Yellow Corp (YELL) 2011 Q3 法說會逐字稿

Good morning. My name is Michelle and I will be the conference facilitator today. At this time, I would like to welcome everyone to the YRC Worldwide third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. (Operator Instructions) I will now turn the call over to Paul Liljegren, Senior Vice President Finance and Controller.

Good morning. Thanks for joining us for the YRC Worldwide third quarter 2011 earnings call. James Welch, Chief Executive Officer of YRC Worldwide; Jamie Pierson, our CFO; and Jeff Rogers, President of YRC will provide comments this morning. James, Jamie, Jeff, and Phil Gaines, CFO of YRC, and I 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 includes statements regarding the Company's expectations and intentions on strategies regarding the future. It is important to note the Company's future results could differ materially from those projected in such forward-looking statements due to a variety of factors. The format of this call does not allow us to fully discuss all these risk factors. For full discussion, please refer to this morning's earning release and SEC filings, including our 10-K, 10-Q 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 the adjusted EBITDA to net cash flow from operating activities and adjusted free cash flow. During this call, we may refer to the non-GAAP measure of adjusted EBITDA simply as EBITDA. Now I'll turn the call over to James Welch.

Thank you, Paul, and good morning everyone. And thanks for taking the time to join us this morning. As most of you know, I have just concluded my 100th day back at YRC Worldwide this week after leaving 4.5 years ago. And while I was disappointed and concerned about the condition of the Company during the time I was gone, I have to tell you that we have made a lot of progress moving the Company forward over these last 100 days, but we still have much to do. No doubt. I am not at all satisfied with where we are at and how we are performing. But, we will get better.

Let me start with a few comments on our restructure, which was closed on July 22. While we now have a restructure balance sheet that provides us with runway, we must sharpen our focus on the operations and the delivery of consistently reliable service to all of our customers. I'm very pleased with the service given by Holland, Reddaway, and New Penn, but we have to push further improvements at YRC, and we are in fact making good progress. But, it will take time and as we improve service at YRC, I believe that we will restore confidence in field operations and sales, which should lead to higher yield and more volume. If you have read recent press releases or news articles about YRCW over the last 100 days, you'll know that I did not waste any time in making changes on how we will manage the Holding Company and Operating Companies moving forward.

The Holding Company was much too involved in the day to day business of the Operating Companies in my opinion. The way the Company was previously structured creating bottlenecks in strategy, decision-making and execution, along with creating inefficiencies. To that end, I have eliminated 4 C-Level positions at the Holding Company and have for the most part put the power and the responsibility back at the Operating Companies. I can absolutely assure that you each of the Operating Company Presidents have not only fully embraced this change, but they have been asking for it for some time. For example, up until just a few weeks ago YRC did not have a separate management team actually leading that $3 billion Company. There was very active and oftentimes unnecessary involvement from the Holding Company. YRC critical functions were basically blended into the Holding Company without a separate and distinct leadership team.

Another example. The sales organization reported through the shared services organization at the Holding Company level, yet YRC operations reported through a field alignment to a different leader. The 2 groups were not talking and not working together nearly as much as they must moving forward. Truthfully, and in my opinion, that organization structure made little business sense. So, to that end, we recently named Jeff Rogers President of YRC. Jeff has extensive industry experience and he has successfully served the Company in a number of roles, most recently as President of Holland.

And if you remember when Jeff went to Holland about 3 years ago, Holland was a Company that was basically in a mess and losing a lot of money. But he worked hard to create a vision and a road map for its operational turnaround and worked to focus the organization on those objectives. Jeff led Holland back to be the best -- next -- excuse me -- Jeff led Holland back to be the best next day carrier in their footprint. He has also led Holland closer to its historical level of operating profitability. And I have great confidence that Jeff will do the same at YRC. We also named Mike Naatz as President of Holland to replace Jeff. Mike has excellent operating and sales experience with the former USF Companies over the years and most recently was the President of Customer Care at YRCW.

So going forward, each Operating Company will manage all the resources needed to support their marketing, sales, operations, processing and human resources efforts. All of our Operating Companies serve different geographical areas. They all have unique and different operating models and operating philosophies and most important of all, they all have different cultures that must be worked with and leveraged individually in the marketplace. There will be no YRCW way of doing business. Each Operating Company has their own way of doing business. Now that does not mean that we won't pull together as a team of Companies when working with our customers who want bundled solutions or services. We will definitely continue to capitalize on those opportunities. But it has been my experience that Companies under a corporate umbrella work together better when it is their choice versus having things dictated by a Holding Company. Our OpCo Presidents, again, are in enthusiastic support of our new structure and change in philosophy. I expect to see improvements on how each one of them operates and in the quality of service that we deliver to our customers.

