Yellow Corp (YELL) 2011 Q1 法說會逐字稿

Good morning. My name is Steve, and I will be your conference facilitator today. A t 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, Corporate Controller and Vice President, Investor Relations.

Good morning, thanks for joining us for the YRC Worldwide first quarter 2011 earnings call. Bill Zollars, Chairman, President and CEO of YRC worldwide and Bill Trubeck, our CFO and Treasurer, will provide comments this morning. Bill Zollars, Bill Trubeck and Mike Smid, President YRC and Chief Operations Officer of YRC Worldwide, will be available for questions following our comments.

Now for our disclaimers. Statements made by management during this call that are not purely historical facts are forward-looking statements. This include 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 of these risk factors. For a full discussion, please refer to this morning's earnings release and our SEC filings, including our 10-K and today's 8-K. Additionally, please see today's release for reconciliation of our GAAP measures to non-GAAP measures, such as our reconciliation of operating loss to adjusted operating loss, and adjusted EBITDA. And the reconciliation of adjusted EBITDA to net cash flow for operating activities. During this call we may refer to the non-GAAP measure of the adjusted EBITDA simply as EBITDA.

Finally, this conference call and any discussions of our restructuring plan do not constitute an offer to sell or buy, nor are they a solicitation of an offer to sell or buy any securities referred to herein, and shall not constitute an offer solicitation or sale in any jurisdiction in which such offerings or solicitation or sale would be unlawful.

Any offer of sale of securities referred to herein have not been registered under the Securities Act of 1933 as amended, and unless so registered may not be offered or sold in the United States absent an applicable exemption from registration statements. After all that, I'll turn it over to Bill Zollars.

Thanks, Paul. Good morning. Let me start with a few comments on our important announcement last week. As you know, we now have definitive agreements with the lender groups, pension funds, and the Teamsters, providing for their support of a comprehensive restructuring plan designed to lay the foundation for long-term success. This plan enhances our liquidity and improves the health of our balance sheet. A planned new capital infusion, the conversion of lender obligations into equity and notes with equity conversion features, and the extension of maturity base to 2015, all provides a runway needed to run grow the business and return to profitable operating performance.

The ongoing support of our stakeholders, that's customers, the union, and nonunion employees, lenders and shareholders, continues to play critical role in the success of our comprehensive recovery plan. In addition, as we noted in our release today, Morgan Stanley has been engaged to arrange our planned, three-year, up to $400 million asset-based loan facility, which is part of our restructuring. This facility is expected to provide important new liquidity for the Company.

Now moving on to the quarter. Despite the harsh winter weather, we are encouraged by the continued year-over-year improvement in our operating performance. As customers continue to return, and we remain focused on our three key operational initiatives. Those are disciplined pricing, customer mix management, and cost improvement. The general economic outlook reflects GDP and IPI growth during 2011 while the industry -- the LCL industry dynamics continue to improve. Industry pricing is firming as economic growth and seasonality absorb industry capacity.

As we mentioned on our last quarter's call, nationals year-over-year volume comparisons improved every quarter of 2010, as we narrowed the year-over-year gap, and it turned positive year-over-year in January of 2011. For the first quarter this year, national shipments per day grew 6.3% year-over-year, with tonnage per day growing 7.9%. In addition, nationals year-over-year volume increases accelerated each month during the first quarter. Regional grew its shipments by 9.8% and tonnage by 16.2% as compared to the prior year, as its growth rate also accelerated during the quarter. Our pricing also improved as we moved through the quarter, with our contractual increases tracking ahead of last year we remain focused on efforts to improve customer mix management. As an example of that, we recently announced the hiring of additional local sales reps to support our growth initiatives in this important channel. Importantly, changes in weight per shipment customer mix affected pricing metrics for both national and regional in the first quarter.

National increased its weight per shipment by 1.5% over the prior year, and it's revenue per shipment by 3.3%. Regionals revenue per shipment grew 7.7%, in Q1, versus Q1 of last year, which included a 5.8% increase in weight per shipment. Similar to the fourth quarter, the weight per shipment growth was the strongest at Holland, which reflects the ongoing recovery of the manufacturing sector.

Moving on now to earnings. Despite the harsh winter weather that I mentioned earlier, national improved its EBITDA by more than $35 million over last year. In addition, nationals adjusted operating revenue improved by more than 550 basis points versus 2010. Our regional business also impacted by winter weather, but improved its adjusted operating ratio by nearly 100 basis points year-over-year. So, in summary, our consolidated operating results in the first quarter delivered the sixth consecutive quarter of year-over-year EBITDA improvement.

