Quarterly Report

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 March 31, 2006

¨	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, or a non-accelerated filer. See definition of “accelerated file and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨

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 April 28, 2006
Common Stock, $1 Par Value Per Share		57,453,572 shares

INDEX


Item		Page
	PART I – FINANCIAL INFORMATION
1.	Financial Statements

	Consolidated Balance Sheets – March 31, 2006 and December 31, 2005	3

	Statements of Consolidated Operations – Three Months Ended March 31, 2006 and 2005	4

	Statements of Consolidated Cash Flows – Three Months Ended March 31, 2006 and 2005	5

	Statement of Consolidated Shareholders’ Equity – Three Months Ended March 31, 2006	6

	Notes to Consolidated Financial Statements	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

3.	Quantitative and Qualitative Disclosures About Market Risk	31

4.	Controls and Procedures	32

	PART II – OTHER INFORMATION

6.	Exhibits	33

	Signatures	34

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

CONSOLIDATED BALANCE SHEETS

YRC Worldwide Inc. and Subsidiaries

(Amounts in thousands except per share data)


	March 31, 2006			December 31, 2005
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	55,022		$	82,361
Accounts receivable, net		1,187,304			1,164,383
Prepaid expenses and other		227,710			230,888

Total current assets		1,470,036			1,477,632

Property and Equipment:
Cost		3,699,642			3,607,415
Less – accumulated depreciation		1,451,127			1,401,623

Net property and equipment		2,248,515			2,205,792

Goodwill		1,239,890			1,230,781
Intangibles, net		708,101			713,677
Other assets		112,138			106,307

Total assets	$	5,778,680		$	5,734,189

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	372,965		$	393,934
Wages, vacations and employees’ benefits		506,593			522,882
Other current and accrued liabilities		328,893			372,988
Asset backed securitization (“ABS”) borrowings		449,500			374,970

Total current liabilities		1,657,951			1,664,774

Other Liabilities:
Long-term debt, less current portion		1,123,188			1,113,085
Deferred income taxes, net		357,812			387,220
Claims and other liabilities		651,219			632,622
Commitments and contingencies
Shareholders’ Equity:
Common stock, $1 par value per share		60,610			60,450
Preferred stock, $1 par value per share		—			—
Capital surplus		1,162,086			1,154,654
Retained earnings		880,750			838,614
Accumulated other comprehensive loss		(25,316	)		(27,610	)
Treasury stock, at cost (3,158 shares)		(89,620	)		(89,620	)

Total shareholders’ equity		1,988,510			1,936,488

Total liabilities and shareholders’ equity	$	5,778,680		$	5,734,189

The accompanying notes are an integral part of these statements.

STATEMENTS OF CONSOLIDATED OPERATIONS

YRC Worldwide Inc. and Subsidiaries

For the Three Months Ended March 31

(Amounts in thousands except per share data)

(Unaudited)


	2006			2005
Operating Revenue	$	2,374,161		$	1,677,961


Operating Expenses:
Salaries, wages and employees’ benefits		1,401,932			1,033,447
Operating expenses and supplies		449,927			256,457
Purchased transportation		253,286			183,653
Depreciation and amortization		73,440			45,968
Other operating expenses		106,866			71,681
(Gains) losses on property disposals, net		882			(3,234	)

Total operating expenses		2,286,333			1,587,972

Operating Income		87,828			89,989


Nonoperating (Income) Expenses:
Interest expense		20,548			9,398
Other		(796	)		(12	)

Nonoperating expenses, net		19,752			9,386


Income Before Income Taxes		68,076			80,603
Income tax provision		25,940			30,710

Net Income	$	42,136		$	49,893


Average Common Shares Outstanding – Basic		57,374			48,797

Average Common Shares Outstanding – Diluted		59,128			52,193

Basic Earnings Per Share	$	0.73		$	1.02

Diluted Earnings Per Share	$	0.71		$	0.96

The accompanying notes are an integral part of these statements.

STATEMENTS OF CONSOLIDATED CASH FLOWS

YRC Worldwide Inc. and Subsidiaries

For the Three Months Ended March 31

(Amounts in thousands)

(Unaudited)


	2006			2005
Operating Activities:
Net income	$	42,136		$	49,893
Noncash items included in net income:
Depreciation and amortization		73,440			45,968
(Gains) losses on property disposals, net		882			(3,234	)
Deferred income tax provision, net		(293	)		(193	)
Changes in assets and liabilities, net:
Accounts receivable		(25,967	)		(31,334	)
Accounts payable		(29,856	)		(49,755	)
Other working capital items		(69,643	)		1,116
Claims and other		9,896			15,138
Other, net		109			3,623

Net cash provided by operating activities		704			31,222


Investing Activities:
Acquisition of property and equipment		(118,073	)		(42,723	)
Proceeds from disposal of property and equipment		8,708			8,932
Acquisition of companies		(11,659	)		(3,203	)
Other		4,000			—

Net cash used in investing activities		(117,024	)		(36,994	)


Financing Activities:
ABS borrowings, net		74,530			—
Borrowing of long-term debt, net		12,500			—
Proceeds from exercise of stock options		1,951			668

Net cash provided by financing activities		88,981			668


Net Decrease In Cash and Cash Equivalents		(27,339	)		(5,104	)

Cash and Cash Equivalents, Beginning of Period		82,361			106,489


Cash and Cash Equivalents, End of Period	$	55,022		$	101,385

The accompanying notes are an integral part of these statements.

STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY

YRC Worldwide Inc. and Subsidiaries

For the Three Months Ended March 31

(Amounts in thousands)

(Unaudited)


	2006
Common Stock
Beginning balance	$	60,450
Stock option exercises		58
Employer contribution to 401(k) plan		56
Issuance of equity awards, net		46

Ending balance	$	60,610


Capital Surplus
Beginning balance	$	1,154,654
Stock option exercises		1,893
Employer contribution to 401(k) plan		2,518
Share-based compensation		2,949
Other, net		72

Ending balance	$	1,162,086


Retained Earnings
Beginning balance	$	838,614
Net income		42,136

Ending balance	$	880,750


Accumulated Other Comprehensive Loss
Beginning balance	$	(27,610	)
Foreign currency translation adjustment, net of tax		2,294

Ending balance	$	(25,316	)


Treasury Stock, At Cost
Beginning and ending balance	$	(89,620	)

Total Shareholders’ Equity	$	1,988,510

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. The Company adopted the name YRC Worldwide in January 2006 to reflect the fact that its services have expanded to encompass logistics as well as global, national and regional transportation. The YRC Worldwide portfolio of brands provides one of the most comprehensive packages of services for the shipment of industrial, commercial and retail goods domestically and internationally. The brands operate independently in the marketplace, providing customers with a differentiated and valued choice of services and providers. Our operating subsidiaries, which are also our reportable segments, include the following:

•

Yellow Transportation, Inc. (“Yellow Transportation”) is a leading transportation services provider that offers a full range of regional, national and international services for the movement of industrial, commercial and retail goods, primarily through centralized management and customer facing organizations. Approximately 45% of Yellow Transportation shipments are completed in two days or less.

