Edgar Filing: YRC WORLDWIDE INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-12255

YRC Worldwide Inc.

(Exact name of registrant as specified in its charter)

Delaware

48-0948788

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


10990 Roe Avenue, Overland Park, Kansas		66211
(Address of principal executive offices)		(Zip Code)

(913) 696-6100

(Registrant’s telephone number, including area code)

No Changes

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at July 31, 2008
Common Stock, $1 Par Value Per Share		57,283,782 shares

INDEX


Item		Page
PART I – FINANCIAL INFORMATION

1.	Financial Statements

	Consolidated Balance Sheets - June 30, 2008 and December 31, 2007	3

	Statements of Consolidated Operations - Three and Six Months Ended June 30, 2008 and 2007	4

	Statements of Consolidated Cash Flows - Six Months Ended June 30, 2008 and 2007	5

	Statement of Consolidated Shareholders’ Equity - Six Months Ended June 30, 2008	6

	Notes to Consolidated Financial Statements	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

3.	Quantitative and Qualitative Disclosures About Market Risk	42

4.	Controls and Procedures	42

PART II – OTHER INFORMATION

4.	Submission of Matters to a Vote of Security Holders	43

6.	Exhibits	44

	Signatures	45

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CONSOLIDATED BALANCE SHEETS

YRC Worldwide Inc. and Subsidiaries

(Amounts in thousands except per share data)


	June 30, 2008			December 31, 2007
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	61,324		$	58,233
Accounts receivable, net		1,116,081			1,073,915
Prepaid expenses and other		229,352			245,386

Total current assets		1,406,757			1,377,534

Property and Equipment:
Cost		4,085,288			4,083,791
Less – accumulated depreciation		(1,770,389	)		(1,703,318	)

Net property and equipment		2,314,899			2,380,473

Goodwill		700,546			700,659
Intangibles, net		524,435			533,327
Other assets		72,843			70,630

Total assets	$	5,019,480		$	5,062,623

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	368,654		$	387,740
Wages, vacations and employees’ benefits		430,066			426,119
Other current and accrued liabilities		379,584			369,725
Asset backed securitization borrowings		140,000			180,000
Current maturities of long-term debt		331,295			231,955

Total current liabilities		1,649,599			1,595,539

Other Liabilities:
Long-term debt, less current portion		723,790			822,048
Deferred income taxes, net		536,913			521,615
Pension and postretirement		162,906			180,166
Claims and other liabilities		339,202			330,951
Commitments and contingencies
Shareholders’ Equity:
Common stock, $1 par value per share		62,022			61,514
Preferred stock, $1 par value per share		—			—
Capital surplus		1,218,533			1,211,956
Retained earnings		461,518			471,119
Accumulated other comprehensive income		9,611			12,329
Treasury stock, at cost (4,802 shares)		(144,614	)		(144,614	)

Total shareholders’ equity		1,607,070			1,612,304

Total liabilities and shareholders’ equity	$	5,019,480		$	5,062,623

The accompanying notes are an integral part of these statements.

STATEMENTS OF CONSOLIDATED OPERATIONS

YRC Worldwide Inc. and Subsidiaries

For the Three and Six Months Ended June 30

(Amounts in thousands except per share data)

(Unaudited)


	Three Months						Six Months
	2008			2007			2008			2007
Operating Revenue	$	2,398,728		$	2,486,505		$	4,631,320		$	4,814,847

Operating Expenses:
Salaries, wages and employees’ benefits		1,332,137			1,464,840			2,685,283			2,886,365
Operating expenses and supplies		538,664			469,644			1,024,893			911,572
Purchased transportation		281,938			273,184			536,250			524,952
Depreciation and amortization		63,435			60,345			126,748			119,336
Other operating expenses		105,803			113,464			218,568			229,788
(Gains) losses on property disposals, net		3,053			(2,788	)		6,539			161
Reorganization and settlements		2,444			(606	)		15,228			13,851

Total operating expenses		2,327,474			2,378,083			4,613,509			4,686,025

Operating Income		71,254			108,422			17,811			128,822

Nonoperating (Income) Expenses:
Interest expense		18,104			21,766			36,670			41,804
Other		(1,863	)		2,012			(3,834	)		278

Nonoperating expenses, net		16,241			23,778			32,836			42,082

Income (Loss) Before Income Taxes		55,013			84,644			(15,025	)		86,740
Income tax provision (benefit)		18,739			29,277			(5,424	)		30,094

Net Income (Loss)	$	36,274		$	55,367		$	(9,601	)	$	56,646

Average Common Shares Outstanding – Basic		57,122			57,514			57,000			57,426
Average Common Shares Outstanding – Diluted		58,193			58,511			57,000			58,546

Basic Earnings (Loss) Per Share	$	0.64		$	0.96		$	(0.17	)	$	0.99

Diluted Earnings (Loss) Per Share	$	0.62		$	0.95		$	(0.17	)	$	0.97

The accompanying notes are an integral part of these statements.

STATEMENTS OF CONSOLIDATED CASH FLOWS

YRC Worldwide Inc. and Subsidiaries

For the Six Months Ended June 30

(Amounts in thousands)

(Unaudited)


	2008			2007
Operating Activities:
Net income (loss)	$	(9,601	)	$	56,646
Noncash items included in net income (loss):
Depreciation and amortization		126,748			119,336
Losses on property disposals, net		6,508			161
Deferred income tax provision (benefit), net		11,844			(842	)
Curtailment gain		(34,460	)		—
Other noncash items, net		966			4,725
Changes in assets and liabilities, net:
Accounts receivable		(42,165	)		(32,794	)
Accounts payable		(13,573	)		8,418
Other operating assets		23,429			19,774
Other operating liabilities		40,891			(12,521	)

Net cash provided by operating activities		110,587			162,903


Investing Activities:
Acquisition of property and equipment		(77,018	)		(241,860	)
Proceeds from disposal of property and equipment		11,079			27,939
Other		(4,201	)		(103	)

Net cash used in investing activities		(70,140	)		(214,024	)


Financing Activities:
Asset backed securitization borrowings (payments), net		(40,000	)		25,000
Borrowing of long-term debt, net		5,876			—
Debt issuance costs		(3,282	)		—
Proceeds from exercise of stock options		50			6,405

Net cash (used in) provided by financing activities		(37,356	)		31,405

Net Increase (Decrease) In Cash and Cash Equivalents		3,091			(19,716	)

Cash and Cash Equivalents, Beginning of Period		58,233			76,391

Cash and Cash Equivalents, End of Period	$	61,324		$	56,675

The accompanying notes are an integral part of these statements.

STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY

YRC Worldwide Inc. and Subsidiaries

For the Six Months Ended June 30

(Amounts in thousands)

(Unaudited)


	2008
Common Stock
Beginning balance	$	61,514
Exercise of stock options		3
Employer contribution to 401(k) plan		310
Issuance of equity awards		195

Ending balance	$	62,022


Capital Surplus
Beginning balance	$	1,211,956
Exercise of stock options, including tax benefits		47
Employer contribution to 401(k) plan		4,504
Share-based compensation		1,567
Other, net		459

Ending balance	$	1,218,533


Retained Earnings
Beginning balance	$	471,119
Net loss		(9,601	)

Ending balance	$	461,518


Accumulated Other Comprehensive Income
Beginning balance	$	12,329
Pension, net of tax:
Reclassification of net losses to net income		849
Curtailment adjustment		(3,234	)
Foreign currency translation adjustments		(333	)

Ending balance	$	9,611


Treasury Stock, At Cost
Beginning and ending balance	$	(144,614	)

Total Shareholders’ Equity	$	1,607,070

The accompanying notes are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YRC Worldwide Inc. and Subsidiaries

(Unaudited)

1.	Description of Business

YRC Worldwide Inc. (also referred to as “YRC Worldwide”, “the Company”, “we” or “our”), one of the largest transportation service providers in the world, is a holding company that through wholly owned operating subsidiaries offers its customers a wide range of transportation services. These services include global, national and regional transportation as well as logistics. Our operating subsidiaries include the following:

•

YRC National Transportation (“National Transportation”) is a holding company for our transportation service providers focused on business opportunities in regional, national and international services. National Transportation is comprised of Yellow Transportation and Roadway. These companies each provide for the movement of industrial, commercial and retail goods, primarily through regionalized and centralized management and customer facing organizations. National Transportation also includes Reimer Express Lines, a Roadway subsidiary located in Canada that specializes in shipments into, across and out of Canada. Approximately 36% of National Transportation shipments are completed in two days or less. In addition to the United States (“U.S.”) and Canada, National Transportation also serves parts of Mexico, Puerto Rico and Guam.

•

YRC Regional Transportation (“Regional Transportation”) is a holding company for our transportation service providers focused on business opportunities in the regional and next-day delivery markets. Regional Transportation is comprised of New Penn Motor Express, USF Holland and USF Reddaway. These companies each provide regional, next-day ground services in their respective regions through a network of facilities located across the U.S., Canada, Mexico and Puerto Rico. Approximately 90% of Regional Transportation less-than-truckload (“LTL”) shipments are completed in two days or less.

•

YRC Logistics plans and coordinates the movement of goods worldwide to provide customers a single source for logistics management solutions. YRC Logistics delivers a wide range of global logistics management services, with the ability to provide customers improved return-on-investment results through flexible, fast and easy-to-implement logistics services and technology management solutions.

•

YRC Truckload (“Truckload”) reflects the results of USF Glen Moore, a provider of truckload services throughout the U.S.

At June 30, 2008, approximately 72% of our labor force is subject to various collective bargaining agreements, which predominantly expire in 2013.

2.	Principles of Consolidation

The accompanying consolidated financial statements include the accounts of YRC Worldwide and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in non-majority owned affiliates where the entity is either not a variable interest entity or YRC Worldwide is not the primary beneficiary are accounted for on the equity method. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates. We have prepared the consolidated financial statements, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, all normal recurring adjustments except as otherwise noted, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included in these financial statements herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to SEC rules and regulations. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Assets Held for Sale

When we plan to dispose of property by sale, the asset is carried in the financial statements at the lower of the carrying amount or estimated fair value, less cost to sell, and is reclassified to assets held for sale. Additionally, after such reclassification, there

is no further depreciation taken on the asset. For an asset to be classified as held for sale, management must approve and commit to a formal plan, the sale should be anticipated during the ensuing year and the asset must be actively marketed, be available for immediate sale, and meet certain other specified criteria. At June 30, 2008 and December 31, 2007, the net book value of assets held for sale was approximately $82.6 million and $26.1 million, respectively. This amount is included in “Property and Equipment” in the accompanying consolidated balance sheets. We recorded charges of $3.7 million and $6.4 million for the three and six months ended June 30, 2008, respectively, to reduce properties held for sale to estimated fair value, less cost to sell. These charges are included in “(Gains) Losses on Property Disposals, Net” in the accompanying statements of consolidated operations. There were no such amounts recorded during the six months ended June 30, 2007.

3.	Restructuring and Reorganization

In February 2008, we closed 27 service centers that were previously a part of Regional Transportation’s networks. As a part of this action, we incurred certain restructuring charges of approximately $1.3 million and $12.4 million consisting of employee severance, lease cancellations and other incremental costs during the three and six months ended June 30, 2008, respectively.

During 2008, we made payments under previous restructuring programs, primarily those charges incurred as a result of the USF Reddaway and USF Bestway combination.

We reassess the reserve accrual under our restructuring efforts at the end of each reporting period. A rollforward of the restructuring accrual is set forth below:


(in millions)	Employee Separation			Contract Termination			Other			Total
Balance at December 31, 2007	$	3.6		$	2.4		$	—		$	6.0
Restructuring charges		3.7			6.9			1.8			12.4
Payments		(4.5	)		(3.0	)		(1.8	)		(9.3	)

Balance at June 30, 2008	$	2.8		$	6.3		$	—		$	9.1

In addition to the above restructuring charges of $12.4 million, we incurred reorganization charges of $1.1 million and $2.8 million during the three and six months ended June 30, 2008, respectively. These charges are included in the “Reorganization and settlements” caption in the consolidated statement of operations and consist primarily of employee separation charges at National Transportation due to certain leadership changes as well as reductions in the general employee population.

4.	Debt and Financing

Total debt consisted of the following:


(in millions)	June 30, 2008			December 31, 2007
Asset backed securitization borrowings, secured by accounts receivable	$	140.0		$	180.0
USF senior notes		257.6			259.9
Roadway senior notes		227.0			229.5
Contingent convertible senior notes		400.0			400.0
Term loan		150.0			150.0
Revolving credit facility		11.0			5.1
Industrial development bonds		9.5			9.5

Total debt	$	1,195.1		$	1,234.0
Current maturities of long-term debt		(331.3	)		(232.0	)
ABS borrowings		(140.0	)		(180.0	)

Long-term debt	$	723.8		$	822.0

Senior Credit Facility

On April 18, 2008, we entered into Amendment No. 1 (the “Credit Agreement Amendment”) to the Credit Agreement, dated as of August 17, 2007 (the “Credit Agreement”). The Credit Agreement, as amended (the “Credit Facility”), continues to provide the Company with a $950 million senior revolving credit facility, including sublimits available for borrowings under certain foreign currencies, and a $150 million senior term loan.

The Credit Agreement Amendment:

•

increased, until such time as the Company receives a rating of BBB- or better from Standard & Poor’s and Ba1 or better from Moody’s, in each case with a stable outlook (the “Fall Away Event”), the Company’s Total Leverage Ratio (as defined in the Credit Facility) from 3.0x to (i) 3.75x for each of the fiscal quarters ended March 31, June 30 and September 30, 2008 and (ii) 3.5x for each fiscal quarter thereafter;

•

increased the interest rates and fees applicable to the revolving credit facility and term loan as set forth in the definition of “Applicable Rate” in Section 1.01 of the Credit Facility; effective with this amendment, the interest rates under the Credit Facility are correlated to our Credit Ratings; the interest rate on amounts outstanding under the revolving credit facility and term loan is LIBOR plus 120 basis points (3.66% at June 30, 2008) and LIBOR plus 150 basis points (3.96% at June 30, 2008), respectively, and the facility fee for the revolving credit facility is 30 basis points;

•

required the Company and its domestic subsidiaries to pledge the following collateral (i) receivables not secured by the ABS facility (as defined below) or the Company’s captive insurance companies, (ii) intercompany notes not secured by the ABS facility, (iii) fee-owned real estate parcels that have an estimated internal market value of $2.5 million or greater, (iv) 100% of the stock of all domestic subsidiaries of the Company and (v) 65% of the stock of first-tier foreign subsidiaries of the Company other than the Company’s captive insurance companies;

•

requires the Company and its subsidiaries to pledge additional assets, including rolling stock and the remaining real estate if the Total Leverage Ratio exceeds 3.5x at the end of any Test Period (as defined in the Credit Facility) or if the Company receives a rating of BB- or worse from Standard & Poor’s and Ba3 or worse from Moody’s prior to the Fall Away Event as defined in the Credit Agreement Amendment;

•

required each domestic subsidiary of the Company except for Yellow Roadway Receivables Funding Corporation to guarantee the credit facility; and

•

modified certain negative covenants (and in certain instances introduces new negative covenants) related to permitted liens, permitted acquisitions, permitted asset sales (and certain related mandatory prepayments from the proceeds thereof) and restricted payments.

