NASDAQ: YRCW

3/21/2013Turner NovakEric Graverson

NYSE: UPS

Proposal

• Sell 47.359 shares of UPS @ 83.00• Originally bought for $71.52 per share• 8.527% of portfolio

• Buy 300 shares of YRCW @ $8.62 • $2,586• 5.60% of portfolio

Overview of UPS

• Global transportation company• Involved in the LTL business with YRC• Main competitor is FedEx and the US Postal

Service

IPO’s Ownership TimeframeIPO’S

Entry Point

Reasons to Sell UPS

• Realize our 19% gain• US Postal Service will keep Saturday deliveries– Lost an opportunity for UPS to steal market share

• Opportunity cost– YRCW is a better opportunity in the same industry

SELL! SELL! SELL!

YRC Overview

• Founded in 1924• Overland Park, KS• 32,000 Employees

• 4th largest LTL Carrier by Revenue• Customers include Wal-Mart,

Perrigo, and large manufacturers• Ships freight for companies that

lead the U.S. economic recovery

YRC Over the Past 18 Months

Less-Than-Truckload (LTL)• Ships product from

Point A, to Point B, to Point C, to Point D

• Product is transferred at each terminal

Truckload (TL)• Ships product from

Point A to Point B

Trucking Industry

YRC is an LTL Carrier

TURNER’S HOMELAND!

Industry Comparison

• Undervalued compared to the industry• Financial liquidity is near industry average• Institutions are selling, insiders are buying

Industry Comparison

• Why are the total NET Assets (Assets – Debt) worth 10 times more than the total value of the company?

• Cash and earnings from operations worth over 2 times more than the value of the company?

YRC in the Past

• Revenues dropped from $9.6B to $4.8B• Net Income dropped from $275M to - $140M• Known for poor customer service

Revenue USD (Billions) Last 6 Years

• Industry leader in 2007• Revenue decreased during recession• 3rd in 2012

Net Income USD (Million) Last 7 Years

• Industry leader in 2007• Last in 2012• Room to improve in cutting costs

• The market thinks YRC will fail

• We don’t blame them

• But here is why they are wrong

FAIL!!!

YRC in the Future

• Cutting costs– Consolidating terminals– Reducing workforce

• Restructuring executive management team

• Improving customer service– Intensive training

Net Income USD (Million)

• Is YRC finally turning the corner?• How will they get there?

YRC in the Future• Hired consulting firm MAVEA to help turn

around the company• CEO of MAVEA, Larry Wilson, bought shares

of YRC a few weeks before the contract was signed

• Larry Wilson is also on the Board of Directors of another company that has seen a 50%+ increase in share price during its turnaround, Yahoo

Earnings Call Takeaways

• Beat analysts estimates for the first time in 4 years

• Positive operating income for the first time in 6 years

Earnings Call Takeaways

• Verbal offers to lease almost 100% of revenue equipment purchases in 2013– Operating leases– Decrease in CapEx, increase in FCF

• New company culture to reduce workers compensation claims (injuries on the job)– Injury frequency improved by 20%

• Reducing work force to improve efficiency

Total Assets

Operating Income

EBITDA Margin

Gross Margin

Revenue

Earnings Call Takeaways

• New management team– Marketing and sales focused– Sales and operations driven

• Decreased cargo claims ratios by focusing on better freight handling

Balance Sheet

• Convertible Bonds when stock price hits $14 and $36

• Will lower Interest Expense if converted, which will raise EBITDA, but also dilute shares

• Neutral effect on EPS

News

• WalMart named YRC the LTL carrier of the year• Announced job cuts of almost 500 employees

on Monday– Price jumped 15% that day

• Trading volume trending upwards• Will analysts raise price targets?

As the Risk goes downthe Price will go up

Risks

• Earnings don’t increase like we are projecting• Share dilution• US economy does not recover, which is driving

growth in the trucking industry

• Backbone of the U.S. economy• Very undervalued with 0.08 P/B– Failure is priced into the stock

• IPO needs to take on more risk than just UPS, Home Depot, etc.

• High risk, high reward

Investment Thesis

BUY! BUY! BUY!

Proposal

• Sell 47.359 shares of UPS @ 83.00• Originally bought for $71.52 per share• 8.527% of portfolio

• Buy 300 shares of YRCW @ $8.62 • $2,586• 5.60% of portfolio