FILED BY YELLOW CORPORATION
PURSUANT TO RULE 425 UNDER THE SECURITIES ACT OF 1933
AND DEEMED FILED PURSUANT TO RULE 14a-12 AND RULE 14d-2(b)
OF THE SECURITIES EXCHANGE ACT OF 1934
SUBJECT COMPANY: YELLOW CORPORATION
COMMISSION FILE NO.: 0-12255
SUBJECT COMPANY: ROADWAY CORPORATION
COMMISSION FILE NO.: 000-32821
FORWARD-LOOKING STATEMENTS
Certain statements made herein (and oral statements made regarding the subjects
of this filing, including in the transcripts contained herein) 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," "will," "look forward to" and similar
expressions are intended to identify forward-looking statements.
The expectations set forth in this filing regarding accretion, returns on
invested capital, achievement of annual savings and synergies, achievement of
strong cash flow, sufficiency of cash flow to fund capital expenditures and
achievement of debt reduction targets are only the parties' expectations
regarding these matters. Actual results could differ materially from these
expectations depending on factors such as the combined company's cost of
capital, the ability of the combined company to identify and implement cost
savings, synergies and efficiencies in the time frame needed to achieve these
expectations, prior contractual commitments of the combined companies and their
ability to terminate these commitments or amend, renegotiate or settle the same,
the combined company's actual capital needs, the absence of any material
incident of property damage or other hazard that could affect the need to effect
capital expenditures, any unforeseen merger or acquisition opportunities that
could affect capital needs, the costs incurred in implementing synergies and the
factors that generally affect both Yellow's and Roadway's respective businesses
as further outlined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in each of the companies' respective Annual
Reports on Form 10-K for the year ended December 31, 2002. Yellow's plans
regarding the maintenance of the separate Yellow and Roadway brands and
networks, the continuation of the Roadway headquarters as a major operational
center, the focus on administrative and back office synergies and workforce
rationalizations are only its current plans and intentions regarding these
matters. Actual actions that the combined company may take may differ from time
to time as the combined company may deem necessary or advisable in the best
interest of the combined company and its shareholders to attempt to achieve the
successful integration of the companies, the synergies needed to make the
transaction a financial success and to react to the economy and the combined
company's market for its transportation services.
ADDITIONAL INFORMATION
Yellow and Roadway will file a proxy statement/prospectus and other relevant
documents concerning the proposed merger transaction with the SEC. Investors are
urged to read the proxy statement/prospectus when it becomes available and any
other relevant documents filed with the SEC because they will contain important
information. You will be able to obtain the documents free of charge at the
website maintained by the SEC at www.sec.gov. In addition, you may obtain
documents filed with the SEC by Yellow free of charge by requesting them in
writing from Yellow or by telephone at (913) 696-6100. You may obtain documents
filed with the SEC by Roadway free of charge by requesting them in writing from
Roadway or by telephone at (330) 384-1717. Yellow and Roadway, and their
respective directors and executive officers, may be deemed to be participants in
the solicitation of proxies from the stockholders of Yellow and Roadway in
connection with the merger. Information about the directors and executive
officers of Yellow and their ownership of Yellow stock is set forth in the proxy
statement for Yellow's 2003 Annual Meetings of Stockholders. Information about
the directors and executive officers of Roadway and their ownership of Roadway
stock is set forth in the proxy statement for Roadway's 2003 Annual Meeting of
Stockholders. Investors may obtain additional information regarding the
interests of such participants by reading the proxy statement/prospectus when it
becomes available.
The following document is filed herewith pursuant to Rule 425 under the
Securities Act of 1933:
o Transcript of Yellow Corporation Second Quarter Earnings Conference Call on
July 18, 2003.
***
YELLOW CORPORATION
ID #1342595 PAGE 1
Operator: Good morning my name is Casey, and I will be your
conference facilitator today. At this time I
would like to welcome everyone to the Yellow
Corporation 2nd Quarter Earnings Conference Call.
All lines have been placed on mute to prevent any
background noise. After the speaker's remarks
there will be a question and answer period. If
you would like to ask a question during this time
simply press star then the number one on your
telephone keypad. If you would like to withdraw
your question press the pound key. I would now
like to turn the call over to Stephen Bruffett,
Treasurer of Yellow Corporation.
Stephen: Thank you Casey, Good morning and thanks for
joining us we appreciate your interest in Yellow.
