UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
☐ | |
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 par value per share | YRCW | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 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 ☒ý No ☐o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ý No ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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 May 7, 2020 | |
Common Stock, $0.01 par value per share | 37,145,903 shares |
Item |
| Page |
|
| |
1 | 3 | |
| Consolidated Balance Sheets – March 31, 2020 and December 31, 2019 | 3 |
| Statements of Consolidated Comprehensive Income (Loss) - Three Months Ended March 31, 2020 and 2019 | 4 |
| Statements of Consolidated Cash Flows - Three Months Ended March 31, 2020 and 2019 | 5 |
| Statements of Consolidated Shareholders’ Deficit - Three Months Ended March 31, 2020 and 2019 | 6 |
| 7 | |
2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
3 | 24 | |
4 | 24 | |
|
| |
1 | 26 | |
1A | 26 | |
2 | Not Applicable |
|
3 | Not Applicable |
|
4 | Not Applicable |
|
5 | Not Applicable |
|
6 | 28 | |
| 29 |
Item | Page | |
1 | ||
2 | ||
3 | ||
4 | ||
1 | ||
1A | ||
2 | Not Applicable | |
3 | Not Applicable | |
4 | Not Applicable | |
5 | ||
6 | ||
YRC Worldwide Inc. and Subsidiaries
(Amounts in millions except share and per share data)
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
|
| (Unaudited) |
|
|
|
|
| |
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 103.9 |
|
| $ | 109.2 |
|
Restricted amounts held in escrow |
|
| 2.0 |
|
|
| — |
|
Accounts receivable, net |
|
| 525.2 |
|
|
| 464.4 |
|
Prepaid expenses and other |
|
| 60.0 |
|
|
| 44.6 |
|
Total current assets |
|
| 691.1 |
|
|
| 618.2 |
|
Property and Equipment: |
|
|
|
|
|
|
|
|
Cost |
|
| 2,728.9 |
|
|
| 2,761.6 |
|
Less – accumulated depreciation |
|
| (1,990.0 | ) |
|
| (1,991.3 | ) |
Net property and equipment |
|
| 738.9 |
|
|
| 770.3 |
|
Deferred income taxes, net |
|
| 0.5 |
|
|
| 0.6 |
|
Operating lease right-of-use assets |
|
| 355.5 |
|
|
| 386.0 |
|
Other assets |
|
| 67.0 |
|
|
| 56.5 |
|
Total Assets |
| $ | 1,853.0 |
|
| $ | 1,831.6 |
|
Liabilities and Shareholders’ Deficit |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 194.7 |
|
| $ | 163.7 |
|
Wages, vacations and employee benefits |
|
| 212.2 |
|
|
| 195.9 |
|
Current operating lease liabilities |
|
| 118.6 |
|
|
| 120.8 |
|
Claims and insurance accruals |
|
| 111.8 |
|
|
| 120.4 |
|
Other accrued taxes |
|
| 29.8 |
|
|
| 25.8 |
|
Other current and accrued liabilities |
|
| 33.3 |
|
|
| 21.3 |
|
Current maturities of long-term debt |
|
| 4.1 |
|
|
| 4.1 |
|
Total current liabilities |
|
| 704.5 |
|
|
| 652.0 |
|
Other Liabilities: |
|
|
|
|
|
|
|
|
Long-term debt and financing, less current portion |
|
| 838.3 |
|
|
| 858.1 |
|
Pension and postretirement |
|
| 230.5 |
|
|
| 236.5 |
|
Operating lease liabilities |
|
| 223.0 |
|
|
| 246.3 |
|
Claims and other liabilities |
|
| 290.5 |
|
|
| 279.9 |
|
Commitments and contingencies |
|
| — |
|
|
| — |
|
Shareholders’ Deficit: |
|
|
|
|
|
|
|
|
Cumulative preferred stock, $1 par value per share |
|
| — |
|
|
| — |
|
Common stock, $0.01 par value per share |
|
| 0.3 |
|
|
| 0.3 |
|
Capital surplus |
|
| 2,334.7 |
|
|
| 2,332.9 |
|
Accumulated deficit |
|
| (2,308.1 | ) |
|
| (2,312.4 | ) |
Accumulated other comprehensive loss |
|
| (368.0 | ) |
|
| (369.3 | ) |
Treasury stock, at cost (410 shares) |
|
| (92.7 | ) |
|
| (92.7 | ) |
Total shareholders’ deficit |
|
| (433.8 | ) |
|
| (441.2 | ) |
Total Liabilities and Shareholders’ Deficit |
| $ | 1,853.0 |
|
| $ | 1,831.6 |
|
June 30, 2019 | December 31, 2018 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 117.5 | $ | 227.6 | |||
Restricted amounts held in escrow | — | — | |||||
Accounts receivable, net | 538.7 | 470.3 | |||||
Prepaid expenses and other | 52.3 | 58.7 | |||||
Total current assets | 708.5 | 756.6 | |||||
Property and Equipment: | |||||||
Cost | 2,767.2 | 2,765.9 | |||||
Less – accumulated depreciation | (1,986.0 | ) | (1,969.8 | ) | |||
Net property and equipment | 781.2 | 796.1 | |||||
Deferred income taxes, net | 0.4 | — | |||||
Operating lease right-of-use assets | 373.9 | — | |||||
Other assets | 43.3 | 64.4 | |||||
Total Assets | $ | 1,907.3 | $ | 1,617.1 | |||
Liabilities and Shareholders’ Deficit | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 188.0 | $ | 178.0 | |||
Wages, vacations and employee benefits | 239.1 | 223.6 | |||||
Current operating lease liabilities | 110.5 | — | |||||
Claims and insurance accruals | 113.5 | 112.8 | |||||
Other accrued taxes | 27.2 | 24.7 | |||||
Other current and accrued liabilities | 31.3 | 32.6 | |||||
Current maturities of long-term debt | 18.4 | 20.7 | |||||
Total current liabilities | 728.0 | 592.4 | |||||
Other Liabilities: | |||||||
Long-term debt, less current portion | 833.9 | 854.2 | |||||
Deferred income taxes, net | — | 1.8 | |||||
Pension and postretirement | 194.7 | 202.9 | |||||
Operating lease liabilities | 243.7 | — | |||||
Claims and other liabilities | 277.1 | 271.3 | |||||
Commitments and contingencies | |||||||
Shareholders’ Deficit: | |||||||
Preferred stock, $1 par value per share | — | — | |||||
Common stock, $0.01 par value per share | 0.3 | 0.3 | |||||
Capital surplus | 2,330.2 | 2,327.6 | |||||
Accumulated deficit | (2,281.1 | ) | (2,208.4 | ) | |||
Accumulated other comprehensive loss | (326.8 | ) | (332.3 | ) | |||
Treasury stock, at cost (410 shares) | (92.7 | ) | (92.7 | ) | |||
Total shareholders’ deficit | (370.1 | ) | (305.5 | ) | |||
Total Liabilities and Shareholders’ Deficit | $ | 1,907.3 | $ | 1,617.1 |
The accompanying notes are an integral part of these statements.
YRC Worldwide Inc. and Subsidiaries
For the Three and Six Months Ended June 30
(Amounts in millions except per share data, shares in thousands)
(Unaudited)
|
| 2020 |
|
| 2019 |
| ||
Operating Revenue |
| $ | 1,150.4 |
|
| $ | 1,182.3 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
|
| 720.2 |
|
|
| 718.2 |
|
Fuel, operating expenses and supplies |
|
| 208.0 |
|
|
| 235.9 |
|
Purchased transportation |
|
| 136.2 |
|
|
| 146.3 |
|
Depreciation and amortization |
|
| 35.7 |
|
|
| 40.0 |
|
Other operating expenses |
|
| 61.6 |
|
|
| 63.8 |
|
(Gains) losses on property disposals, net |
|
| (39.3 | ) |
|
| 1.6 |
|
Impairment charges |
|
| — |
|
|
| 8.2 |
|
Total operating expenses |
|
| 1,122.4 |
|
|
| 1,214.0 |
|
Operating Income (Loss) |
|
| 28.0 |
|
|
| (31.7 | ) |
Nonoperating Expenses: |
|
|
|
|
|
|
|
|
Interest expense |
|
| 28.3 |
|
|
| 27.0 |
|
Non-union pension and postretirement benefits |
|
| (1.6 | ) |
|
| 0.3 |
|
Other, net |
|
| (2.6 | ) |
|
| (0.2 | ) |
Nonoperating expenses, net |
|
| 24.1 |
|
|
| 27.1 |
|
Income (loss) before income taxes |
|
| 3.9 |
|
|
| (58.8 | ) |
Income tax benefit |
|
| (0.4 | ) |
|
| (9.7 | ) |
Net income (loss) |
|
| 4.3 |
|
|
| (49.1 | ) |
Other comprehensive income, net of tax |
|
| 1.3 |
|
|
| 3.5 |
|
Comprehensive Income (Loss) |
| $ | 5.6 |
|
| $ | (45.6 | ) |
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding - Basic |
|
| 33,791 |
|
|
| 33,150 |
|
Average Common Shares Outstanding - Diluted |
|
| 35,630 |
|
|
| 33,150 |
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share - Basic |
| $ | 0.13 |
|
| $ | (1.48 | ) |
Earnings (Loss) Per Share - Diluted |
| $ | 0.12 |
|
| $ | (1.48 | ) |
Three Months | Six Months | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating Revenue | $ | 1,272.6 | $ | 1,326.5 | $ | 2,454.9 | $ | 2,541.0 | |||||||
Operating Expenses: | |||||||||||||||
Salaries, wages and employee benefits | 782.3 | 756.0 | 1,500.5 | 1,485.7 | |||||||||||
Fuel, operating expenses and supplies | 228.3 | 242.0 | 464.2 | 472.2 | |||||||||||
Purchased transportation | 158.0 | 177.2 | 304.3 | 332.6 | |||||||||||
Depreciation and amortization | 38.5 | 37.6 | 78.5 | 75.3 | |||||||||||
Other operating expenses | 57.4 | 60.6 | 121.2 | 123.2 | |||||||||||
(Gains) losses on property disposals, net | (6.2 | ) | 2.2 | (4.6 | ) | 5.4 | |||||||||
Impairment charges | — | — | 8.2 | — | |||||||||||
Total operating expenses | 1,258.3 | 1,275.6 | 2,472.3 | 2,494.4 | |||||||||||
Operating Income (Loss) | 14.3 | 50.9 | (17.4 | ) | 46.6 | ||||||||||
Nonoperating Expenses: | |||||||||||||||
Interest expense | 28.2 | 25.5 | 55.2 | 51.1 | |||||||||||
Non-union pension and postretirement benefits | 0.5 | (0.4 | ) | 0.8 | (0.9 | ) | |||||||||
Other, net | 0.1 | 1.0 | (0.1 | ) | (0.9 | ) | |||||||||
Nonoperating expenses, net | 28.8 | 26.1 | 55.9 | 49.3 | |||||||||||
Income (loss) before income taxes | (14.5 | ) | 24.8 | (73.3 | ) | (2.7 | ) | ||||||||
Income tax expense (benefit) | 9.1 | 10.4 | (0.6 | ) | (2.5 | ) | |||||||||
Net income (loss) | (23.6 | ) | 14.4 | (72.7 | ) | (0.2 | ) | ||||||||
Other comprehensive income, net of tax | 2.0 | 4.3 | 5.5 | 6.3 | |||||||||||
Comprehensive Income (Loss) | $ | (21.6 | ) | $ | 18.7 | $ | (67.2 | ) | $ | 6.1 | |||||
Average Common Shares Outstanding – Basic | 33,247 | 32,966 | 33,199 | 32,894 | |||||||||||
Average Common Shares Outstanding – Diluted | 33,247 | 33,794 | 33,199 | 32,894 | |||||||||||
Earnings (Loss) Per Share – Basic | $ | (0.71 | ) | $ | 0.44 | $ | (2.19 | ) | $ | 0.00 | |||||
Earnings (Loss) Per Share – Diluted | $ | (0.71 | ) | $ | 0.43 | $ | (2.19 | ) | $ | 0.00 |
The accompanying notes are an integral part of these statements.