During the quarter, once we moved past the winter weather impacts, which created an earnings shortfall in January and February that we highlighted on our last quarterly call, our core operating performance accelerated and we generated consolidated EBITDA in excess of $20 million in March. Finally, our consolidated incremental EBITDA margins were 26% on a 14% year-over-year revenue growth. For national, our incremental EBITDA margins year-over-year were in excess of 50%, that's 5 - 0, on a 10% year-over-year revenue growth. I think that demonstrates a significant operating momentum we have achieved in that business. Now Bill Trubeck will put more color on our financial results and 2011 outlook.

Good morning, everyone. As Bill mentioned, and as we highlighted in our earnings release, we took a $17 million charge in our income statement primarily related to 2009. And over self-insured claims and incurred about $8 million of operating expense related to our restructuring.

Now let me provide additional perspective on the self-insured claims charge. Our worker's compensation claim activity spiked in 2009, both in terms of frequency and severity. During the right-sizing of our work for to match the reduced market demand and the lower level of shipments, which included the integration of the Yellow and Roadway Network operations. Looking back specifically at YRC National claims cost, and when considering the first-quarter charge, our estimated cost for 2009 workers comp claims is now about 9% of payroll, or about $8.50 per shipment during that claim year. Our estimated worker's comp claim cost for the 2010 claim year is about now 7.3% of payroll, or about $6.00 per shipment, which is nearly a 30% cost improvement from the 2009 claim year. But is still substantially higher than our historical performance.

So, to put the costs for the 2009 and 2010 claim years into perspective, our historical performance for claim years 2006, 2007, and 2008 which were claim years not severely impacted by the financial crisis and recession, our integration and our downsizing, averaged about 5.5% of payroll or about $4.50 per shipment for YRC National. This three-year average historical performance was 25% better than our 2010 claim-year performance and over 45% better than the 2009 claim year. Going forward, we expect our workers comp claims cost to further improve from these 2009 and 2010 claim year levels, and move closer to our three-year average historical performance of the just mentioned.

Compared to 2010 reported results, this cost reduction opportunity is in excess of $50 million. Our focus on safety programs have already reduced the rate of new claims by 31% of the last 12 months compared with the previous 12 months. This significant improvement, which we expect to accelerate as we move through 2011, mitigates the settlement cost of claims going forward and allows us to move back to a more historical cost performance level.

Moving on to cash flows, the balance sheet, and liquidity. Our sequential of new growth coming out in winter months, especially the ramp up a volumes during March, generated working capital requirements. To fund those requirements, we utilized existing availability on a revolver, and the incremental availability created during the quarter from increased borrowing base on our ABS facility.

So, let me highlight the quarterly change in our ABS borrowing base. At December 2010, our balance sheet receivables were $443 million, and our ABS borrowing base was $189 million, or about 43% of accounts receivable. By the end of the first quarter, our receivables grew by $55 million, to $498 million, and our ABS borrowing base increased to $217 million, which generated $28 million of incremental liquidity during the quarter. In addition, our ABS borrowing base continues to increase during the second quarter, driven by our revenue growth. It's important to note that we improved the quality of our customers receivables as well. Our consolidated DSO at quarter end was 40 , which represented a one-day improvement from March a year ago, and we expect to further improve this quality metric going forward. Every one-day improvement generates about $12 million in the liquidity.

Let remind you too that our restructuring plan includes the replacement of our friends 364-day ABS facility and its low to mid-40% advance rate with a longer tenor, asset-based facility. The planned three-year, $400 million ABL is expected to have a significantly higher advance rate than our existing ABS facility, which will provide incremental liquidity to enhance the support for our seasonal pattern of revenues and working capital requirements as we grow our revenue. As an example, every 10 percentage point increase in advance rate generates about $50 million in liquidity. From a current liquidity perspective, we ended the quarter with a balance sheet cash of $157 million, unrestricted availability of $8 million, and restricted revolver reserves of $71 million for a total of $236 million.