With us today is Bill Zollars, Chairman and
President and CEO of Yellow Corporation, John
Barger our CFO, James Welch, President of Yellow
Transportation, and Jim Ritchie, President of
Meridian IQ. Statements made by management during
this call that are not purely historical or
forward-looking statements within the meaning of
the Private Litigations Securities Reform Act of
1995 including statements regarding company's
expectations, hopes, beliefs, and intentions on
strategies regarding the future. It is important
to note this company's future results could
differ materially from those projected in such
forward-looking statements due to a number of
factors including but not limited to general
economic conditions labor relations, comparative
pricing activity, expense volatility and other
risk factors. For a full discussion of the
various risk factors please refer to our annual
report 10K and 10Q and in particular refer to
forward-looking disclosure in our recent earnings
release and in our recent release regarding the
[UNINTELLIGIBLE] acquisition of Roadway
Corporation. Bill Zollars and Don Barger will
provide our comments this morning, and James
Welch and Jim Ritchie are here and available to
participate in the Q&A session, and with that I
will turn it over to Bill Zollars.
Bill: Thanks Steve and welcome. We're excited about our
recently announced acquisition of Roadway
Corporation, and we're also very pleased with the
strong results that we were able to achieve in
the second quarter. We'll concentrate our
preferred comments today on further details of
our second quarter results but we will allow time
for questions related not only to the quarterly
performance but also the Roadway acquisition.
Just a quick comment on status in terms of
feedback on the acquisition of
YELLOW CORPORATION
ID #1342595 PAGE 2
Roadway, we continue to get very positive
feedback from customers and employees and
investors, we continue to believe that there will
be very little if any disruption in the customer
base or with our employees, and we're getting
good report from the Teamster leadership. Having
said that let me move on to the second quarter
results, which are in line with the guidance of
$.50 to $.60 per share, which we provided on our
first quarter call and which we reaffirmed on
June 5th. Business volumes and yields came in
about where we expected and we continue to
affectively manage our cost. Specifically the
second quarter earnings per share was $.62 a
share but that included a pre-tax benefit of
about $3.7 million or $.08 a share from the
completion of an insurance recovery that we
started in the first quarter of 2003. Excluding
that insurance recovery the second quarter of
2003 earnings per share were $.54 per share
compared to $.09 a share of the second quarter of
2002.
We do remain comfortable in our guidance for the
remainder of the year and that assumes the
continuation of the current economic environment,
and I'll get into that more in my comments in a
minute. Here are some of the highlights from the
second quarter. Consolidated revenue was $67
million or about 10- 1/2 % increase from the
second quarter of 2002. As Yellow Transportation
we continue to balance our approach by growing
both volume and yield resulting the best earnings
growth in the industry. On the volume side the
underlying economy was steady to slightly
improving in the second quarter, and just a bit
of clarification there on the volume side, you
may recall that we had a pretty strong second
quarter last year, it was stronger than we would
seasonally have expected so this is one of those
situations where percentages don't really tell
the story. If you went back and compared for
example our growth in tonnage with 2001, which
was more of a historical normal seasonal, in the
first quarter of this year versus the first
quarter of 2001 and we were up a little over 1%
in tonnage. In the second quarter of this year
versus the second quarter of 2001 we were up
about 6.5%. Just to give you another point of
reference sequentially in 2002 last year from the
first quarter to the second quarter we were up 8%
in tonnage, which is very unusual, and this year
we were up 4% sequentially from the first quarter
to the second quarter which is still very strong
but nothing like the anomaly like we had last
year, so I just caution you when you're comparing
some of these numbers to the previous
YELLOW CORPORATION
ID #1342595 PAGE 3
year that last year second quarter for some
reason was abnormally strong given the
seasonality we would normally expect.