I'm also very pleased to announce that Jamie Pierson has decided to join us as Executive Vice President and CFO of YRC Worldwide having served on an interim basis previously. Jamie was most recently Managing Director at Alvarez & Marsal, and as most of you know Jamie has been deeply involved in the YRCW financial restructuring during the last 3 years, and that has been a big deal. Jamie has a strong relationship with our lenders and now our new shareholders and note holders. He certainly knows the Company and understands where we have been and more importantly where we have to head. So, we're excited that Jamie wants to continue participating in the critical role of CFO as we work towards a successful turnaround of our Company. Jamie was my number 1 CFO candidate all along from day 1 and I'm extremely excited that we landed him to help YRCW continue to move forward. And our employees, as well, are very excited that someone so deeply involved in our financial restructuring like Jamie believes strongly enough about our future that he chose to leave a position at another Company and join us as a full-time employee.

Finally, as I was contemplating my decision on whether to return to YRCW or not, I was very interested in the composition of the YRC Board of Directors -- YRCW Board of Directors, and I have to tell you that I am extremely pleased and impressed with the quality of our Board. They are all experienced business people with a very broad range of skill sets and most importantly are very engaged with the Company as we move forward. Out of our 9 directors, 2 have been selected by the IBT, which combined with the new equity ownership by our union employees, I firmly believe will help our ability to move forward.

Moving onto the operating environment. The general economic recovery continues at a moderate rate at best, which is well below the recovery rates of past recessions. Market volatility and unemployment levels create additional uncertainty. The dynamics within our industry are encouraging, compared to the last several years as price discipline continues demonstrated by the August general rate increases. Industry capacity appears to be hanging in there, somewhat due to the industry growth rates and probably as much to do with network rationalization and the limited availability of qualified drivers to hire. Our business performance continues to improve year-over-year, especially when you consider the incremental pension expense added to our cost base in June when we agreed to return and re-enter the multi-employer pension funds and our union employees began to accrue additional pension service and benefits.

Moving on to third quarter results. YRC's tonnage group per day at 4.2% year-over-year. Regional tonnage per day was up 5.6%, as compared to the prior year. Changes in weight per shipment, length of haul and customer mix affected metrics for both YRC and the regional carriers in the third quarter. YRC increased its revenue per shipment by 6.2% and its revenue per hundredweight by 7.5% as its weight per shipment decreased by 1.2% over the prior year with its length of haul increasing 1.8%. The regional carriers revenue per shipment grew 10.4% in Q3 versus Q3 of 2010, which included a 2% increase in weight per shipment and a 0.4% increase in length of haul.

Moving on to earnings. YRC reported an adjusted operating loss of $8 million and an adjusted operating ratio of 100.9%, which represents an improvement of 70 basis points versus the third quarter of 2010. And remember, the third quarter of this year included incremental union of pension expenses of $17 million, which affects the year-over-year comparison. If not for a much worse than expected July at YRC, our third quarter results would have been better. And September was the best month of the third quarter, so I was pleased that we were able to quickly build some momentum starting in August.

For the 9 months of 2011, YRC's adjusted operating results improved by $65 million, as compared to 2010. Volume growth, pricing improvement, and cost actions all contributed to this positive operating performance trend. Again, we are pleased with the progress, but far from being even remotely satisfied with these results at YRC. Our regional carriers reported an adjusted operating ratio of 95.2% for the third quarter of 2011, which is a 180 basis point improvement year-over-year.

Similar to YRC, this year-over-year earnings growth is net of the resumption of union pension expense, which was about $6 million more than the third quarter -- for the third quarter of 2011. For the 9 months of 2011, the regional carriers improved their adjusted operating ratio by 150 basis points to 97.2%. While the regional carriers are making better progress than YRC, we know if that they can perform better as we move forward. With those comments, I will now turn the call over to Jamie Pierson for more color on the third quarter results.

Thanks, James. Good morning, everyone. Let me highlight a few items in the quarter that created some noise in our GAAP numbers. I am also going to discuss some changes to our capital structure and talk a little bit about guidance. First, the $79 million fair value change included in our reported net loss was non-cash and one-time in nature. It related to the fair value of the conversion rights in the new 2015 notes. The accounting rules required to us re-measure the fair value of those conversion rights on September 16, 2011 when shareholders approved an increase on the number of authorized shares sufficient to cover the conversion rights.

As a reminder, our common stock closed at $0.07 per share on September 16 and the B notes have an effected conversion rate of approximately $0.042 per share, which is inclusive of the make whole payment. The make whole payment represents future interest through March 2015 maturity dates of those B notes. As we highlighted in our release, the preferred stock we issued in July compared to common and the Series B notes became convertible in September.

