got about 325.

Okay, and one of the guys earlier may have asked this, but based on the fact that you have taken so many out, if you had to estimate how much excess capacity you have just not with people but just really dock doors and terminals, is there a figure you could share with us?

You know, the excess capacity is dwindling as we've reduced the number of terminals, so we are getting pretty close to a good balance between capacity and business volumes without getting into specific percentages.

Okay, and as far as headcount reductions, could you give us maybe your number of union and nonunion employees at the end of the quarter? Or how many reductions you executed?

Yes, obviously it fluctuates on the union side, Neal, but at the end of the quarter, we had about 23,000 on the union and 10,000 on nonunion.

Okay, and my final question is obviously rumors always swirl in the industry, but a rumor we heard this week and you guys obviously didn't address it, so it appears to be false, but was that you guys were going to be exiting your Logistics pooling business. Is there any truth to that at all, any consideration? Or is that just total false rumor?

We never comment on rumors so we will just leave it on at that.

All right, so nothing in the works.

No comment on rumors.

Okay, I got you. I appreciate it.

Chris Ceraso, Credit Suisse.

Thanks, good morning. In thinking cash and cash flow, you've gotten your tax refund. You're going to sell some equity here. You are now only going to get $0.25 on the dollar from asset sales. So is it safe to say that on a go forward basis, we really need to get cash flow positive in terms of operating the business?

That would be our goal, yes.

Is that something that you think you can do in Q2 if you get back and you hit your EBITDA target or would we still be cash flow negative in Q2?

Obviously if you're looking at operating cash, that's going to be depending on what we do from a working capital standpoint. But if we hit our EBITDA, then we should be generating operating cash as we exit second quarter and go into third and fourth quarter, which traditionally we have generated operating cash in those periods of time.

Okay, and on the legislative front, if you are successful or if Congress is able to achieve what you're hoping, do you have an idea of what your annual pension obligation might look like if you are relieved of the obligation for the people that never worked for you?

You know, that legislation is still moving around so it's pretty difficult to tell at this point. But I think as it starts to crystallize here over the next few weeks, we will probably be in a better position to quantify that.

Maybe outside of quantifying that, do you have a feel for -- based on your current amount that you had been putting in ballpark, how much of that is for people that have worked for Yellow and how much for people that haven't worked for Yellow?

It's about 40% for people that haven't worked for our Company, so it's a very meaningful number.

Okay, thanks. That's helpful.

Jon Langenfeld, Robert W. Baird.

Bill, on one of the questions you were talking about the supply and demand moving back closer to balance. So I guess the question I have is moving forward to really move the profitability line, does it primarily come down to pricing and cost at this point or is there a willingness to scale the network higher if demand comes through at the right price?

No. I so still think that we have got a lot of upside opportunity there, Jon, and our incremental margins historically have been kind of in the 15% range. We think they might actually be a little bit higher. So as volume returns to this network, there is still a tremendous amount of upside operating leverage that can kick in.

From a volume [perspective], so there's plenty of capacity I guess is the point?

Absolutely.

Okay, good. And then can you give us some perspective both on Regional and National the sales force count?

Sales force numbers, we're digging again.

Okay, maybe while you are digging for that another question would be on your capital expense side. How -- at what point do we need to see bigger CapEx come through? Is that a 2011, 2012? Assuming this -- that $50 million to $75 million gross number is probably not a sustainable level?

Yes, I think we've been basically a beneficiary of the integration of the two big companies, which has generated a lot of flexibility on the capital side and reduced our appetite for capital dramatically. I think as we get into 2011, there's going to be a need to start to put more money into the capital budget for replacement equipment, but we've been really lucky in terms of having equipment availability from that integration. It allowed us to postpone capital.

And do that eventually run its course here in the next year, two years? How far out till we see that CapEx number go up?

It will ramp up gradually, Jon. I think that a lot of it depends on what happens to volume. We haven't built in any huge hockey stick on the volume side. But I would say that the capital needs of the business will kind of grow gradually as the business rebounds.

Okay. And then the final question was just with regards to relative growth rates to the market. It seems like the National business, the growth or contraction rate continues to diverge from the market. Regional is showing relative improvement. What do you attribute that to between the two networks?

I think first of all, we had a much bigger hole to dig out of on the National side and the National side I think was a victim of some post-integration impact as well as the economic impact, and then the name recognition for some of the Regionals as part of the YRCW portfolio is probably not as great.

So I think it's probably all three of those things, but at the end of the day, the National hole was a lot deeper than the Regional hole. And the National markets are not growing as fast as the Regional market. So you have all of factors in play.

Okay, if you pick up those sales numbers, that would be great, but that's all. Thank you.

Jon, I can answer that question. We have roughly 1000 people on the sales force including both direct and indirect channels.

And that's for both Regional and National?

Yes.

And what would that compare to a year ago?

Significantly smaller than a year ago.

20%, 20%? Any ballpark?

I don't have the numbers in front of me, Jon.

Okay, we will follow up. Thank you.

There are no further questions at this time. Mr. Liljegren, I turn the call back over to you.

Okay, this is Paul Liljegren. I think at the end of the -- responding to Ed Wolfe's question, we will cover that with Ed off-line. For the rest of the folks on the line, the $108 million charge we took in the first quarter for the union equity award was $83 million in the National segment, and $25 million in the Regional segment. So for the benefit of the rest of the group.

Okay, it's Bill Zollars. Thank you for your attention and we will talk to you at the end of the next quarter.

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