And before we leave the balance sheet, let me comment on the classification of our debt. As a result of the March 10 milestone failure and since we have not yet completed the restructuring, accounting rules require us to show most of our debt as current. After completing the restructuring, we would expect nearly all of our debt to be shown is long-term, consistent with the planned maturity dates contemplated by the restructuring. An important feature of the restructuring plan is the extension of maturities to 2015, and the equity conversion future, which could allow us to reduce our total debt levels over time. Again, the plan provides considerable runway as it relates to debt maturities. Moving on, our letters of credit were about the same as the amounts outstanding at the end of last quarter. And as you know, we continue to work with the states and our insurance providers and other vendors to reduce the required letters of credit. We believe there's a significant opportunity upon completion of our restructuring.

And before turning it back to Bill Zollars, let me comment on guidance. We will continue to refrain from providing specific earnings guidance. That being said, now that we are past the seasonally low volume first quarter, we do expect to again generate positive adjusted EBITDA for the second quarter of 2011. We also expect customers to continue to return and the Company to continue it's a significant improvement in year-over-year operating performance trends as we move through the year, including the continued year-over-year volume growth and year-over-year pricing improvements.

For 2011, we would also expect to fund CapEx in the range of $100 million to $125 million mostly in the second half of the year, subject to the timing on closing of the contemplated restructuring transactions. And with that, I'll turn it back to Bill Zollars

Thanks, Bill. Let me close by commenting briefly on our second quarter trends. Our April volumes per day increased sequentially from March and national and regional both continued their year-over-year volume growth during April. That trend, as we just defined in April, has continued into May, so we're seeing continued growth there. And finally, we continue to work with stakeholders to completely restructure, but will not be taking any questions on the topic during this call. With that, we will now take your questions related to anything we've covered here this morning.

(Operator Instructions)

And your first question comes from the line of Tom Wadewitz with JPMorgan. Your line is open.

Yes, good morning.

Hello, Tom.

Wanted to see if you could give some thoughts on, I guess, how you would expect the management team to evolve? If there's any kind of time frame you have in mind, any comments you can offer on that.

Sure, Tom. I think that we've said before, I'm going to be here through the restructuring process. It looks like we're going to be on track to close the deal here in July sometime, and following that, we'll have a new CEO. Bill Trubeck is on about the same timeline.

Okay. So you would expect a new CFO as well at the close of the restructuring?

Yes. Following the restructuring, that's right.

Okay. Lets see. Can you talk a little bit about pricing that you achieved in the quarter, and can you -- I guess I'm used to thinking in terms of revenue per hundredweight.

I think you've talked a little bit more about pricing on shipments, but if you talk in revenue per hundredweight, what were the numbers, ex fuel, for Regional and National in the quarter?

We'll get you those here in a second, Tom.

Just to kind of put this in context. The revenue per hundredweight numbers and the reason we didn't spend a lot of time talking about them is because, you know, the weight per shipment shift really distorts the revenue per hundredweight numbers. Particularly from a year-over-year standpoint.

The other comment to make is that in comparing our pricing to other competitors in the marketplace on a year-over-year basis, it's important to remember that some of these customers came from very much lower levels of pricing in 2010.

So the percentage increases year-over-year are a little bit different for us just because we did not cut our prices as much in 2010 as others, and therefore, the year-over-year increases are not the same. So the revenue per hundredweight for National Transportation year-over-year was up 1.8%, again with the proviso that we had a fairly significant shift in weight per shipment. And the revenue per hundredweight for Regional was about 1.8% as well.

Presumably you had a had a meaningful boost to those numbers from fuel surcharge. Can you give those on was, ex fuel?

We really don't release that information, Tom. We try and give it all-in, just as most our competitors do.

Okay.

Now, the other, to make as you know, Tom is that the fuel surcharge has become such an integral part of the pricing equation with customers that is now marbled into the overall price we get for our services. So with and without the fuel surcharge is really less meaningful than it has been so historically.

Okay. How much mix effect do you think there was? Was it a point or two, or was it more than that in terms of considering an adjustment to the revenue per hundredweight?

Well, I think if you just look at the difference between the revenue per hundredweight and the revenue per shipment, you can kind of get the impact, So on the National side it was 1.8% revenue per hundredweight percent increase, and on the revenue per shipment it was 3.3%, so, you know, a definitely a large swing there.

But an even bigger swing on the Regional side when it went from 1.8% to 7.7% from a revenue per hundredweight to a revenue per shipment. The other thing that's going on within all these yield numbers of course is the customer mix.