As a reminder, the Series A notes are convertible after July 22, 2013, about 2 years after the closing of the transaction. With the potential for total outstanding common shares now in excess of 6 billion, we are asking for shareholder approval to reverse split in the range of 1 to 50 to 1 to 300 at our annual shareholder meeting on November 30. The actual ratio and the timing of the reverse split will be a part of the discretion of our Board upon shareholder approval. Based upon this favorable determination by NASDAQ Hearings Panel, we would expected our Board to implement the reverse split no later than mid December.

Now, moving on to operations. As James mentioned, we recorded adjusted operating income for the third quarter, which is now the second consecutive quarter with adjusted operating income despite the incremental cost of pension expense of about $23 million for the quarter. In addition, union health and welfare expense increased August 1, which added a cost impact of about $3 million on a quarterly comparison basis.

Turning to cash flows and liquidity. We generated positive free cash flow for the third quarter when you adjust our GAAP numbers for restructuring items. With both operating achievements, our important milestones and our recovery, we also clearly recognize our current performance level needs to continue to improve. From a liquidity perspective, we ended the third quarter with balance sheet cash and availability of $279 million. It is important to note that our borrowing base under the new $400 million ABL was $371 million at September 30, which means that we continue to grow our revenues year-over-year, we have some dry gun powder grow into the full ABL borrowing base and tap into that liquidity to support our working capital needs.

Regarding guidance, with the change in leadership, we are just discontinuing our practice of providing earnings guidance effective this quarter. While this is a change from our recent process, where we provided an expected floor by guiding to positive adjusted EBITDA, or positive adjusted operating income, or year-over-year revenue growth, we believe the typical issue practice of not providing earnings guidance is appropriate for us at this time. Accordingly, we will not be commenting on future earnings or free cash flow expectations during the Q&A portion of this call. In addition, given the recently closed transaction and resulting shareholder base, we do not plan to conduct quarterly conference calls going forward. Now I'll turn it over to Jeff Rogers to talk a little bit about YRC.

Thanks, Jamie and good morning, everyone. Let me start by saying a few words about Holland. I am very proud of my Holland teammates and the remarkable turnaround of the Holland business over the last few years. It took a strong focus on key service and operating initiatives along with a lot of hard work and discipline, which is now paying off and is apparent in the regional results we reported.

Now about YRC. The YRC business is different from Holland and presents its own unique set of challenges and opportunities. But I truly believe the same basic principles that worked at Holland will work at YRC; simplify the business, focus on the right things, and that will enable better execution. James and I have made a number of organizational changes designed to lean YRC and make it a more nimble entity, which will enable us to act quickly and decisively and make execution more crisp and focused.

One of my personal philosophies is to plan shorter, act longer. We need to attack the marketplace and it starts with the customer. We are making a real commitment to service improvement and we expect to be more efficient as well as we remove waste from the operating process. As an example, we have consolidated the network operations to Kansas City to speed up decision making and eliminate duplication left over from the integration. Focusing on service goes back to my comment on plan shorter, act longer. We know service key in this business, so we are going to stay committed to delivering solid, consistent service.

I am very excited about the way the YRC team, and when I say YRC team, I mean all YRC employees, have responded to the new direction and traction we are starting to gain on service improvements. I know our customers are excited about it as well. They are looking for a reason to be do business with YRC, and we are going to give it to them. With that, I'll turn it back to James.

Thanks, Jamie, and Jeff as well. Again, we wish to thank the stakeholders who supported our restructuring. And we look forward to returning our focus to the basics of delivering consistently reliable LTL services to our customers with a re-energized and fully engaged workforce that is focused on that objective. I want to be sure that I say a big thank you to our employees, both union and non-union, for sticking with us, and to our new equity ownership, which includes our union employees. They have been through a lot of turmoil over these last 3 years, and I certainly appreciate their efforts even more than they know.

In the recent past, this Company, this Corporation, tended to avoid terminologies like freight and customers, and instead using terms like logistics, transportation, consumers. That made it very clear to our employees that, yes indeed, we are in the freight business. We are going to work like hell to give our customers, our customers the level of service they deserve. I like the team we are putting together. I like what we are representing. I like the moves that we are making. And I have to be honest and say that after making numerous customer visits in my brief time back, I'm convinced that YRCW does have an important role to play in this industry -- in the LTL industry. I'm also convinced customers want to see YRCW do better and regaining more prominent position in the marketplace. And, I'm confident our employees will help us get there.