Upon the occurrence of the Fall Away Event, (i) security interests in pledged collateral will be released, (ii) all negative covenant provisions (including the Company’s Total Leverage Ratio) and the mandatory prepayment provision will revert to pre-Credit Agreement Amendment levels and concepts and (iii) only material domestic subsidiaries and subsidiaries of the Company that guarantee certain other indebtedness of the Company or its subsidiaries will remain as guarantors.

Asset-Backed Securitization Facility

On April 18, 2008, we renewed our asset-backed securitization (“ABS”) facility. The renewed facility will expire on April 16, 2009. The renewed facility (i) reduced the financing limit available under the ABS facility from $700 million to $600 million, (ii) reduced the letters of credit sublimit from $325 million to $125 million, (iii) modified the Total Leverage Ratio consistent with the Credit Agreement Amendment described above, (iv) increased the loss and discount reserve requirements and (v) increased the administrative fee (calculated based on financing limit) and program fee (calculated based on utilization) to 50 basis points and 75 basis points, respectively. The interest rate under the ABS facility for conduits continues to be a variable rate based on A1/P1 rated commercial paper with an approximate interest rate of 2.5% at June 30, 2008, plus the program fee. The interest rate for Wachovia Bank, National Association is one-month LIBOR, plus 100 basis points, as Wachovia will no longer use a conduit to purchase receivables under the ABS facility.

The ABS facility utilizes the accounts receivable of the following subsidiaries of the Company: Yellow Transportation, Inc.; Roadway Express, Inc.; USF Holland Inc.; and USF Reddaway Inc. (the “Originators”). Yellow Roadway Receivables Funding Corporation (“YRRFC”), a special purpose entity and wholly owned subsidiary of the Company, operates the ABS facility. Under the terms of the renewed ABS facility, the Originators may transfer trade receivables to YRRFC, which is designed to isolate the receivables for bankruptcy purposes. A third-party conduit or committed purchaser must purchase from YRRFC an undivided ownership interest in those receivables. The percentage ownership interest in receivables that the conduits or committed purchasers purchase may increase or decrease over time, depending on the characteristics of the receivables, including delinquency rates and debtor concentrations.

In connection with the renewal of the ABS facility, the Company unconditionally guaranteed to YRRFC the full and punctual payment and performance of each of the Originators obligations under the ABS facility. YRRFC has pledged its right, title and interest in the guarantee to the Administrative Agent, for the benefit of the purchasers, under the Third Amended and Restated Receivables Purchase Agreement.

5.	Employee Benefits

Curtailment

During the second quarter of 2008, we amended the postretirement healthcare benefit plan that covers certain current and former Roadway employees. This amendment eliminated cost sharing benefits for active employees that retire on or after June 1, 2008, provided for the current cost sharing provisions to retirees to terminate December 31, 2008 and allows retirees to participate in our healthcare programs on a full-cost basis effective January 1, 2009. The curtailment of this plan resulted in a gain of $34.5 million during the three months ended June 30, 2008 and is included in “Salaries, wages and employees’ benefits” in the accompanying consolidated statement of operations.

Effective July 1, 2008, we curtailed our defined benefit plans that cover approximately 8,000 employees not covered by collective bargaining agreements. As a result of this action, future benefit accruals have been frozen effective July 1, 2008. However, employees may achieve early retirement eligibility based on age and continued service. During the third quarter 2008, we have subsequently recognized curtailment gains of approximately $63 million related to the changes to these plans.

Components of Net Periodic Pension and Other Postretirement Cost

The following table sets forth the components of our company-sponsored pension costs for the three and six months ended June 30:


	Three Months						Six Months
(in millions)	2008			2007			2008			2007
Service cost	$	8.9		$	9.8		$	17.8		$	19.6
Interest cost		17.1			16.3			34.2			32.7
Expected return on plan assets		(18.4	)		(17.3	)		(36.8	)		(34.9	)
Amortization of prior service cost		0.3			0.3			0.6			0.6
Amortization of net loss		0.5			2.0			1.0			4.0

Net periodic pension cost	$	8.4		$	11.1		$	16.8		$	22.0
Settlement cost		—			—			—			1.4
Special termination benefit cost		—			—			—			1.5

Total periodic pension cost	$	8.4		$	11.1		$	16.8		$	24.9

The following table sets forth the components of our other postretirement costs for the three and six months ended June 30:


	Three Months						Six Months
(in millions)	2008			2007			2008			2007
Service cost	$	0.1		$	0.1		$	0.2		$	0.2
Interest cost		0.4			0.5			0.8			1.0
Amortization of prior service cost		—			0.1			0.1			0.2
Amortization of net (gain)		(0.3	)		(0.1	)		(0.6	)		(0.2	)

Other postretirement cost	$	0.2		$	0.6		$	0.5		$	1.2
Curtailment gain		(34.5	)		—			(34.5	)		—

Total other postretirement cost	$	(34.3	)	$	0.6		$	(34.0	)	$	1.2

6.	Stock-Based Compensation

We maintain a long-term incentive and equity award plan implemented in 2004 that provides for the issuance of stock-based compensation to key management personnel. In May 2008, our stockholders approved an amendment to this plan to increase the number of shares of Company common stock available for awards under the plan by 3 million shares (from 3.43 million to 6.43 million) and to eliminate the requirement that shares available for grant under the plan be reduced by two shares for each share to be issued pursuant to “full value awards”, which are restricted stock, share units, performance awards and other stock-based awards. As of June 30, 2008, 2.6 million shares remain available for issuance. The plan permits the issuance of restricted stock and share units, as well as options, SARs, and performance stock and performance stock unit awards. Awards under the plan can be made in cash and share units at the discretion of the Board of Directors. According to the plan provisions, the share units provide the holders the right to receive one share of our common stock upon vesting of one share unit. The plan requires the exercise price of any option equal to the closing market price of our common stock on the date of grant.

