YRC Worldwide Reports Positive Operating Income for Second Quarter

Continued Year-over-Year Operating Improvement and Margin Expansion Best Second Quarter Liquidity since 2008
 
Consolidated operating revenue for the second quarter of 2012 was $1.251 billion, just 0.5% under 2011, and consolidated operating income was $15.5 million, which included a $6.5 million gain on asset disposals. This is the first time since third quarter of 2008 that the company has reported income from operations, excluding second quarter of 2010, which included an $83 million non-cash reduction to its equity-based compensation expense. As a comparison, the company reported consolidated operating revenue of $1.257 billion for the second quarter of 2011 and a consolidated operating loss of $5.6 million, which included a $7.3 million gain on asset disposals. 
 
The company reported, on a non-GAAP basis, adjusted EBITDA for the second quarter of 2012 of $70.1 million, a $5.6 million improvement over the $64.5 million adjusted EBITDA during the comparable period in 2011 (as detailed in the reconciliation below).  Additionally, given the resumption of multi-employer pension plan contributions in June 2011, the company recorded an incremental $14 million of multi-employer pension plan expense in the second quarter of 2012 that was not incurred during the second quarter of 2011.
 
"Our focused approach to pricing discipline, customer mix management and cost initiatives has driven year-over-year improvement in our business, which is reflected in our operating income," stated James Welch, chief executive officer of YRC Worldwide. "We are producing results slightly ahead of our forecast, despite the recently softening economy, and remain focused on executing our operations and sales strategies at all operating companies.  We continue to be committed to delivering consistent, high-quality and cost-effective service for our customers and value for our stakeholders," he added.  "I also want to especially recognize the resiliency and dedication of the 33,000 employees who are working diligently to help move YRCW forward in a positive and progressive way.  We are fortunate to have employees who have the passion and the drive to return the company to its leadership position, and they prove it every day by working to satisfy our customers while at the same time embracing our culture of working safely," said Welch.
 
Key Segment Information
 
Regional Transportation second quarter 2012 compared to the second quarter of 2011:
Operating revenues up 7.0% to $429.8 million
Tonnage per day up 4.4% and shipments per day up 2.5%
Revenue per hundredweight up 2.4% and revenue per shipment up 4.3%
YRC Freight second quarter 2012 compared to the second quarter of 2011:
Operating revenues down 0.7% to $821.1 million
Tonnage per day down 3.3% and shipments per day down 2.1%
Revenue per hundredweight up 2.9% and revenue per shipment up 1.7%
"I am very pleased with the performance of our Regional carriers.  They continue to deliver best-in-class service, clearly demonstrated by a 94.7% operating ratio.  Holland, New Penn and Reddaway are increasing market share and leveraging their operational improvements to enhance profitability," said Welch. 
 
"YRC Freight is actively managing its customer mix with improved pricing discipline, which is resulting in both sequential and year-over-year yield improvement despite the slight decrease in operating revenues," said Welch.  YRC Freight is focused on increasing efficiencies in its network and improving customer service by implementing significant enhancements to increase the speed in more than 24,000 lanes across the North American LTL network.  "These network improvements are designed to ensure customers‘ shipments are delivered more quickly, efficiently and damage free," said Jeff Rogers, president of YRC Freight. "The optimization of our network is just one part of the ongoing commitment to regain YRC Freight’s leadership position in the North American LTL industry," stated Rogers.
 
"In our first quarter 2012 earnings release, we referenced extensive efforts to bring down workers‘ compensation claims that had grown rapidly during the integration of the Yellow Transportation and Roadway networks.  I am pleased to report that our team’s work to reduce the number of open and new claims has resulted in favorable trends that are superior to our historical averages.  We are experiencing significant declines in the number of workers‘ compensation claims.  Moreover, this unwavering commitment to safety and reducing our claims demonstrates the YRC Freight team can and will execute on their priority objectives," added Welch.
 
"We’re also investing in our technology infrastructure with new driver productivity devices across the company.  We will be deploying 10,000 new handheld devices that offer significant productivity improvements, which will assist our city pickup and delivery drivers in better serving our customers.  Drivers will be able to more expediently enter shipment information and communicate it to our dispatch centers.  The devices also offer many other features we will continue to roll out including GPS for route optimization. This technology matches our best-in-class network and gives us another platform to build on for the future," said Welch.
 
Liquidity
At June 30, 2012, the company’s cash, cash equivalents and availability under its $400 million multi-year asset-based loan facility ("ABL") were $248.7 million. The ABL borrowing base was $360.2 million as of June 30, 2012 as compared to $343.3 million as of March 31, 2012. As a comparison, the company’s cash, cash equivalents and availability under its ABL were $240.7 million at March 31, 2012.  For the six months ended June 30, 2012, cash used in operating activities was $16.6 million as compared to $61.3 million for the six months ended June 30, 2011, an improvement of $44.7 million.  This improvement in cash used in operations in 2012 was inclusive of a year-over-year increase of $39.4 million of cash paid for interest, $19.1 million of cash paid for letter of credit fees and $42.5 million of cash paid to multi-employer pension plans.
 
