Zollars On The Defensive; YRCW Cuts Jobs

In a statement intended to clarify the current status at YRC Worldwide, Bill Zollars, chairman, president and CEO, said, in part, “We’ve put a number of measures in place over the past year to strengthen our balance sheet and take full advantage of our network assets in the marketplace–actions that will enable us to position future service enhancements and position our business for long-term growth.”

In a financial update issued October 29, 2008, Zollars began, “You have likely heard or read statements recently about the overall financial health of YRC Worldwide–commentary generated by media, analysts and others. Given the noise level and likelihood for speculation and misinterpretation, I would like to set the record straight by addressing the facts head on.”

View the rest of this article or leave a comment.


Zollars then pointed out that YRC Worldwide is in compliance with bank debt covenants, it has liquidity and positive cash flow, it is paying down debt and improving leverage and it is prepared should credit tighten further.

A separate joint announcement with the International Brotherhood of Teamsters (IBT), Zollars and Tyson Johnson, National Freight Director, International Brotherhood of Teamsters, addressed the accelerated integration of Yellow and Roadway, saying “The network integration has the support of YRC Worldwide employees, from drivers and dockworkers, to sales and customer service teams, to technology and office staff. We’re in this together. We’re in it for you. And we’re in it to win.”

Shortly after these announcements were issued, it was reported that YRC Worldwide would cut up to 3,750 drivers and dockworkers from its payroll. Job cuts were expected as the company stepped up efforts to integrate the Roadway and Yellow units.

Explaining the current financial condition of the compnay, Zollars said, as of September 30, 2008, “our leverage ratio was 3.18 times our Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) from the last twelve months, well within the 3.75 covenant level cap. This ratio was comprised of $1.19 billion of debt and trailing 12-month EBITDA of $373 million.”

He added that at December 31, 2008, and going forward, YRCW's leverage ratio cap will be lowered to 3.5 times EBITDA. He expected the actual ratio to be within that limit. “We are complying with our debt covenants, and we continue to pursue additional measures to further reduce our debt.”

On liquidity and cash flow, Zollars said YRC Worldwide had generated $52.2 million of cash from operating activities during the third quarter and, “taking into account the $40.4 million of cash inflow from net capital expenditures, third quarter free cash flow was significant at $92.6 million. We expect to have positive cash flow in the fourth quarter as well.”

Zollars responded to what he called confusion and speculation stemming from actions YRCW has taken to pay down debt and strengthen its balance sheet.

“On October 2,” said Zollars, “we drew $325 million on our revolving credit facility to pay off two outstanding notes with upcoming maturities. In doing so, we reduced our interest expense.” Calling it a “prudent move,” Zollars continued, “This measure also satisfies all of our significant maturities through March 2010.”

Then, on October 9, Zollars points out, YRCW issued 1.7 million shares of common stock in exchange for $13.2 million of its outstanding notes. “This action improves our financial leverage by reducing our total debt by $13.2 million and increasing our pre-tax earnings through a one-time gain of $5.3 million.”

And, finally, on October 23, “We drew $250 million on our revolving credit facility and intend to primarily use these funds to opportunistically retire other debt or for general working capital needs,” said Zollars.

“Reducing debt and improving liquidity is not a new concept for us or many other large US companies. Several large firms have taken similar actions by drawing on their revolving credit facilities as well.” Zollars claimed debt on YRCW's books at the end of 2007 was less than in 2006 and that trend continued in 2008. “Even with our August acquisition of Shanghai Jiayu Logistics, we reduced our balance sheet debt from June 2008 by $11 million, and we expect to significantly reduce debt in the fourth quarter.”

The combination of a weakening economy and the unrest in the credit markets has negatively impacted all financial markets on a historic level, said Zollars. “Unfortunately, YRC Worldwide credit ratings and stock performance have been no exception. As I stated previously, the noise created by a lack of understanding of our recent actions to pay down debt have amplified this impact.”

Looking ahead, Zollars said, “Due to the recent decline in our stock price, we’re required to accelerate our annual impairment review of our intangible assets, reassessing the value of our brand names and goodwill charges associated with our acquisitions. At this time, we do not have the test completed but we expect it to be final before filing our 10-Q in early November.”

He emphasized that, “If we do record an impairment charge, remember that it is a non-cash charge that does not impact our financial condition and will be excluded from our bank leverage ratio calculation.”

“We believe our biggest opportunity to enhance service and improve efficiencies is the accelerated integration of Yellow and Roadway, and we’re in the process of combining the operational networks and the local sales teams of these two brands,” Zollars noted.

Zollars closed his statement saying, “I want to assure you that we are confident about the things we can control and our ability to weather the things we cannot. Most importantly, we remain focused on providing exceptional service to our customers.”

TAGS: Archive
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.