In May 2008, we granted option awards to purchase approximately 1.0 million shares of our common stock to approximately 2,200 employees. This one-time grant was made in lieu of a portion of the employees’ bonus opportunity for 2008. The options vest in one-third increments on January 1, 2009, 2010 and 2011, and expire ten years from the date of the grant. The fair value of each option was estimated on the date of grant using the Black-Scholes-Merton pricing model. Expected volatilities are estimated using historical volatility of our common stock. We use historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

We valued the options granted in 2008 using the above described model with the following weighted average assumptions:


	2008
Dividend yield		—	%
Expected volatility		48.1	%
Risk-free interest rate		2.7	%
Expected option life (years)		3.0
Fair value per option	$	6.59

A summary of option activity under the plan as of June 30, 2008, and changes during the six months then ended, is presented in the following table:


	Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2007	216		$	26.29
Granted	1,041			18.82
Exercised	(3	)		14.57
Forfeited / expired	(19	)		24.94
Outstanding at June 30, 2008	1,235			20.05	8.89	$	8,962

Exercisable at June 30, 2008	194			25.84	3.90	$	8,962

The total intrinsic value of options exercised during the six months ended June 30, 2008 was not material.

7.	Earnings Per Share

Dilutive securities, consisting of options to purchase our common stock or rights to receive common stock in the future, included in the calculation of diluted weighted average common shares were 894,000 for the three months ended June 30, 2008, and 700,000 and 650,000 for the three and six months ended June 30, 2007, respectively. In addition, dilutive securities related to our net share settle contingent convertible notes were 177,000 for the three months ended June 30, 2008, and 297,000 and 470,000 for the three and six months ended June 30, 2007, respectively. Given our net loss for the six months ended June 30, 2008, there are no dilutive securities for that period.

The impact of certain options and share units were excluded from the calculation of diluted earnings per share because the effects are antidilutive. In addition, the computation of the assumed conversion of the convertible senior notes includes inputs of the year-to-date average stock price relative to the stated conversion price. If this relationship is such that the year-to-date average stock price is less then the stated conversion price, the computed shares would be antidilutive under the treasury stock method.

Antidilutive options and share units were 1,293,000 and 2,418,000 for the three and six months ended June 30, 2008, respectively, and 23,000 for the three and six months ended June 30, 2007.

Antidilutive convertible senior note conversion shares were 14,970,000 and 15,626,000 for the three and six months ended June 30, 2008, and 472,000 and 371,000 for the three and six months ended June 30, 2007, respectively.

8.	Business Segments

We report financial and descriptive information about our reportable operating segments on a basis consistent with that used internally for evaluating segment performance and allocating resources to segments. We evaluate performance primarily on adjusted operating income and return on capital.

During the second quarter 2008, we modified our internal reporting process and in turn, reassessed our segment reporting. As a result of this process we now report four operating segments as compared to three segments before the change. The revised segment reporting is reflected throughout this report for all periods presented. Historical amounts are presented in a manner that is consistent with the revised segment reporting.

We have four reportable segments, which are strategic business units that offer complementary transportation services to their customers. National Transportation includes carriers that provide comprehensive regional, national and international transportation services. Regional Transportation is comprised of carriers that focus primarily on business opportunities in the regional and next-day delivery markets. YRC Logistics provides domestic and international freight forwarding, warehousing, cross-dock services, multi-modal brokerage services and transportation management services. Truckload, our new segment previously included in the Regional Transportation segment, consists of USF Glen Moore, a domestic truckload carrier.

The accounting policies of the segments are the same as those described in the Summary of Accounting Policies note to our financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007. We charge management fees and other corporate services to our segments based on the direct benefits received or as a percentage of revenue. Corporate and other operating losses represent residual operating expenses of the holding company, including compensation and benefits and professional services for all periods presented. Corporate identifiable assets primarily refer to cash, cash equivalents and deferred debt issuance costs. Intersegment revenue relates to transportation services between our segments.

The following table summarizes our operations by business segment:


(in millions)	National Transportation		Regional Transportation			YRC Logistics		Truckload			Corporate/ Eliminations			Consolidated
As of June 30, 2008
Identifiable assets	$	3,262.5	$	1,394.0		$	428.1	$	77.9		$	(143.0	)	$	5,019.5

As of December 31, 2007
Identifiable assets		3,139.1		1,424.0			426.4		80.9			(7.8	)		5,062.6

Three months ended June 30, 2008
External revenue		1,692.2		533.4			150.4		22.7			—			2,398.7
Intersegment revenue		0.6		0.2			9.4		8.8			(19.0	)		—
Operating income		74.6		2.1			1.9		(3.9	)		(3.4	)		71.3

Three months ended June 30, 2007
External revenue		1,702.5		604.2			155.5		24.3			—			2,486.5
Intersegment revenue		1.0		—			2.7		6.4			(10.1	)		—
Operating income		92.8		15.6			1.5		(0.8	)		(0.7	)		108.4

Six months ended June 30, 2008
External revenue		3,251.4		1,045.8			291.0		43.1			—			4,631.3
Intersegment revenue		1.3		0.2			18.6		14.0			(34.1	)		—
Operating income		67.3		(35.5	)		0.8		(9.0	)		(5.8	)		17.8

Six months ended June 30, 2007
External revenue		3,309.9		1,155.7			300.5		48.7			—			4,814.8
Intersegment revenue		2.0		—			7.4		12.6			(22.0	)		—
Operating income		125.9		10.2			0.4		(0.5	)		(7.3	)		128.8

9.	Comprehensive Income

Comprehensive income for the three and six months ended June 30 follows:


	Three Months					Six Months
(in millions)	2008			2007		2008			2007
Net income (loss)	$	36.3		$	55.4	$	(9.6	)	$	56.6
Other comprehensive income, net of tax:
Pension:
Net prior service cost		0.2			0.2		0.4			0.4
Net actuarial gains		0.2			1.2		0.4			2.4
Curtailment adjustment		(3.2	)		—		(3.2	)		—
Changes in foreign currency translation adjustments		0.9			8.5		(0.3	)		9.1

Other comprehensive income (loss)		(1.9	)		9.9		(2.7	)		11.9

Comprehensive income (loss)	$	34.4		$	65.3	$	(12.3	)	$	68.5

10.	Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which revises SFAS No. 141, Business Combinations, originally issued in June 2001. SFAS No. 141R will apply to business combinations for which the acquisition date is on or after January 1, 2009, and could have a material impact on us with respect to business combinations completed on or after the effective date. The significant revisions include, but are not limited to the “acquirer” recording 100% of all assets and liabilities, including goodwill, of the acquired business, generally at their fair values, and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired. In addition, as of the effective date, reversals of valuation allowances related to acquired deferred tax assets and changes to acquired income tax uncertainties related to any business combinations, even those completed prior to the effective date, will be recognized in earnings, except for qualified measurement period adjustments.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, which amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 will be effective for our quarterly reporting period ending March 31, 2009 and could have a material impact on us to the extent we enter into an arrangement after the effective date of the standard where we are required to consolidate a noncontrolling interest. If such an event occurs, we will report the non-controlling interest’s equity as a component of our equity in our consolidated balance sheet, we will report the component of net income or loss and comprehensive income or loss attributable to the non-controlling interest separately and changes in ownership interests will be treated as equity transactions. Upon a loss of control, any gain or loss on the interest sold will be recognized in earnings.

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements, for financial assets and financial liabilities. In accordance with Financial Accounting Standards Board Staff Position No. 157-2, Effective Date of FASB Statement No. 157, the Company will delay application of SFAS No. 157 for non-financial assets and non-financial liabilities, until January 1, 2009. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. Adoption of SFAS No. 157 did not have a material impact on our consolidated financial position, results of operations, or cash flows.