•

Roadway Express, Inc. (“Roadway”) is a leading transportation services provider that offers a full range of regional, national and international services for the movement of industrial, commercial and retail goods, primarily through regionalized management and customer facing organizations. Approximately 30% of Roadway shipments are completed in two days or less. Roadway owns 100% of Reimer Express Lines Ltd. (“Reimer”), located in Canada, that specializes in shipments into, across and out of Canada.

•

YRC Regional Transportation, Inc. (“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, Inc. (“New Penn”), USF Holland Inc., USF Reddaway Inc. and USF Bestway Inc., which provide regional, next-day ground services through a network of facilities located across the United States (“U.S.”); Quebec, Canada; Mexico and Puerto Rico. USF Glen Moore Inc., a provider of truckload services throughout the U.S., is also a subsidiary of Regional Transportation. Approximately 67% of Regional Transportation shipments are completed in one day or less.

•

Meridian IQ is a global logistics management company that plans and coordinates the movement of goods worldwide to provide customers a single source for logistics management solutions. Meridian IQ 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.

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 by independent public accountants, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included 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, 2005.

Reclassifications

Certain amounts within the prior year have been reclassified to conform with the current year presentation.

3.	Acquisitions

In accordance with SFAS No. 141, Business Combinations (“SFAS No. 141”), we allocate the purchase price of our acquisitions to the tangible and intangible assets and liabilities of the acquired entity based on their fair values. We record the excess purchase price over the fair values as goodwill. The fair value assigned to intangible assets acquired is based on valuations prepared by independent third party appraisal firms using estimates and assumptions provided by management. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), goodwill and intangible assets with indefinite useful lives are not amortized but are reviewed at least annually for impairment. An impairment loss would be recognized to the extent that the carrying amount exceeds the assets’ fair value. Intangible assets with definite useful lives are amortized on a straight-line basis over their respective useful lives.

The results of the entities acquired as discussed below have been included in our financial statements since the respective date of acquisition.

USF Corporation

On May 24, 2005, YRC Worldwide completed the acquisition of USF Corporation (“USF”), headquartered in Chicago, IL, through the merger (the “Merger”) of a wholly owned subsidiary of YRC Worldwide with and into USF, resulting in USF becoming a wholly owned subsidiary of YRC Worldwide.

The allocation of the total consideration for the USF acquisition is as follows (in millions):


Current assets, net of cash acquired of $106.9 million	$	352.4
Property and equipment		754.4
Goodwill		588.9
Intangible assets		253.0
Other assets		20.3
Current liabilities		(396.0	)
Long-term debt ($250 million principal)		(272.2	)
Other liabilities		(110.0	)

Net assets acquired	$	1,190.8

The purchase price allocation has been prepared on a preliminary basis, and changes are expected, including changes to deferred taxes and allocations to individual business segments, as an appraisal of both tangible and intangible assets is finalized, certain restructuring activities are finalized and additional information becomes available.

During the three months ended March 31, 2006, we continued to evaluate the restructuring activities associated with the USF acquisition. We have accrued an additional $6.4 million during the three months ended March 31, 2006 for contract termination costs as well as other closure activities. Certain restructuring activities have not yet been finalized. As a result, we expect to record additional related accruals and offsetting charges to goodwill upon completion of these activities. All of these restructuring items were contemplated at the acquisition date and will have been effectuated within one year of the acquisition in accordance with purchase accounting requirements. During the three months ended March 31, 2006, we paid $2.3 million of restructuring costs resulting in a $10.4 million accrued liability at March 31, 2006.

The following unaudited pro forma data summarizes the results of operations as if the USF acquisition had occurred as of January 1, 2005 for the three months ended March 31:


(in millions except per share data)	2005
Revenue	$	2,275.9
Net income		40.0
Diluted earnings per share	$	0.66

The pro forma data gives effect to actual operating results prior to the acquisition and adjustments to interest expense and amortization expense, net of tax. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations of YRC Worldwide that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations of YRC Worldwide.

GPS Asia

In March 2005, Meridian IQ exercised and closed its option to purchase GPS Logistics Group Ltd., the Asian freight forwarding operations of GPS Logistics, LLC, and in turn, made a payment of $5.7 million ($3.2 million net of cash acquired). Under the terms of the original purchase agreement, this payment was subject to subsequent upward and downward adjustments based on the financial performance of the Asia business through March 2007. Additional earn-out payments could have been required based on the financial performance of the Asia business during the period March 2007 to March 2009. In January 2006, Meridian IQ paid an additional $11.1 million and issued a promissory note in the amount of $10.8 million representing a buyout of all aforementioned earn-out arrangements and potential purchase price adjustments. These amounts were allocated to goodwill in the consolidated balance sheet. The pro forma effect of this acquisition is not material to our results of operations.

4.	Goodwill

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. In accordance with SFAS No. 142, we review goodwill at least annually for impairment based on a fair value approach.

The following table shows the amount of goodwill attributable to our operating segments with goodwill balances and changes therein:


(in millions)	Roadway		Regional Transportation			Meridian IQ		Total
Balances at December 31, 2005	$	539.9	$	526.0		$	164.9	$	1,230.8
Goodwill resulting from acquisition		—		(14.2	)		23.2		9.0
Change in foreign currency exchange rates		—		—			0.1		0.1

Balances at March 31, 2006	$	539.9	$	511.8		$	188.2	$	1,239.9

5.	Debt and Financing

Total debt consisted of the following:


(in millions)	March 31, 2006			December 31, 2005
ABS borrowings, secured by accounts receivable	$	449.5		$	375.0
Floating rate notes		150.0			150.0
USF senior notes		268.2			269.4
Roadway senior notes		238.0			239.2
Contingent convertible senior notes		400.0			400.0
Revolving credit facility		57.5			45.0
Other		9.5			9.5

Total debt	$	1,572.7		$	1,488.1
ABS borrowings		(449.5	)		(375.0	)