In addition to a very strong second quarter both
the yield and volume side over the last six to
eight weeks we've also experienced volume
increases that appear to be modestly above normal
seasonality. Volume in July is up about 10% on a
tonnage basis month to date, and although it's
very early in the quarter that is obviously much
better than we have seen. Also contributing to
our revenue growth was the continued penetration
when our premium services such as Exact Express
and Definite Delivery. Exact grew by about 54%
over the second quarter of 2002 reflecting that
continued penetration. Yield also showed
improvement over the second quarter of 2002,
despite a general rate increase in June 2002, and
again this is where percentages can be a little
miss leading because we did have a price increase
last June and have not put our annual rate
increase into affect yet. We had literally two
months of apples to apples comparison, and June
was a month where the price increase was in last
year but not this year, so again that could have
modified our yields increase year over year if
you looked at our yield increase year over year
excluding field surcharge, this quarter it was
about 3.5%, if you put it on an apples to apples
basis it was more like 5%. We remain disciplined
in our yield management obviously, and that
supported our primary objective of earnings
growth. A number of our competitors have
announced their general rate increase most of
them have been in just under 6% they have taken
affect in the last few weeks and we're currently
finalizing our plans for the general rate
increase this year and that will be taken in the
near future.
While the second quarter revenue increase $67
million over last year operating income was more
than five times the amount we earned in the
second quarter of 2002, and that demonstrates the
significant leverage that exist in our business
as a result of managing volume yield and cost all
at the same time. The biggest area of cost
improvement was in the area of productivity,
workman's comp, and accidents.
Going over to Meridian IQ we continue to produce
results there that meet our expectations. We're
achieving solid performance in each of the
services offered by Meridian IQ and record a
revenue growth of about 22% over the second
quarter of 2002 We recorded
YELLOW CORPORATION
ID #1342595 PAGE 4
a small operating profit in the quarter and
expect continue revenue growth and improve
profitability in the coming quarters. Meridian is
growing rapidly and is a vital component of our
one stop shopping strategy. Meridian IQ provides
incremental business to Yellow Transportation and
Yellow Transportation provides business for
Meridian IQ, and as I said before that synergy is
an additional benefit of our overall strategy.
Don will now provide an overview of our financial
position and our second quarter results. Don.
Don: Thank you Bill. Our consolidated second quarter
revenue as up 10.4% consisting of a 10.1%
increase at Yellow Transportation and 22%
increase at Meridian IQ. The Yellow
Transportation revenue improvement was split
evenly between increases in volume and yield, and
you know how much emphasis we place on that right
balance of these two items. Meridian IQ generated
increase revenue from a combination of higher
volumes across their service offerings and
revenue from acquisitions from the third quarter
of last year. Operating income was $32.3 million
for this quarter a $26.1 million improvement over
last year. Again most of the operating income
improvement in dollar terms was at Yellow
Transportation where they effectively levered the
additional revenue. At Yellow Transportation the
operating ratio was 95.3 excluding the insurance
recovery, an improvement of three full percentage
points from last year. Favorable trends and
productivity in operational efficiency continued
form the first quarter of this year testaments to
our continued focus on these areas. We worked
more hours between injuries and drove more miles
between accidents resulting in lower workman's
compensation and claims costs. Careful spending
in other areas kept cost below or in line with
the increased revenue; our network is operating
very efficiently with the additional upside.
Yellow Transportation generated equal incremental
margins at 34% for the second quarter, and 24%
for the six months compared to the same periods
last year. As Bill mentioned, we completed the
insurance recovery we referred to in the first
quarter conference call $3.7 million was
recognized in the second quarter, and $1.7
million was recognized in the second quarter, and
$1.3 million in the first quarter bringing the
total to $5 million. The recovery was related to
falsification of claims, internal controls have
been thoroughly reviewed and appropriate changes
have been made.
YELLOW CORPORATION
ID #1342595 PAGE 5
Meridian IQ continues to perform solidly and in
line with our expectations. They posted a small
operating profit for the second quarter, earned
out favorable to prior year by over $1 million
for the first six months of this year. We fully
expect that the year will be profitable with MIQ
and we look forward to continued strong growth
from our non-asset business. The balance sheet
also continues to very strong. Total debt
remained at $124 million and our debt to cap
ratio, excluding cash, was a solid 16.2%. We
expect this measure to be below 10% by year-end
prior to the pending Roadway acquisition. For the
first six months cash from operations totaled
about $70 million and cap-x was about $47
million, so we generated $23 million of free
cash. We purchased $3 million of our stock in the
second quarter under a $25 million stock
re-purchase program approved by our board in late
February. Due to the pending Roadway acquisition
we have put a hold on any further stock buy
backs. For the full year we expect to generate
approximately $45 to $50 million of free cash
flow prior to the Roadway acquisition, and this
is even after funding about $100 million of cap-x
and a $35 million pension contribution.
