YRC Worldwide Reports Second Quarter Results

OVERLAND PARK, Kan., Aug. 3 /PRNewswire-FirstCall/ -- YRC Worldwide Inc. (Nasdaq: YRCW) today reported its second quarter 2010 results. For the second quarter ending June 30, 2010, the company announced a net loss of $9.5 million and a $.01 loss per share on an average outstanding fully diluted share count of 1.079 billion.  As a comparison, the company reported a net loss of $309 million and a $5.20 loss per share in the second quarter of 2009 with average fully diluted shares outstanding of 59 million.

“We are pleased with the sequential improvement in our business volumes and earnings as our pricing discipline, customer mix management and cost initiatives gain significant traction,” stated Bill Zollars, Chairman, President and CEO of YRC Worldwide.  “For the quarter, the Regional companies reported positive operating income, and YRC National achieved positive adjusted EBITDA.”

As previously reported, the company’s second quarter 2010 results include an $83 million non-cash reduction to its equity-based compensation expense related to its March 2010 union equity-based awards.  On a year-to-date basis, this benefit partially offsets the $108 million non-cash charge reported in the first quarter of 2010 related to the same equity awards.  In addition, YRC Logistics is being reported within discontinued operations for all periods presented based upon the previously announced definitive agreement to sell a portion of YRC Logistics business to Austin Ventures for $37 million and discontinuation of its pooled distribution service offering.  In November 2009 the company sold YRC Logistics’ Dedicated Fleet business for $34 million.  

For the second quarter of 2010, the company reported cash usage from operating activities of $33 million which included working capital requirements and other expenditures in excess of its positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).  To fund revenue growth the company increased the aggregate borrowings under its asset-backed securitization (ABS) facility by approximately $30 million, inclusive of the $22 million of availability that resulted from the June 2010 amendment of that facility, and generated $15 million of net proceeds from its at-the-market equity issuance program.

At June 30, 2010, the company reported cash and cash equivalents of $144 million, unrestricted availability of $8 million and unused restricted revolver reserves of $129 million, subject to the terms of the company’s credit agreement, for a total of $281 million.  As a comparison, at March 31, 2010 the company reported a total of $241 million.

“The sequential growth in our business volumes put increased pressure on our liquidity even though our adjusted EBITDA from continuing operations improved from $3 million in April to $22 million in June,” said Sheila Taylor, Executive Vice President and CFO of YRC Worldwide.  “We proactively addressed these working capital needs by partnering with our lenders to open up additional borrowing availability, while we handled more shipments with fewer people and improved our consolidated days sales outstanding (DSO) by four days compared to last year, our best DSO in more than four years.”

Key Segment Information

Second quarter 2010 compared to the second quarter of 2009:

• YRC National Transportation tons per day and shipments per day down 18.6%, and revenue per hundredweight and revenue per shipment, both up 3.9%.
• YRC Regional Transportation tons per day up 4.6%, shipments per day down 3.1%, revenue per hundredweight down 2.8% and revenue per shipment up 4.9%.

Second quarter 2010 compared to the first quarter of 2010:

• YRC National Transportation tons per day up 11.0%, shipments per day up 8.0%, and revenue per shipment up 0.9%.
• YRC Regional Transportation tons per day up 15.5%, shipments per day up 13.8%, and revenue per shipment up 0.5%.

Additional statistical information is available on the company’s website at yrcw.com under Investors, Earnings Releases & Operating Statistics.

Outlook

“With the significant operating momentum we achieved throughout the second quarter and experienced in July, the company is positioned for further growth, and we expect to achieve positive adjusted EBITDA in the third quarter of 2010 in excess of the second quarter,” stated Zollars.

In addition, the company has the following expectations for 2010:

• Gross capital expenditures in the range of $30 million to $50 million
• Excess real estate sales of approximately $50 million
• Sale and financing leasebacks in the range of $40 million to $50 million
• Interest expense in the range of $40 to $45 million per quarter, with cash interest of $10 million to $12 million per quarter
• Effective income tax rate of approximately 2%

Credit Agreement Amendment

On July 28, 2010 the company amended its credit agreement, as follows:

• The following provisions are effective upon approval of the conforming amendment by the applicable pension funds who are parties to the pension contribution deferral agreement:
  • the company would retain 100% of the estimated $30 million of net proceeds from initial closing of the sale of YRC Logistics and the company’s revolver would be reduced by 50% of those proceeds;
  • the company would receive 75%, rather than 25%, of the next $20 million of net cash proceeds from sale and leaseback transactions and the company’s revolver would be reduced by 50% of those proceeds, subject to the company’s satisfaction of certain cost reduction criteria established by the credit agreement lenders;
  • the company would receive 25% of subsequent proceeds from the sale of real estate and sale and leaseback transactions and the company’s revolver and term loan under the credit agreement would be ratably reduced by 75% of such proceeds; and
  • the amendment converts $150 million of outstanding revolver borrowings to term loans. As of June 30, 2010 the company had $358 million of outstanding revolver borrowings.
• Adjusted EBITDA now includes a new add-back for charges, expense and losses from permitted dispositions and discontinued operations.  For the second quarter of 2010 the company’s adjusted EBITDA under this amendment was $40 million as compared to the covenant requirement of $5 million.
• The amendment reduces the letter of credit sublimit to $550 million. As of June 30, 2010 the company had $455 million in outstanding letters of credit under its credit agreement.

Update on Second Closing of 6% Senior Convertible Notes and Outstanding 5% Notes

The company also announced that it expects the second closing with respect to the issuance and sale of the additional $20.2 million of its 6% senior convertible notes will be completed later today. The net proceeds from this sale will be used by the company to fund the repurchase of any of the company's approximately $20 million of outstanding 5% notes pursuant to a put option on August 9, 2010.  

On August 2, 2010, the company and each of the buyers entered into a letter agreement pursuant to which the company agreed to temporarily increase the conversion rate on the 6% notes to one hundred thousand shares of common stock per $1,000 in principal amount of notes (thereby reducing the conversion price to $0.01 per share), which will result in the company issuing up to a maximum of 59 million total shares of common stock. The letter agreement provides that the conversion of the $590,000 of notes subject to the adjusted conversion rate will occur as of the second closing date. The aggregate number of shares that are issuable by the company on account of the entire $70 million of 6% notes remains unchanged at 201,880,000 as the limit for subsequent conversions of 6% notes into equity will be adjusted downward accordingly.

Review of Financial Results

YRC Worldwide Inc. will host a conference call for shareholders and the investment community today, Tuesday, August 3, 2010, beginning at 9:30am ET, 8:30am CT.  The conference call will be open to listeners via the YRC Worldwide Internet site yrcw.com.  An audio playback will be available after the call also via the YRC Worldwide web site.

Certain Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP measure that reflects the company’s earnings before interest, taxes, depreciation, and amortization expense, and further adjusted for letter of credit fees, equity-based compensation expense, net gains or losses on property disposals and certain other items, including restructuring professional fees and results of permitted dispositions and discontinued operations as defined in the company’s credit agreement. Adjusted EBITDA is used for internal management purposes as a financial measure that reflects the company’s core operating performance. In addition, management uses adjusted EBITDA to measure compliance with financial covenants in the company’s credit agreement. However, this financial measure should not be construed as a better measurement than operating income, operating cash flow or earnings per share, as defined by generally accepted accounting principles.  

Adjusted EBITDA has the following limitations:

• Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our outstanding debt;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
• Equity based compensation is an element of our long-term incentive compensation program, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period; and
• Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered a substitute for performance measures calculated in accordance with GAAP.

Forward-Looking Statements:

This news release and statements made on the conference call for shareholders and the investment community contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  The words “expect,” “continue,” and similar expressions are intended to identify forward-looking statements. It is important to note that the company’s actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including (among others) our ability to generate sufficient cash flows and liquidity to fund operations, which raises substantial doubt about our ability to continue as a going concern, inflation, inclement weather, price and availability of fuel, sudden changes in the cost of fuel or the index upon which the company bases its fuel surcharge, competitor pricing activity, expense volatility, including (without limitation) expense volatility due to changes in rail service or pricing for rail service, ability to capture cost reductions, changes in equity and debt markets, a downturn in general or regional economic activity, effects of a terrorist attack, labor relations, including (without limitation) the impact of work rules, work stoppages, strikes or other disruptions, any obligations to multi-employer health, welfare and pension plans, wage requirements and employee satisfaction, and the risk factors that are from time to time included in the company’s reports filed with the SEC.

The company’s expectations regarding the timing and degree of market share growth are only its expectations regarding these matters.  Actual timing and degree of market share growth could differ based on a number of factors including (among others) the company’s ability to persuade existing customers to increase shipments with the company and to attract new customers, and the factors that affect revenue results (including the risk factors that are from time to time included in the company’s reports filed with the SEC).