Before taking questions, let me briefly comment on fourth quarter trends. Our daily volumes in October for YRC and the regional carriers continued to show growth year-over-year. In addition, as Jeff mentioned, we are encouraged by the traction gained by our YRC improvement initiatives, but as I said earlier it will take some time to accomplish all of our objectives. With that, we will now take your questions.

(Operator Instructions)

David Ross, Stifel Nicolaus.

Good morning, gentlemen. And thanks for the increased disclosure in the LTL segment. It's very helpful. James, can you talk a little bit about the big shipper problem? In your business, specifically in YRC National, with yield, ex fuel surcharge and mix in YRC National being below that of the competition. What are the big customers telling you on rates and opportunities for increases going forward? Because, we think that's just really where you need them.

I'll let Jeff talk about that.

Well David, I'll be real honest with you. That is one of the big opportunities at YRC is to adjust our mix. We know that. We've got to improve that. I think what the customers are saying is just what I said in my statements. They want to do business. I think if they see a consistent service product, we'll have the ability to pull those levers as we need to, to improve.

Have you gotten down to a fixed network in National yet? I know there was a lot of changes going on with the integration and continuing terminal consolidation. Can you just talk about where you are from a network standpoint?

I'll be real honest with you. I think I've been here 35 days in this role, so we're looking at that. There's no question I think we're going to make some changes, but I just don't know what they are in full at this point, David.

And then, last question. You mentioned in the press release that you're allocating more of the expenses back to the regional companies. For the corporate and other expense line item, should that expect - should we expect that to come down as a negative, and how much of that should be transitioned into the regionals?

David, this is Paul Liljegren. I'll take that question. We have always allocated the cost to the segment that was benefiting from the service level. What this change is about was the literal re-deployment of the people. We were moving people out of shared services, enterprise services back (each) - regional operating companies. There's no really no change to the financials.

Excellent. Thank you very much.

Tom Wadewitz, JPMorgan.

Good morning. I wanted to ask about your approach on kind of volume versus price as you -- you know you've got the financial restructuring behind you. I think you would aim to have some stability in your operations and approach to the market. And would you -- do you think the bigger opportunity is to see volume come back to you and drive better utilization and you'd try not to be too aggressive on price? Or do you think that the bigger lever for you to pull or push would really be to drive an improvement in price that perhaps would be related to what you might do on service?

This is James. A couple of comments and I'll let Jeff or others weigh in. Just take a look at Holland as a good example. Jeff went in and really turned the Company around by improving their service and that allowed their volumes to grow and ultimately now they're starting leverage that on the price side. When you really look at YRC in particular, I think it's safe to say that the integration wasn't all that successful and that there's a lot of work left to do there.

So, we really think as we improve services, we rationalized the network a little bit more to allow us to give better service and do it more efficiently that, that will help us certainly grow our business. And I don't ever think we want to try to lead with price at all, certainly we are going to try to be competitive. But, really we think there's a big opportunity for improvement by just improving our efficiencies, improving our service, gaining the confidence back of our customers, and that's not going to occur overnight. We are going to have to demonstrate that we can give the right kind of service over the next 6 months, but we think over time that will allow us to energize our sales force, energize our operations part of the business and ultimately gain more confidence from the customer, so that we can ask for a higher price.

Jeff, do you want to jump in there and comment?

James, you touched on a lot of things. I really think the key is both. You make money in this business by price and volume. So, I think by providing a good consistent service, it allows you to make those decisions a lot better. If you don't have the service, then you really don't get to choose what you get, I don't think.

So, I think as we improve the service, we'll be able to make those choices and one, bring on the right type of volume because that is the key. Not just volume, but the right type of volume at the right price. But, the consistent service is the key first, and that's what we're going to focus on.

Okay. And as a second question. What would you -- you know you said you need to make some network changes at the national business at YRC. Is that terminal rationalization or what -- just kind of broadly what type of changes do you think are appropriate? And then what about the equipment situation, the rolling stock, is there - is that a significant, I guess, constraint on your ability to deliver service? Your CapEx has been low for a while and so I'm just wondering if kind of age the rolling stock is something that is some -- is part of the equation on improving service as well?

Right. The first thing I will say is really the thing that we're focusing on right now is we're handling too much freight too many times. So, I think when we're looking at the network, the first thing we're going to do is how can we move freight better without handling it so much, because that'll help us in all kinds of areas; improve services as well as reduced claims, improve the customer satisfaction. So that's really what we're focused on first. So I really won't get into any more, much more detail about looking at the network other than that.