You know how much emphasis we place on returns,
our no-pat [PHONETIC] return on committed capital
for the last 12 months was 11% slightly ahead of
our plan and well ahead of our 9% cost to
capital. I will now turn the call back to Bill
for his final comments.
Bill: Thanks Don. In closing let me reiterate that
Yellow Transportation and Meridian IQ are
performing well. In addition customers continue
to respond positively to our one stop shopping
strategy, the quality of our services and the
technology that makes it all possible, the
continue to successfully balance volume and yield
and affectively manage cost to generate greater
results in line with our guidance for the
quarter. We don't see any significant change to
our outlook for the rest of the year. Our
guidance does not include any cost related to the
pending Roadway acquisition, as these are
determined we will modify our guidance. We expect
earnings of $.70 to $.80 per share for the third
quarter and $225 to $235 per share for the full
year based on the assumed continuation of current
economic conditions for the remainder of 2003, so
we haven't changed our forecast guidance for the
year.
YELLOW CORPORATION
ID #1342595 PAGE 6
Consistent with our previous guidance as well we
expect full year revenue to be around $2.9 to $3
billion. We expect Yellow Transportation to
generate incremental margins of about 30%
resulting in a full year operating ratio of 95,
and a little bit below 96 on a consolidated basis
for the entire company. These numbers represent
more than a 200 basis point of improvement over
the full year of 2002. At this point we'll stop
and take any questions you might have.
Operator: At this time I would like to remind everyone in
order to ask a question please press star then
the number one on your telephone keypad. We'll
pause for just a moment to compile the Q&A
roster. Your first question comes from Edward
Wolfe with Bears Stearn.
Edward: Hey Bill, Hi Don.
Don: Hey Ed.
Edward: Talk a little bit about tonnage, tonnage is up 5%
and you said it feels a little bit better at the
end of the quarter into July year-over-year, but
I mean if you took out the CF that's actually
down on internal base and CF business
grandfathers itself in early September, so I mean
do you expect the tonnage year-over-year to be up
in the third quarter or flat or down?
Bill: No we would expect it to be up Ed and this goes
back to what I was talking about here in terms of
the percentages being a little misleading and the
seasonality of last year was really weird so, we
get some rather unusual comparisons with 2002,
but just to give you an actual number, in June of
this year at Yellow Transportation, we had about
52 million pounds worth of business and that was
up significantly from both last year and the year
before, and so the actual tonnage that we are
generating is very encouraging. We would expect
the tonnage growth to be better in the third
quarter.
Edward: And would you expect it to be up without taking
away the con-freight estimate of what you took
from that?
Bill: It will be up slightly from that, and remember
that in the third quarter we've got the month of
September is going to include the initial surge
of consolidated freight-ways freights, so
excluding that impact it will be up slightly.
YELLOW CORPORATION
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Edward: Okay, what's the base that Exact Express is on
right now, you said it grew 50 something percent,
but what's the base of revenue?
Bill: It's $150 to $200 million run rate.
Edward: But what was it in the quarter though roughly?
Bill: We don't usually give out that specific
information but it was up 50% and the run rate
was between $150 to $200 million for the year.
Edward: All right switching gears to the merger, could
you talk a little bit to what are you hearing
from your customers, have you seen some freight
leave as a result of the announcement, have you
seen any freight come to you as a result of the
announcement?
Bill: Well it's been overwhelmingly positive reaction,
and I am going to let James and Jim add to this
in a second, but you know we've, I think gotten
the reaction from many customers that this is
good news from their perspective because it
assures that we are going to be around financial
strong and able to grow with them from a capacity
standpoint and provide the kind of technology
they need, so the overwhelming response has been
positive, but I will let James and Jim talk a
little bit more about that.
James: This is James Welch, not a lot to add to that
other than to say that we mobilized very quickly
after the announcement of the acquisition of
Roadway and really drove that message down
immediately to our customer base contacting not
only our largest customers but also from account
executive view point the customers in their
territory, and as Bill said, the overall response
has been very encouraging and we see nothing but
positive news coming out of this.
Jim: The only thing that I would add to that is really
ditto James's comments, everything has been real
positive received within our customer base.
Bill: And Ed to just give you one other data point on
that obviously Jim Staley and I are staying very
close these days and Jim's feedback
YELLOW CORPORATION
ID #1342595 PAGE 8
yesterday when I talked to him was very
consistent with that.
