YRC to Pursue Regional Restructure and Integration

A $782 million impairment charge related to goodwill and certain other intangible assets arising from acquisitions, reorganization costs of $9 million (related to executive severance), and technology charges of $8 million related to the alignment of projects with the company's technology strategy accounted for a substantial non-recurring charge against 2007 results. But, according to Zollars, month after month erosion and poor performance of regional LTL carriers USF Holland and USF Reddaway were contributors to a decline in operating revenue and a net operating loss of $565 million for 2007.

Under the technology charges, Zollars explained, much of the cost was attributable to putting Yellow and Roadway on a common technology platform.

However, YRC National Transportation (the national LTL operation) reported revenue per hundredweight was up 5.7% in the fourth quarter when compared with the same period a year earlier. Tonnage per day was off by 8% in the fourth quarter, however. YRC Regional Transportation saw revenue per hundredweight improve by 3.4% and tonnage per day was down 2.9%.

The outsourced logistics unit reported consistent revenue and Zollars reported progress with the company's China acquisition. That acquisition is expected to close in the second quarter. Analysts asked the status of that acquisition in light of the recently announced financial results and Zollars responded that it represented only a $40 million investment. The Jiayu acquisition gives YRC an asset-based solution in China which YRC will initially report with its logistics group and may eventually break out in a report on Asia business.

Addressing the troubled operations at its regional carrier group, Zollars said a restructuring plan was in place but not ready to be released. He did speak of "rightsizing"in the regional group. Pressed by analysts, he stopped short of admitting it could include closing either or both of the Holland and Reddaway units. Holland and Reddaway have unique footprints, Zollars noted, and they expanded beyond the reach of their freight density which led to an aggressive pricing death spiral. He alluded to improvements that would more closely model the regional operations on the New Penn group.

With the write off of good will and brand equity in the acquisitions (Roadway and USF), all Zollars would say when asked about plans to combine the Yellow Freight and Roadway operations was that YRC did not plan to mix networks, but it remained a longer term possibility.

Supporting that eventuality, YRC won some flexibility in its contract with the International Brotherhood of Teamsters (IBT). The carrier identified a "utility employee" who would receive a $1 per hour premium and could work across brands.

Yellow and Roadway began consolidating corporate accounts and offering tailored solutions across YRC brands, said Zollars. The enterprise solutions offer key customers a single point of contact for all brands and capabilities, he continued. It has been very successful, according to YRC.

Asked about YRC's outlook in view of a weaker economy, Zollars pointed out the difficulty of separating the seasonal pick up in March or April from signs of recovery. He explained that the fourth quarter is traditionally the strongest cash flow for the industry as the carriers collect on seasonally high volumes moved during the third quarter. This is followed by a weak first quarter as revenues reflect significantly lower volumes in the fourth quarter. A seasonally slow first quarter stretches a little further, and then volumes start to recover. Zollars felt the industry and the economy were in the trough and looking at a recovery. He cited experience in previous downturns where weight-per-shipment drops, followed by a tapering off of the number of shipments. A reversal in that process tends to signal recovery, and Zollars seemed to feel that was starting to occur.

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