Long-term debt	$	1,123.2		$	1,113.1

6.	Stock-Based Compensation

We have a long-term incentive and equity award plan, which is shareholder approved, that authorized the issuance of up to a total of 3.43 million shares and provides for awards to be made in cash and performance share units at the discretion of the Board of Directors. Though not widely-used, this plan also provides for the award of options. Prior to January 1, 2006, we accounted for this plan under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB No. 123, Accounting for Stock-Based Compensation. No

stock-based employee compensation cost relative to options was recognized in the Statements of Operations for the years ended December 31, 2005 or 2004 as all options granted under our plan had an exercise price equal to the market value of the underlying common stock on the date of grant. During the years ended December 31, 2005 and 2004, we recognized expense for performance share units (“nonvested shares”) over the respective vesting period based on the grant date fair value. Effective January 1, 2006, we adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, in addition to the compensation costs related to nonvested shares, compensation cost recognized in the first quarter of 2006 also includes: (a) compensation cost for all share-based payments (i.e. options) granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, if any, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated.

As a result of adopting Statement 123(R) on January 1, 2006, our income before income taxes and net income for the three months ended March 31, 2006, are $0.4 million and $0.2 million lower, respectively, than if we had continued to account for share-based compensation under Opinion 25. Basic and diluted earnings per share for the three months ended March 31, 2006 have not been impacted by the adoption of Statement 123(R), due to the immaterial impact to net income.

The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provision of Statement 123 to options granted under our long-term incentive and equity award plan. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods.


(in millions except per share data)	Three Months Ended March 31, 2005
Net income – as reported	$	49.9
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		—
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(0.2	)

Pro forma net income	$	49.7

Basic earnings per share
Net income – as reported	$	1.02
Net income – pro forma		1.02

Diluted earnings per share:
Net income – as reported	$	0.96
Net income – pro forma		0.95

During the three months ended March 31, 2006 and 2005, we did not grant any option awards. Traditionally, the fair value of each option is estimated on the date of grant using the Black-Scholes-Merton pricing model. Expected volatilities are based on implied volatilities from historical volatility of our 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.

A summary of option activity under the Plan as of March 31, 2006, and changes during the three 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, 2005	647		$	24.87
Granted	—			—
Exercised	(58	)		28.00
Forfeited / expired	(1	)		29.67

Outstanding at March 31, 2006	588			24.54	5.10	$	7,929

Exercisable at March 31, 2006	375			21.41	4.09	$	6,239

The total intrinsic value of options exercised during the three months ended March 31, 2006 was $1.2 million.

A summary of the status of our nonvested shares as of March 31, 2006, and changes during the three months then ended, is presented in the following table:


	Shares (in thousands)		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2005	756		$	47.50
Granted	278			48.64
Vested	(92	)		47.46
Forfeited	(6	)		47.78

Nonvested at March 31, 2006	936			47.84

As of March 31, 2006, there was $30.3 million of unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.5 years. The fair value of nonvested shares is determined based on the opening trading price of our shares on the grant date. The fair value of shares vested during the three months ended March 31, 2006 was $4.3 million.

7.	Employee Benefits

Components of Net Periodic Pension and Other Postretirement Cost

The following table sets forth the components of our company-sponsored pension and other postretirement costs for the three months ended March 31:


	Pension Costs						Other Postretirement Costs
(in millions)	2006			2005			2006			2005
Service cost	$	10.9		$	10.6		$	0.2		$	0.2
Interest cost		15.7			14.9			0.5			0.5
Expected return on plan assets		(14.8	)		(13.8	)		—			—
Amortization of prior service cost		0.4			0.4			0.1			0.1
Amortization of net loss (gain)		2.5			2.6			(0.1	)		(0.1	)

Net periodic pension cost	$	14.7		$	14.7		$	0.7		$	0.7

Employer Contributions

We expect to contribute approximately $72.8 million to our company-sponsored pension plans in 2006 which includes $3.5 million related to other postretirement costs. For the three months ended March 31, 2006, our contributions to the pension plans have not been significant.

8.	Earnings Per Share

Dilutive securities, consisting of options to purchase our common stock, included in the calculation of diluted weighted average common shares were 554,000 for the three months ended March 31, 2006 and 634,000 for the three ended March 31, 2005. In addition, dilutive securities related to our net share settle contingent convertible notes were 1,200,000 for the three months ended March 31, 2006 and 2,762,000 for the three months ended March 31, 2005.

9.	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 manage the segments separately because each requires different operating, marketing and technology strategies. We evaluate performance primarily on adjusted operating income and return on capital.

We have four reportable segments, which are strategic business units that offer complementary transportation services to their customers. Yellow Transportation and Roadway are 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. Meridian IQ, our logistics segment, provides domestic and international freight forwarding, warehousing and cross-dock services, multi-modal brokerage services, and transportation management services.

The accounting policies of the segments are the same as those described in the Summary of Accounting Policies note in our Annual Report on Form 10-K for the year ended December 31, 2005. We charge management fees and other corporate services to our segments based on the direct benefits received or as a percentage of revenue. Corporate operating losses represent operating expenses of the holding company, including salaries, wages and benefits, along with incentive compensation 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)	Yellow Transportation			Roadway			Regional Transportation ^(c)		Meridian IQ ^(d)		Corporate/ Eliminations			Consolidated
As of March 31, 2006 Identifiable assets	$	1,082.3		$	2,110.9		$	1,962.0	$	412.5	$	211.0		$	5,778.7
As of December 31, 2005 Identifiable assets		1,065.1			2,075.0			1,993.7		385.0		215.4			5,734.2
Three months ended March 31, 2006
External revenue		839.1			803.4			592.1		139.6		—			2,374.2
Intersegment revenue		1.4			1.9			—		0.2		(3.5	)		—
Operating income (loss)		31.5			37.7			20.5		2.5		(4.4	)		87.8
Adjustments to operating income ^(a)		(0.6	)		0.6			0.9		—		—			0.9
Adjusted operating income (loss) ^(b)		30.9			38.3			21.4		2.5		(4.4	)		88.7

Three months ended March 31, 2005
External revenue		790.5			766.2			65.4		55.9		—			1,678.0
Intersegment revenue		0.7			0.6			—		0.5		(1.8	)		—
Operating income (loss)		48.8			37.1			8.0		1.0		(4.9	)		90.0
Adjustments to operating income ^(a)		(2.6	)		(0.6	)		—		—		—			(3.2	)
Adjusted operating income (loss) ^(b)		46.2			36.5			8.0		1.0		(4.9	)		86.8

(a)

Management excludes these items when evaluating operating income and segment performance to better evaluate the results of our core operations. In the periods presented, adjustments consisted of losses (gains) on property disposals.

