In one of the most significant days in its history, less-than-truckload (LTL) carrier YRC Worldwide Inc. today named a new CEO and eight-member board of directors, formally announced the retirement of the executive who has run the company since 1999, completed a financial restructuring critical to its ongoing success, and released second-quarter results that it said shows some daylight after three dark years.
YRC confirmed late today that long-time transportation executive James L. Welch was named the company's CEO, effective immediately. Until Thursday, when his resignation was announced effective July 22, Welch was president and CEO of Dallas-based transport company Dynamex Inc. He spent nearly 30 years with YRC and its predecessor companies, the last seven as president and CEO of national LTL carrier Yellow Transportation. Yellow Transportation became YRC National following its integration with Roadway Express, which YRC bought in 2003.
DC Velocity reported in its Thursday online edition that Welch had been chosen as YRC's next CEO.
Welch replaces William D. Zollars, who retired today as the company's CEO as well as its chairman and president. There was no announcement of a new president or chief financial officer. William Trubeck, who had been serving as interim CFO, is expected to step down when a new CFO is named.
In a statement, James Hoffman, who today was named to chair an entirely new eight-member board of directors, said Welch's stature and leadership puts YRC in a "strong position to regain its competitive edge in the transportation marketplace."
"This is an exciting and challenging time for YRC Worldwide, and I am pleased to have been chosen to move the company forward," Welch said in the same statement.
Welch, 55, is an accomplished transportation executive, and is highly regarded within YRC and the Teamsters union, which represents more than 25,000 YRC employees and actively participated in the CEO selection process. The union played a key role in rescuing YRC from the brink of bankruptcy at the end of 2009 and in making significant wage and benefit concessions that have helped keep the company solvent.
Hoffman, 58, is a long-time telecommunications executive who for the past 10 years has worked at Alliant Energy, a Madison, Wis.-based concern, in what YRC described as "various leadership roles." The new board member likely most familiar to the transportation/logistics community is Jim Winestock Jr., 60, who spent 40 years at UPS Inc. and capped his long career there by heading the company's U.S. operations and sitting on the 11-person "management committee" that effectively runs the Atlanta-based giant.
Restructuring wraps up
The Overland Park, Kan.-based carrier said that, as the final phase of the restructuring that began at the end of April, it will issue convertible notes that will generate $100 million of new capital. It also replaced its three-year asset-based securitization program with a new three-year, asset-based loan structure that will provide even more liquidity and financial flexibility. It also swapped part of its loans for the issuance of new securities, including equity, a move that will alleviate the company's debt burden but reduce the value of its equity to the point that current stockholders will hold nearly worthless shares.
The Teamsters hailed the agreement. "The completion of the restructuring is a significant accomplishment in our efforts to preserve good jobs," said Teamster President James P. Hoffa in a statement.
"Because of the restructuring, YRC will now have the cash to focus on operations, and a new CEO and board to implement its operating plan. With these difficult three years behind us, we can look forward to a brighter future," Hoffa said.
The Teamsters will control about one-quarter of YRC's equity following the restructuring.
Q2 results released
At the same time, YRC reported a $2 million consolidated operating loss in the second quarter on consolidated operating revenue of $1.257 billion. The results included a $17 million adjustment for professional fees related to the restructuring, YRC said. Last year's quarter included an $83 million after-tax benefit for what the company termed in a statement a "fair value adjustment to an equity-based award." On a net basis, it reported a loss of $39 million in the quarter, compared with a $10 million net loss in the 2010 quarter.
In the 2010 quarter, YRC reported consolidated operating revenue of $1.25 billion and consolidated operating income of $48 million. The 2010 quarterly results included the combined impact of the $83 million after-tax gain as well as $9 million in professional fees.
YRC National posted adjusted operating income in the second quarter, the first time it has been in the black in three years. YRC National's average daily shipments and tonnage rose 7.1 percent and 6.2 percent, respectively, over year-ago levels. Revenue per shipment climbed 5 percent, and revenue per hundredweight increased 6 percent, the company said.
At YRC's regional unit, daily tonnage rose 8.1 percent, revenue per shipment rose 9.9 percent, daily shipment volume increased 4.7 percent, and revenue per-hundredweight climbed 6.5 percent, the company said. The revenue per-hundredweight results include the effects of fuel surcharges, the company said. Still, YRC said it would have seen gains in hundredweight revenue even without the surcharges.
Sanity returns to LTL pricing
In his final analyst call, Zollars painted an optimistic picture of YRC's current position and its outlook. Activity in July, historically a weak month for freight, is consistent with normal trends, he said. Zollars said YRC is gaining market share, though he couldn't quantify the statement.
Zollars said former customers are returning to the company and will continue to do so, encouraged by the carrier's improving financial situation and the completion of the restructuring.
Zollars said that "sanity" has returned to LTL pricing after many quarters of destructive price wars, as evidenced by the number of carriers—including YRC—that have announced general rate increases of 6.9 percent on non-contractual traffic. Zollars said YRC is experiencing about a 4-percent increase in contract rates when those agreements come up for renewal.
At current pricing conditions, YRC could add 20 percent more capacity across its system without impacting profitability, Zollars said. The company's $120 million capital expenditure (CapEx) budget for 2011 will go to replacing its fleet, which for over-the-road equipment is roughly five years old, and for equipment used in urban areas is about twice that age. YRC has about 16,400 rigs and 54,000 trailers.
Zollars did not disclose YRC's 2012 CapEx plans other than to say the company will "reinvest in the business going forward."