Certain non-financial assets and non-financial liabilities measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. As stated above, SFAS No. 157 will be applicable to these fair value measurements beginning January 1, 2009.

In May 2008, the FASB issued FASB Staff Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement).” This FSP clarifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The FSP is effective for our financial statements beginning January 1, 2009, and early adoption is not permitted. This FSP is required to be applied retrospectively to all periods presented. We are still evaluating the impact of this FSP and currently believe that the adoption of this standard will result in higher interest expense and lower earnings per share beginning in 2009.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. This standard reorganizes the GAAP hierarchy in order to improve financial reporting by providing a consistent framework for determining what accounting principles should be used when preparing U.S. GAAP financial statements. SFAS 162 shall be effective 60 days after the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to Interim Auditing Standard, AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. Management is currently evaluating the impact, if any, this new standard may have on our consolidated financial position, results of operations, or cash flows.

11.	Commitments and Contingencies

Shanghai Jiayu Logistics Co., Ltd.

In December 2007, we entered into a definitive agreement to acquire majority ownership of Shanghai Jiayu Logistics Co., Ltd., a Shanghai, China ground transportation company. Pursuant to the definitive agreement, YRC Logistics will acquire 65% of the stock of Jiayu for Chinese Yuan (“CNY”) 237.4 million plus an additional payment of CNY 79.2 million (approximately $45 million) based upon Jiayu’s 2007 financial performance. If Jiayu meets certain financial performance targets during 2008 and 2009, YRC Logistics will purchase the remaining 35% interest in 2010 for an amount not to exceed CNY 248.0 million (approximately $32 million), as determined by the level of the financial performance. If Jiayu does not meet these financial targets, YRC Logistics has a call option to purchase the remaining 35% of the shares of Jiayu in 2010 for the greater of CNY 77.5 million (approximately $10 million) and 35% of the appraised value of the net assets of Jiayu at that time. All payments will be made in Chinese Yuan, and their estimated U.S. dollar equivalents are provided herein. The acquisition is subject to Chinese regulatory approvals, restructuring of certain of Jiayu’s operations and other ordinary conditions to closing. We are capitalizing transaction costs incurred related to this acquisition, the balance of which is not significant at June 30, 2008.

Class Action Lawsuit

On July 30, 2007, Farm Water Technological Services, Inc. d/b/a Water Tech, and C.B.J.T. d/b/a Agricultural Supply, on behalf of themselves and other plaintiffs, filed a putative class action lawsuit against the Company and 10 other companies engaged in the LTL trucking business in the United States District Court for the Southern District of California. Since that time, other plaintiffs have filed similar cases in various courts across the nation. In December 2007, the courts consolidated these cases in the United States District Court for the Northern District of Georgia. The plaintiffs allege that the defendants, including the Company, conspired to fix fuel surcharges in violation of federal antitrust law and seek unspecified treble damages, injunctive relief, attorneys’ fees and costs of litigation. The Company believes that its fuel surcharge practices are lawful and these suits are without factual basis or legal merit. An appropriate defense has begun, and the Company intends to defend these allegations vigorously. The plaintiffs filed a consolidated amended complaint in May 2008. The defendants, including the Company, have filed in July 2008, a motion to dismiss the complaint. Given that the actions are at a very preliminary stage, the Company is not able to determine that any potential liability that might result is probable or estimable and, therefore, the Company has not recorded a liability related to the actions. If an adverse outcome were to occur, it could have a material adverse effect on the Company’s consolidated financial condition, cash flows and results of operations.

12.	Guarantees of the Contingent Convertible Senior Notes

In August 2003, YRC Worldwide issued 5.0% contingent convertible senior notes due 2023. In November 2003, we issued 3.375% contingent convertible senior notes due 2023. In December 2004, we completed exchange offers pursuant to which holders of the contingent convertible senior notes could exchange their notes for an equal amount of new net share settled contingent convertible senior notes. Substantially all notes were exchanged as part of the exchange offers. In connection with the net share settled contingent convertible senior notes, the following 100% owned subsidiaries of YRC Worldwide have issued guarantees in favor of the holders of the net share settled contingent convertible senior notes: Yellow Transportation, Inc., YRC Worldwide Technologies, Inc., YRC Logistics, Inc., YRC Logistics Global, LLC, Globe.com Lines, Inc., Roadway LLC, Roadway Next Day Corporation, and Roadway Express, Inc. Each of the guarantees is full and unconditional and joint and several.

The condensed consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor to obtain funds from its subsidiaries by dividend or loan.

The following represents condensed consolidating financial information as of June 30, 2008 and December 31, 2007 with respect to the financial position and for the three and six months ended June 30, 2008 and 2007 for results of operations and for the six months ended June 30, 2008 and 2007 for the statements of cash flows of YRC Worldwide and its subsidiaries. The Parent column presents the financial information of YRC Worldwide, the primary obligor of the contingent convertible senior notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the net share settled contingent convertible senior notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our ABS agreement.

Condensed Consolidating Balance Sheets


June 30, 2008 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	25		$	15		$	21		$	—		$	61
Intercompany advances receivable		—			(101	)		101			—			—
Accounts receivable, net		3			(6	)		1,126			(7	)		1,116
Prepaid expenses and other		60			136			34			—			230

Total current assets		88			44			1,282			(7	)		1,407
Property and equipment		1			2,973			1,111			—			4,085
Less – accumulated depreciation		—			(1,505	)		(265	)		—			(1,770	)

Net property and equipment		1			1,468			846			—			2,315
Investment in subsidiaries		3,282			93			203			(3,578	)		—
Receivable from affiliate		(907	)		495			412			—			—
Goodwill and other assets		259			982			406			(350	)		1,297

Total assets	$	2,723		$	3,082		$	3,149		$	(3,935	)	$	5,019

Intercompany advances payable	$	341		$	(323	)	$	186		$	(204	)	$	—
Accounts payable		17			243			111			(2	)		369
Wages, vacations and employees’ benefits		25			300			105			—			430
Other current and accrued liabilities		54			156			171			(1	)		380
Asset backed securitization borrowings		—			—			140			—			140
Current maturities of long-term debt		—			230			101			—			331

Total current liabilities		437			606			814			(207	)		1,650
Payable to affiliate		(120	)		47			223			(150	)		—
Long-term debt, less current portion		558			6			160			—			724
Deferred income taxes, net		23			318			196			—			537
Pension and postretirement		163			—			—			—			163
Claims and other liabilities		95			2			242			—			339
Commitments and contingencies		—			—			—			—			—
Shareholders’ equity		1,567			2,103			1,514			(3,578	)		1,606

Total liabilities and shareholders’ equity	$	2,723		$	3,082		$	3,149		$	(3,935	)	$	5,019


December 31, 2007 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	26		$	15		$	17		$	—		$	58
Intercompany advances receivable		—			(65	)		65			—			—
Accounts receivable, net		3			(25	)		1,101			(5	)		1,074
Prepaid expenses and other		76			99			71			—			246

Total current assets		105			24			1,254			(5	)		1,378
Property and equipment		1			2,967			1,116			—			4,084
Less – accumulated depreciation		(1	)		(1,468	)		(235	)		—			(1,704	)