As we have said before, we had faster growth in our corporate account customer base than in our local account customer base, which again has an impact on the yield.

Okay. So how would you view -- it seems like your competitors are seeing -- not uniformly, but a number of the competitors are seeing pretty strong growth in the revenue per hundredweight. Would -- and pricing seems to be constructive in the market -- how would you characterize the market in terms of pricing, and how would you characterize what you think your pricing will look like going forward?

Yes. I think that we see evidence that the economy, although not increasing as quickly as we would have hoped, is still growing, and we also see evidence that that, combined with the seasonality of the business, is soaking up the excess capacity. So our pricing has been fairly consistent throughout, and again, just remind people that that isn't true for all of our competitors.

So if you went down significantly in 2009 and 2010, your year-over-year increases are going to look a lot different than ours because we've been pretty consistent throughout. We would assume that the pricing trend we're on, which is continuing to improve every month, will sustain throughout the balance of 2011 as the seasonality kicks in and the economy continues to recover.

All right. Last question and I'll pass on. What you think is kind of the key for you to keep making progress on your margin performance and getting the kind of breakeven or better in National and Regional? Is it expense, or is it really pricing or tonnage?

I'm sure it's some of all of them, but is there kind of a key aspect of that that's really going to be important to driving improvement in the margin looking forward?

I think you're right, Tom. It's all of the above, and I would say that if we just stay on the trends we're currently on, we'll be in -- back in sort of more normal historic performance categories relatively soon.

Okay, Bill. Thank s for the time. I appreciate it.

Sure, Tom.

Your next question comes from line of Ed Wolfe with Wolfe Trahan. Your line is open.

Thanks and good morning guys.

Good morning, Ed.

Bill, can you give a little bit of sense -- Bill Trubeck -- what the union pension payments beginning in June are going to be?

Yes. That's going to be around $6 million to $8 million, Ed. This is Bill Zollars. And that, we would expect to be offset by work rule productivity improvements and of course, that starts in June.

And to clarify. This is Paul. And it's June hours, it's payable once a month, so the first cash payment would be July.

$6 million to $8 million is pretty wide. Are you saying that every month is going to be different based on hours in that range of $6 million to $8 million, give or take?

Yes, it always is different because of the number of hours worked. So in our world, we'd rather pay a higher number because that means we've got more volume to handle, so yes, it'll vary from month to month based on the hours worked, Ed.

But Ed, generally, literally it's a weekly calculation, generally, and it's just paid month-to-month, so --

Okay. And in terms of the restricted and unrestricted access to the revolver reserve, the $71 million I thought was linked EBITDA targets. Under the current EBITDA targets, which I know were suspended for first quarter, you would need to do something like $129 million of EBITDA in the second quarter, the guidance is just for positive EBITDA.

So I guess the question is, do you have access to that $71 million, and is anything changed if the recap goes through in reference to when you can tap that?

Ed, this is Paul. You know, the $71 million of revolver reserves are not related to EBITDA.

Okay. So can you tell me what they are related to, if you have access to them, and if that changes after the recap?

Sure. That' s fair. Well, first of all we aren't taking questions around the restructuring, but the $71 million is unchanged from the end of last quarter. It still has the same two components. There is a $21 million component that requires lender vote to grant the Company access to it. The other $50 million is available with the -- at the Company's options to fund operating expenses. So they haven't changed since last quarter.

Okay. And how many of the lenders need to vote the access, what percent?

It's a two-thirds vote, and again for the $21 million. And that's --

Okay. Yes. The excess property sale guidance of $30 million to $40 million, does all of that go to YRC?

No. With the lenders, it's primarily real estate. And we are in the waterfall with the lenders where 75% of the proceeds used to pay down the term loan or reduce the capacity in the revolver, the remaining 25% comes to the company.

Okay. So 25% of the $30 million to $40 million goes to you?

Yes.

Okay. Can you give a little bit of guidance -- the interest expense at $38 million, how that looks going forward as well as the D&A of $49 million a quarter? How do we think about those numbers going forward?

I think, again, this is Paul. The D&A for the first quarter probably had a little bit of noise in it, but it's probably in that ballpark going forward. Obviously as we bring new equipment on it will to go up. The $49 million is probably good benchmark going forward. And for interest expense, obviously the second quarter number probably would be comparable to the first quarter number, and we're not giving guidance beyond the second quarter on interest expense.