Edward: And in the guidance you gave for tonnage for
third quarter you've assumed no leakage still of
revenue?
Bill: We've assumed minimally leakage of revenue and
we're convinced that is the right assumption.
Edward: Okay, and can you give us an update, you meet
with Jimmy Hoffa Jr. what did you hear, what did
the teamsters say and what's your sense of that
going forward?
Bill: It was a very positive conversation. We've got a
lot of questions, which we answered and came out
of that meeting with good support from MR. Hoffa
and his leadership team, so we feel really good
about the support we're getting from the
teamsters.
Edward: Is there anything that you need from them before
you go on, are they going to put any kind of vote
or is that not happening?
Bill: No, that is not really required but we did tell
them that we think we could more successful with
their positive support and so far that is exactly
what we're getting.
Edward: Okay, and one last question I'll let someone else
have at it. Can you just give us an update on
what you see as the cost savings a year from now
and two year's from now, and where that is going
to come from?
Bill: You know the cost savings we think should be in
the first year around $45 million and you know
within the first few years that will be $125
million. Most of that will come from back office
integration functions that don't touch the
customer, and will come on the basis of best
practices, in other words we'll decide where it's
done best, and stop doing that function in the
other location.
Edward: And how do you get from 45 to 125, what's kind of
the differences in there year out from that?
Bill: Well it's really a difference in aggressiveness
in terms of how hard we want to go after the
synergies, we think that the bucket out there is
somewhere between $45 to $125, we feel very
comfortable
YELLOW CORPORATION
ID #1342595 PAGE 9
in our ability to get to $45 and really have
expectations that we could get to the $125 in the
same areas.
Edward: Okay, thanks a lot for the time.
Bill: You bet Ed.
Operator: Your next question comes from John Barnes with
Deutsche Bank.
John: Hey guys good morning. Bill can you give us just
an explanation of the timing on the general rate
increase, you kind of lead the industry in terms
of timing a year ago, but you know this year you
are a little bit late to the game can you just
give a little bit of an explanation there?
Don: Sure I think every year is different, John, and
we've just looked at the situation this year, the
market dynamics, how we were doing, and decided
that we would not go with a general rate increase
in June but it's on it's way.
John: Okay. Let's see any, in taking a look at the
deal, can you give us any update on what the
potential debt breakdown is you know or have you
locked that in on the financing side?
Don: John this is Don Barger, we are still working at
that and I think you can assume there is going to
be a combination of revolver assets
securitization on the receivables, you know term
loan, and some bonds.
John: Okay. Bill if you take a look at your guidance
for, you know in kind of confirming your guidance
for the rest of the year, the question I have
been getting quite a bit of is you had $.08 of
kind of unexpected positive hit in the quarter,
you know, does the confirmation of the guidance
include that or is that just kind of the way you
are going to treat it as you did in this
quarterly earnings announcement, as a
non-operating one time gain?
Bill: Yeah we've treated it as a non-operating one-time
gain.
John: Okay, so the earnings estimates out there are
just pure earnings operational earnings?
YELLOW CORPORATION
ID #1342595 PAGE 10
Bill: Correct.
John: Okay, and then lastly just kind of a, you know
this is for Jim Ritchie, can you give us an idea,
you know this new entity you know Roadway and
Yellow is going to be a monster entity and you
know Meridian--I am just kind of curious I
understand managements focus on Meridian, but I
am curious from your perspective what do you do
to make sure that Meridian stays at the forefront
of the strategy and Yellow, you know what can you
do to make sure that you are getting the
necessary management attention and the resources
internally to insure the success of Meridian?
Jim: Well John just a--it's really been pretty
straight forward from the way Bill has managed
the overall corporation that I remain part of his
leadership team and executive team. We work very
closely with Yellow Transportation and James and
I collaborate virtually on a daily basis, and I'd
certainly expect that as we move forward through
the merger that that same kind of relationship
will be built with Jim Steely as well, so we're
really looking forward to the opportunity to you
know extend our portfolio of services to the
Roadway customers as well as we move through that
so we're thrilled and excited about the
opportunities and the potential of the future
growth.
John: Okay thanks for your time guys.
Bill: Thanks John. Casey?
Operator: Your next question comes from Dan Moore with
Stephens.