Net property and equipment		—			1,499			881			—			2,380
Investment in subsidiaries		3,280			93			203			(3,576	)		—
Receivable from affiliate		(898	)		488			410			—			—
Goodwill and other assets		258			985			412			(350	)		1,305

Total assets	$	2,745		$	3,089		$	3,160		$	(3,931	)	$	5,063

Intercompany advances payable	$	342		$	(294	)	$	157		$	(205	)	$	—
Accounts payable		12			264			112			—			388
Wages, vacations and employees’ benefits		29			285			112			—			426
Other current and accrued liabilities		52			149			169			—			370
Asset backed securitization borrowings		—			—			180			—			180
Current maturities of long-term debt		—			232			—			—			232

Total current liabilities		435			636			730			(205	)		1,596
Payable to affiliate		(117	)		44			223			(150	)		—
Long-term debt, less current portion		554			7			261			—			822
Deferred income taxes, net		19			307			196			—			522
Pension and postretirement		180			—			—			—			180
Claims and other liabilities		84			3			244			—			331
Commitments and contingencies
Shareholders’ equity		1,590			2,092			1,506			(3,576	)		1,612

Total liabilities and shareholders’ equity	$	2,745		$	3,089		$	3,160		$	(3,931	)	$	5,063

Condensed Consolidating Statements of Operations


For the three months ended June 30, 2008 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	1,670		$	739		$	(10	)	$	2,399

Operating expenses:
Salaries, wages and employees’ benefits		8			880			444			—			1,332
Operating expenses and supplies		(5	)		367			177			—			539
Purchased transportation		—			204			88			(10	)		282
Depreciation and amortization		—			40			24			—			64
Other operating expenses		—			77			29			—			106
Losses on property disposals, net		—			3			—			—			3
Reorganization and settlements		—			—			2			—			2

Total operating expenses		3			1,571			764			(10	)		2,328

Operating income (loss)		(3	)		99			(25	)		—			71

Nonoperating (income) expenses:
Interest expense		8			4			6			—			18
Other, net		3			80			(85	)		—			(2	)

Nonoperating (income) expenses, net		11			84			(79	)		—			16

Income (loss) before income taxes		(14	)		15			54			—			55
Income tax provision (benefit)		19			(1	)		1			—			19

Net income (loss)	$	(33	)	$	16		$	53		$	—		$	36


For the three months ended June 30, 2007 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	11		$	2,100		$	466		$	(91	)	$	2,486

Operating expenses:
Salaries, wages and employees’ benefits		9			1,199			257			—			1,465
Operating expenses and supplies		8			419			127			(84	)		470
Purchased transportation		—			209			67			(3	)		273
Depreciation and amortization		—			46			14			—			60
Other operating expenses		—			94			20			—			114
(Gains) losses on property disposals, net		—			(5	)		2			—			(3	)
Reorganization and settlements		1			1			(3	)		—			(1	)

Total operating expenses		18			1,963			484			(87	)		2,378

Operating income (loss)		(7	)		137			(18	)		(4	)		108

Nonoperating (income) expenses:
Interest expense		8			9			5			—			22
Other, net		3			58			(60	)		1			2

Nonoperating (income) expenses, net		11			67			(55	)		1			24

Income (loss) before income taxes		(18	)		70			37			(5	)		84
Income tax provision (benefit)		(5	)		23			13			(2	)		29

Net income (loss)	$	(13	)	$	47		$	24		$	(3	)	$	55


For the six months ended June 30, 2008 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	3,210		$	1,442		$	(20	)	$	4,632

Operating expenses:
Salaries, wages and employees’ benefits		17			1,775			893			—			2,685
Operating expenses and supplies		(10	)		695			340			—			1,025
Purchased transportation		—			385			171			(20	)		536
Depreciation and amortization		—			78			49			—			127
Other operating expenses		—			150			69			—			219
Losses on property disposals, net		—			4			3			—			7
Reorganization and settlements		—			2			13			—			15

Total operating expenses		7			3,089			1,538			(20	)		4,614

Operating income (loss)		(7	)		121			(96	)		—			18

Nonoperating (income) expenses:
Interest expense		15			9			13			—			37
Other, net		10			104			(118	)		—			(4	)

Nonoperating (income) expenses, net		25			113			(105	)		—			33

Income (loss) before income taxes		(32	)		8			9			—			(15	)
Income tax provision (benefit)		(5	)		(1	)		1			—			(5	)

Net income (loss)	$	(27	)	$	9		$	8		$	—		$	(10	)


For the six months ended June 30, 2007 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	24		$	4,089		$	886		$	(184	)	$	4,815

Operating expenses:
Salaries, wages and employees’ benefits		20			2,372			494			—			2,886
Operating expenses and supplies		15			815			252			(170	)		912
Purchased transportation		—			406			129			(10	)		525
Depreciation and amortization		—			92			27			—			119
Other operating expenses		—			193			37			—			230
(Gains) losses on property disposals, net		—			(4	)		4			—			—
Reorganization and settlements		4			7			3			—			14

Total operating expenses		39			3,881			946			(180	)		4,686

Operating income (loss)		(15	)		208			(60	)		(4	)		129

Nonoperating (income) expenses:
Interest expense		16			16			10			—			42
Other, net		14			107			(122	)		1			—

Nonoperating (income) expenses, net		30			123			(112	)		1			42

Income (loss) before income taxes		(45	)		85			52			(5	)		87
Income tax provision (benefit)		(13	)		28			18			(3	)		30

Net income (loss)	$	(32	)	$	57		$	34		$	(2	)	$	57

Condensed Consolidating Statements of Cash Flows


For the six months ended June 30, 2008 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by operating activities	$	27		$	52		$	31		$	—	$	110

Investing activities:
Acquisition of property and equipment		—			(47	)		(30	)		—		(77	)
Proceeds from disposal of property and equipment		—			—			11			—		11
Other		—			—			(4	)		—		(4	)

Net cash used in investing activities		—			(47	)		(23	)		—		(70	)

Financing activities:
Asset backed securitization borrowings, net					—			(40	)		—		(40	)
Borrowing of long-term debt, net		4			—			2			—		6
Debt issuance costs		(3	)		—			—			—		(3	)
Intercompany advances / repayments		(29	)		(5	)		34			—		—

Net cash used in financing activities		(28	)		(5	)		(4	)		—		(37	)

Net increase (decrease) in cash and cash equivalents		(1	)		—			4			—		3
Cash and cash equivalents, beginning of period		26			15			17			—		58

Cash and cash equivalents, end of period	$	25		$	15		$	21		$	—	$	61


For the six months ended June 30, 2007 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	(75	)	$	316		$	(78	)	$	—	$	163

Investing activities:
Acquisition of property and equipment		—			(198	)		(44	)		—		(242	)
Proceeds from disposal of property and equipment		—			13			15			—		28
Other		—			—			—			—		—

Net cash used in investing activities		—			(185	)		(29	)		—		(214	)
Financing activities:
Asset backed securitization borrowings, net		—			—			25			—		25
Proceeds from exercise of stock options		7			—			—			—		7
Intercompany advances / repayments		63			(129	)		66			—		—

Net cash provided by (used in) financing activities		70			(129	)		91			—		32

Net increase (decrease) in cash and cash equivalents		(5	)		2			(16	)		—		(19	)
Cash and cash equivalents, beginning of period		20			21			35			—		76

Cash and cash equivalents, end of period	$	15		$	23		$	19		$	—	$	57

13.	Guarantees of the Senior Notes Due 2008

In connection with the senior notes due 2008 that the Company assumed by virtue of the Roadway merger agreement, and in addition to the primary obligor, Roadway LLC, YRC Worldwide and its following 100% owned subsidiaries have issued guarantees in favor of the holders of the senior notes due 2008: Roadway Next Day Corporation, New Penn Motor Express, Inc., Roadway Express, Inc., Roadway Reverse Logistics, Inc. and Roadway Express International, Inc. Each of the guarantees is full and unconditional and joint and several.