The equipment issue, it is what it is. We obviously have not invested the way we would like to. But, we are where we are. It is and it does create some problems for us from a higher maintenance cost than we would want. I can say I don't think the equipment issue is creating service problems for me right now. It really is just a maintenance issue and the fact that we would love to have more equipment, but we are where we are and we'll just deal with that as we go forward.

This is James. As an outsider coming back in, our equipment is not in as bad of shape as I thought it might have been in. I think one of the advantages that we did get out of the integration between Yellow and Roadway, is we were able to pick the best equipment between the 2 fleets and put them into service. So, I really think we're okay. As Jeff said, maintenance is creeping up somewhat. But as we look at our forward opportunities and going forward plan, we have a couple things that we're going to try to do to address that over time. But, for the immediate term, I think we're in pretty good shape.

Can you tell us what tractor age is for the regional and the national business?

Average age?

Yes. Tom, this is Jamie. If we look at it on a - on an average basis at the end of the most recent period. We had about 5.5 years on the line haul tractors, about 10.5 on the city. And that's on the tractor side. Was that your question?

Yes. But, do you have it by regional and national, or you just want to give it consolidated?

No, we don't have broken down. It's on a consolidated basis.

Okay. That's helpful. Thank you for the time.

Jack Waldo, Stephen, Inc.

Good morning, gentlemen, I guess congratulations on all your new positions.

(Laughter) How are you doing, Jack?

Doing just fine. James, I wanted to ask you, if you looked out over the next year or the next two years, would you expect tonnage growth or pricing? Which one would you expect to grow more? I guess at what I am getting at is as you think about your network now, do you feel like you're underutilized on the density side or is it just a function of getting more profitability out of the current density you have?

Well now in a perfect world, we'd like to do both. Our network especially at YRC can use more density and we're relatively full at Holland. Reddaway can use a little more business. New Penn is in pretty good shape. But, really it's at YRC. And we want to improve our service so that we can grow on the density side, but as well improve our position on the pricing side.

If you go back over the last couple of years, when the Company maybe was in its darkest hours, the mix of freight that we took on at that particular time, either by just the situation of the economy and/or the competitive pressure, you know it's not where we want it and we're going to have to change that over time. But in order to do that, we've got to first provide the right kind of service that allows us to ask for the right kind of business at the right price.

And James you have a track record of this focus on service. And I understand what you're saying, service has to come before everything else comes. Do you have any, or maybe Jamie, are there any gauges or maybe service levels, on-time service levels or claims ratios, where you are today relative to where you have been? Or where you are today relative to where you think you should be?

Our service is not as good as it needs to be, but it is improving. Claim ratios are always an issue no matter where we are in our stage of business, so we're constantly working on trying to improve that. But, the claim ratio is higher than what I'd like to see, no doubt. And, we're working hard to get that back into the proper ratio.

Fair enough. And then I guess my last two questions and maybe for you, Jamie. How many terminals do you guys currently have or operate in the national and in the regional business?

About 330 on a national basis and about 110 on a regional basis. Hold on, let me give you the exact number.

317 on the national side and about 126 on the regional side.

There you go.

Thank you. And then, Jamie, what are your CapEx? What should we have for CapEx for this year and CapEx for next year?

You know, Jack, we're not going to comment on the future of earnings or CapEx or cash or liquidity at all.

Okay. Do you have a maintenance CapEx number?

No.

Okay. Thank you guys very much. Good luck.

Justin Yagerman, Deutsche Bank.

James, when you look at the Company, having taken inventory over the last 100 days, this has been at different times a $10 billion company, now it's arguably somewhere in the $4 billion, $5 billion. I'm talking about revenue. How do you think about where you envision the Company long-term in terms of positioning?

We're still about a $5 billion company, which is still a large company in this particular space. When I came back, Justin, and really looked at things, I just felt like the regional carriers have their own geographical footprint. Each one of them do. They all have their own unique operating model and service offering. And as I said earlier, they all have their own unique culture. So. I really felt strongly instead of trying to blend them in with a YRCW way of doing business, and this whole approach that the corporate company was going down from a global perspective, really try to let these companies be who they are.

Let Holland be Holland. Let New Penn be New Penn. Let Reddaway be Reddaway. They all 3 work together very well with what they do. And then really trying to look at the national carrier and go, okay what are we trying to do here? What is our mantra? What hill are we trying to climb? The culture at YRC is not nearly as well defined as the old Yellow or the old Roadway or the regional carriers are today.

So, really wanted to try to get the right kind of leadership in place and I think it was critical that they have their own separate management team, which is the steps that we've taken to put Jeff and he's named his own team in there, so I really think long term, it's letting these regional carriers compete. They give absolutely best in class service. They're damn good companies. And then we've got to get YRC moving forward. Do I envision us being a $10 billion company again? No, no.