YRC Worldwide Inc. and Subsidiaries
For the SixThree Months Ended June 30
(Amounts in millions)
(Unaudited)
|
| 2020 |
|
| 2019 |
| ||
Operating Activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 4.3 |
|
| $ | (49.1 | ) |
Adjustments to reconcile net income (loss) to cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 35.7 |
|
|
| 40.0 |
|
Lease amortization and accretion expense |
|
| 43.1 |
|
|
| 41.2 |
|
Lease payments |
|
| (38.1 | ) |
|
| (36.4 | ) |
Equity-based compensation and employee benefits expense |
|
| 5.6 |
|
|
| 5.3 |
|
(Gains) losses on property disposals, net |
|
| (39.3 | ) |
|
| 1.6 |
|
Impairment charges |
|
| — |
|
|
| 8.2 |
|
Deferred income tax benefit, net |
|
| (0.4 | ) |
|
| — |
|
Other noncash items, net |
|
| 4.0 |
|
|
| 0.8 |
|
Changes in assets and liabilities, net: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (61.0 | ) |
|
| (42.1 | ) |
Accounts payable |
|
| 14.9 |
|
|
| 12.8 |
|
Other operating assets |
|
| (3.9 | ) |
|
| (20.0 | ) |
Other operating liabilities |
|
| 19.5 |
|
|
| (4.0 | ) |
Net cash used in operating activities |
|
| (15.6 | ) |
|
| (41.7 | ) |
Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| (12.4 | ) |
|
| (32.6 | ) |
Proceeds from disposal of property and equipment |
|
| 45.0 |
|
|
| 0.8 |
|
Net cash provided by (used in) investing activities |
|
| 32.6 |
|
|
| (31.8 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
| (20.1 | ) |
|
| (1.9 | ) |
Payments for tax withheld on equity-based compensation |
|
| (0.2 | ) |
|
| (0.6 | ) |
Net cash used in financing activities |
|
| (20.3 | ) |
|
| (2.5 | ) |
Net Decrease In Cash and Cash Equivalents and Restricted Amounts Held in Escrow |
|
| (3.3 | ) |
|
| (76.0 | ) |
Cash and Cash Equivalents and Restricted Amounts Held in Escrow, Beginning of Period |
|
| 109.2 |
|
|
| 227.6 |
|
Cash and Cash Equivalents and Restricted Amounts Held in Escrow, End of Period |
| $ | 105.9 |
|
| $ | 151.6 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest paid |
| $ | (8.6 | ) |
| $ | (13.3 | ) |
Income tax payment |
|
| (0.5 | ) |
|
| (1.6 | ) |
2019 | 2018 | ||||||
Operating Activities: | |||||||
Net loss | $ | (72.7 | ) | $ | (0.2 | ) | |
Adjustments to reconcile net loss to cash flows from operating activities: | |||||||
Depreciation and amortization | 78.5 | 75.3 | |||||
Lease amortization and accretion expense | 82.3 | — | |||||
Lease payments | (75.4 | ) | — | ||||
Equity-based compensation and employee benefits expense | 9.5 | 12.1 | |||||
(Gains)/losses on property disposals, net | (4.6 | ) | 5.4 | ||||
Impairment charges | 8.2 | — | |||||
Deferred income tax benefit, net | (1.6 | ) | — | ||||
Other noncash items, net | 2.1 | 3.6 | |||||
Changes in assets and liabilities, net: | |||||||
Accounts receivable | (67.2 | ) | (65.6 | ) | |||
Accounts payable | 5.3 | 17.8 | |||||
Other operating assets | (4.5 | ) | (17.4 | ) | |||
Other operating liabilities | 10.6 | 40.5 | |||||
Net cash provided by (used in) operating activities | (29.5 | ) | 71.5 | ||||
Investing Activities: | |||||||
Acquisition of property and equipment | (70.6 | ) | (46.5 | ) | |||
Proceeds from disposal of property and equipment | 8.3 | 4.2 | |||||
Net cash used in investing activities | (62.3 | ) | (42.3 | ) | |||
Financing Activities: | |||||||
Repayments of long-term debt | (17.5 | ) | (14.6 | ) | |||
Payments for tax withheld on equity-based compensation | (0.8 | ) | (1.6 | ) | |||
Net cash used in financing activities | (18.3 | ) | (16.2 | ) | |||
Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Amounts Held in Escrow | (110.1 | ) | 13.0 | ||||
Cash, Cash Equivalents and Restricted Amounts Held in Escrow, Beginning of Period | 227.6 | 145.7 | |||||
Cash, Cash Equivalents and Restricted Amounts Held in Escrow, End of Period | $ | 117.5 | $ | 158.7 | |||
Supplemental Cash Flow Information: | |||||||
Interest paid | $ | (50.6 | ) | $ | (49.4 | ) | |
Income tax payment, net | (2.5 | ) | (2.9 | ) |
The accompanying notes are an integral part of these statements.
YRC Worldwide Inc. and Subsidiaries
For the Three and Six Months Ended June 30
(Amounts in millions)
(Unaudited)
|
| Preferred Stock |
| Common Stock |
| Capital Surplus |
| Accumulated Deficit |
| Accumulated Other Comprehensive Loss |
| Treasury Stock, At Cost |
| Total Shareholders' Deficit |
| |||||||
Balances at December 31, 2019 |
| $ | — |
| $ | 0.3 |
| $ | 2,332.9 |
| $ | (2,312.4 | ) | $ | (369.3 | ) | $ | (92.7 | ) | $ | (441.2 | ) |
Equity-based compensation |
|
| — |
|
| — |
|
| 1.8 |
|
| — |
|
| — |
|
| — |
|
| 1.8 |
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 4.3 |
|
| — |
|
| — |
|
| 4.3 |
|
Pension, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior net losses |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3.3 |
|
| — |
|
| 3.3 |
|
Amortization of prior service credit |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (0.1 | ) |
| — |
|
| (0.1 | ) |
Foreign currency translation adjustments |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1.9 | ) |
| — |
|
| (1.9 | ) |
Balances at March 31, 2020 |
| $ | — |
| $ | 0.3 |
| $ | 2,334.7 |
| $ | (2,308.1 | ) | $ | (368.0 | ) | $ | (92.7 | ) | $ | (433.8 | ) |
|
| Preferred Stock |
| Common Stock |
| Capital Surplus |
| Accumulated Deficit |
| Accumulated Other Comprehensive Loss |
| Treasury Stock, At Cost |
| Total Shareholders' Deficit |
| |||||||
Balances at December 31, 2018 |
| $ | — |
| $ | 0.3 |
| $ | 2,327.6 |
| $ | (2,208.4 | ) | $ | (332.3 | ) | $ | (92.7 | ) | $ | (305.5 | ) |
Equity-based compensation |
|
| — |
|
| — |
|
| 1.6 |
|
| — |
|
| — |
|
| — |
|
| 1.6 |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| (49.1 | ) |
| — |
|
| — |
|
| (49.1 | ) |
Pension, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior net losses |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3.2 |
|
| — |
|
| 3.2 |
|
Amortization of prior service credit |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (0.1 | ) |
| — |
|
| (0.1 | ) |
Foreign currency translation adjustments |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 0.4 |
|
| — |
|
| 0.4 |
|
Balances at March 31, 2019 |
| $ | — |
| $ | 0.3 |
| $ | 2,329.2 |
| $ | (2,257.5 | ) | $ | (328.8 | ) | $ | (92.7 | ) | $ | (349.5 | ) |
Preferred Stock | Common Stock | Capital Surplus | Accumulated Deficit | Accumulated Other Comprehensive Loss | Treasury Stock, At Cost | Total Shareholders' Deficit | |||||||||||||||
Balances at December 31, 2018 | $ | — | $ | 0.3 | $ | 2,327.6 | $ | (2,208.4 | ) | $ | (332.3 | ) | $ | (92.7 | ) | $ | (305.5 | ) | |||
Equity-based compensation | — | — | 1.6 | — | — | — | 1.6 | ||||||||||||||
Net loss | — | — | — | (49.1 | ) | — | — | (49.1 | ) | ||||||||||||
Pension, net of tax: | |||||||||||||||||||||
Amortization of prior net losses | — | — | — | — | 3.2 | — | 3.2 | ||||||||||||||
Amortization of prior service credit | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||
Foreign currency translation adjustments | — | — | — | — | 0.4 | — | 0.4 | ||||||||||||||
Balances at March 31, 2019 | $ | — | $ | 0.3 | $ | 2,329.2 | $ | (2,257.5 | ) | $ | (328.8 | ) | $ | (92.7 | ) | $ | (349.5 | ) | |||
Equity-based compensation | — | — | 1.0 | — | — | — | 1.0 | ||||||||||||||
Net loss | — | — | — | (23.6 | ) | — | — | (23.6 | ) | ||||||||||||
Pension, net of tax: | — | ||||||||||||||||||||
Amortization of prior net losses | — | — | — | — | 1.6 | — | 1.6 | ||||||||||||||
Amortization of prior service credit | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||
Foreign currency translation adjustments | — | — | — | — | 0.5 | — | 0.5 | ||||||||||||||
Balances at June 30, 2019 | $ | — | $ | 0.3 | $ | 2,330.2 | $ | (2,281.1 | ) | $ | (326.8 | ) | $ | (92.7 | ) | $ | (370.1 | ) |
Preferred Stock | Common Stock | Capital Surplus | Accumulated Deficit | Accumulated Other Comprehensive Loss | Treasury Stock, At Cost | Total Shareholders' Deficit | |||||||||||||||
Balances at December 31, 2017 | $ | — | $ | 0.3 | $ | 2,323.3 | $ | (2,228.6 | ) | $ | (355.8 | ) | $ | (92.7 | ) | $ | (353.5 | ) | |||
Equity-based compensation | — | — | 0.2 | — | — | — | 0.2 | ||||||||||||||
Net loss | — | — | — | (14.6 | ) | — | — | (14.6 | ) | ||||||||||||
Pension, net of tax: | — | ||||||||||||||||||||
Amortization of prior net losses | — | — | — | — | 3.8 | — | 3.8 | ||||||||||||||
Amortization of prior service credit | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||
Foreign currency translation adjustments | — | — | — | — | (1.7 | ) | — | (1.7 | ) | ||||||||||||
Balances at March 31, 2018 | $ | — | $ | 0.3 | $ | 2,323.5 | $ | (2,243.2 | ) | $ | (353.8 | ) | $ | (92.7 | ) | $ | (365.9 | ) | |||
Equity-based compensation | — | — | 3.1 | — | — | — | 3.1 | ||||||||||||||
Net income | — | — | — | 14.4 | — | — | 14.4 | ||||||||||||||
Pension, net of tax: | — | ||||||||||||||||||||
Amortization of prior net losses | — | — | — | — | 3.8 | — | 3.8 | ||||||||||||||
Amortization of prior service credit | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||
Foreign currency translation adjustments | — | — | — | — | 0.6 | — | 0.6 | ||||||||||||||
Balances at June 30, 2018 | $ | — | $ | 0.3 | $ | 2,326.6 | $ | (2,228.8 | ) | $ | (349.5 | ) | $ | (92.7 | ) | $ | (344.1 | ) |
The accompanying notes are an integral part of these statements.