The condensed consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan.

The following represents condensed consolidating financial information of YRC Worldwide and its subsidiaries as of June 30, 2008 and December 31, 2007 with respect to the financial position, and for the three and six months ended June 30, 2008 and 2007 for results of operations and for the six months ended June 30, 2008 and 2007 for cash flows. The primary obligor column presents the financial information of Roadway LLC. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the senior notes due 2008 including YRC Worldwide, the holding company. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our ABS agreement.

Condensed Consolidating Balance Sheets


June 30, 2008 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	43		$	18		$	—		$	61
Intercompany advances receivable		—			(17	)		17			—			—
Accounts receivable, net		—			(48	)		1,176			(12	)		1,116
Prepaid expenses and other		(12	)		134			108			—			230

Total current assets		(12	)		112			1,319			(12	)		1,407
Property and equipment		—			1,109			2,976			—			4,085
Less – accumulated depreciation		—			(292	)		(1,478	)		—			(1,770	)

Net property and equipment		—			817			1,498			—			2,315
Investment in subsidiaries		101			3,303			217			(3,621	)		—
Receivable from affiliate		203			(706	)		503			—			—
Goodwill and other assets		651			1,113			383			(850	)		1,297

Total assets	$	943		$	4,639		$	3,920		$	(4,483	)	$	5,019

Intercompany advances payable	$	—		$	62		$	142		$	(204	)	$	—
Accounts payable		—			113			263			(7	)		369
Wages, vacations and employees’ benefits		—			183			247			—			430
Other current and accrued liabilities		1			103			276			—			380
Asset backed securitization borrowings		—			—			140			—			140
Current maturities of long-term debt		227			—			104			—			331

Total current liabilities		228			461			1,172			(211	)		1,650
Payable to affiliate		—			530			121			(651	)		—
Long-term debt, less current portion		—			559			165			—			724
Deferred income taxes, net		(3	)		255			285			—			537
Pension and postretirement		—			163			—			—			163
Claims and other liabilities		—			95			244			—			339
Commitments and contingencies
Shareholders’ equity		718			2,576			1,933			(3,621	)		1,606

Total liabilities and shareholders’ equity	$	943		$	4,639		$	3,920		$	(4,483	)	$	5,019


December 31, 2007 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	45		$	13		$	—		$	58
Intercompany advances receivable		—			(17	)		17			—			—
Accounts receivable, net		—			(38	)		1,120			(8	)		1,074
Prepaid expenses and other		(12	)		102			156			—			246

Total current assets		(12	)		92			1,306			(8	)		1,378
Property and equipment		—			1,103			2,981			—			4,084
Less – accumulated depreciation		—			(261	)		(1,443	)		—			(1,704	)

Net property and equipment		—			842			1,538			—			2,380
Investment in subsidiaries		101			3,264			254			(3,619	)		—
Receivable from affiliate		186			(722	)		536			—			—
Goodwill and other assets		651			1,117			387			(850	)		1,305

Total assets	$	926		$	4,593		$	4,021		$	(4,477	)	$	5,063

Intercompany advances payable	$	—		$	78		$	127		$	(205	)	$	—
Accounts payable		—			98			293			(3	)		388
Wages, vacations and employees’ benefits		—			181			245			—			426
Other current and accrued liabilities		1			98			271			—			370
Asset backed securitization borrowings		—			—			180			—			180
Current maturities of long-term debt		229			—			3			—			232

Total current liabilities		230			455			1,119			(208	)		1,596
Payable to affiliate		—			533			117			(650	)		—
Long-term debt, less current portion		—			555			267			—			822
Deferred income taxes, net		(3	)		241			284			—			522
Pension and postretirement		—			180			—			—			180
Claims and other liabilities		—			86			245			—			331
Commitments and contingencies
Shareholders’ equity		699			2,543			1,989			(3,619	)		1,612

Total liabilities and shareholders’ equity	$	926		$	4,593		$	4,021		$	(4,477	)	$	5,063

Condensed Consolidating Statements of Operations


For the three months ended June 30, 2008 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	864		$	1,552		$	(17	)	$	2,399

Operating expenses:
Salaries, wages and employees’ benefits		—			450			882			—			1,332
Operating expenses and supplies		—			192			347			—			539
Purchased transportation		—			92			207			(17	)		282
Depreciation and amortization		—			20			44			—			64
Other operating expenses		—			44			62			—			106
(Gains) losses on property disposals, net		—			3			—			—			3
Reorganization and settlements		—			—			2			—			2

Total operating expenses		—			801			1,544			(17	)		2,328

Operating income		—			63			8			—			71

Nonoperating (income) expenses:
Interest expense		4			8			6			—			18
Other, net		(13	)		53			(42	)		—			(2	)

Nonoperating (income) expenses, net		(9	)		61			(36	)		—			16

Income before income taxes		9			2			44			—			55
Income tax provision		—			19			—			—			19

Net income (loss)	$	9		$	(17	)	$	44		$	—		$	36


For the three months ended June 30, 2007 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	881		$	1,706		$	(101	)	$	2,486

Operating expenses:
Salaries, wages and employees’ benefits		—			504			961			—			1,465
Operating expenses and supplies		—			175			389			(94	)		470
Purchased transportation		—			88			192			(7	)		273
Depreciation and amortization		—			18			42			—			60
Other operating expenses		—			39			75			—			114
(Gains) losses on property disposals, net		—			(5	)		2			—			(3	)
Reorganization and settlements		—			1			(2	)		—			(1	)

Total operating expenses		—			820			1,659			(101	)		2,378

Operating income		—			61			47			—			108

Nonoperating (income) expenses:
Interest expense		3			8			11			—			22
Other, net		(13	)		42			(27	)		—			2

Nonoperating (income) expenses, net		(10	)		50			(16	)		—			24

Income before income taxes		10			11			63			—			84
Income tax provision		4			5			22			(2	)		29

Net income	$	6		$	6		$	41		$	2		$	55


For the six months ended June 30, 2008 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	1,659		$	3,004		$	(31	)	$	4,632

Operating expenses:
Salaries, wages and employees’ benefits		—			922			1,763			—			2,685
Operating expenses and supplies		—			361			665			(1	)		1,025
Purchased transportation		—			173			394			(31	)		536
Depreciation and amortization		—			39			88			—			127
Other operating expenses		—			83			136			—			219
(Gains) losses on property disposals, net		—			4			3			—			7
Reorganization and settlements		—			—			15			—			15

Total operating expenses		—			1,582			3,064			(32	)		4,614

Operating income		—			77			(60	)		1			18

Nonoperating (income) expenses:
Interest expense		7			15			15			—			37
Other, net		(26	)		80			(59	)		1			(4	)