But, I definitely think that we have a role to play in this industry. We're still a large company when you look at the number of carriers and just the sheer shipments that we handle per day with all of these 4 companies. And, we're going to continue to try to leverage that where it makes sense together and then try to make sure that these companies are up to compete effectively on their own. But, I fully expect the Company to be able to compete. And, as long as we can do that, there's business out there that we can go get.

All right. So, are the networks, you talked about the terminals in each of the networks and the fleets. Is the size of the infrastructure where you want it to be, or are there tweaks that are going to need to be made to get to where you want to be from a positioning standpoint?

I think the regional carriers are where we want them. And infrastructures are going to have to be looked at, not necessarily from a reduction standpoint, but just how we set up operations from a network standpoint. I'm not really happy with how then network runs at YRC. Neither is Jeff.

I, really try to just take the Holding Company down to the CEO, the CFO and his related organization, and the General Counsel and his related organization, a couple of other security and a government services person. But, really stripping down this Holding Company to just bare-bones as much as possible versus what used to be, and really putting the power and the authority in these operating companies, but yet holding them very accountable through monthly business reviews, being involved as possible, as much as possible with what they're doing, and, see how they go forward. I think we've got the right kind of team that can do it.

We've got a critical juncture I would think coming up in the first quarter. Even well-operating LTL carriers have issues remaining profitable and a choppy macro-environment to boot. So, when you talk about your customers right now and you think about the business, how are you guys approaching that? Are you talking to customers and saying, listen you want to do business with us, you're going to need to support us through this period of time, or is this really just kind of like grit your teeth and hope things work out as we go over the next couple of months here?

We're certainly not going to just sit around and hope things work out. We're working hard. I have been making sales calls. Jeff hasn't had a chance to. But when I'm in front of some of our larger customers, they want us to be in business. Now that could be from a selfish reason so that price stays where it's at and capacity doesn't tighten up. But also I get comments more so on, we would like to give you more business. We were looking for reasons to give you more business.

And over the last month, the financial condition and all of the noise that's been around the Company the last couple of years wasn't the topic of conversation. It was can you guys improve your service at YRC? Can you do other things to help us give you more business? It's clear, especially our larger customers, would like to give us more business. So, that's a couple of my comments. Jeff, if you want to weigh in there or Phil?

Sure. This is Jeff. I've not had a chance to James' point to get out yet and talk to YRC customers. I'm going to spend most of next week doing that. But, even when I was the President of Holland, the hundreds and hundreds of customers that I talked to obviously still do business with YRC. There's a lot of customers that do business with all the carriers within YRC Worldwide. And they were saying the same thing James was saying. We want to give YRC more business.

And that's the point that I made in my comments. And, what I'm really focused on doing is we are going to give them a reason to do business with YRC. And that's going to be consistent service and obviously providing a better experience for them.

So, I guess when we're going to talk to customers, it is going to be a couple of tough months. It's a tough couple of months for everybody, but I think we'll have good momentum. We'll be able to tell them exactly what we are doing. We're going to give them a plan of how we're going to approach things going forward and I think the customers will appreciate that. They're just looking for a reason and we're going to give it to them.

Right. The cash number that we cited when you talk to liquidity is different than what I saw. I think you talk to a number of $279 and on the cash flow statement, it looked like the number that you guys ended the quarter was something in the $163 range. Where's the difference between that cash number? Is there restricted cash that is not included there?

No. It's the ABL availability, Justin.

I thought that ABL availability was $371 out of $400.

That's the borrowing base.

Okay. So, $279, does that include cash and the ABL?

Exactly. The availability under the ABL.

Okay. So, let me just make sure I've got this straight. $279 includes the $163 of cash plus the availability under the ABL?

Yes. Exactly. If you'll look at page 2 of the release, you'll see how we've broken it up into the 2 distinct separate buckets. So, you can see how much of it's cash and how much of it's availability for the total.

Okay. I'll take a look at that. Thank you. And last housekeeping item. The reverse stock split in December. Do you guys have -- what's the -- and I should probably know this, but what's the most that you guys can do that in terms of how many shares per - can you convert?

We can go up to 1 for 300.

1 for 300. Alright, go for it. I'll talk to you soon.

(Multiple speakers) (Laughter) Thanks, Justin.

Scott Group, Wolfe Trahan.

Thanks. Good morning, guys. That $279 of liquidity, the $163 of cash and $116 of availability on the ABL, how much of that can you access today? Is any of that restricted, or can you use it all for Ops and CapEx at this point?