(b)

This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles.

(c)

The segment information for Regional Transportation for the three months ended March 31, 2005 includes only New Penn results.

(d)

The segment information for Meridian IQ for the three months ended March 31, 2005 does not include USF Logistics.

10.	Comprehensive Income

Our comprehensive income for the periods presented includes net income and foreign currency translation adjustments. Comprehensive income for the three months ended March 31 follows:


(in millions)	2006		2005
Net income	$	42.1	$	49.9
Other comprehensive income, net of tax:
Changes in foreign currency translation adjustments		2.3		0.6

Other comprehensive income		2.3		0.6

Comprehensive income	$	44.4	$	50.5

11.	Certain Commitments, Contingencies and Uncertainties

In 2004 USF Red Star Inc. (“USF Red Star”), a USF subsidiary that operated in the Northeastern U.S, was shut down. Due to the shutdown, USF, now our wholly owned subsidiary, is subject to withdrawal liability under the Multi-Employer Pension Plan Amendment Act of 1980 (as amended, “MEPPA”) for up to 14 multi-employer pension plans. Based on information that USF has received from these plans, YRC Worldwide estimates that USF Red Star could be liable for up to approximately $85 million. However, YRC Worldwide also estimates that approximately $20 million of this liability could be abated because of contributions that Yellow Transportation, Roadway, New Penn and USF Holland made to certain of these 14 plans. Thus, at the purchase date we reserved approximately $65 million for these liabilities. We have recognized these liabilities as an obligation assumed on the acquisition date of USF, resulting in additional goodwill. We have been making payments to several of these funds while any abatement is determined. As of March 31, 2006, we have approximately $57.7 million accrued for this obligation. The expected annual cash flow relative to this liability is approximately $8.5 million until further resolution. USF is entitled to review and contest liability assessments that various funds provided as well as determine whether additional abatement might be available as a result of other YRC Worldwide business units who make contributions to these plans. The final withdrawal liability may be adjusted when further information is available as we negotiate with the pension plans to agree on the correct calculation of withdrawal liability amounts and as sufficient information becomes available to determine the available abatement of the liability under MEPPA, including any necessary arbitration or litigation with the affected pension plans. The timing of any funding of USF Red Star’s withdrawal liabilities to any particular fund will depend upon agreement with the fund on the ultimate amount of the liability, the conclusion of any arbitration or litigation to settle any disputes and the determination at the end of a plan year of whether abatement is applicable. MEPPA provides that certain interim payments may be required until these events occur. MEPPA also provides that any ultimate withdrawal liability payments may be made in a lump sum or over a period of time.

USF Bestway’s collective bargaining agreement with the International Brotherhood of Teamsters (the “IBT”) initially expired on December 31, 2005. The Company and the IBT continue to negotiate a new agreement.

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 (the August and November issuances, collectively, may also be known as the “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 May 2005, we completed the private placement of $150 million in aggregate principle amount of senior floating rate notes due 2008. In connection with the net share settled contingent convertible senior notes and the floating rate 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 and floating rate notes: Yellow Transportation, Inc., Mission Supply Company, Yellow Relocation Services, Inc., YRC Worldwide Technologies, Inc., Meridian IQ Inc., MIQ LLC (formerly Yellow GPS, LLC), Globe.com Lines, Inc., Roadway LLC, Roadway Next Day Corporation, Roadway Express, Inc., USF Holland and Regional Transportation (formerly known as USF Corporation). Each of the guarantees is full and unconditional and joint and several.

The summarized 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 summarized condensed consolidating financial information as of March 31, 2006 and December 31, 2005 with respect to the financial position and for the three months ended March 31, 2006 and 2005 for results of operations and 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 and the floating rate notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the net share settled contingent convertible senior notes and the floating rate notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws, Yellow Roadway Receivables Funding Corporation, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our ABS agreements.

Condensed Consolidating Balance Sheets


March 31, 2006 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	15		$	11		$	29		$	—		$	55
Intercompany advances receivable		—			(77	)		77			—			—
Accounts receivable, net		3			(2	)		1,205			(19	)		1,187
Prepaid expenses and other		5			127			96			—			228

Total current assets		23			59			1,407			(19	)		1,470
Property and equipment		—			3,130			570			—			3,700
Less – accumulated depreciation		—			(1,377	)		(74	)		—			(1,451	)

Net property and equipment		—			1,753			496			—			2,249
Investment in subsidiaries		3,060			167			—			(3,227	)		—
Receivable from affiliate		(308	)		337			(29	)		—			—
Goodwill and other assets		263			1,792			355			(350	)		2,060

Total assets	$	3,038		$	4,108		$	2,229		$	(3,596	)	$	5,779


Intercompany advances payable	$	507		$	(634	)	$	336		$	(209	)	$	—
Accounts payable		19			287			76			(9	)		373
Wages, vacations and employees’ benefits		16			432			58			—			506
Other current and accrued liabilities		4			250			78			(3	)		329
Current maturities of long-term debt		—			—			450			—			450

Total current liabilities		546			335			998			(221	)		1,658
Payable to affiliate		(106	)		34			222			(150	)		—
Long-term debt, less current portion		607			516			—			—			1,123
Deferred income taxes, net		9			209			140			—			358
Claims and other liabilities		23			388			240			—			651
Commitments and contingencies
Shareholders’ equity		1,959			2,626			629			(3,225	)		1,989

Total liabilities and shareholders’ equity	$	3,038		$	4,108		$	2,229		$	(3,596	)	$	5,779


December 31, 2005 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	20		$	18		$	44		$	—		$	82
Intercompany advances receivable		—			(71	)		71			—			—
Accounts receivable, net		(61	)		32			1,202			(9	)		1,164
Prepaid expenses and other		7			135			90			—			232

Total current assets		(34	)		114			1,407			(9	)		1,478
Property and equipment		1			3,024			583			—			3,608
Less – accumulated depreciation		(1	)		(1,341	)		(60	)		—			(1,402	)

Net property and equipment		—			1,683			523			—			2,206
Investment in subsidiaries		3,037			7			—			(3,044	)		—
Receivable from affiliate		(354	)		356			(2	)		—			—
Goodwill and other assets		265			1,933			363			(511	)		2,050