Okay. And the $17 million workers comp charge, how much of that was cash in the quarter?

Very little of it. There's a really long tail on the payout of cash for work comp claims, so very little of that was first quarter.

Okay. And the $400 million ABL that you put in the release, so I'm not talking about anything that's not in the release. Relative to the $325 million ABS and the total $706 million of revolver capacity, how do I think about that? How much -- I mean is it as simple as it expands by 75 million? Or is it trickier because it is in the context of the revolver shrinking?

There are two pieces to the ABL that are good news for us. One is, as you point out, the increase in the overall capacity of the facility from $325 million to $400 million. At the second, as we mentioned, as Bill Trubeck mentioned, we expect to get a higher advance rate, so it should give us a double whammy on liquidity.

What to do have outstanding right now under the ABS? How much room is there?

Those details are in the supplemental information, but we only have -- at the end of March we had $8 million available under both the revolver and the ABS, so pretty small.

So that number stated $8 million and everything else being equal on July 22 and you did the recap, would we add $75 million to that before we go in to the number of days, the second part of the good news? Or are there other things that I'm missing there?

I think there are other things. Bill Trubeck mentioned the changes in the borrowing base. The borrowing base was $218 million at the end of March compared to the $325 million ABS facility. And Bill also mentioned the borrowing base is increased in the second quarter, so that's probably the piece that you're missing, is the changes to the borrowing base.

Paul, I'll get back with you with that offline. Last question is the CapEx guidance last quarter was $150 million to $175 million. You drop that dramatically down to $100 million to $125 million, despite the tonnage being better than we thought. So should we just look at that as, because of the worse than expected EBITDA, you're being careful with your cash flow, or has something changed and you're just going use the fleet a little more? How do we think about the change in CapEx guidance?

I think your first one is right. We're being a little more careful with respect to cash flow requirements and how that is scheduled through.

Okay. And virtually all of the $100 million to $125 million is going to be in the second half? So you had -- is this a net CapEx $100 million to $125 million?

It's gross.

It's gross of the 25% of the $30 million to $34 million?

It's the gross spend number. It's not net of proceeds, it's just the gross spend.

Okay. But what besides the excess property sales -- so you're saying net of equipment that you said you'd trade in?

No. It' s just the gross spend on new equipment. It excludes all of the proceeds on what we sell.

Well, what would the net CapEx guidance be? Was the equivalent of that?

You can take the gross and subtract the range of proceeds, the $30 million to $40 million that we gave.

But again, you said you're only getting about $8 million or $9 million of that $30 million or $40 million, so should subtract the $8 million or $9 million from that?

From a funding standpoint, yes.

Okay. Thank you much. I appreciate the time.

Your next question comes line of Jason Seidl with Dahlman Rose. Your line is open.

Good morning. This is Matt Elkott for Jason. Can you give us an update on the capacity in your network? Tonnage levels have been increasing significantly lately in the industry, so what's capacity like?

Well, it's a little different by operating company, Matt. I would say that at YRC and the big network, we're still probably a little bit below 100%. We probably till have 10% of excess capacity. But as you know, in this business, you can operate sometimes most efficiently well above that 100% level.

At some of the other companies, the Regional companies a little bit different, Holland is probably the fullest in terms of their network. Reddaway is probably a little bit like YRC, and New Penn kind of somewhere between YRC and Holland.

Okay. And is there any scenario where we can probably see you guys do a general rate increase, to take somewhat of a leadership role on the pricing front in the industry?

Of course we did that last fall, with the GRI that we announced then, and, you know, the price environment is something we obviously monitor on a daily basis, so I wouldn't want to put any kind of action there.

Okay. Great . Thank you

> Your next question comes from the line of Justin Yagerman with Deutsche Bank. Your line is open.

Hello, good morning, guys. It's Rob Salmon on for Justin. Can you walk us through the tonnage trends at both National and Regional by month in the quarter?

I think so.

Rob, this is Paul. We didn't provide the detail, but As Bill said earlier, our volume trends accelerated each month during the quarter, but we didn't provide the monthly detail.

And remember that January and February were significantly impacted by weather in both cases. So it got better every month, March by far the best.

You might recall the National, for example, turned positive in January. Compared -- it improved its volume comparisons all throughout all 2010, turned positive in January and that trend continued during the quarter, each month.