YRC Worldwide Inc. and Subsidiaries
(Unaudited)
1. Description of Business
YRC Worldwide Inc. (also referred to as “YRC Worldwide,” the “Company,” “we,” “us” or “our”) is a holding company that, through its operating subsidiaries, offers its customers a wide range of transportation services. We have one of the largest, most comprehensive less-than-truckload (“LTL”) networks in North America with local, regional, national and international capabilities. Through our team of experienced service professionals, we offer expertise in LTL shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence. Our reporting segments include the following:
YRC Freight is the reporting segment that focuses on longer haul business opportunities with national, regional and international services. YRC FreightWorldwide provides for the movement of industrial, commercial and retail goods primarily through centralized management. This reporting segment includesour LTL subsidiaries including USF Holland LLC (“Holland”), New Penn Motor Express LLC (“New Penn”), USF Reddaway Inc. (“Reddaway”), YRC Inc. and YRC Freight Canada Company (both doing business as, and herein referred to as, “YRC Freight”) and HNRY Logistics, Inc. (“HNRY Logistics”), our customer-specific logistics solutions provider. In addition to the United States and Canada, YRC Freight also serves parts of Mexico and Puerto Rico.
At June 30, 2019,March 31, 2020, approximately 79% of our labor force is subject to collective bargaining agreements, which predominantly expire on March 31, 2024.
2. Basis of Presentation
The accompanying Consolidated Financial Statementsconsolidated financial statements include the accounts of YRC Worldwide and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We report on a calendar year basis. The quarters of the Regional Transportation companies (with the exception of New Penn)Holland and Reddaway consist of thirteen weeks that end on a Saturday either before or after the end of March, June and September, whereas all other operating segmentcompanies’ quarters end on the natural calendar quarter end. For ease
Covenant Compliance, Liquidity, and Ability to Continue as a Going Concern
The consolidated financial statements have been prepared on the going concern basis of reference,accounting, which assumes the calendar quarter end dates are used herein.
During 2019, the freight industry experienced a recession. This recession appeared to have preparedstabilized in the Consolidated Financial Statements, without audit, pursuantfirst quarter of 2020. However, beginning the last two weeks of March our industry and the economy at-large experienced a precipitous and significant decline in economic activity due to the rulesimpact that the 2019 novel coronavirus disease (“COVID-19”). The COVID-19 pandemic and regulationsrelated economic repercussions have created significant uncertainty and has resulted in a significant decrease in the volume that was expected during 2020 by both the Company and the industry as a whole. As COVID-19 is expected to negatively impact our liquidity levels, in order to maintain adequate liquidity to fund our operations, the Company began taking liquidity preservation actions in late March and early April including layoffs, furloughs, further eliminations of short-term incentive compensation and reductions in capital expenditures, and we have sought deferment of payments to various parties. As discussed further in Note 3, we also amended our New Term Loan Agreement to eliminate the vast majority of interest owed in cash for the first half of 2020. Further, we benefited from the support afforded to us under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which has provided temporary relief related to the payment of employer payroll taxes and non-union pension payments. Further actions are currently being pursued to preserve liquidity as necessary over the duration of the Securitiescurrent economic downturn. Not all of these actions are within our control. Given the significant uncertainty arising from the COVID-19 pandemic and Exchange Commissionthe related economic repercussions, there can be no assurance that our efforts to maintain adequate liquidity will be achieved.
Under the New Term Loan, we are required to maintain at least $200.0 million in Adjusted EBITDA on a trailing-twelve-month (“SEC”TTM”). basis measured each quarter until maturity. For the TTM period ended March 31, 2020, we achieved Adjusted EBITDA of $214.6 million. In our opinion,April 2020, we have made all normal recurring adjustments necessaryamended the New Term Loan to waive the Adjusted EBITDA covenant for a fair statementevery quarter of the financial position,year through and including December 31, 2020. While we obtained relief from this covenant for the duration of 2020, based on current projections and primarily as a result that COVID-19 had on our business, we do not believe that our results of operations and cash flows forwill allow us to comply with the interim periods included inminimum Adjusted EBITDA covenant at March 31, 2021, which is within twelve
months of the issuance date of these financial statements. Certain information and note disclosures normally included in financial statements prepared in accordanceWe intend to amend the New Term Loan again; however, obtaining an amendment is not within our control. If we are unable to comply with generally accepted accounting principles inour covenants, the United States (“GAAP”) have been condensed or omitted from these statements pursuantNew Term Loan lenders may exercise their rights available to SEC rules and regulations. Accordingly,them under the accompanying Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements includedNew Term Loan credit agreement.
Segments
As noted in our Annual Report2019 annual report on Form 10-K, forour Chief Operating Decision Maker began evaluating performance and business results, as well as making resource and operating decisions under the year ended December 31, 2018.
Revenue Disaggregation
We considered the disclosure requirements for revenue disaggregation guidance in ASC Topic 606,
Revenue from Contracts with Customers, and noted that our
|
| Three Months |
| |||||
Disaggregated Revenue (in millions) |
| 2020 |
|
| 2019 |
| ||
LTL revenue |
| $ | 1,050.7 |
|
| $ | 1,082.9 |
|
Other revenue |
|
| 99.7 |
|
|
| 99.4 |
|
Total revenue |
| $ | 1,150.4 |
|
| $ | 1,182.3 |
|
Certain reclassifications have been made to prior year’s balances to conform with current year presentation, including lease payments previously reported in “Change in other operating metrics, including volume and yield metrics, due to the impacts from shipments over 10,000 pounds.
Three Months | Six Months | ||||||||||||||
YRC Freight segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
LTL revenue | $ | 737.9 | $ | 760.8 | $ | 1,422.7 | $ | 1,456.7 | |||||||
Other revenue | 62.9 | 66.8 | 121.9 | 122.2 | |||||||||||
Total revenue | $ | 800.8 | $ | 827.6 | $ | 1,544.6 | $ | 1,578.9 |
Three Months | Six Months | ||||||||||||||
Regional Transportation segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
LTL revenue | $ | 438.2 | $ | 458.3 | $ | 843.2 | $ | 882.6 | |||||||
Other revenue | 33.6 | 40.7 | 67.2 | 79.7 | |||||||||||
Total revenue | $ | 471.8 | $ | 499.0 | $ | 910.4 | $ | 962.3 |
Three Months | Six Months | ||||||||||||||
Consolidated (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
LTL revenue | $ | 1,176.1 | $ | 1,219.1 | $ | 2,265.9 | $ | 2,339.3 | |||||||
Other revenue | 96.5 | 107.4 | 189.0 | 201.7 | |||||||||||
Total revenue | $ | 1,272.6 | $ | 1,326.5 | $ | 2,454.9 | $ | 2,541.0 |
Impact of Recently-Issued Accounting Standards
While there are recently issued ASU 2018-14,
3. Debt and Financing
Our outstanding debt as of
As of March 31, 2020 (in millions) |
| Par Value |
|
| Discount |
|
| Debt Issuance Costs |
|
| Book Value |
|
| Effective Interest Rate |
| |||||
New Term Loan |
| $ | 580.6 |
|
| $ | (25.7 | ) |
| $ | (11.3 | ) |
| $ | 543.6 |
| (a) |
| 10.0 | % |
ABL Facility |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Secured Second A&R CDA |
|
| 26.0 |
|
|
| — |
|
|
| (0.1 | ) |
|
| 25.9 |
|
|
| 7.8 | % |
Unsecured Second A&R CDA |
|
| 45.2 |
|
|
| — |
|
|
| (0.1 | ) |
|
| 45.1 |
|
|
| 7.8 | % |
Lease financing obligations |
|
| 228.1 |
|
|
| — |
|
|
| (0.3 | ) |
|
| 227.8 |
|
|
| 16.2 | % |
Total debt |
| $ | 879.9 |
|
| $ | (25.7 | ) |
| $ | (11.8 | ) |
| $ | 842.4 |
|
|
|
|
|
Current maturities of Unsecured Second A&R CDA |
|
| (1.4 | ) |
|
| — |
|
|
| — |
|
|
| (1.4 | ) |
|
|
|
|
Current maturities of lease financing obligations |
|
| (2.7 | ) |
|
| — |
|
|
| — |
|
|
| (2.7 | ) |
|
|
|
|
Long-term debt |
| $ | 875.8 |
|
| $ | (25.7 | ) |
| $ | (11.8 | ) |
| $ | 838.3 |
|
|
|
|
|
As of June 30, 2019 (in millions) | Par Value | Discount | Debt Issuance Costs | Book Value | Average Effective Interest Rate | |||||||||||||
Term Loan | $ | 558.1 | $ | (6.5 | ) | $ | (5.6 | ) | $ | 546.0 | 11.3 | % | (a) | |||||
ABL Facility | — | — | — | — | N/A | |||||||||||||
Secured Second A&R CDA | 26.8 | — | (0.1 | ) | 26.7 | 8.0 | % | |||||||||||
Unsecured Second A&R CDA | 46.7 | — | (0.2 | ) | 46.5 | 8.0 | % | |||||||||||
Lease financing obligations | 233.4 | — | (0.3 | ) | 233.1 | 16.5 | % | (b) | ||||||||||
Total debt | $ | 865.0 | $ | (6.5 | ) | $ | (6.2 | ) | $ | 852.3 | ||||||||
Current maturities of Term Loan | (14.3 | ) | — | — | (14.3 | ) | ||||||||||||
Current maturities of lease financing obligations | (2.6 | ) | — | — | (2.6 | ) | ||||||||||||
Current maturities of Unsecured Second A&R CDA | (1.5 | ) | — | — | (1.5 | ) | ||||||||||||
Long-term debt | $ | 846.6 | $ | (6.5 | ) | $ | (6.2 | ) | $ | 833.9 |
(a) | |
Variable interest rate of 1, 3 or 6-month LIBOR, with a floor of 1.0%, plus a fixed margin of |
New Term Loan
On September 11, 2019, the Company and certain of its subsidiaries, as guarantors (the “Term Guarantors”), amended and restated the existing credit facilities under the credit agreement dated February 13, 2014 (the “Prior Term Loan Agreement”) and entered into a $600.0 million term loan agreement (“New Term Loan”) with funds managed by Apollo Global Management, LLC acting collectively as lead lender, and Cortland Products Corp, as administrative agent and collateral agent. The obligations of the
Company under the agreement governing (the “New Term Loan Agreement”) are unconditionally guaranteed by the Term Guarantors.