Dan: Morning guys. Couple of questions here wanted to
start off with yields, looks like there is a
profile change here, weight per shipment is down
and more along the lines I guess of what we've
seen here in the last quarter or two, that
coupled with the adjustment in our absolute
minimum charge I think that took place early on
in the quarter or late in the first quarter, I'd
be interested in understanding what that does to
yields?
Bill: As I have said it's a little bit apples and
oranges on the yield side because we have two
months of relatively good comparison and then
June we had an increase last year and we haven't
had one this year, so if you strip that out, as I
said, you'd have about 5% apples
YELLOW CORPORATION
ID #1342595 PAGE 11
to apples kind of improvement in yield excluding
yield surcharge, which we still think is
relatively good. You know the change in the
weight per shipment is a function of the mix of
the business and really we don't expect to see
that as a long-term trend that is probably just a
quarterly blip of some kind.
Dan: Okay. Insurance just curious on the run rate
moving forward guys can you give us some sense of
what we should be modeling for a 3Q and 4Q, I
think you made some mention of the fact that we
aren't going to see the recovery moving forward,
so I am wondering if we should be modeling on an
absolute dollar basis at a very similar level of
insurance and claims expense for 3Q?
Bill: I think we had to play some catch up as you know
in the first part of the year and we've caught
up, so you can assume that the run rate know is
pretty consistent with where it's going to be for
the rest of the year.
Dan: Even after you adjust for the recovery it looks
like you guys are really, or have been, very
successful in reducing insurance and claims how
much of that is coming from worker's comp and how
much is that cargo liability related/
Bill: It's really some of both, but probably the bigger
improvement is in the workman's comp area versus
the run rate we were on, and that is just
basically good blocking and tackling, fewer
injuries, that kind of thing.
Dan: Then two other questions here and then I will
turn it over. I want to focus on pension cost for
a moment, could you talk a little bit about, or
get an update on non-union pension cost for the
full year '03 what do you project them to be
versus where we were in '02 and if we're going to
see any adjustments in the second half of '03 of
your previous guidance?
Don: Dan this is Don Barger, I think you know that
pension expense for the year is in fact was said
in the first quarter so obviously that will not
change and our full year pension expense now, I
think we're expecting it to be -
Bill: -- a little over $18 million.
YELLOW CORPORATION
ID #1342595 PAGE 12
Don: A little over $18 million and that was down from
the original guidance that we gave you once we
completed the actuarial report on pensions.
Dan: Okay. That is helpful. And I'd like to shift
gears here to the merger. You talked earlier
about response from customers being
overwhelmingly positive I guess the conversations
we have haven't been so positive and I am trying
to get my arms around the desperately between the
two here. Customers typically care about pricing,
service and capacity, you know clearly there is
capacity because if you look at where you are
today versus where you were in 2000 there's about
a 10% difference in tonnage, but what does this
combination do for customers in the area of
pricing and what could it potentially do in the
area of service?
Don: Well Dan the first thing I'd say is you're
talking to the wrong customers. You know it's
pretty straight forward our conversations with
customers really have really confirmed what we
thought going in and that is the customers are
happy with the providers they have. They've
selected Roadway or Yellow or any other provider
based on the different parameters you just
mentioned, quality of service, price, but
ultimately the value that they are getting from
that provider, and they really need to have a
significant reason to change a way from the
provider they are currently with if they are
happy and we're just not going to give then a
reason to change, so you know I know that you
talk to 10 or 12 customers on your conference
call and we went out and talked to our top 200
customers immediately after the merger
announcement, as did Roadway, and I am pleased to
say that the consistency of the response was
we're happy with you unless you do something to
mess up the relationship we're sticking with you
and that was true across the Roadway customer
base as well, so the bottom line is customers
change when they have a reason to change and
we're not just going to give them any reason to
change we're going to continue to provide the
same high quality of service and the same value.
Dan: Well I guess I will have to make a few more phone
calls, guys thanks for the time.
Bill: You bet Dan.
YELLOW CORPORATION
ID #1342595 PAGE 13
Operator: Your next question comes from Jason Seidi af
Avondale Partners.
Jason: Good morning, I want to center around Bill a
little bit, your revenue, excuse me your yield
increase that you implemented back in April in
selective lane, could you break down what that
provided you in terms of revenue for the quarter?
Bill: Well Jason we had some lanes that adjusted
upward, some that went down and the mix was just
slightly positive so it wasn't a big deal.
Jason: It wasn't a big deal in the quarter? Okay.