Okay. When we're thinking -- I guess it sounds like the trends continued into April as well. As we're thinking about the balance between tonnage and yields as you guys look out. The yields were a little bit softer than we had been expecting, but the tonnage a little bit stronger.

Particularly I'm thinking of National, where you had weight per shipment on a sequential basis, which declined from Q4. And you also saw lighter yield improvement, despite the increase in the fuel surcharge. Can you walk us a little bit through how you're thinking about that balance between tonnage and yields?

Yes. As always, yield is a very complicated subject. We have mix management occurring within the channels as I said, a little earlier, corporate accounts growing faster than local accounts.

We also have the shift in weight per shipment that we talked about so the revenue per hundredweight is different from revenues per shipment. And then obviously the fact that we've been fairly stable in our pricing where some of our competitors have not been, makes the year-over-year comparisons different.

I would say that in all of our channels, we're seeing pricing improve on a month-to-month basis, both contractually and on the non-contractual side, the GRI is holding kind of on the same historical basis as in the past.

If you look at probably the most important way to judge our balance between revenue -- I'm sorry, volume growth and growth in yield, you can look at our incremental margins, which I touched on the little earlier and that at YRC we had a 50% incremental margin on the revenue growth, which I think is an indication that we're doing a pretty good job of balancing the revenue and -- I'm sorry, the volume and the yield.

I guess shifting gears to the cost side of the equation. You guys laid out an opportunity to continue to reduce the workers comp, and we can model out what that means on the expense side. Are there additional cost opportunities that you guys are currently looking at right now, where you've got further savings potential?

Yes. I'm going to let Mike Smid comment on that. I think the general comment is yes, particularly in the area of new work rules and savings that were generated because of the MOU. Mike?

Bill, true. The further implementation of our changes in the labor agreement continue to provide efficiencies, position us both from a service performance and a cost performance standpoint better than we had been. Second, we had talked last quarter about some further facility consolidations in the National network. Those have been completed as we move through the end of April.

Those further consolidations allow us to continue to compress the network, to improve the density, and improve performance overall. We've continued with the implementation of some technology changes and processes in our local facilities that support the changes, and as you mentioned, our approach to safety and worker's compensation is yielding a significant reduction in the current occurrence of injuries. Those are the primary areas that we're focused on.

Thanks for the time, guys.

Sure

Your next question comes from line of David Ross with Stifel Nicholas. Your line is open.

Yes, good morning, gentlemen.

Good morning.

> Bill, you said that the contractual increases were tracking ahead of last year to date. Can you give us a little more color around that, by how much, are they up 2% to 3% on average, 4% to 5%?

Yes, it's more north of 3% coming off a year where we were negative. So that's, as I said, continuing to improve every month.

And then going back to the yield question. What are the -- really why yields were so bad, weight per shipment was only part of it. It looked like pricing was negative year-over-year, and sequentially excluding fuel at YRC National, maybe at Regional. Regional did have more of a mixed impact from weight per shipment. Is basically because the large customers are not giving rate increases, the corporate accounts?

It's not that so much, David, as it is the change in the rate of growth between the corporate channel and the local channel. The corporate channel, as you know, is less profitable than the local and is growing faster as customers regained confidence in our ability. And it brings more business back to us. So we've got a mix shift going on between corporate and local in the sense that corporate is growing faster than local.

They're both growing. Pricing is improving on both sides, and pricing is getting stronger on both sides of the equation, but we have had faster growth on the corporate side, which is why probably some of the analysts have been surprised by the volume growth that we've seen. We've got a lot of customers coming back.

To us, it just doesn't make sense to grow your volume at unprofitable rates.

It doesn't make sense to us either, David. That' s why we have a 50% incremental margin.

And also, I don't think incremental margin is a good way to look at it, because you could throw crummy-priced freight on the back of a half-full truck and you get good incremental margins, but if the operating ratio is not getting significantly better, close to 100 or below, then something is wrong. And these National accounts, I think, they're highly unprofitable. Are you at the point where you can walk away from some of these big accounts, or do you need just me the volume so much?

Well, you know, it's always a judgment call in terms of -- every account is different, but I can tell you that based on the incremental margins we are seeing -- and we do think that's an important factor -- and based on the performance in March, where we generated $20 million of EBITDA, we think that we've got a good balance between the decisions we're making around volume and price.