Total assets	$	2,914		$	4,093		$	2,291		$	(3,564	)	$	5,734


Intercompany advances payable	$	405		$	(574	)	$	378		$	(209	)	$	—
Accounts payable		10			314			70			—			394
Wages, vacations and employees’ benefits		12			450			61			—			523
Other current and accrued liabilities		5			251			160			(43	)		373
Current maturities of long-term debt		—			—			375			—			375

Total current liabilities		432			441			1,044			(252	)		1,665
Payable to affiliate		(105	)		(209	)		464			(150	)		—
Long-term debt, less current portion		595			518			—			—			1,113
Deferred income taxes, net		4			242			141			—			387
Claims and other liabilities		26			496			176			(65	)		633
Commitments and contingencies
Shareholders’ equity		1,962			2,605			466			(3,097	)		1,936

Total liabilities and shareholders’ equity	$	2,914		$	4,093		$	2,291		$	(3,564	)	$	5,734

Condensed Consolidating Statements of Operations


For the three months ended March 31, 2006 (in millions)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	18		$	2,033	$	424		$	(101	)	$	2,374
Operating expenses:
Salaries, wages and employees’ benefits		11			1,192		206			(7	)		1,402
Operating expenses and supplies		12			413		113			(88	)		450
Purchased transportation		—			196		61			(4	)		253
Depreciation and amortization		—			58		15			—			73
Other operating expenses		—			89		18			—			107
Losses on property disposals, net		—			—		1			—			1

Total operating expenses		23			1,948		414			(99	)		2,286

Operating income (loss)		(5	)		85		10			(2	)		88

Nonoperating (income) expenses:
Interest expense		15			11		23			(28	)		21
Other, net		(6	)		31		(52	)		26			(1	)

Nonoperating (income) expenses, net		9			42		(29	)		(2	)		20

Income (loss) before income taxes		(14	)		43		39			—			68
Income tax provision (benefit)		(3	)		16		16			(3	)		26

Net income (loss)	$	(11	)	$	27	$	23		$	3		$	42


For the three months ended March 31, 2005 (in millions)	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	15		$	1,604		$	130		$	(71	)	$	1,678
Operating expenses:
Salaries, wages and employees’ benefits		11			960			62			—			1,033
Operating expenses and supplies		9			294			23			(70	)		256
Purchased transportation		—			154			31			(1	)		184
Depreciation and amortization		—			41			5			—			46
Other operating expenses		—			69			3			—			72
Gains on property disposals, net		—			(3	)		—			—			(3	)

Total operating expenses		20			1,515			124			(71	)		1,588

Operating income (loss)		(5	)		89			6			—			90

Nonoperating (income) expenses:
Interest expense		7			17			11			(26	)		9
Other, net		(8	)		12			(30	)		26			—

Nonoperating (income) expenses, net		(1	)		29			(19	)		—			9

Income (loss) before income taxes		(4	)		60			25			—			81
Income tax provision		—			22			9			—			31

Net income (loss)	$	(4	)	$	38		$	16		$	—		$	50

Condensed Consolidating Statements of Cash Flows


For the three months ended March 31, 2006 (in millions)	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	(63	)	$	73		$	(9	)	$	—	$	1

Investing activities:
Acquisition of property and equipment		—			(110	)		(8	)		—		(118	)
Proceeds from disposal of property and equipment		—			9			—			—		9
Acquisition of companies		(12	)		—			—			—		(12	)
Other		—			4			—			—		4

Net cash used in investing activities		(12	)		(97	)		(8	)		—		(117	)

		—			—			—			—		—
Financing activities:		—			—			—			—		—
ABS borrowings, net		—			—			74			—		74
Borrowing of long-term debt, net		13			—			—			—		13
Proceeds from exercise of stock options		2			—			—			—		2
Intercompany advances / repayments		55			17			(72	)		—		—

Net cash provided by financing activities		70			17			2			—		89

Net decrease in cash and cash equivalents		(5	)		(7	)		(15	)		—		(27	)
Cash and cash equivalents, beginning of period		20			18			44			—		82

Cash and cash equivalents, end of period	$	15		$	11		$	29		$	—	$	55


For the three months ended March 31, 2005 (in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	(24	)	$	6		$	49		$	—	$	31

Investing activities:
Acquisition of property and equipment		—			(34	)		(9	)		—		(43	)
Proceeds from disposal of property and equipment		—			9			—			—		9
Acquisition of companies		(6	)		—			3			—		(3	)

Other		—			—			—			—		—

Net cash used in investing activities		(6	)		(25	)		(6	)		—		(37	)
Financing activities:
Proceeds from exercise of stock options		1			—			—			—		1
Intercompany advances / repayments		25			19			(44	)		—		—

Net cash provided by (used in) financing activities		26			19			(44	)		—		1

Net increase (decrease) in cash and cash equivalents		(4	)		—			(1	)		—		(5	)
Cash and cash equivalents, beginning of Period		82			7			17			—		106

Cash and cash equivalents, end of period	$	78		$	7		$	16		$	—	$	101

13.	Guarantees of the Senior Notes Due 2008

In connection with the senior notes due 2008, assumed by virtue of the 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 summarized 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 summarized condensed consolidating financial information of YRC Worldwide and its subsidiaries as of March 31, 2006 and December 31, 2005 with respect to the financial position, and for the three months ended March 31, 2006 and 2005 for results of operations and 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, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our ABS agreements.

Condensed Consolidating Balance Sheets


March 31, 2006 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	26		$	29		$	—		$	55
Intercompany advances receivable		—			(22	)		22			—			—
Accounts receivable, net		—			(11	)		1,210			(12	)		1,187
Prepaid expenses and other		1			62			165			—			228

Total current assets		1			55			1,426			(12	)		1,470
Property and equipment		—			951			2,749			—			3,700
Less – accumulated depreciation		—			(148	)		(1,303	)		—			(1,451	)

Net property and equipment		—			803			1,446			—			2,249
Investment in subsidiaries		—			3,060			21			(3,081	)		—
Receivable from affiliate		144			(296	)		152			—			—
Goodwill and other assets		652			1,276			982			(850	)		2,060

Total assets	$	797		$	4,898		$	4,027		$	(3,943	)	$	5,779

Intercompany advances payable	$	—		$	176		$	33		$	(209	)	$	—
Accounts payable		—			118			258			(3	)		373
Wages, vacations and employees’ benefits		—			224			282			—			506
Other current and accrued liabilities		10			107			215			(3	)		329
Current maturities of long-term debt		—			—			450			—			450