Bill: No.
Jason: You know if we look back at some of these second
quarter pre-announcements with the LTL carriers
[PHONETIC] there was mention of softness in the
regional pricing markets, you know have you been
seeing that or not really?
Bill: I think we've seen pretty consistent pricing
across our portfolio and you know as I think you
know about 30% or 40% of our business is in the
second day market and another 30% in the third
day, so we have a significant amount of business
in those markets but we haven't see a big
difference there.
Jason: Okay that is helpful. If I could switch to
Meridian IQ, you know I think I heard Don say
that Meridian is on track to be profitable for
the year, am I correct?
Bill: That is correct.
Jason: Okay, there was a dip in terms of revenue growth
if I look at 2Q versus 1Q were they lapping some
contracts?
Bill: No actually we had some acquisitions that we made
last year that were -
Jason: --okay, so are you expecting them to grow at the
20% rate I guess for the perceivable future?
Bill: Yeah 20% plus.
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Jason: Okay. And what gets Meridian IQ you know half way
to your goal of 10% margins, so what gets them to
the 5% margin, is it just size?
Bill: I think part of it is scale, yeah, there's a big
piece of it that is scale and as we've said
before Jason we'll always be looking at trading
off short term profit for reinvestment for the
business to exhilarate growth and so you know a
little bit of that is in our control in terms of
how much we want to reinvest in the business, but
really it's a scale issue.
Jason: Okay fair enough, I will turn it over to somebody
else, thanks guys.
Operator: Your next question comes from Gregory Burns with
JP Morgan.
Greg: Hi guys, Hi Bill obviously very strong quarter
from my perspective.
Bill: Thanks.
Greg: I just want to go back to the yield and mix I
think you guys have done just an excellent job at
getting the right balance between yield increases
and tonnage increases, as far as I am concerned
you've outperformed all your competitors in that
area, but I am wondering you've been operating
from a position of strength with the CF business
out there and I am wondering as we move in to the
third, late in the third and into the fourth
quarter you anniversary those CF Coms [PHONETIC]
you sure have to grow the business to get the
leverage, does your yield strategy change or do
you have to do anything different now that you
don't have the sort of freebie with the CF
business out there?
Bill: Well Greg I think two things, one if you believe
what a lot of people in writing were operating in
an area with tremendous excess capacity right
now, which you know we managed to do very well
in, so I'd start with that. Really the focus from
us from a long time has been on this balance and
it really starts with good analytical tools, and
we've got a tremendous amount of confidence in
our profit model the ability to really analyze
business affectively and know what good business
is and what bad business is, and then we've
executed that extremely well, we centralized the
pricing
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function back a couple of years ago and that has
helped us with our discipline, so it's good
analysis and it's good execution, it's not going
to change going forward we're going to continue
to follow the same approach that has been so
successful over the last couple of years.
Greg: But Bill just to follow up in this
hypothetically, assume the economy does not
change, it sounds like you are seeing some
improvement, but assume the economy does not
change and then you anniversary the CS business
does that argue for perhaps getting a more
aggressive on price?
Bill: No I think it will make the volume comparisons a
lot tougher but I think you'll see relatively the
same sort of yield increase.
Greg: Okay and in terms of the up tick that you saw in
July and obviously it's early, is there anything
driving it any particular customer, is it coming
from the industrial base, can you give us a
little color there?
Bill: Yeah you know we've got a little different
profile in our customer base then some of our
competitors. We've got about 70% of our business
in the manufacturing area and really it has come
across the board there and we haven't, we really
don't do much business in automotive but if you
exclude automotive where we are not really
participating much it's been pretty much
consistent across the rest of the manufacturing
base.
Greg: So manufacturing's been a strength as apposed to
retail?
Bill: Yeah I think we'd say that manufacturing is where
we've seen the pick up and really the weak dollar
has got to be driving a lot of that.
Greg: Okay and then just a question for Jim Richey on
Meridian. I am curious what, how you would
characterize your pipeline and visibility and
also you know you're clearly growing nicely, who
are you running into as you continue to grow?
Jim: Well the pipeline is extremely strong we had a
very successful sales quarter in the second
quarter, we've got 17 clients that in the
implementation stage right now, and the sales for
the second
5
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quarter will actually be eclipsed in the month of
July based on the commitment that we've gotten so
far, so the pipeline is extremely robust and it
seems like the enthusiasm around some of the
economic factors has got people finally making
some decisions on some long term contracts, so
from that respect we're very pleased with how the
pipeline looks so far.