The New Term Loan has a maturity date of June 30, 2024, with a single payment due at maturity of the outstanding balance. The New Term Loan bears interest at LIBOR (subject to a floor of 1.0%) plus a margin of 7.5% per annum, payable at least quarterly in cash, subject to a 1.0% margin step down in the event the Company achieves greater than $400.0 million in trailing-twelve-month Adjusted EBITDA (defined in the New Term Loan Agreement as “Consolidated EBITDA”). Obligations under the New Term Loan are secured by a perfected first priority security interest in (subject to permitted liens) assets of the Company and the Term Guarantors, including but not limited to all of the Company’s wholly owned terminals, tractors and trailers, subject to certain limited exceptions.
On April 7, 2020, the Company and certain of its subsidiaries entered into Amendment No. 1 (the “Amendment”) to the New Term Loan Agreement as a result of expected future covenant and liquidity tightening due to unprecedented economic deterioration resulting from COVID-19 pandemic and shelter-in-place orders made across North America by various governmental entities and private enterprises. The Amendment principally provides additional liquidity allowing the Company to defer quarterly interest payments for the quarter ended March 31, 2020 and the quarter ending June 30, 2020 with almost all of such interest to be paid-in-kind. The Amendment also provides for a waiver with respect to the Consolidated EBITDA financial covenant during each fiscal quarter during the fiscal year ending December 31, 2020. The interest rate for lease financing obligations is derived fromwas reset to a fixed 14% during the difference between total rent payment and calculated principal amortization over the lifefirst six months of lease agreements.
Liquidity
Our principal sources of liquidity are cash and cash equivalents, available borrowings under our asset-based loan facility (the
For the December 31, 20182019 borrowing base certificate, which was filed in January of 2019,2020, we transferred $25.0$29.0 million of cash into restricted cash to maintain the 10% threshold, as permitted under the ABL Facility, which transfer effectively put our cash and cash equivalents and Managed Accessibility to $203.8$80.4 million.
The table below summarizes cash and cash equivalents and Managed Accessibility as of June 30, 2019March 31, 2020 and December 31, 2018:2019:
(in millions) |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
|
| 103.9 |
|
|
| 109.2 |
|
Less: amounts placed into restricted cash subsequent to period end |
|
| (5.0 | ) |
|
| (29.0 | ) |
Managed Accessibility |
|
| 19.1 |
|
|
| 0.2 |
|
Total cash and cash equivalents and Managed Accessibility |
| $ | 118.0 |
|
| $ | 80.4 |
|
(in millions) | June 30, 2019 | December 31, 2018 | |||||
Cash and cash equivalents | $ | 117.5 | $ | 227.6 | |||
Changes to restricted cash | — | (25.0 | ) | ||||
Managed Accessibility | 39.3 | 1.2 | |||||
Total cash and cash equivalents and Managed Accessibility | $ | 156.8 | $ | 203.8 |
Covenants
The credit agreement (the “TermNew Term Loan Agreement”) governing our term loan facility (the “Term Loan”) has certainAgreement includes a financial covenants, that, among other things, restrict certain capital expenditures and require uscovenant requirement for the Company to comply withmaintain a maximum total leverage ratio covenant (defined as Consolidated Total Debt divided by Consolidatedminimum of $200.0 million trailing-twelve-month (“TTM”) Adjusted EBITDA, as defined below).
accordance with its definition in the Prior Term Loan Agreement, iswill not be included in the aggregate principal amountcalculation of indebtedness outstanding. Our total leverage ratioAdjusted EBITDA under the New Term Loan Agreement.
The Amendment provides for a waiver of the minimum Consolidated EBITDA financial covenant for the four consecutivetesting periods ending on each fiscal quartersquarter in the fiscal year ending June 30, 2019 was 3.12 to 1.00.
Risks and Uncertainties Regarding Compliance with Credit Facility Financial Covenants
Under the New Term Loan, we are required to maintain at least $200.0 million in Adjusted EBITDA on a TTM basis measured each quarter until maturity in June 2024. For the TTM period ended March 31, 2020, we achieved Adjusted EBITDA of $214.6 million. While we obtained relief from the minimum Adjusted EBITDA covenant for the duration of 2020 as a result of the Amendment, we do not believe that our results of operations will be sufficient to allow us to comply with the covenants in the Term Loan Agreement forthis covenant at least the next twelve months. Our ability to satisfy our liquidity needs and meet our future covenants duringMarch 31, 2021, which is inside the next twelve months and thereafter is dependent upon our ability to achieve operating resultsbeyond the issuance date of these financial statements.
We also cannot provide assurances that reflect improvement over our first half 2019 results. Although we are currently in compliance with the maximum total leverage ratio covenant under our Term Loan Agreement, the covenant levels tighten in the coming quarters. Means for improving our profitability include successful implementation of network optimization, and the realization of pricing, productivity and efficiency initiatives, as well as increased volume, all of which may not be within our control. If we are unable to achieve the improved results required to comply with this covenant in one or more quarters over the next twelve months, we will need to take more specific actions as described below.
Fair Value Measurement
The book value and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
(in millions) |
| Book Value |
|
| Fair Value |
|
| Book Value |
|
| Fair Value |
| ||||
New Term Loan |
| $ | 543.6 |
|
| $ | 566.1 |
|
| $ | 559.9 |
|
| $ | 559.3 |
|
ABL Facility |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Lease financing obligations |
|
| 227.8 |
|
|
| 221.3 |
|
|
| 231.3 |
|
|
| 233.7 |
|
Second A&R CDA |
|
| 71.0 |
|
|
| 69.5 |
|
|
| 71.0 |
|
|
| 71.7 |
|
Total debt |
| $ | 842.4 |
|
| $ | 856.9 |
|
| $ | 862.2 |
|
| $ | 864.7 |
|
June 30, 2019 | December 31, 2018 | ||||||||||||||
(in millions) | Book Value | Fair value | Book Value | Fair value | |||||||||||
Term Loan | $ | 546.0 | $ | 555.0 | $ | 559.4 | $ | 546.0 | |||||||
Lease financing obligations | 233.1 | 232.4 | 242.2 | 234.7 | |||||||||||
Second A&R CDA | 73.2 | 73.1 | 73.3 | 70.0 | |||||||||||
Total debt | $ | 852.3 | $ | 860.5 | $ | 874.9 | $ | 850.7 |
The fair values of the New Term Loan and the Second Amended and Restated Contribution Deferral Agreement (the “Second A&R CDA”) were estimated based on observable prices (level two inputs for fair value measurements). The fair value of the lease financing obligations isare estimated using a publicly-tradedpublicly traded secured loan with similar characteristics (level three input for fair value measurement).
4. Leases
Leases (in millions) |
| Classification |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
| Operating lease right-of-use assets |
| $ | 355.5 |
|
| $ | 386.0 |
|
Finance lease assets |
| Net property and equipment |
|
| 2.5 |
|
|
| 2.6 |
|
Total leased assets |
|
|
| $ | 358.0 |
|
| $ | 388.6 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Operating |
| Current operating lease liabilities |
| $ | 118.6 |
|
| $ | 120.8 |
|
Finance |
| Other current and accrued liabilities |
|
| 0.2 |
|
|
| 0.2 |
|
Noncurrent |
|
|
|
|
|
|
|
|
|
|
Operating |
| Operating lease liabilities |
|
| 223.0 |
|
|
| 246.3 |
|
Finance |
| Claims and other liabilities |
|
| 3.3 |
|
|
| 3.3 |
|
Total lease liabilities |
|
|
| $ | 345.1 |
|
| $ | 370.6 |
|
Lease Cost (in millions) |
| Classification |
| Three Months Ended March 31, 2020 |
|
| Three Months Ended March 31, 2019 |
| ||
Operating lease cost(a) |
| Purchased transportation; Fuel, operating expenses and supplies |
| $ | 43.1 |
|
| $ | 41.2 |
|
Short-term cost |
| Purchased transportation; Fuel, operating expenses and supplies |
|
| 2.0 |
|
| 3.5 |
| |
Variable lease cost |
| Purchased transportation; Fuel, operating expenses and supplies |
| 2.4 |
|
| 1.5 |
| ||
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
| Depreciation and amortization |
| 0.1 |
|
| 0.2 |
| ||
Interest on lease liabilities |
| Interest expense |
| 0.1 |
|
| 0.1 |
| ||
Total lease cost |
|
|
| $ | 47.7 |
|
| $ | 46.5 |
|
Leases (in millions) | Classification | June 30, 2019 | |||
Assets | |||||
Operating lease assets | Operating lease right-of-use assets | $ | 373.9 | ||
Finance lease assets | Net property and equipment | 2.7 | |||
Total leased assets | $ | 376.6 | |||
Liabilities | |||||
Current | |||||
Operating | Current operating lease liabilities | $ | 110.5 | ||
Finance | Other current and accrued liabilities | 0.2 | |||
Noncurrent | |||||
Operating | Operating lease liabilities | 243.7 | |||
Finance | Claims and other liabilities | 3.4 | |||
Total lease liabilities | $ | 357.8 |
Lease Cost (in millions) | Classification | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
Operating lease cost(a) | Purchased transportation; Fuel, operating expenses and supplies | $ | 41.1 | $ | 82.3 | ||||
Short-term cost | Purchased transportation; Fuel, operating expenses and supplies | 3.4 | 6.9 | ||||||
Variable lease cost | Purchased transportation; Fuel, operating expenses and supplies | 1.8 | 3.3 | ||||||
Finance lease cost | |||||||||
Amortization of leased assets | Depreciation and amortization | 0.1 | 0.3 | ||||||
Interest on lease liabilities | Interest expense | 0.1 | 0.2 | ||||||
Total lease cost | $ | 46.5 | $ | 93.0 |
(a) | |
Operating lease cost represents non-cash amortization of ROU assets and accretion of the discounted lease liabilities and is segregated on the statement of consolidated cash flows. |
Remaining Maturities of Lease Liabilities |
| Operating Leases |
|
| Finance Leases |
|
| Total |
| |||
2020 |
| $ | 114.6 |
|
| $ | 0.5 |
|
| $ | 115.1 |
|
2021 |
|
| 129.2 |
|
|
| 0.6 |
|
|
| 129.8 |
|
2022 |
|
| 77.8 |
|
|
| 0.6 |
|
|
| 78.4 |
|
2023 |
|
| 40.9 |
|
|
| 0.6 |
|
|
| 41.5 |
|
2024 |
|
| 16.3 |
|
|
| 0.7 |
|
|
| 17.0 |
|
After 2024 |
|
| 32.6 |
|
|
| 3.4 |
|
|
| 36.0 |
|
Total lease payments |
| $ | 411.4 |
|
| $ | 6.4 |
|
| $ | 417.8 |
|
Less: Imputed Interest |
|
| 69.8 |
|
|
| 2.9 |
|
|
| 72.7 |
|
Present value of lease liabilities |
| $ | 341.6 |
|
| $ | 3.5 |
|
| $ | 345.1 |
|
Lease Term and Discount Rate (years and percent) |
| Weighted-Average Remaining Lease Term |
|
| Weighted-Average Discount Rate |
| |
Operating leases |
|
| 3.6 |
|
| 11.0% |
|
Finance leases |
|
| 9.5 |
|
| 11.3% |
|
Other Information (in millions) | Three Months Ended March 31, 2020 |
| Three Months Ended March 31, 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
Operating cash flows from operating leases(a) | $ | 38.0 |
| $ | 36.3 |
|
Operating cash flows from finance leases | 0.1 |
| 0.1 |
| ||
Financing cash flows from finance leases | 0.1 |
| 0.2 |
| ||
Leased assets obtained in exchange for new operating lease liabilities | $ | 3.7 |
| $ | 19.1 |
|
Remaining Maturities of Lease Liabilities | Operating Leases | Finance Leases | Total | |||||||||