Total current liabilities		10			625			1,238			(215	)		1,658
Payable to affiliate		—			544			106			(650	)		—
Long-term debt, less current portion		238			607			278			—			1,123
Deferred income taxes, net		(8	)		205			161			—			358
Claims and other liabilities		—			259			392			—			651
Commitments and contingencies
Shareholders’ equity		557			2,658			1,852			(3,078	)		1,989

Total liabilities and shareholders’ equity	$	797		$	4,898		$	4,027		$	(3,943	)	$	5,779


December 31, 2005 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	34		$	48		$	—		$	82
Intercompany advances receivable		—			(22	)		22			—			—
Accounts receivable, net		—			(81	)		1,254			(9	)		1,164
Prepaid expenses and other		1			56			175			—			232

Total current assets		1			(13	)		1,499			(9	)		1,478
Property and equipment		—			914			2,694			—			3,608
Less – accumulated depreciation		—			(130	)		(1,272	)		—			(1,402	)

Net property and equipment		—			784			1,422			—			2,206
Investment in subsidiaries		—			3,037			7			(3,044	)		—
Receivable from affiliate		126			(305	)		179			—			—
Goodwill and other assets		656			1,278			980			(864	)		2,050

Total assets	$	783		$	4,781		$	4,087		$	(3,917	)	$	5,734


Intercompany advances payable	$	—		$	111		$	98		$	(209	)	$	—
Accounts payable		—			113			281			—			394
Wages, vacations and employees’ benefits		—			226			297			—			523
Other current and accrued liabilities		1			68			304			—			373
Current maturities of long-term debt		—			—			375			—			375

Total current liabilities		1			518			1,355			(209	)		1,665
Payable to affiliate		—			545			105			(650	)		—
Long-term debt, less current portion		239			595			279			—			1,113
Deferred income taxes, net		(7	)		199			195			—			387
Claims and other liabilities		—			276			357			—			633
Commitments and contingencies
Shareholders’ equity		550			2,648			1,796			(3,058	)		1,936

Total liabilities and shareholders’ equity	$	783		$	4,781		$	4,087		$	(3,917	)	$	5,734

Condensed Consolidating Statements of Operations


For the three months ended March 31, 2006 (in millions)	Primary Obligor			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	849	$	1,619		$	(94	)	$	2,374

Operating expenses:
Salaries, wages and employees’ benefits		—			503		906			(7	)		1,402
Operating expenses and supplies		—			168		364			(82	)		450
Purchased transportation		—			82		175			(4	)		253
Depreciation and amortization		—			22		51			—			73
Other operating expenses		—			34		73			—			107
Losses on property disposals, net		—			1		—			—			1

Total operating expenses		—			810		1,569			(93	)		2,286

Operating income (loss)		—			39		50			(1	)		88

Nonoperating (income) expenses:
Interest expense		4			28		27			(38	)		21
Other, net		(14	)		6		(30	)		37			(1	)

Nonoperating (income) expenses, net		(10	)		34		(3	)		(1	)		20

Income before income taxes		10			5		53			—			68
Income tax provision (benefit)		3			4		22			(3	)		26

Net income	$	7		$	1	$	31		$	3		$	42


For the three months ended March 31, 2005 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	—		$	739		$	939		$	—		$	1,678

Operating expenses:
Salaries, wages and employees’ benefits		—			505			528			—			1,033
Operating expenses and supplies		—			70			186			—			256
Purchased transportation					74			110			—			184
Depreciation and amortization		—			20			26			—			46
Other operating expenses		—			32			40			—			72
Gains on property disposals, net		—			(1	)		(2	)		—			(3	)

Total operating expenses		—			700			888			—			1,588

Operating income		—			39			51			—			90

Nonoperating (income) expenses:
Interest expense		3			8			11			(13	)		9
Other, net		(13	)		20			(20	)		13			—

Nonoperating (income) expenses, net		(10	)		28			(9	)		—			9

Income before income taxes		10			11			60			—			81
Income tax provision		4			5			22			—			31

Net income	$	6		$	6		$	38		$	—		$	50

Condensed Consolidating Statements of Cash Flows


For the three months ended March 31, 2006 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	14		$	(25	)	$	12		$	—	$	1

Investing activities:
Acquisition of property and equipment		—			(40	)		(78	)		—		(118	)
Proceeds from disposal of property and equipment		—			—			9			—		9
Acquisition of companies		—			(12	)		—			—		(12	)
Other		4			—			—			—		4

Net cash provided by (used in) investing activities		4			(52	)		(69	)		—		(117	)

Financing activities:
ABS borrowings, net		—			—			74			—		74
Borrowing of long-term debt, net		—			13			—			—		13
Proceeds from exercise of stock options		—			2			—			—		2
Intercompany advances / repayments		(18	)		54			(36	)		—		—

Net cash provided by (used in) financing activities		(18	)		69			38			—		89

Net increase (decrease) in cash and cash equivalents		—			(8	)		(19	)		—		(27	)
Cash and cash equivalents, beginning of period		—			34			48			—		82

Cash and cash equivalents, end of period	$	—		$	26		$	29		$	—	$	55

Condensed Consolidating Statements of Cash Flows


For the three months ended March 31, 2005 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	31		$	(62	)	$	62		$	—	$	31

Investing activities:
Acquisition of property and equipment		—			(12	)		(31	)		—		(43	)
Proceeds from disposal of property and equipment		—			2			7					9
Acquisition of companies		—			(6	)		3			—		(3	)

Net cash used in investing activities		—			(16	)		(21	)		—		(37	)

Financing activities:
Proceeds from exercise of stock options		—			1			—			—		1
Intercompany advances / repayments		(31	)		74			(43	)		—		—

Net cash provided by (used in) financing activities		(31	)		75			(43	)		—		1

Net decrease in cash and cash equivalents		—			(3	)		(2	)		—		(5	)
Cash and cash equivalents, beginning of period		—			89			17			—		106

Cash and cash equivalents, end of period	$	—		$	86		$	15		$	—	$	101

14.	Guarantees of the Senior Notes Due 2009 and 2010

In connection with the senior notes due 2009 and 2010 that YRC Worldwide assumed by virtue of its merger with USF, and in addition to the primary obligor, USF, 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 Bestway Inc., USF Bestway Leasing Inc., USF Reddaway Inc., USF Dugan Inc., USF Glen Moore Inc., Meridian IQ Services Inc. and IMUA Handling Corporation. Each of the guarantees is full and unconditional and joint and several.

The summarized 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 Yellow Roadway or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan.