We can use it all for Ops and CapEx. The restricted cash is on separate accounts on the balance sheet.

Okay. And the $158 million deposit into escrow that we see in third quarter, can you give a little bit more color on what that's for, Jamie? And, is there an opportunity to get that cash back over time, or is that gone?

Well, it's restricted. It's on the balance sheet. It's under two separate accounts. We've got some in a short-term account and some in a long-term account. So, we don't have access to it today.

Is there an opportunity to get access to it? What needs to happen for you to get access to that?

Yes. We don't have access to it today. We'd have to go to the individual holders of those accounts.

Got you. Okay. In terms of CapEx, we're at gross CapEx of $36 million year-to-date. The guidance I think entering the year from the old management was $150 million, give or take. I think it was $125 million as of last quarter. I understand you don't want to give firm guidance on CapEx, but how much longer can we sustain this kind of really low run rate? Or, when do you think we can think about CapEx ramping up again?

Well, I certainly appreciate you not allowing me to comment on future guidance. Certainly, not on the previous management team. But in terms of what we've got going on in CapEx, it's not only from a maintenance perspective in terms of engine swings, it's currently maintaining the state of the fleet. And as we talked about earlier, capacity can be limited by several different things. This is one of them. We don't have any constraints from a capacity standpoint on our revenue equipment. So, I expect it to be about where it is now for a while.

So, you think CapEx stays in this the $13.25 million range, give or take.

No. I wouldn't say that. We're not going to give guidance.

Okay. But, directionally, you feel like it stays at this low level. Is that what you're trying to say? Around this low level?

Yes, no, Scott. We're not going to give guidance on that.

Okay. Okay. I think I heard $23 million of pension expense, cash pension expense in the quarter. Is that the right run rate to think about going forward, or does that ramp up?

Scott, this is Paul. The union pension expense is based on hours worked, so there's some seasonality to it. $23 million was the incremental for the third quarter. So, if you want to put it in a range, it's maybe $20, $25. It's based on seasonality and hours worked.

Okay. And, you have the same numbers for cash interest in the quarter in going forward?

We put cash interest in the release and as Jamie said, we're not giving guidance around forward-looking cash interest.

Okay. Thanks, and last question. Do you have an ending end of the quarter share count, diluted share count? And excluding the stock split at the end, are reversed at the end of December how do we think about the share count for fourth quarter?

Well, we calculated earnings per share for the third quarter based on weighted average, but at the end of the quarter, we had on the balance sheet 1.9 billion common shares outstanding to end the quarter. So, you can think about that number as a beginning point for the fourth quarter.

1.9 billion common. Do you have a diluted number?

That is the diluted number.

Okay.

Yes. It's one of the same.

Okay. Great. Thanks a ton, guys. Appreciate it.

Chris Ceraso, Credit Suisse.

Thank you. Good morning. Just one question really. It relates to the pension. It would seem that the reduction to your cash pension obligations was a big part of the restructuring and your ability to hopefully generate sustainable cash flows over time. Is there any risk here that because discount rates have come down that the size of the liability grows and your potential cash outflows might grow? Or, does your agreement with the Teamsters transcend the accounting?

It's locked in there, Chris. It's per the contract.

So, no matter what happens to the size of the obligation, you don't have to put more in over the next how many years?

On the multi-employer pension piece, that is correct. It's per the term - the contract due March 2015.

And is that true for expense that runs through the P&L as well as cash?

Yes.

Okay. Thank you.

Thom Albrecht, BB&T.

Thank you. Good morning, everyone. I had essentially 2 questions. One is, when I look at the debt in the September 30, short-term and long-term, it's about $1.34 billion. I'm a little confused whether that includes the equity conversion, the vote that was passed on I think September 16. Or, will we see a reduction in debt when we look at the fourth quarter? And then let me come back with part 2 after you answer that. And how much would that --

That includes the Series A and B notes, Thom.

Alright, and, can you refresh my memory? How much were those?

$240 in total.

All right. So, yes, there is a one -- so that will go away then? Is that what you're referring to, the $240 goes away?

As they convert, it will go down. But the series, the life series of those notes, aren't convertible until March of 2013. It's only -- July -- I'm sorry, exactly July of 2013.

Okay. All right. And then so --

Tom, you might recall that the interest on those A and B notes are non-cash. They're just PIK interest. So, it's a 10% coupon, but we just add that to principle. So, they're non-cash from an interest standpoint.

That's right. I appreciate that. Thank you. From a terminal perspective, I think I heard a couple of things. One, you need increased density and improved mix, but it sounded like a little bit maybe you have got still some excess terminals. Do you have a sense on the 317 National terminals, that, that could be headed to below a 300 figure over the next couple of quarters?