(in millions) | ||||||||||||
2019 | $ | 76.1 | $ | 0.3 | $ | 76.4 | ||||||
2020 | 134.4 | 0.6 | 135.0 | |||||||||
2021 | 110.5 | 0.6 | 111.1 | |||||||||
2022 | 60.2 | 0.6 | 60.8 | |||||||||
2023 | 27.6 | 0.6 | 28.2 | |||||||||
After 2023 | 17.8 | 4.2 | 22.0 | |||||||||
Total lease payments | $ | 426.6 | $ | 6.9 | $ | 433.5 | ||||||
Less: Imputed interest | 72.4 | 3.3 | 75.7 | |||||||||
Present value of lease liabilities | $ | 354.2 | $ | 3.6 | $ | 357.8 |
Lease Term and Discount Rate | Weighted-Average Remaining Lease Term | Weighted-Average Discount Rate | |
(years and percent) | |||
Operating leases | 3.5 | 11.0% | |
Finance leases | 10.2 | 11.2% |
Other Information | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
(in millions) | |||||||||
Cash paid for amounts included in the measurement of lease liabilities | |||||||||
Operating cash flows from operating leases (a) | $ | 38.9 | $ | 75.2 | |||||
Operating cash flows from finance leases | 0.1 | 0.2 | |||||||
Financing cash flows from finance leases | 0.1 | 0.2 | |||||||
Leased assets obtained in exchange for new operating lease liabilities | $ | 34.7 | $ | 53.8 |
(a) | |
Payments arising from operating leases |
Payments Due by Period | |||||||||||||||||||
(in millions) | Total | Less than 1 year | 1-3 years | �� | 3-5 years | After 5 years | |||||||||||||
Operating leases | $ | 429.2 | $ | 138.4 | $ | 212.0 | $ | 63.3 | $ | 15.5 |
5. Employee Benefits
Qualified and Nonqualified Defined Benefit Pension Plans
The following table presents the components of our Company-sponsored pension plan costs for the three and six months ended June 30:March 31:
|
| Three Months |
| |||||
(in millions) |
| 2020 |
|
| 2019 |
| ||
Interest cost |
| $ | 9.6 |
|
| $ | 11.4 |
|
Expected return on plan assets |
|
| (14.9 | ) |
|
| (14.3 | ) |
Amortization of prior service credit |
|
| (0.1 | ) |
|
| (0.1 | ) |
Amortization of prior net pension loss |
|
| 3.7 |
|
|
| 3.2 |
|
Total net periodic pension cost |
| $ | (1.7 | ) |
| $ | 0.2 |
|
Three Months | Six Months | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Service cost | $ | — | $ | 0.1 | $ | — | $ | 0.2 | |||||||
Interest cost | 11.4 | 10.9 | 22.8 | 21.8 | |||||||||||
Expected return on plan assets | (14.3 | ) | (15.1 | ) | (28.6 | ) | (30.2 | ) | |||||||
Amortization of prior service credit | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | |||||||
Amortization of prior net pension loss | 3.2 | 3.7 | 6.4 | 7.4 | |||||||||||
Total net periodic pension cost | $ | 0.2 | $ | (0.5 | ) | $ | 0.4 | $ | (1.0 | ) |
We expect to contribute $9.9have contributed $2.1 million to our Company-sponsored pension plans through March 31, 2020. Under the CARES Act, we will not be making any additional contributions in
6. Income Taxes
Our effective tax rate for the three and six months ended June 30, 2019March 31, 2020 was (62.8)% and 0.8%, respectively,(10.3%) compared to 41.9% and 92.6%, respectively16.5% for the three and six months ended June 30, 2018.March 31, 2019. The significant items impacting the 2019 rates2020 rate include a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes,tax provision, certain permanent items and a change in the valuation allowance established for the net deferred tax asset balance projected for December 31, 2019.2020. The significant items impacting the 2018 rates2019 rate include a provision for net state and foreign taxes, foreign withholding taxes related to dividends from a foreign subsidiary,tax provision, certain permanent items and a change in the valuation allowance established for the net deferred tax asset balance that had been projected for December 31, 2018.2019. We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we determine it is more likely than not such assets will not be realized. Changes in valuation allowances are included in our tax provision in the period of change. In determining whether a valuation allowance is warranted, we evaluate factors such as prior years’ earnings history, expected future earnings, loss carry-forward periods, reversals of existing deferred tax liabilities and tax planning strategies that potentially enhance the likelihood of the realization of a deferred tax asset. At June 30, 2019March 31, 2020 and December 31, 2018,2019, substantially all of our net deferred tax assets were subject to a valuation allowance.
7. Earnings (Loss) Per Share
We calculate basic earnings (loss) per share by dividing our net earnings (loss) available to common shareholders by our weighted-average shares outstanding at the end of the period. The calculation for diluted earnings (loss) per share adjusts the weighted average shares outstanding for our dilutive unvested shares and stock units using the treasury stock method. Our calculations for basic and dilutive earnings (loss) per share for three and six months ended June 30,March 31, 2020 and 2019 and 2018 are as follows:
|
| Three Months |
| |||||
(dollars in millions, except per share data; shares and stock units in thousands) |
| 2020 |
|
| 2019 |
| ||
Basic and dilutive net income (loss) available to common shareholders |
| $ | 4.3 |
|
| $ | (49.1 | ) |
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 33,791 |
|
|
| 33,150 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Unvested shares and stock units(a) |
|
| 1,839 |
|
|
| — |
|
Dilutive weighted average shares outstanding |
|
| 35,630 |
|
|
| 33,150 |
|
Basic earnings (loss) per share(b) |
| $ | 0.13 |
|
| $ | (1.48 | ) |
Diluted earnings (loss) per share(b) |
| $ | 0.12 |
|
| $ | (1.48 | ) |
Three Months | Six Months | ||||||||||||||
(dollars in millions, except per share data; shares and stock units in thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Basic and dilutive net income (loss) available to common shareholders | $ | (23.6 | ) | $ | 14.4 | $ | (72.7 | ) | $ | (0.2 | ) | ||||
Basic weighted average shares outstanding | 33,247 | 32,966 | 33,199 | 32,894 | |||||||||||
Effect of dilutive securities: | |||||||||||||||
Unvested shares and stock units(a) | — | 828 | — | — | |||||||||||
Dilutive weighted average shares outstanding | 33,247 | 33,794 | 33,199 | 32,894 | |||||||||||
Basic earnings (loss) per share(b) | $ | (0.71 | ) | $ | 0.44 | $ | (2.19 | ) | $ | 0.00 | |||||
Diluted earnings (loss) per share(b) | $ | (0.71 | ) | $ | 0.43 | $ | (2.19 | ) | $ | 0.00 |
(a) | |
Includes unvested shares of Common Stock, unvested stock units and vested stock units for which the underlying Common Stock has not been distributed. |
(b) | |
Earnings (loss) per share is based on unrounded figures and not the rounded figures presented. |
At June 30,March 31, 2020 and 2019, and 2018, our anti-dilutive unvested shares, options, and stock units were approximately 325,000176,000 and 57,000,279,000, respectively.
(in millions) | YRC Freight | Regional Transportation | Corporate/ Eliminations | Consolidated | |||||||||||
As of June 30, 2019 | |||||||||||||||
Identifiable assets | $ | 1,349.6 | $ | 784.6 | $ | (226.9 | ) | $ | 1,907.3 | ||||||
As of December 31, 2018 | |||||||||||||||
Identifiable assets | $ | 973.6 | $ | 626.4 | $ | 17.1 | $ | 1,617.1 | |||||||
Three Months Ended June 30, 2019 | |||||||||||||||
Operating revenue | $ | 800.8 | $ | 471.8 | $ | — | $ | 1,272.6 | |||||||
Operating income (loss) | $ | 16.0 | $ | 2.6 | $ | (4.3 | ) | $ | 14.3 | ||||||
Six Months Ended June 30, 2019 | |||||||||||||||
External revenue | $ | 1,544.6 | $ | 910.4 | $ | (0.1 | ) | $ | 2,454.9 | ||||||
Operating loss | $ | (5.1 | ) | $ | (4.4 | ) | $ | (7.9 | ) | $ | (17.4 | ) | |||
Three Months Ended June 30, 2018 | |||||||||||||||
Operating revenue | $ | 827.6 | $ | 499.0 | $ | (0.1 | ) | $ | 1,326.5 | ||||||
Operating income (loss) | $ | 26.8 | $ | 29.2 | $ | (5.1 | ) | $ | 50.9 | ||||||
Six Months Ended June 30, 2018 | |||||||||||||||
External revenue | $ | 1,578.9 | $ | 962.3 | $ | (0.2 | ) | $ | 2,541.0 | ||||||
Operating income (loss) | $ | 19.9 | $ | 34.4 | $ | (7.7 | ) | $ | 46.6 |
Department of Defense Complaint
In December 2018, the United States on behalf of the United States Department of Defense filed a Complaint in Intervention (“Complaint”) against the Company in the U.S. District in the Western District of New York captioned
United States ex rel. James Hannum v. YRC Freight, Inc.; Roadway Express, Inc.; and Yellow Transportation, Inc., Civil Action No. 08-0811(A). The Complaint alleges that the Company violated the False Claims Act by overcharging the Department of Defense for freight carrier services by failing to comply with the contractual terms of freight contracts between the Department of Defense and the Company and related government procurement rules. The Complaint also alleges claims for unjust enrichment and breach of contract. Under the False Claims Act, the Complaint seeks treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts. The remaining common causes of action seek an undetermined amount for an alleged breach of contract or alternatively causes constituting unjust enrichment or a payment by mistake. The Company has moved to dismiss the case, and the courtClass Action Securities Complaint
In January 2019, a purported class action lawsuit captioned
Christina Lewis v. YRC Worldwide Inc., et al., Case No. 1:19-cv-00001, was filed in the United States District Court for the Northern District of New York against the Company and certain of our current and former officers. The complaint was filed on behalf of persons who purchased or otherwise acquired the Company’s publicly traded securities between March 10, 2014 and December 14, 2018. The complaint generallyShareholder Derivative Complaint
In May 2019, a putative shareholder filed an action derivatively and on behalf of the Company naming James L. Welch, Jamie G. Pierson, Stephanie D. Fisher, Raymond J. Bromark, Douglas A. Carty, William R. Davidson, Matthew A. Doheny, Robert L. Friedman, James E. Hoffman, Michael J. Kneeland, Patricia M. Nazemetz, and James F. Winestock individually as defendants and the Company as the nominal defendant. In an amended complaint, filed on October 15, 2019, Darren D. Hawkins was added as a defendant. The case, is captioned
In October 2019, another putative shareholder filed an action derivatively and on behalf of the Company.Company in the United States District Court for the District of Delaware naming the same defendants as did the October 15, 2019 amended complaint in the Hastey
Other Legal Matters
We are involved in litigation or proceedings that arise in ordinary business activities. When possible, we insure against these risks to the extent we deem prudent, but no assurance can be given that the nature or amount of such insurance will be sufficient to fully indemnify us against liabilities arising out of pending and future legal proceedings. Many of these insurance policies contain self-insured retentions in amounts we deem prudent. Based on our current assessment of information available as of the date of these consolidated financial statements, we believe that our consolidated financial statements include adequate provisions for estimated costs and losses that may be incurred within the litigation and proceedings to which we are a party.