The company’s expectations regarding the impact of, and the service and operational improvements and collateral and cost reductions due to, the integration of Yellow Transportation and Roadway, improved safety performance, right-sizing the network, consolidation of support functions, the company’s credit ratings and the timing of achieving the improvements and cost reductions could differ materially from actual improvements and cost reductions based on a number of factors, including (among others) the factors identified in the prior paragraphs above, the ability to identify and implement cost reductions in the time frame needed to achieve these expectations, the success of the company’s operating plans and programs, the company’s ability to successfully reduce collateral requirements for its insurance programs, which in turn is dependent upon the company’s safety performance, ability to reduce the cost of claims through claims management, the company’s credit ratings and the requirements of state workers’ compensation agencies and insurers for collateral for self-insured portions of workers’ compensation programs, the need to spend additional capital to implement cost reduction opportunities, including (without limitation) to terminate, amend or renegotiate prior contractual commitments, the accuracy of the company’s estimates of its spending requirements, changes in the company’s strategic direction, the need to replace any unanticipated losses in capital assets, approval of the affected unionized employees of changes needed to complete the integration under the company’s union agreements, the readiness of employees to utilize new combined processes, the effectiveness of deploying existing technology necessary to facilitate the combination of processes, the ability of the company to receive expected price for its services from the combined network and customer acceptance of those services.

The company’s expectations regarding future asset dispositions and sale and financing leasebacks of real estate are only its expectations regarding these matters.  Actual dispositions and sale and financing leasebacks will be determined by the availability of capital and willing buyers and counterparties in the market and the outcome of discussions to enter into and close any such transactions on negotiated terms and conditions, including (without limitation) usual and ordinary closing conditions such as favorable title reports or opinions and favorable environmental assessments of specific properties.

The company’s expectations regarding interest and fees (including any deferred amounts) are only its expectations regarding these matters.  Actual interest and fees (including any deferred amounts) could differ based on a number of factors, including (among others) the company’s expected borrowings under the company’s credit agreement and the ABS facility, which is affected by revenue and profitability results and the factors that affect revenue and profitability results (including the risk factors that are from time to time included in the company’s reports filed with the SEC), and the company’s ability to continue to defer the payment of interest and fees pursuant to the terms of the company’s credit agreement, ABS facility and pension fund contribution deferral agreement, as applicable.

The company’s expectations regarding its capital expenditures are only its expectations regarding this matter.  Actual expenditures could differ materially based on a number of factors, including (among others) the factors identified in the preceding paragraphs.

The company’s expectations regarding liquidity are only its expectations regarding this matter. Actual liquidity levels will depend upon (among other things) the company’s operating results, the timing of its receipts and disbursements, the company’s access to credit facilities or credit markets, the company’s ability to continue to defer interest and fees under the company’s credit agreement and ABS facility and interest and principal under the company’s contribution deferral agreement, the continuation of the existing union wage reductions and temporary cessation of pension contributions, and the factors identified in the preceding paragraphs.

The company’s expectations regarding its effective tax rate are only its expectations regarding this rate. The actual rate could differ materially based on a number of factors, including (among others) variances in pre-tax earnings on both a consolidated and business unit basis, variance in pre-tax earnings by jurisdiction, impacts on our business from the factors described above, variances in estimates on non-deductible expenses, tax authority audit adjustments, change in tax rates and availability of tax credits.

The company's expectations regarding its ability to close on the remaining $20.2 million of 6% notes are only its expectations regarding this matter. The closing of the remaining $20.2 million of the 6% notes is subject to satisfaction of customary closing conditions as set forth in the company's Note Purchase Agreement dated February 11, 2010, as modified by the letter agreement.

The company's expectations regarding its ability to close on the sale of YRC Logistics and the liquidity that the sale will provide are only its expectations regarding these matters.  The closing of the sale of YRC Logistics is subject to satisfaction of certain closing conditions, including approval of multi-employer pension funds to which the company contributes.  The net proceeds from the sale of YRC Logistics are subject to final determination of fees and expenses that the company incurs in connection with the sale.

YRC Worldwide Inc., a Fortune 500 company headquartered in Overland Park, Kan., is one of the largest transportation service providers in the world and the holding company for a portfolio of successful brands including YRC, YRC Reimer, YRC Glen Moore, YRC Logistics, New Penn, Holland and Reddaway. YRC Worldwide has the largest, most comprehensive network in North America, with local, regional, national and international capabilities. Through its team of experienced service professionals, YRC Worldwide offers industry-leading expertise in heavyweight shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence. Please visit yrcw.com for more information.

SOURCE YRC Worldwide

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