Thom, this is Phil Gaines. Yes, I don't think, as Jeff mentioned, we don't have that specifically nailed down yet, but I would say that as we work to grow this business, our terminal facility count and door count, is I believe the least of our worries. If we're going to grow this business, we'll need to make sure we've the employees to handle it and the equipment to handle it. I think we've got a fair amount of capacity left in our terminal infrastructure. It's just we've got to make sure we get in the right places.

Okay. Thank you. Appreciate it.

Jason Seidl, Dahlman Rose.

James and team, good morning, guys. I am going to go back to the operations portion of the business here. When you're looking at National, you mentioned that there's to many large accounts and there's an opportunity there for you guys. As you think about shifting the business mix back to some of the smaller to midsize customers, how's that going to be accomplished? Do you think you're going to have to give on price, or do you think that just through improved service levels and through getting in front of the customers and telling them hey, guys we're back and we plan on being here to stay that'll be enough?

Jay, this is Jeff. I would say you kind of answered your own question. I think services is really the key to that mix change. While I think all customers appreciate good service, I think the smaller customer mix, non-corporate, I think appreciates it more and expects it more. So, I think as we provide better and better consistent service, we'll be able to make that mix change as needed.

Okay. Great. James, you've made a bunch of changes obviously since you've come on board here. How many more changes should we expect or is this sort of the team going forward that's going to be leading YRCW?

Well certainly we stripped down that Holding Company to just kind of bare bones and I think we're pretty good there with the structure. Jeff has made an even larger number of changes at YRC. And we were working on that for the last 60 days, really trying to think about what we wanted to do there. I think, for the most part, we're in pretty good shape, but that doesn't mean that we won't change the structure depending on what kind of situation that we're in. But, we fully know that we need to grow into this capital structure and we're going to try to be sure that we're putting the right kind of resources and the right kind of emphasis in that area.

And another thing, if we're - we're going to try to work very hard on is, especially at YRC, the employees are kind of just out in the field, kind of been left out of the loop in a lot of ways. We're going to re-double our efforts to go back and really try to win the hearts and the minds of our people back in the field, to, let's strap up our boots one more time and compete.

As an outsider coming back in, it was kind of interesting to hear comments about employee attitudes and the lack of direction perhaps in those darkest hours and that's understandable. Not to whipping on past management, it's just I think the Company got so darn focused on the restructuring, which they had to in order to survive. I get that, but we kind of lost our focus on freight 101.

And it seemed like when Yellow Roadway went together, they kind of forgot how to operate in some ways. So, Jeff is bringing a strict process discipline to things that I certainly encourage and support. And so there's just not one way that we're going to go at whether its structure or philosophy. We're going to do whatever it takes to succeed and I think we've got the team so far positioned to do that.

James, you touched on something that's interesting to me. You mentioned the employees and obviously there's been a ton of turmoil, not just over the last year but over the last couple of years, and you guys have lost some talented people on the operating level. Could you talk a little bit about the employee morale right now and do you think that is done, that people are done leaving for sort of greener pastures as they think they are?

This is James. I think employee morale is a lot better than it was 100 days ago. When I talked very clear and extensively about the fact that we're going to be good at what we do best and that's in the LTL business, compete effectively. And I think the Company has been a little distracted about some of the different investments and philosophies that were going on. And we tended to forget that the freight business is a tough business. And we've got to continually be communicating with our people.

And I think that message has been received very, very fresh. And I'm encouraged and buoyed by the responses that I get. Now, are we where we want to be? No. We have a lot of work to do, a lot of communicating to do. I am going to be traveling and visiting with terminals a lot. Jeff is, too.

But, I'm encouraged by what I've seen just in the last 100 days about the fact that we still have a lot of good people here. Yes, we lost some lot good people, but there's still a lot of good people that want this company to succeed and that are here for the long run. I don't know Jeff if you want to make some comments there.

Well, you guys, I think the comment I'll make is we absolutely have lost good people, but I'll tell you what, I'm extremely confident in the folks that are here, because I know they're battle-tested. I know they're resilient and I'll tell you what, I think they're ready to move forward.

The biggest issue from my perspective, coming in, in 35 days, is just the complete lack of direction and decision-making at YRC. And, I can tell you, we can fix that. So, I think if we give the employees hope and give them a good solid direction, I'm not worried about where we need to go from a morale perspective. We'll give them that direction and that's what they're looking for.

All right guys. Thanks for your time as always and best of luck.

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

Thank you, Operator, and thank you everyone for joining us today. We certainly appreciate it. And Operator, I'll turn back over to you for the closing.

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