On April 7, 2020, the Company and certain of its subsidiaries entered into an Amendment to the New Term Loan Agreement. The Amendment provides for a waiver with respect to the Consolidated EBITDA financial covenant and allows the Company to defer quarterly interest payments, among other things, as further described in the “Debt and Financing” footnote to the consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
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 included elsewhere in this report. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include those preceded by, followed by or characterized by words such as “will,” “expect,” “intend,” “anticipate,” “believe,” “could,” “should,” “may,” “project,” “forecast,” “propose,” “plan,” “designed,” “estimate,” “enable” and similar expressions which speak only as of the date the statement was made. Forward-looking statements are inherently uncertain, are based upon current beliefs, assumptions and expectations of Company management and current market conditions, and are subject to significant business, economic, competitive, regulatory and other risks, uncertainties and contingencies, known and unknown, many of which are beyond our control. Readers are cautioned not to place undue reliance on any forward-looking statements. Our future financial condition and results could differ materially from those predicted in such forward-looking statements because of a number of factors, including (without limitation):
our ability to generate sufficient liquidity to satisfy our cash needs and future cash commitments, including (without limitation) our obligations related to our indebtedness and lease and pension funding requirements, and our ability to achieve increased cash flows through improvement in operations;
our failure to comply with the covenants in the documents governing our existing and future indebtedness, including financial covenants under our senior credit facilities, in light of recent operating results;
the impact of COVID-19 on our results of operations, financial condition and cash flows;
general economic factors, including (without limitation) impacts of COVID-19 and customer demand in the retail and manufacturing sectors;
business risks and increasing costs associated with the transportation industry, including increasing equipment, operational and technology costs and disruption from natural disasters;
competition and competitive pressure on pricing;
the risk of labor disruptions or stoppages if our relationship with our employees and unions were to deteriorate;
changes in pension expense and funding obligations, subject to interest rate volatility;
increasing costs relating to our self-insurance claims expenses;
our ability to finance the maintenance, acquisition and replacement of revenue equipment and other necessary capital expenditures;
our ability to comply and the cost of compliance with, or liability resulting from violation of, federal, state, local and foreign laws and regulations, including (without limitation) labor laws and laws and regulations regarding the environment;
impediments to our operations and business resulting from anti-terrorism measures;
the impact of claims and litigation expense to which we are or may become exposed;
that we may not realize the expected benefits and costs savings from our performance and operational improvement initiatives;
our ability to attract and retain qualified drivers and increasing costs of driver compensation;
a significant privacy breach or IT system disruption;
risks of operating in foreign countries;
our dependence on key employees;
seasonality;
shortages of fuel and changes in the cost of fuel or the index upon which we base our fuel surcharge and the effectiveness of our fuel surcharge program in protecting us against fuel price volatility;
limitations on our operations, our financing opportunities, potential strategic transactions, acquisitions or dispositions resulting from restrictive covenants in the documents governing our existing and future indebtedness;
fluctuations in the price of our common stock;
dilution from future issuances of our common stock;
our intention not to pay dividends on our common stock;
• | that we have the ability to issue preferred stock that may adversely affect the rights of holders of our common stock; and |
other risks and contingencies, including (without limitation) the risk factors that are included in our reports filed with the SEC, including those described under “Risk Factors” in our annual report on Form 10-K and quarterly reports on Form 10-Q, including this quarterly report.
Overview
MD&A includes the following sections:
Our Business
— a brief description of our business and a discussion of how we assess our operating results.Consolidated Results of Operations
— an analysis of our consolidated results of operations for the threeCertain Non-GAAP Financial Measures
— presentation and an analysis of selected non-GAAP financial measures for the threeFinancial Condition/Liquidity and Capital Resources
— a discussion of our major sources and uses of cash and an analysis of our cash flows and aggregate contractual obligations and commercial commitments.The “
Our Business
YRC Worldwide is a holding company that, through its operating subsidiaries, offers our customers a wide range of transportation services. YRC Worldwide has one of the largest, most comprehensive LTL networks in North America with local, regional, national and international capabilities. Through its team of experienced service professionals, YRC Worldwide offers industry-leading expertise in LTL shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence.
We measure the performance of our business on both a consolidated and reporting segment basis and using several metrics, but rely primarily upon (without limitation) operating revenue, operating income (loss), and operating ratio. We also use certain non-GAAP financial measures as secondary measures to assess our operating performance.
Operating Revenue: Our operating revenue has two primary components: volume (commonly evaluated using tonnage, tonnage per day, number of shipments, shipments per day or weight per shipment) and yield or price (commonly evaluated using picked up revenue, revenue per hundredweight or revenue per shipment). Yield includes fuel surcharge revenue, which is common in the trucking industry and represents an amount charged to customers that adjusts with changing fuel prices. We base our fuel surcharges on the U.S. Department of Energy fuel index and adjust them weekly. Rapid material changes in the index or our cost of fuel can positively or negatively impact our revenue and operating income as a result of changes in our fuel surcharge. We believe that 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 blurred over time, and it is impractical to clearly separate all the different factors that influence the price that our customers are willing to pay. In general, under our present fuel surcharge program, we believe rising fuel costs are beneficial to us and falling fuel costs are detrimental to us in the short term, the effects of which are mitigated over time.
Operating Income (Loss): Operating income (loss) is operating revenue less operating expenses. Consolidated operating income (loss) includes certain corporate charges that are not allocated to our reporting segments.
Operating Ratio: Operating ratio is a common operating performance measure used in the trucking industry. It is calculated as (i) 100 percent (ii) minus the result of dividing operating income by operating revenue or (iii) plus the result of dividing operating loss by operating revenue, and is expressed as a percentage.
Non-GAAP Financial Measures: We use EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, to assess the following:
o | EBITDA: a non-GAAP measure that reflects our earnings before interest, taxes, depreciation, and amortization expense. EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance. |
We believe our presentation of EBITDA and Adjusted EBITDA is useful to investors and other users as these measures represent key supplemental information our management uses to compare and evaluate our core underlying business results, both on a consolidated basis and across our business segments, particularly in light of our leverage position and the capital-intensive nature of our business. Further, EBITDA is a measure that is commonly used by other companies in our industry and provides a comparison for investors to evaluate the performance of the companies in the industry. Additionally, Adjusted EBITDA helps investors to understand how the company is tracking against our financial covenantscovenant in our term loan credit agreement as this measure is calculated as prescribeddefined in our term loan credit agreement and serves as a driving component of our key financial covenants.
Our non-GAAP financial measures have the following limitations:
o | EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt; |
o | Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or fund principal payments on our outstanding debt, letter of credit |
o | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will generally need to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; |
o | Equity-based compensation is an element of our long-term incentive compensation package, although Adjusted EBITDA excludes employee equity-based compensation expense when presenting our ongoing operating performance for a particular period; and |
o | Other companies in our industry may calculate Adjusted EBITDA differently than we do, potentially limiting its usefulness as a comparative measure. |
Because of these limitations, our non-GAAP measures should not be considered a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and use our non-GAAP measures as secondary measures.
COVID-19
The global outbreak of COVID-19 is expected to significantly impact our 2020 and 2021 results. The full extent of the outbreak, related business and travel restrictions and changes to behavior intended to reduce the virus’s spread are uncertain and continue to evolve. While transportation is an essential business, and we have continued to operate without any material business interruptions, there has been significant negative impact to the demand for transportations services.
Our shipping volumes did not begin to decrease until late March, and the rate of decline increased into the month of April. Given the amount of economic uncertainty, including uncertainty about how and when federal, state and local governments will lift business and travel restrictions, it is difficult to predict how long we may experience negative year-over-year trends and when or if the economic recovery will begin. Additionally, the demand for crude oil has seen a sharp decline during second quarter which will continue to put downward pressure on our fuel surcharge revenues. As shipping revenues decrease, the need to manage
liquidity becomes increasingly important and actions the Company has taken and is currently taking are more fully described in Liquidity and Capital Resources. As of the date of this filing, there have been no significant charges related to bad debt.
As we have not experienced any significant information technology outages that have impacted day-to-day operations, our control environment and operations continue to operate as they did before the outbreak of COVID-19.
Business Strategy Overview
During 2019, the Company has developedlaunched a comprehensive businessmulti-year enterprise transformation strategy to achieve long-term profitability and stability.cash flow. Our strategic roadmap to improved profitability and stability iswas built upon the proven alliance of our LTL regional and national networks, as well as our recently launched multi-mode freight brokerage solutions, to provide a broad portfolio of freight and business services to our customers.
The keyCompany accomplished four foundational components to our multi-year strategic roadmap include:
1. | Ratified a new five-year labor contract |
2. | Refinanced a term loan with improved and more flexible terms |
3. | Reorganized the field leadership structure to streamline decision making and enhance execution |
4. | Completed the reorganization of the enterprise-wide sales force |
Going into 2020, the next phase of our transformation includes:
1. | Operational optimization |
2. | Technology migration |
3. | Facility evaluation |
The primary focus for the employees of Holland, New Penn and YRC Freight, which is a critical element for the comprehensive strategic plan for the Company. The New NMFA provides the Company with important changes to create a foundation for revenue growth and operational excellence. The operational changes are expected to provide efficiencies in our workforce by introducing new job classifications and allowing us to employ more flexible work rules to optimize the use of our valuable employee resources. These changes allow us to improve labor mix which should result in reduced costs
Capital Investment
The table below provides summary consolidated financial information for the secondfirst quarter 2020 and first half of 2019 and 2018:2019:
|
| 2020 |
|
| 2019 |
|
| Percentage Change in Dollar Amounts |
| |||||||||||
(Amounts in millions) |
| $ |
|
| % |
|
| $ |
|
| % |
|
| % |
| |||||
Operating Revenue |
| $ | 1,150.4 |
|
|
| 100.0 |
|
| $ | 1,182.3 |
|
|
| 100.0 |
|
|
| (2.7 | ) |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
|
| 720.2 |
|
|
| 62.6 |
|
|
| 718.2 |
|
|
| 60.7 |
|
|
| 0.3 |
|
Fuel, operating expenses and supplies |
|
| 208.0 |
|
|
| 18.1 |
|
|
| 235.9 |
|
|
| 20.0 |
|
|
| (11.8 | ) |
Purchased transportation |
|
| 136.2 |
|
|
| 11.8 |
|
|
| 146.3 |
|
|
| 12.4 |
|
|
| (6.9 | ) |
Depreciation and amortization |
|
| 35.7 |
|
|
| 3.1 |
|
|
| 40.0 |
|
|
| 3.4 |
|
|
| (10.8 | ) |
Other operating expenses |
|
| 61.6 |
|
|
| 5.4 |
|
|
| 63.8 |
|
|
| 5.4 |
|
|
| (3.4 | ) |
(Gains) losses on property disposals, net |
|
| (39.3 | ) |
|
| (3.4 | ) |
|
| 1.6 |
|
|
| 0.1 |
|
| NM* |
| |
Impairment charges |
|
| — |
|
|
| - |
|
|
| 8.2 |
|
|
| 0.7 |
|
|
| (100.0 | ) |
Total operating expenses |
|
| 1,122.4 |
|
|
| 97.6 |
|
|
| 1,214.0 |
|
|
| 102.7 |
|
|
| (7.5 | ) |
Operating Income (Loss) |
|
| 28.0 |
|
|
| 2.4 |
|
|
| (31.7 | ) |
|
| (2.7 | ) |
|
| 188.3 |
|
Nonoperating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses, net |
|
| 24.1 |
|
|
| 2.1 |
|
|
| 27.1 |
|
|
| 2.3 |
|
|
| (11.1 | ) |
Income (loss) before income taxes |
|
| 3.9 |
|
|
| 0.3 |
|
|
| (58.8 | ) |
|
| (5.0 | ) |
|
| 106.6 |
|
Income tax benefit |
|
| (0.4 | ) |
|
| (0.0 | ) |
|
| (9.7 | ) |
|
| (0.8 | ) |
|
| 95.9 |
|
Net Income (Loss) |
| $ | 4.3 |
|
|
| 0.4 |
|
| $ | (49.1 | ) |
|
| (4.2 | ) |
|
| 108.8 |
|
Second Quarter | First Half | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Percent Change | 2019 | 2018 | Percent Change | |||||||||||||||
Operating revenue | $ | 1,272.6 | $ | 1,326.5 | (4.1 | )% | $ | 2,454.9 | $ | 2,541.0 | (3.4 | )% | |||||||||
Operating income (loss) | 14.3 | 50.9 | (71.9 | )% | (17.4 | ) | 46.6 | (137.3 | )% | ||||||||||||
Nonoperating expenses, net | 28.8 | 26.1 | 10.3 | % | 55.9 | 49.3 | 13.4 | % | |||||||||||||
Net income (loss) | (23.6 | ) | 14.4 | NM* | (72.7 | ) | (0.2 | ) | NM* |
*Not meaningful
First Quarter
ofResults of operations in the first quarter of 2020 were impacted starting the last two weeks of March by the outbreak of COVID-19 as shipping volumes decreased significantly from typical levels. The short-run demand for transportation services has been negatively impacted as the outbreak has already had a material disruption on many of our customers across various industries. Global price wars in crude oil markets provided additional downward pressure on diesel prices that reduced the amount of fuel surcharge revenues the Company was able to price in our services.