The following represents summarized condensed consolidating financial information of YRC Worldwide and its subsidiaries as of March 31, 2006 and December 31, 2005 with respect to the financial position and for the three months ended March 31, 2006 for results of operations and cash flows. The primary obligor column presents the financial information of Regional Transportation (formerly USF Corporation). 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, Yellow Receivables Corporation and Roadway Funding, Inc., the special-purpose entities that are or were associated with our ABS agreements.

Condensed Consolidating Balance Sheet


March 31, 2006 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	20		$	35		$	—		$	55
Accounts receivable, net		3			(17	)		1,201			—			1,187
Prepaid expenses and other		(10	)		60			178			—			228

Total current assets		(7	)		63			1,414			—			1,470
Property and equipment		2			800			2,898			—			3,700
Less – accumulated depreciation		(1	)		(68	)		(1,382	)		—			(1,451	)

Net property and equipment		1			732			1,516			—			2,249
Investment in subsidiaries		160			3,061			6			(3,227	)		—
Receivable from affiliate		312			(439	)		127			—			—
Goodwill and other assets		702			407			1,301			(350	)		2,060

Total assets	$	1,168		$	3,824		$	4,364		$	(3,577	)	$	5,779


Intercompany advances payable	$	—		$	290		$	(90	)	$	(200	)	$	—
Accounts payable		—			93			280			—			373
Wages, vacations and employees’ benefits		1			107			398			—			506
Other current and accrued liabilities		50			70			212			(3	)		329
Current maturities of long-term debt		—			—			450			—			450

Total current liabilities		51			560			1,250			(203	)		1,658
Payable to affiliate		—			(34	)		184			(150	)		—
Long-term debt, less current portion		268			608			247			—			1,123
Deferred income taxes, net		(114	)		123			349			—			358
Claims and other liabilities		(1	)		63			589			—			651
Commitments and contingencies
Shareholders’ equity		964			2,504			1,745			(3,224	)		1,989

Total liabilities and shareholders’ equity	$	1,168		$	3,824		$	4,364		$	(3,577	)	$	5,779


December 31, 2005 (in millions)	Primary Obligor			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	42		$	40		$	—		$	82
Accounts receivable, net		1			(20	)		1,183			—			1,164
Prepaid expenses and other		(7	)		59			180			—			232

Total current assets		(6	)		81			1,403			—			1,478
Property and equipment		2			792			2,814			—			3,608
Less – accumulated depreciation		(1	)		(50	)		(1,351	)		—			(1,402	)

Net property and equipment		1			742			1,463			—			2,206
Investment in subsidiaries		—			3,038			7			(3,045	)		—
Receivable from affiliate		166			(359	)		193			—			—
Goodwill and other assets		834			354			1,222			(360	)		2,050

Total assets	$	995		$	3,856		$	4,288		$	(3,405	)	$	5,734


Intercompany advances payable	$	—		$	211		$	(11	)	$	(200	)	$	—
Accounts payable		—			87			307			—			394
Wages, vacations and employees’ benefits		(1	)		102			422			—			523
Other current and accrued liabilities		46			132			238			(43	)		373
Current maturities of long-term debt		—			—			375			—			375

Total current liabilities		45			532			1,331			(243	)		1,665
Payable to affiliate		(314	)		184			130			—			—
Long-term debt, less current portion		269			595			249			—			1,113
Deferred income taxes, net		(84	)		120			351			—			387
Claims and other liabilities		109			30			559			(65	)		633
Commitments and contingencies
Shareholders’ equity		970			2,395			1,668			(3,097	)		1,936

Total liabilities and shareholders’ equity	$	995		$	3,856		$	4,288		$	(3,405	)	$	5,734

Condensed Consolidating Statements of Operations


For the three months ended March 31, 2006 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue	$	6		$	598		$	1,871		$	(101	)	$	2,374

Operating expenses:
Salaries, wages and employees’ benefits		2			341			1,066			(7	)		1,402
Operating expenses and supplies		1			158			379			(88	)		450
Purchased transportation		—			35			222			(4	)		253
Depreciation and amortization		2			20			51			—			73
Other operating expenses		—			31			76			—			107
Losses on property disposals, net		—			1			—			—			1

Total operating expenses		5			586			1,794			(99	)		2,286

Operating income (loss)		1			12			77			(2	)		88

Nonoperating (income) expenses:
Interest expense		4			15			30			(28	)		21
Other, net		(2	)		10			(35	)		26			(1	)

Nonoperating (income) expenses, net		2			25			(5	)		(2	)		20

Income (loss) before income taxes		(1	)		(13	)		82			—			68
Income tax provision (benefit)		(1	)		(1	)		31			(3	)		26

Net income (loss)	$	—		$	(12	)	$	51		$	3		$	42

Condensed Consolidating Statement of Cash Flows


For the three months ended March 31, 2006 (in millions)	Primary Obligor			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Operating activities:
Net cash provided by (used in) operating activities	$	3		$	(21	)	$	19		$	—	$	1

Investing activities:
Acquisition of property and equipment		—			(14	)		(104	)		—		(118	)
Proceeds from disposal of property and equipment		—			4			5			—		9
Acquisition of companies		—			(12	)		—			—		(12	)
Other		—			—			4			—		4

Net cash used in investing activities		—			(22	)		(95	)		—		(117	)

Financing activities:
ABS borrowings, net		—			—			74			—		74
Borrowing of long-term debt, net		—			13			—			—		13
Proceeds from exercise of stock options		—			2			—			—		2
Intercompany advances / repayments		(3	)		6			(3	)		—		—

Net cash provided by (used in) financing activities		(3	)		21			71			—		89

Net decrease in cash and cash equivalents		—			(22	)		(5	)		—		(27	)
Cash and cash equivalents, beginning of Period		—			42			40			—		82

Cash and cash equivalents, end of year	$	—		$	20		$	35		$	—	$	55

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements of YRC Worldwide Inc. (also referred to as “YRC Worldwide,” “we” or “our”). MD&A and certain statements in the Notes to Consolidated Financial Statements include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended (each a “forward-looking statement”). Forward-looking statements include those preceded by, followed by or include the words “should,” “could,” “would,” “will,” “may,” “expect,” “believe,” “estimate” or similar expressions. Our actual results could differ materially from those projected by these forward-looking statements due to a number of factors, including (without limitation), inflation, inclement weather, price and availability of fuel, competitor pricing activity, expense volatility, ability to capture cost synergies, changes in equity and debt markets, a downturn in general or regional economic activity, effects of a terrorist attack, and labor relations, including (without limitation), the impact of work rules, work stoppages, strikes or other disruptions, any obligations to multi-employer health, welfare and pension plans, wage requirements and employee satisfaction.