Nonoperating (income) expenses, net		(19	)		95			(44	)		1			33

Income (loss) before income taxes		19			(18	)		(16	)		—			(15	)
Income tax benefit		—			(5	)		—			—			(5	)

Net income (loss)	$	19		$	(13	)	$	(16	)	$	—		$	(10	)


For the six months ended June 30, 2007 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	1,713		$	3,294		$	(192	)	$	4,815

Operating expenses:
Salaries, wages and employees’ benefits		—			1,002			1,884			—			2,886
Operating expenses and supplies		—			333			756			(177	)		912
Purchased transportation		—			172			369			(16	)		525
Depreciation and amortization		—			37			82			—			119
Other operating expenses		—			77			153			—			230
(Gains) losses on property disposals, net		—			(4	)		4			—			—
Reorganization and settlements		—			5			9			—			14

Total operating expenses		—			1,622			3,257			(193	)		4,686

Operating income		—			91			37			1			129

Nonoperating (income) expenses:
Interest expense		7			16			19			—			42
Other, net		(26	)		84			(59	)		1			—

Nonoperating (income) expenses, net		(19	)		100			(40	)		1			42

Income (loss) before income taxes		19			(9	)		77			—			87
Income tax provision		7			—			26			(3	)		30

Net income (loss)	$	12		$	(9	)	$	51		$	3		$	57

Condensed Consolidating Statements of Cash Flows


For the six months ended June 30, 2008 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	17		$	45		$	49		$	(1	)	$	110


Investing activities:
Acquisition of property and equipment		—			(14	)		(63	)		—			(77	)
Proceeds from disposal of property and equipment		—			1			10			—			11
Other		—			—			(4	)		—			(4	)

Net cash used in investing activities		—			(13	)		(57	)		—			(70	)


Financing activities:
Asset backed securitization borrowings, net		—			—			(40	)		—			(40	)
Borrowing of long-term debt, net		—			4			2			—			6
Debt issuance costs		—			(3	)		—			—			(3	)
Intercompany advances / repayments		(17	)		(35	)		51			1			—

Net cash provided by (used in) financing activities		(17	)		(34	)		13			1			(37	)

Net increase (decrease) in cash and cash equivalents		—			(2	)		5			—			3
Cash and cash equivalents, beginning of Period		—			45			13			—			58

Cash and cash equivalents, end of period	$	—		$	43		$	18		$	—		$	61


For the six months ended June 30, 2007 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by operating activities	$	15		$	61		$	87		$	—	$	163

Investing activities:
Acquisition of property and equipment		—			(72	)		(170	)		—		(242	)
Proceeds from disposal of property and equipment		—			17			11			—		28
Other		—			—			—			—		—

Net cash used in investing activities		—			(55	)		(159	)		—		(214	)


Financing activities:
Asset backed securitization borrowings, net		—			—			25			—		25
Proceeds from exercise of stock options		—			7			—			—		7
Intercompany advances / repayments		(15	)		(19	)		34			—		—

Net cash provided by (used in) financing activities		(15	)		(12	)		59			—		32

Net decrease in cash and cash equivalents		—			(6	)		(13	)		—		(19	)
Cash and cash equivalents, beginning of period		—			38			38			—		76

Cash and cash equivalents, end of period	$	—		$	32		$	25		$	—	$	57

14.	Guarantees of the Senior Notes Due 2009 and 2010

In connection with the senior notes due 2009 and 2010 that the Company assumed by virtue of its merger with USF, and in addition to the primary obligor, Regional Transportation (formerly USF Corporation), YRC Worldwide and its following 100% owned subsidiaries have issued guarantees in favor of the holders of the senior notes due 2009 and 2010: USF Sales Corporation, USF Holland Inc., USF Reddaway Inc., USF Glen Moore Inc., YRC Logistics Services (formerly Meridian IQ Services Inc.), and IMUA Handling Corporation. Each of the guarantees is full and unconditional and joint and several.

The condensed consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantors and issuer because management does not believe that such separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of YRC Worldwide or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan.

The following represents condensed consolidating financial information of YRC Worldwide and its subsidiaries as of June 30, 2008 and December 31, 2007 with respect to the financial position and for the three and six months ended June 30, 2008 and 2007 for results of operations and for the six months ended June 30, 2008 and 2007 for the statement of cash flows. The primary obligor column presents the financial information of Regional Transportation. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the senior notes due 2009 and 2010 including YRC Worldwide, the holding company. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and Yellow Roadway Receivables Funding Corporation, the special-purpose entity that is associated with our ABS agreement.

Condensed Consolidating Balance Sheets


June 30, 2008 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	29		$	32		$	—		$	61
Intercompany advances receivable, net		—			(9	)		9			—			—
Accounts receivable, net		(15	)		5			1,153			(27	)		1,116
Prepaid expenses and other		(5	)		154			81			—			230

Total current assets		(20	)		179			1,275			(27	)		1,407
Property and equipment		—			910			3,175			—			4,085
Less – accumulated depreciation		—			(191	)		(1,579	)		—			(1,770	)

Net property and equipment		—			719			1,596			—			2,315
Investment in subsidiaries		218			3,280			9			(3,507	)		—
Receivable from affiliate		507			(1,247	)		740			—			—
Goodwill and other assets		157			373			1,118			(351	)		1,297

Total assets	$	862		$	3,304		$	4,738		$	(3,885	)	$	5,019

Intercompany advances payable	$	65		$	135		$	—		$	(200	)	$	—
Accounts payable		2			82			297			(12	)		369
Wages, vacations and employees’ benefits		1			106			323			—			430
Other current and accrued liabilities		23			83			289			(15	)		380
Asset backed securitization borrowings		—			—			140			—			140
Current maturities of long-term debt		100			—			231			—			331

Total current liabilities		191			406			1,280			(227	)		1,650
Payable to affiliate		—			(47	)		198			(151	)		—
Long-term debt, less current portion		157			558			9			—			724
Deferred income taxes, net		52			131			354			—			537
Pension and postretirement		—			163			—			—			163
Claims and other liabilities		1			94			244			—			339
Commitments and contingencies		—			—			—			—			—
Shareholders’ equity		461			1,999			2,653			(3,507	)		1,606

Total liabilities and shareholders’ equity	$	862		$	3,304		$	4,738		$	(3,885	)	$	5,019


December 31, 2007 (in millions)	Primary Obligor			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	29		$	29		$	—		$	58
Intercompany advances receivable		—			(11	)		11			—			—
Accounts receivable, net		—			7			1,084			(17	)		1,074
Prepaid expenses and other		(5	)		153			98			—			246

Total current assets		(5	)		178			1,222			(17	)		1,378
Property and equipment		2			914			3,168			—			4,084
Less – accumulated depreciation		(2	)		(165	)		(1,537	)		—			(1,704	)

Net property and equipment		—			749			1,631			—			2,380
Investment in subsidiaries		218			3,279			9			(3,506	)		—
Receivable from affiliate		490			(1,183	)		693			—			—
Goodwill and other assets		160			373			1,122			(350	)		1,305

Total assets	$	863		$	3,396		$	4,677		$	(3,873	)	$	5,063

Intercompany advances payable	$	65		$	119		$	16		$	(200	)	$	—

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