The fact is that a 90% capacity level, volume is still an important thing to add at the network at YRC, but the most valuable way to look at how we're doing on that balance between volume and price, we believe, is in the incremental margin area and the fact that we're continuing to see growth in EBITDA.

Another question on the truckload side of things. Why is YRC still in the truckload business. At a 115 OR, it doesn't seem to fit the profile. It doesn't seem to make a lot of sense for a company that's trying to make money.

Yes. The truckload situation again is a little bit unique. We have used Glen Moore as a sort of an internal linehaul carrier for the company . We've since moved away from that as we've gotten more competitive rates from rail.

So going forward, you can be assured that we are going to be focusing on that business and making sure that we're getting the most of that asset, but really it's been primarily a function of the change in strategy within

Okay. And then just last question is, even with a huge labor cost advantage against your biggest union competitor, YRC National still has the worst operating ratio in the business. How do you get it to sustain profitable levels? This really can't be fixed just by balance sheet restructuring.

Well I think first of all, if you looked at the numbers, the operating ratio at least one of our two competitors was worse than ours, and one of them is nonunion, so --

Worse than a 107?

Are you talking about for the company or are you talking about -- ?

I'm talking about YRC National.

Oh. YRC National, okay. I think the important thing for us here is to continue to focus on improvement in the performance of the company. As I said, the $20 million of EBITDA generated corporately, and the amount of momentum we have on the National side of business in terms of incremental margin customers returning. Our revenue and shipment growth gives us a lot of confidence that we are on the right track and that we'll be back where we should be here in the foreseeable future.

Okay. Well I hope you can get some big rate increases from your corporate accounts. Thank you very much.

Your next question comes from line of Chris Ceraso with Credit Suisse. Your line is open.

Thank you, good morning. A couple of questions on the pension here. What's the schedule for contributions over the next several months? And do you have any update on what the withdrawal liability is at this point?

Well, to start with the second question, the withdrawal liability is a contingent liability. We don't think that will come into play. In terms of when we re-enter these pension funds, we'll be re-entering those funds in June at $1.75 per hour, which is about 25% of our previous contributions.

So on a cash flow basis, what is the cash contribution that you have to make in 2011?

For union pension?

Yes.

It depends on hours worked. I mean, we've said previously is in the $6 million to $8 million range. It could be higher based on volume and hours per month. And it's those June hours. The cash begins in July but that's the monthly rate.

Okay. What was the operating ratio for the month of March?

We didn't break that out separately.

Can you?

No. We haven't. We did provide adjusted EBITDA by month. But we didn't break out the operating ratio. But to Bill's point, we improved each month during the quarter, and you can look at the EBITDA trends, and then if you throw out the insurance charge, which we booked in March, and look at the positive EBITDA we generated in March, you can get an indicative operating ratio.

Great. Okay. Last question. How do you measure density in your network? Let's say the National network as an example. And where does that measure -- where is that measure today, and where do you think it needs to be for you to be making an appropriate margin?

I think there are a number of ways to look at density. I think we tend to use the load average metric as the primary metric, and I can tell you that we're getting very close to where we would like to be from a load average standpoint. But density and the amount of volume going through the network, is something that we track daily, as I said a little earlier.

The YRC network is still not quite where we would like it to be from a volume standpoint, but it's moving that direction, and we would expect it to be there in the not-too-distant future. The density, or the utilization of the network at Holland, is probably at the other end of the spectrum from our operating company standpoint. Their network is pretty close to 100% full, and obviously, the focus there is on customer mix management more than volume growth.

Okay. Thanks.

Your next question comes from the line of Neil Deaton with BB&T Capital. Your line is open.

Hello, good morning, gentlemen. Couple of quick questions. First of all, you talked about the consolidation of your National network. Could you give us an exact number of terminals you had at the end of the quarter and kind of where you expect that figure to be at the end of the year?

We did -- at the end of April, the last day of April, we had 296 active facilities. We'll continue to work on our network design and evaluate facilities for potential consolidation or reassignment within the network as we progress through the year. But there is not a definite number at this point.

Okay. Thank you for that.

And then it sounds like Holland has been performing pretty well and is at capacity, which triggered a -- regarding the tragedy in Japan and how much all the business Holland has traditionally carried, what kind of impact do you foresee on the automotive supply chain there? How much of your business is sourced from Japan versus say, internally in the US?

There's been a slight impact on the margin at Holland as a result of the issues in Japan. I don't think it's going to be a dramatic impact going forward, but there has been a little bit of a hiccup as a result of that.