"The approximate $250 million of total liquidity that we reported this quarter is our best second quarter liquidity in four years and speaks to our continued operational improvement and effective working capital management," stated Jamie Pierson, chief financial officer of YRC Worldwide.
 
Other
On August 1, 2012, the U.S. District Court for the Western District of Arkansas dismissed a lawsuit brought by ABF Freight System, Inc. against several parties, including YRC Inc., New Penn Motor Express, Inc., USF Holland, Inc. and the International Brotherhood of Teamsters.  "This ruling is another step in clearing the financial overhang for the company and reaffirms our partnership with our unionized employees," said Pierson.
 
On July 6, 2012, the "Moving Ahead for Progress in the 21st Century Act" was signed into law.  This act includes funding stabilization provisions that should positively affect minimum funding requirements for our single-employer pension plans in the short term. The act also increases both the flat rate and variable rate premiums that the PBGC charges for our single-employer pension plans.  Our minimum funding contribution requirements will be deferred such that total contributions in 2013-2015 will be approximately $78 million lower, however, they will be higher in the later years. Additionally, our PBGC premiums, which are paid by the plans, are estimated to increase cumulatively by approximately $13 million over the next 10 years under the new law.
 
Non-GAAP Financial Measures
Adjusted operating income (loss) is a non-GAAP measure that reflects the company’s operating income (loss) before 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.  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 facilities. Adjusted EBITDA and adjusted operating income (loss) are used for internal management purposes as financial measures that reflect the company’s core operating performance. In addition, management uses adjusted EBITDA to measure compliance with financial covenants in the company’s credit facilities. Free cash flow and adjusted free cash flow are non-GAAP measures that reflect the company’s operating cash flow minus gross capital expenditures and operating cash flow minus gross capital expenditures, excluding the restructuring costs included in operating cash flow, respectively. However, these financial measures should not be construed as better measurements than operating income, operating cash flow, net income or earnings per share, as defined by generally accepted accounting principles ("GAAP").
 
Adjusted operating income (loss), adjusted EBITDA and adjusted free cash flow have the following limitations:
 
Adjusted operating income (loss) and adjusted EBITDA do not reflect the interest expense or the cash requirements necessary to fund restructuring professional fees, letter of credit fees, 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 adjusted operating income (loss) and adjusted EBITDA exclude either certain union employee equity-based compensation expense or all of it as an expense, respectively, when presenting our ongoing operating performance for a particular period;
Adjusted free cash flow excludes the cash usage by the company’s restructuring activities, debt issuance costs, equity issuance costs and principal payments on our outstanding debt and the resulting reduction in the company’s liquidity position from those cash outflows;
Other companies in our industry may calculate adjusted operating income (loss), adjusted EBITDA and adjusted free cash flow differently than we do, limiting their usefulness as a comparative measure.
Because of these limitations, adjusted operating income (loss), adjusted EBITDA, free cash flow and adjusted free cash flow should not be considered a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using adjusted operating income (loss), adjusted EBITDA, free cash flow and adjusted free cash flow as secondary measures.  The company has provided reconciliations of its non-GAAP measures (adjusted operating income (loss), adjusted EBITDA, free cash flow and adjusted free cash flow) to GAAP measures within the supplemental financial information in this release.
 
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Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as "will," "expect," "intend," "anticipate," "believe," "project," "forecast," "propose," "plan," "designed," "enable" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently uncertain and are subject to significant business, economic, competitive, regulatory and other risks, uncertainties and contingencies, known and unknown, many of which are beyond our control. Our future financial condition and results could differ materially from those predicted in such forward-looking statements because of a number of factors, including (without limitation) our ability to generate sufficient cash flows and liquidity to fund operations and satisfy our cash needs and future cash commitments, including (without limitation) our obligations related to our substantial indebtedness and lease and pension funding requirements; the pace of recovery in the overall economy, including (without limitation) customer demand in the retail and manufacturing sectors; the success of our management team in implementing its strategic plan and operational and productivity improvements, including (without limitation) our continued ability to meet high on-time and quality delivery performance standards, and the impact of those improvements to meet our future liquidity and profitability; our ability to finance the maintenance, acquisition and replacement of revenue equipment and other necessary capital expenditures; potential increase in our operating lease obligations resulting from our decision to defer the purchase of new revenue equipment; changes in equity and debt markets; inclement weather; price and availability of fuel; sudden changes in the cost of fuel or the index upon which we base our fuel surcharge and the effectiveness of our fuel surcharge program in protecting us against fuel price volatility; competition and competitive pressure on service and pricing; expense volatility, including (without limitation) volatility due to changes in rail service or pricing for rail service; our ability to comply and the cost of compliance with federal, state, local and foreign laws and regulations, including (without limitation) laws and regulations for the protection of employee safety and health and the environment; terrorist attack; labor relations, including (without limitation) the continued support of our union employees with respect to our strategic plan, the impact of work rules, work stoppages, strikes or other disruptions, our obligations to multi-employer health, welfare and pension plans, wage requirements and employee satisfaction; the impact of claims and litigation to which we are or may become exposed; and other risks and contingencies, including (without limitation) the risk factors that are included in our reports filed with the SEC, including those described under "Risk Factors" in our annual report on Form 10-K and quarterly reports on Form 10-Q.

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