Our consolidated operating revenue decreased $53.9$31.9 million, or 4.1%,2.7% during the secondfirst quarter primarily as a result of
With the downturn in volume the Company quickly reacted to reduce variable expenses decreased $17.3 million, or 1.4%, for the second quarter of 2019 compared to the second quarter of 2018,including labor, fuel, maintenance, and consisted primarily of lower purchased transportation, among others. Offsetting these variable expense decreases was an increase in contractual wage and benefit rates, as well as lower fuel, operating expensesthe New NMFA provided for contractual wage and supplies charges, partially offset by increased salaries, wages and employee benefits.
Total operating expenses decreased $91.6 million, or 3.5%7.5%, primarily due to a $19.9 million increase in benefits costs which was largely driven by a $16.8 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, an $8.5 million increase in workers’ compensation expense, and a $4.1 million increase in wage expense as a result of a $25.3 million increasedecreases in contractual wages rates due to the New NMFA, which was partially offset by a decrease in tonnage that reduced the number of hours needed to process freight. These increases were partially offset by a $7.6 million decrease in short-term incentive compensation.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies decreasedGains/losses on property disposals,
net.Impairment charges. During the second quarter of 2018, primarily due to losses on the disposal of revenue equipment.
Our effective tax rate for the secondfirst quarter of 2020 and 2019 was (10.3%) and 2018 was (62.8)% and 41.9%16.5%, respectively. The significant items impacting the 20192020 rate include a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes,tax provision, certain permanent items and a change in the valuation allowance established for the net deferred tax asset balance projected for December 31, 2019.2020. The significant items impacting the 20182019 rate include a provision for net state and foreign taxes,tax provision, certain permanent items and a change in the valuation allowance established for the net deferred tax
asset balance that had been projected for December 31, 2018. 2019. We recognize valuation allowances on deferred tax assets if, based on the weight of the evidence, we determine it is more likely than not that such assets will not be realized. Changes in valuation allowances are included in our tax provision in the period of change. In determining whether a valuation allowance is warranted, we evaluate factors such as prior years’ earnings history, expected future earnings, loss carry-forward periods, reversals of existing deferred tax liabilities and tax planning strategies that potentially enhance the likelihood of the realization of a deferred tax asset. At June 30, 2019March 31, 2020 and December 31, 2018,2019, substantially all of our net deferred tax assets were subject to a valuation allowance.
The CARES Act contained certain income tax provisions intended to the First Half of 2018
Second Quarter | First Half | ||||||||||||||||||
(in millions) | 2019 | 2018 | Percent Change | 2019 | 2018 | Percent Change | |||||||||||||
Operating revenue | $ | 800.8 | $ | 827.6 | (3.2)% | $ | 1,544.6 | $ | 1,578.9 | (2.2)% | |||||||||
Operating income (loss) | 16.0 | 26.8 | (40.3)% | (5.1 | ) | 19.9 | NM* | ||||||||||||
Operating ratio(a) | 98.0 | % | 96.8 | % | (1.2) pp | 100.3 | % | 98.7 | % | (1.6) pp |
The table below summarizes the key revenue metrics for the YRC Freight reporting segment for the secondfirst quarter of 20192020 compared to the secondfirst quarter of 2018:
|
| First Quarter |
|
|
|
|
| |||||
|
| 2020 |
|
| 2019 |
|
| Percent Change(b) |
| |||
Workdays |
|
| 65.5 |
|
|
| 63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions) |
| $ | 1,049.6 |
|
| $ | 1,086.3 |
|
|
| (3.4 | )% |
LTL tonnage (in thousands) |
|
| 2,544 |
|
|
| 2,524 |
|
|
| 0.8 | % |
LTL tonnage per workday (in thousands) |
|
| 38.85 |
|
|
| 40.07 |
|
|
| (3.0 | )% |
LTL shipments (in thousands) |
|
| 4,323 |
|
|
| 4,456 |
|
|
| (3.0 | )% |
LTL shipments per workday (in thousands) |
|
| 66.00 |
|
|
| 70.73 |
|
|
| (6.7 | )% |
LTL picked up revenue per hundred weight |
| $ | 20.63 |
|
| $ | 21.52 |
|
|
| (4.2 | )% |
LTL picked up revenue per hundred weight (excluding fuel surcharge) |
| $ | 18.27 |
|
| $ | 19.02 |
|
|
| (4.0 | )% |
LTL picked up revenue per shipment |
| $ | 243 |
|
| $ | 244 |
|
|
| (0.4 | )% |
LTL picked up revenue per shipment (excluding fuel surcharge) |
| $ | 215 |
|
| $ | 215 |
|
|
| (0.2 | )% |
LTL weight per shipment (in pounds) |
|
| 1,177 |
|
|
| 1,133 |
|
|
| 3.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)(a) |
| $ | 1,141.4 |
|
| $ | 1,176.4 |
|
|
| (3.0 | )% |
Total tonnage (in thousands) |
|
| 3,234 |
|
|
| 3,154 |
|
|
| 2.5 | % |
Total tonnage per workday (in thousands) |
|
| 49.37 |
|
|
| 50.07 |
|
|
| (1.4 | )% |
Total shipments (in thousands) |
|
| 4,426 |
|
|
| 4,549 |
|
|
| (2.7 | )% |
Total shipments per workday (in thousands) |
|
| 67.57 |
|
|
| 72.21 |
|
|
| (6.4 | )% |
Total picked up revenue per hundred weight |
| $ | 17.65 |
|
| $ | 18.65 |
|
|
| (5.4 | )% |
Total picked up revenue per hundred weight (excluding fuel surcharge) |
| $ | 15.69 |
|
| $ | 16.52 |
|
|
| (5.1 | )% |
Total picked up revenue per shipment |
| $ | 258 |
|
| $ | 259 |
|
|
| (0.3 | )% |
Total picked up revenue per shipment (excluding fuel surcharge) |
| $ | 229 |
|
| $ | 229 |
|
|
| (— | )% |
Total weight per shipment (in pounds) |
|
| 1,461 |
|
|
| 1,387 |
|
|
| 5.4 | % |
(in millions) |
| 2020 |
|
| 2019 |
| ||
(a) Reconciliation of operating revenue to total picked up revenue: |
|
|
|
|
|
|
|
|
Operating revenue |
| $ | 1,150.4 |
|
| $ | 1,182.3 |
|
Change in revenue deferral and other |
|
| (9.0 | ) |
|
| (5.9 | ) |
Total picked up revenue |
| $ | 1,141.4 |
|
| $ | 1,176.4 |
|
Second Quarter | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 63.5 | 64.0 | ||||||||
LTL picked up revenue (in millions) | $ | 738.7 | $ | 765.5 | (3.5 | )% | ||||
LTL tonnage (in thousands) | 1,227 | 1,327 | (7.5 | )% | ||||||
LTL tonnage per day (in thousands) | 19.33 | 20.73 | (6.8 | )% | ||||||
LTL shipments (in thousands) | 2,474 | 2,629 | (5.9 | )% | ||||||
LTL shipments per day (in thousands) | 38.96 | 41.08 | (5.2 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 30.09 | $ | 28.85 | 4.3 | % | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 26.45 | $ | 25.24 | 4.8 | % | ||||
LTL picked up revenue per shipment | $ | 299 | $ | 291 | 2.6 | % | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 262 | $ | 255 | 3.0 | % | ||||
LTL weight per shipment (in pounds) | 992 | 1,009 | (1.7 | )% | ||||||
Total picked up revenue (in millions)(a) | $ | 791.5 | $ | 821.0 | (3.6 | )% | ||||
Total tonnage (in thousands) | 1,554 | 1,623 | (4.3 | )% | ||||||
Total tonnage per day (in thousands) | 24.46 | 25.36 | (3.5 | )% | ||||||
Total shipments (in thousands) | 2,511 | 2,667 | (5.9 | )% | ||||||
Total shipments per day (in thousands) | 39.54 | 41.67 | (5.1 | )% | ||||||
Total picked up revenue per hundred weight | $ | 25.47 | $ | 25.29 | 0.7 | % | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 22.45 | $ | 22.17 | 1.3 | % | ||||
Total picked up revenue per shipment | $ | 315 | $ | 308 | 2.4 | % | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 278 | $ | 270 | 3.0 | % | ||||
Total weight per shipment (in pounds) | 1,238 | 1,217 | 1.7 | % |
Second Quarter | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 800.8 | $ | 827.6 | |||
Change in revenue deferral and other | (9.3 | ) | (6.6 | ) | |||
Total picked up revenue | $ | 791.5 | $ | 821.0 |
(a) | |
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact of other revenue |
(b) | |
Percent change based on unrounded figures and not the rounded figures presented |
Salaries, wages and employee benefits. Salaries, wages and employee benefits increased $17.1 million, or 3.8%, primarily due to a $12.7 million increase in benefits costs which was largely driven by a $10.8 million increase in union vacation expense due to restoration of benefits from the passage of the New NMFA, and a $2.7 million increase in workers’ compensation expense. Wage expense for the quarter increased $1.0 million as a result of a $14.6 million increase in contractual wages rates due to the New NMFA, which was partially offset by a decrease in tonnage that reduced the number of hours needed to process freight.