Okay. And then, I know before you all were facing your restructuring back in '10 -- I'm sorry end of '09, you've had quite a bit of freight diversion leading up to the debt-for-equity exchange.

Just curious, in the weeks preceding the April 29 deadline, did you have much freight diversion then out of fear that you weren't going to get the deal done and may have to file for bankruptcy?

Not a lot. It' s hard to specifically know, but we felt like that our trend and our momentum continued, you know, throughout the end of the month.

Okay, and the business that you did lose there during that process, have you been successful in getting some of it back so far, or is it too early to tell?

We're continuing to see customers return. The data we've been looking at would indicate we are regaining market share based on the public company numbers we're looking at, so customers are continuing to return as we move our way through 2011.

Okay. That's -- all my other questions have been asked. Thank you.

Your last question comes from the line of Jack Waldo with Stevens. Your line is open.

Good morning.

Good morning, Jack.

Good morning.

All right. Bill, did you say you have 296 terminals?

That was Mike Smid, but that is the current operating -- yes, that's at YRC, and we're continuing to what I would call fine tune the network, but I think that we're feeling pretty good about the balance now between capacity and business volumes.

Is that YRC National or Regional or both?

That's YRC, that's the National company only. We've got --

Okay --

We've got somewhere in the 430 kind of number for the company.

Okay. So you haven't seen a precipitous fall in the amount of terminals. It's still pretty flat to where it was in the fourth quarter; is that right?

We've closed a few more. As I mentioned previously we've fine-tuned to the network, taken out some additional capacity that we didn't think was necessary, so there's been little bit of more fine tuning. We probably reduced maybe 30 to 40 --

Jack, this is Paul. Since the first of the year, the end of last year, the 296 that Mike Smid mentioned was an end of April number, so were down roughly 35 since the beginning of the year. And for Regional, we're down a couple terminals, so the Regional network is 123. And so that puts us north of 400 all-in at the end of April.

Okay. Okay. Thanks for clarifying that.

Bill, I know that you have -- there are a lot of indirect costs associated with higher fuel prices that might not -- makes this analysis maybe a little bit more of an art than a science. But on the science part, what impact did rising fuel prices have on your earnings this quarter? I know Con-Way mentioned yesterday in their conference call it was a slight tailwind.

Yes. That' s probably a fair comment. I think -- we've said in the past that, you know, fuel prices -- the fuel price impact on us depends on how fast it rises and to what level, and the duration of how long it stays there. I'd say that we're still very confident that the fuel surcharge is the best hedge against fluctuating fuel prices, maybe slight tailwind, is accurate for us as well.

Okay. But when you -- just talking slight tailwind of the $20 million bucks and EBITDA in March, how much do you think was fuel related?

It's almost impossible to tell, Jack. A s you said, that's a really complex equation to disconnect and unravel, because you've got this fuel surcharge now totally marbled into the pricing for so many of our customers, that to get a clean number there is pretty difficult.

Sure. Sure. Did -- could you talk a little bit about what you're seeing on the pension side? I have seen, I guess some recent conversations about maybe some more proactive steps that different plans are doing or funds are doing. I think there was a discussion on one of the -- I guess I can say union- related websites recently talking about a 401(k) switch overall on the western side of the US. Is there -- can you give us a little update on what you're seeing there and what kind of implications that could have on you guys?

I don't know what you saw there, Jack. I can tell you that the Central States has announced lower benefits as a result of the negotiations that we've been through with the MOU. The Western Conference, I think, is what you're referring to on the 401(k), but there's a lot of work going on in the pension area now that we've got a lower level of contribution that we've established through 2015.

Does that have any impact on your obligations, I guess, this year, the actions Central States made?

No. We've got a contractual obligation to contribute $1.75 per hour through 2015, and that's the number that we will live by.

Okay. And then last question, is there any update on the timing of the appeals hearing with ABS ?

No. There was an appellate court hearing on April 12. The judges have taken it under advisement, and it's hard to predict how fast the courts will move, as you know. So that's where it stands right now. It could be another month or two before they rule, but they have it under advisement right now.

Okay. Well, Bill, it seems like every call, it's said to be your last call, and you're on the next call, and this is really your last one. Good luck in retirement.

Thanks. I appreciate it, Jack.

Okay. Thank you. Operator , that concludes our call, so you can do

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.