Results of Operations

Our Results of Operations section focuses on the highlights and significant items that impacted our operating results during the first quarter. Our discussion will also explain the adjustments to operating income that management excludes when internally evaluating segment performance since the items are not related to the segments’ core operations. Please refer to our Business Segments note for further discussion.

Yellow Transportation Results

Yellow Transportation represented approximately 35% and 47% of our consolidated revenue in the first quarter of 2006 and 2005, respectively. The table below provides summary financial information for Yellow Transportation for the three months ended March 31:


(in millions)	2006			2005			Percent Change
Operating revenue	$	840.5		$	791.2		6.2	%
Operating income		31.5			48.8		(35.4	)%
Adjustments to operating income ^(a)		(0.6	)		(2.6	)	(76.9	)%
Adjusted operating income ^(b)		30.9			46.2		(33.0	)%
Operating ratio		96.2	%		93.8	%	(2.4	)pp ^(c)
Adjusted operating ratio		96.3	%		94.2	%	(2.1	)pp

(a)

Represents charges that management excludes when evaluating segment performance to better understand our core operations (see discussion below).

(b)

This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles

(c)

Percentage points.

Three months ended March 31, 2006 compared to three months ended March 31, 2005

Yellow Transportation reported first quarter 2006 revenue of $840.5 million, representing an increase of $49.3 million or 6.2% from the first quarter of 2005. The revenue increase resulted from higher tonnage, improved yield, higher fuel surcharge revenue and a continued emphasis on premium services. The fuel surcharge is common throughout our industry and represents an amount that we charge to customers that adjusts with changing fuel prices. We base our fuel surcharge on a published national index and adjust it weekly. Material changes in the index or our cost of fuel can positively or negatively impact our revenue and operating income. Fuel surcharge is an accepted and important component of the overall pricing of our services to our customers. Without an industry accepted fuel surcharge program, our base pricing for our transportation services would require changes. We believe the distinction between base rates and fuel surcharge has been blurring over time and in the pricing continuum it has become difficult to clearly separate all the different factors that influence the price that our customers are willing to pay.

The two primary components of less-than-truckload (“LTL”) revenue are tonnage, comprised of the number of shipments and the weight per shipment, and price, usually evaluated on a per hundred weight basis. In the first quarter of 2006, Yellow Transportation LTL tonnage improved by 2.8% per day and LTL revenue per hundred weight improved by 3.0% from the first quarter of 2005.

Premium services, an integral part of our strategy to offer a broad portfolio of services and meet the increasingly complex transportation needs of our customers, continued to deliver significant revenue growth. Premium services at Yellow Transportation include, among others, Exact Express ^® , an expedited and time-definite ground service with a 100% satisfaction guarantee. Total Exact Express revenue increased in the first quarter of 2006 by over 20%.

Yellow Transportation operating income decreased by $17.3 million or 35.4% in the first quarter of 2006 compared to the first quarter of 2005. Operating income decreased due to higher wage and benefit rates, increased workers’ compensation costs and increased purchased transportation offset by a higher fuel surcharge. A portion of the purchased transportation increase is due to the railroads discontinuing their business practice of providing Yellow Transportation with rail-owned trailers for intermodal movement. This change led to leasing and purchasing additional trailers, making arrangements to get trailers repositioned and declining productivity. Yellow Transportation also incurred $3.5 million of costs associated with hosting an industry conference during the three months ended March 31, 2006. Operating expenses as a percentage of revenue increased in the first quarter of 2006 by 2.4 percentage points compared to the first quarter of 2005, resulting in an operating ratio of 96.2%. Operating ratio refers to a common industry measurement calculated by dividing a company’s operating expenses by its operating revenue.

Adjustments to operating income represent charges that management excludes when evaluating segment performance to better understand the results of our core operations. Management excludes the impact of gains and losses from the disposal of property and equipment as they reflect charges not related to the segment’s primary business. For the three months ended March 31, 2006 and 2005, adjustments to operating income were gains of $0.6 million and $2.6 million.

Roadway Results

Roadway represented approximately 34% and 46% of our consolidated revenue in the first quarter of 2006 and 2005 respectively. The table below provides summary financial information for Roadway for the three months ended March 31:


(in millions)	2006			2005			Percent Change
Operating revenue	$	805.3		$	766.8		5.0	%
Operating income		37.7			37.1		1.6	%
Adjustments to operating income ^(a)		0.6			(0.6	)	n/m	^(c)
Adjusted operating income ^(b)		38.3			36.5		4.7	%
Operating ratio		95.3	%		95.2	%	(0.1	)pp ^(d)
Adjusted operating ratio		95.3	%		95.2	%	(0.1	)pp

(a)

Represents charges that management excludes when evaluating segment performance to better understand our core operations.

(b)

This measurement is used for internal management purposes and should not be construed as a better measurement than operating income as defined by generally accepted accounting principles

(c)

Not meaningful.

(d)

Percentage points.

Three months ended March 31, 2006 compared to three months ended March 31, 2005

Roadway reported first quarter 2006 revenue of $805.3 million, representing an increase of $38.5 million or 5.0% from the first quarter of 2005. The revenue increase resulted from slightly higher overall tonnage as well as a continued emphasis on premium products and higher fuel surcharge revenue. LTL revenue per hundred weight increased 4.2% in the first quarter 2006 as compared to the first quarter 2005. In the first quarter of 2006, LTL shipments declined by 1.9% per day while LTL weight per shipment increased 1.6% compared to the first quarter of 2005. Roadway has a fuel surcharge program that is substantially similar to that of Yellow Transportation.

Roadway reported operating income of $37.7 million for the first quarter, an improvement of 1.6% or $0.6 million over the first quarter of 2005. Increases in overall revenue, including the impact of yield and fuel surcharge revenue, as well as improvements in labor efficiencies and cost control contributed to the overall results but were partially offset by higher operating expenses resulting from increased maintenance costs, increased operating supplies, higher wage and benefit rates, as well as, higher costs associated with a major change of operations. This change was designed to enhance the service provided to our customers by improving the speed and reliability of the network. Purchase transportation costs were also higher due in part to higher fuel costs and costs associated with repositioning empty rail trailers as mentioned in the Yellow Transportation discussion. The costs associated with repositioning empty rail trailers will continue to increase as rail providers continue to phase out the availability of rail controlled trailers. Roadway reported a first quarter 2006 operating ratio of 95.3% versus 95.2% for the first quarter of 2005.