YRC Sells and Leases Back Operations

Estes Express announced real estate contracts with YRC Worldwide subsidiaries YRC Inc., USF Reddaway, Inc., and USF Holland Inc., to buy and simultaneously lease back facilities located throughout the US. The total investment could be as much as $122 million.

Bank waivers it obtained in January permit YRC to use the proceeds (estimated at up to $150 million) for operating purposes. Under the agreement, Estes will acquire an unspecified number of operations for $122 million and lease them back to YRC for an approximate annual rate of $11 million in aggregate.

The initial lease term for each facility is ten years, with two, 10-year renewal options to extend the term of each lease by up to an additional 20 years. YRC Worldwide will have a right of first offer if Estes decides to sell a facility during the first 36 months.

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Estes Express announced real estate contracts with YRC Worldwide subsidiaries YRC Inc., USF Reddaway, Inc., and USF Holland Inc., to buy and simultaneously lease back facilities located throughout the US. The total investment could be as much as $122 million.

Bank waivers it obtained in January permit YRC to use the proceeds (estimated at up to $150 million) for operating purposes. Under the agreement, Estes will acquire an unspecified number of operations for $122 million and lease them back to YRC for an approximate annual rate of $11 million in aggregate.

The initial lease term for each facility is ten years, with two, 10-year renewal options to extend the term of each lease by up to an additional 20 years. YRC Worldwide will have a right of first offer if Estes decides to sell a facility during the first 36 months.

Two of the facilities were slated to close in 2009.

Estes and YRC have a long-standing history of cooperation in the less-than-truckload (LTL) arena, say the companies. The YRC logistics business unit uses Estes as a transportation service provider for its clients in the ordinary course of business. “We have also worked with YRC over the years on many real estate transactions that have included the buying, selling and leasing of properties, which is common practice in the LTL industry,” said Angela Maidment, Estes’ director of Real Estate and Economic Development. “This is a continuation of that mutually beneficial relationship, and now is a great time for us to make this kind of long-term investment.”

The property sales are intended to close from March through June 2009 (up to $25.6 million by the end of March; up to $31.3 million by the end of May and up to $65.1 million by the end of June).

In other statements, YRC noted it expects to generate $100 million in excess property proceeds. YRCW, a $9 billion global transportation services/transportation management company, is in the midst of integrating the operations of its Yellow Transportation and Roadway national less-than-truckload organizations. Yellow acquired Roadway for $1.1 billion (including assumed debt) in 2003. USF in 2005 for $1.47 billion (including assumed debt).

Since the earlier acquisition of Roadway, YRC has been promoting the benefits it would see from integrating the two. It began with much of the back-office integration and technology issues and, according to recent comments, now that it has completed those important steps, it began focusing on bringing together the operations of the two national carriers. In a recent analyst briefing, YRC said it expects a $200 million “run rate” by early fourth quarter 2009 on actions undertaken in its integration of the Yellow and Roadway systems. It also says it should realize $220 million to $250 million in wage reductions from an agreement with the International Brotherhood of Teamsters and a further $75 million to $85 million in non-union wage reductions. It, therefore, feels it should see operating results improve by $500 million in 2010. This, YRC points out, is entirely based on internal improvements, not on impact from and improving economy.

YRC says the planning stage and first wave of integration are complete. The second wave includes a focus on pick-up and delivery and line haul functions. It also feels that the benefit of an earlier learning curve on the integration process will be beneficial. The $200 million it expects to achieve includes significant additional headcount reduction.

Thus far, the integration of national operations has taken the YRC network from 704 operations in December 2003 to 551 at the end of 2008. It expects to reach 450 operations by the end of March 2009 and 430 by the end of the year. When completed, the resulting network will have more operations than either Yellow or Roadway had prior to the integration, but overall, the number will be reduced by 250. The optimization is expected to continue, reaching an expected 400 operations.

Offering one example of a completed integration in Tucson, AZ, YRC pointed to management headcount down over 28%, pick-up and delivery drivers down nearly 28%, tractor count was down 15% yet shipments per month were up 0.8%. Productivity, measured in bills per hour, also rose 28.8%. Other service levels also reportedly improved.

When it reported financial results for 2008 earlier this year, YRCW said YRC National Transportation tonnage per day was down 14.6% and total revenue per hundredweight (including fuel surcharge) was down 3.6%. YRC Regional Transportation saw total tonnage per day drop 14% when adjusted for total network changes (-23.6% without adjustments). Revenue per hundredweight (including fuel surcharges) was down 3.5%.

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