Greg: And in terms of competitors, when you go have
these conversations is there one, two or three
competitors you see most, is it all over the map?
Jim: You know it really varies on a deal by deal
basis. We see them all from time to time on some
applications we'll see some of the technology
providers as the only competitor on some of the
other ones we'll see your traditional three PL's
as the only competitor, but I would remind you
that the business model around Meridian IQ is not
be a traditional three PL or a technology
provider but to kind of bridge that gap and be
able to provide technology services and the
outsourcing of certain processes, so it gives the
customers greater flexibility than a three Pl, a
traditional three Pl and if they are looking for
the in sourcing solution of technology also gives
them greater flexibility in terms of being able
to outsource some of those non-core processes, so
the market has responded pretty well to that and
it also creates kind of a competitive void
because there is not a lot of people out there
that is following that same strategy right now.
Greg: And given your comments on the pipeline sales we
should look for same growth rates for the balance
of the year at least?
Jim: Yes we're looking at the 20% plus growth rates,
as you know on the logistic side of the business
implementations can run anywhere from 90 to 180
days in some cases so we do have you know a lag
from when the contracts are sold to when the
revenue will actually increase and we'll start to
realize that but we are certainly on track.
Greg: Great thanks a lot guys.
Operator: At this time I would like to remind everyone in
order to ask a question please press star, then
the number one on your telephone keypad. Your
next question comes from Michael Glenn with CSSB.
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Michael: Hi guys it's Gary Emlynn [PHONETIC] how are you?
Bill: Hey Gary, good.
Gary: Bill there was in interview you did I think with
Blumberg News [PHONETIC] yesterday and there was
a question about connecting your expectations for
earnings for what your seeing is an improving
economy can you give us some more color on that,
and then I have a couple of others?
Bill: Well you know we really haven't baked the
improving economy into our numbers. The numbers
that we're giving as guidance really assume a
trends consistence with what we've seen over the
last six or seven months, you know the fact is
that we have seen an increase in volume that is
not normal seasonality and we're hoping that it's
the cusp of a recovery, you know we're only two
weeks into July and it would be nice to see this
thing continue on into August, but there's
definitely something happening out there that's
been reflected in our business volumes.
Gary: So how should we think about, I don't know, the
next month or so? Should we be expecting to hear
something from you possibly or not as related to
the guidance, I just want to make sure we don't
read things the wrong way?
Bill: I would think it will be later than that Gary if
we saw any significant change in our performance,
you know it would probably be more toward the end
of August when we would talk about that and of
course we've got the year-over-year overlap
coming up with the CF bankruptcy in September,
but you know we need to see more data then we
have seen at this point because it could be an
anomaly but it's beginning to look like things
are coming back.
Gary: CF business in terms of retention, could you go
back to the original I think it was $300 million
on an annual basis and give us a sense of how
that forecast at the time sounded, and if I am
not mistaken the margin incrementally that Don
mentioned earlier at 34% is that not higher than
you originally thought?
Bill: Yeah, first on the volume side Gary we went after
about $300 million in CF business and that number
has not moved much
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we've still got about $300 million plus or minus,
and the yield on the business as we said at the
time was about 15% higher pricing than CF had in
place on average, so it's been good business for
us. We did do better than our expectation of 20%
in the second quarter in terms of incremental
margin and we're going to do better than 20% for
the year and that's a function of some really
good cost management as well as good yield and
pricing discipline.
Gary: One more if I could. One of your competitors
reported earnings today they sighted some issues
as relates to expenses, non-union medical claims,
and other non-union cost related matters, doesn't
seem to be that that is an issue for you but
could you just talk to what's going on in that
front?
Bill: We actually had some catch up in the first
quarter there and you know as we've done a good
job on the fundamentals that underlie the cost,
that cost area, and so we would expect things to
continue about the same projectory as they were
in the second quarter.
Gary: Thanks.
Bill: Thanks Gary.
Operator: Ladies and gentlemen we have reached the end of
the allotted time for questions and answers; I
would now like to turn the call over to Bill
Zollars for closing remarks.
Bill: Thanks a lot for joining us, and we'll see you
next quarter.
Operator: This concludes today's teleconference, you may
now disconnect.
[END OF CALL]