First Half | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 126.5 | 127.5 | ||||||||
LTL picked up revenue (in millions) | $ | 1,427.0 | $ | 1,464.1 | (2.5 | )% | ||||
LTL tonnage (in thousands) | 2,382 | 2,562 | (7.0 | )% | ||||||
LTL tonnage per day (in thousands) | 18.83 | 20.10 | (6.3 | )% | ||||||
LTL shipments (in thousands) | 4,772 | 5,045 | (5.4 | )% | ||||||
LTL shipments per day (in thousands) | 37.72 | 39.57 | (4.7 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 29.95 | $ | 28.57 | 4.8 | % | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 26.39 | $ | 25.08 | 5.2 | % | ||||
LTL picked up revenue per shipment | $ | 299 | $ | 290 | 3.0 | % | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 264 | $ | 255 | 3.5 | % | ||||
LTL weight per shipment (in pounds) | 998 | 1,016 | (1.7 | )% | ||||||
Total picked up revenue (in millions)(a) | $ | 1,529.5 | $ | 1,568.6 | (2.5 | )% | ||||
Total tonnage (in thousands) | 2,996 | 3,122 | (4.0 | )% | ||||||
Total tonnage per day (in thousands) | 23.68 | 24.48 | (3.3 | )% | ||||||
Total shipments (in thousands) | 4,842 | 5,118 | (5.4 | )% | ||||||
Total shipments per day (in thousands) | 38.28 | 40.14 | (4.6 | )% | ||||||
Total picked up revenue per hundred weight | $ | 25.53 | $ | 25.12 | 1.6 | % | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 22.55 | $ | 22.08 | 2.1 | % | ||||
Total picked up revenue per shipment | $ | 316 | $ | 307 | 3.1 | % | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 279 | $ | 269 | 3.6 | % | ||||
Total weight per shipment (in pounds) | 1,238 | 1,220 | 1.4 | % |
First Half | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 1,544.6 | $ | 1,578.9 | |||
Change in revenue deferral and other | (15.1 | ) | (10.3 | ) | |||
Total picked up revenue | $ | 1,529.5 | $ | 1,568.6 |
Second Quarter | First Half | ||||||||||||||||||
(in millions) | 2019 | 2018 | Percent Change | 2019 | 2018 | Percent Change | |||||||||||||
Operating revenue | $ | 471.8 | $ | 499.0 | (5.5) % | $ | 910.4 | $ | 962.3 | (5.4)% | |||||||||
Operating income (loss) | 2.6 | 29.2 | (91.1) % | (4.4 | ) | 34.4 | (112.8)% | ||||||||||||
Operating ratio(a) | 99.4 | % | 94.1 | % | (5.3) pp | 100.5 | % | 96.4 | % | (4.1) pp |
Second Quarter | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 63.5 | 64.0 | ||||||||
LTL picked up revenue (in millions) | $ | 439.0 | $ | 459.1 | (4.4 | )% | ||||
LTL tonnage (in thousands) | 1,499 | 1,590 | (5.7 | )% | ||||||
LTL tonnage per day (in thousands) | 23.61 | 24.84 | (4.9 | )% | ||||||
LTL shipments (in thousands) | 2,383 | 2,531 | (5.9 | )% | ||||||
LTL shipments per day (in thousands) | 37.52 | 39.55 | (5.1 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 14.64 | $ | 14.44 | 1.4 | % | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 12.90 | $ | 12.68 | 1.8 | % | ||||
LTL picked up revenue per shipment | $ | 184 | $ | 181 | 1.6 | % | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 162 | $ | 159 | 2.0 | % | ||||
LTL weight per shipment (in pounds) | 1,259 | 1,256 | 0.2 | % | ||||||
Total picked up revenue (in millions)(a) | $ | 472.6 | $ | 499.8 | (5.4 | )% | ||||
Total tonnage (in thousands) | 1,838 | 2,002 | (8.2 | )% | ||||||
Total tonnage per day (in thousands) | 28.95 | 31.28 | (7.4 | )% | ||||||
Total shipments (in thousands) | 2,432 | 2,590 | (6.1 | )% | ||||||
Total shipments per day (in thousands) | 38.29 | 40.47 | (5.4 | )% | ||||||
Total picked up revenue per hundred weight | $ | 12.85 | $ | 12.48 | 3.0 | % | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 11.34 | $ | 10.97 | 3.3 | % | ||||
Total picked up revenue per shipment | $ | 194 | $ | 193 | 0.7 | % | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 171 | $ | 170 | 1.1 | % | ||||
Total weight per shipment (in pounds) | 1,512 | 1,546 | (2.2 | )% |
Second Quarter | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 471.8 | $ | 499.0 | |||
Change in revenue deferral and other | 0.8 | 0.8 | |||||
Total picked up revenue | $ | 472.6 | $ | 499.8 |
First Half | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 126.5 | 127.5 | ||||||||
LTL picked up revenue (in millions) | $ | 843.8 | $ | 884.1 | (4.5 | )% | ||||
LTL tonnage (in thousands) | 2,887 | 3,101 | (6.9 | )% | ||||||
LTL tonnage per day (in thousands) | 22.82 | 24.32 | (6.2 | )% | ||||||
LTL shipments (in thousands) | 4,576 | 4,918 | (7.0 | )% | ||||||
LTL shipments per day (in thousands) | 36.17 | 38.58 | (6.2 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 14.62 | $ | 14.25 | 2.5 | % | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 12.91 | $ | 12.55 | 2.9 | % | ||||
LTL picked up revenue per shipment | $ | 184 | $ | 180 | 2.6 | % | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 163 | $ | 158 | 3.0 | % | ||||
LTL weight per shipment (in pounds) | 1,262 | 1,261 | 0.1 | % | ||||||
Total picked up revenue (in millions)(a) | $ | 911.0 | $ | 963.8 | (5.5 | )% | ||||
Total tonnage (in thousands) | 3,564 | 3,916 | (9.0 | )% | ||||||
Total tonnage per day (in thousands) | 28.17 | 30.71 | (8.3 | )% | ||||||
Total shipments (in thousands) | 4,673 | 5,034 | (7.2 | )% | ||||||
Total shipments per day (in thousands) | 36.94 | 39.48 | (6.4 | )% | ||||||
Total picked up revenue per hundred weight | $ | 12.78 | $ | 12.31 | 3.9 | % | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 11.30 | $ | 10.84 | 4.2 | % | ||||
Total picked up revenue per shipment | $ | 195 | $ | 191 | 1.8 | % | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 172 | $ | 169 | 2.2 | % | ||||
Total weight per shipment (in pounds) | 1,525 | 1,556 | (2.0 | )% |
First Half | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 910.4 | $ | 962.3 | |||
Change in revenue deferral and other | 0.6 | 1.5 | |||||
Total picked up revenue | $ | 911.0 | $ | 963.8 |
As discussed in the “Our Business” section, we use certain non-GAAP financial measures to assess performance. These measures should be considered in addition to the results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, our GAAP financial measures. For segment Adjusted EBITDA, we present the reconciliation from operating income (loss) to Adjusted EBITDA as it is consistent with how we measure performance.
Consolidated Adjusted EBITDA
The reconciliation of net income (loss) to EBITDA and EBITDA to Adjusted EBITDA (defined in our New Term Loan Agreement as “Consolidated EBITDA”) for the
|
| Three Months |
|
| Trailing Twelve Months Ended |
| ||||||||||
(in millions) |
| 2020 |
|
| 2019 |
|
| March 31, 2020 |
|
| March 31, 2019 |
| ||||
Reconciliation of net income (loss) to Adjusted EBITDA(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 4.3 |
|
| $ | (49.1 | ) |
| $ | (50.6 | ) |
| $ | (14.3 | ) |
Interest expense, net |
|
| 28.2 |
|
|
| 26.5 |
|
|
| 111.6 |
|
|
| 105.5 |
|
Income tax expense (benefit) |
|
| (0.4 | ) |
|
| (9.7 | ) |
|
| 5.0 |
|
|
| 14.3 |
|
Depreciation and amortization |
|
| 35.7 |
|
|
| 40.0 |
|
|
| 148.1 |
|
|
| 150.0 |
|
EBITDA |
|
| 67.8 |
|
|
| 7.7 |
|
|
| 214.1 |
|
|
| 255.5 |
|
Adjustments for New Term Loan Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on property disposals, net |
|
| (39.3 | ) |
|
| 1.6 |
|
|
| (54.6 | ) |
|
| (22.4 | ) |
Non-cash reserve changes(b) |
|
| 0.3 |
|
|
| — |
|
|
| 16.4 |
|
|
| — |
|
Impairment charges |
|
| — |
|
|
| 8.2 |
|
|
| — |
|
|
| 8.2 |
|
Letter of credit expense |
|
| 1.6 |
|
|
| 1.6 |
|
|
| 6.5 |
|
|
| 6.5 |
|
Permitted dispositions and other |
|
| 0.2 |
|
|
| (1.1 | ) |
|
| 0.4 |
|
|
| (1.3 | ) |
Equity-based compensation expense |
|
| 2.0 |
|
|
| 2.3 |
|
|
| 6.0 |
|
|
| 7.0 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 11.2 |
|
|
| — |
|
Non-union pension settlement charge |
|
| — |
|
|
| — |
|
|
| 1.8 |
|
|
| 10.9 |
|
Other, net |
|
| (1.6 | ) |
|
| 1.1 |
|
|
| 0.2 |
|
|
| 2.3 |
|
Expense amounts subject to 10% threshold(c) |
|
| 3.1 |
|
|
| 8.7 |
|
|
| 12.6 |
|
|
| 25.5 |
|
Adjusted EBITDA prior to 10% threshold |
|
| 34.1 |
|
|
| 30.1 |
|
|
| 214.6 |
|
|
| 292.2 |
|
Adjustments pursuant to TTM calculation(c) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Adjusted EBITDA |
| $ | 34.1 |
|
| $ | 30.1 |
|
| $ | 214.6 |
|
| $ | 292.2 |
|
Second Quarter | First Half | Trailing Twelve Months Ended | |||||||||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||||||
Reconciliation of net income (loss) to Adjusted EBITDA(a): | |||||||||||||||||||||||
Net income (loss) | $ | (23.6 | ) | $ | 14.4 | $ | (72.7 | ) | $ | (0.2 | ) | $ | (52.3 | ) | $ | (4.7 | ) | ||||||
Interest expense, net | 27.8 | 25.5 | 54.3 | 51.0 | 107.8 | 102.6 | |||||||||||||||||
Income tax expense (benefit) | 9.1 | 10.4 | (0.6 | ) | (2.5 | ) | 13.0 | (9.3 | ) | ||||||||||||||
Depreciation and amortization | 38.5 | 37.6 | 78.5 | 75.3 | 150.9 | 148.7 | |||||||||||||||||
EBITDA | 51.8 | 87.9 | 59.5 | 123.6 | 219.4 | 237.3 | |||||||||||||||||
Adjustments for Term Loan Agreement: | |||||||||||||||||||||||
(Gains) losses on property disposals, net | (6.2 | ) | 2.2 | (4.6 | ) | 5.4 | (30.8 | ) | 3.1 | ||||||||||||||
Property gains on certain disposals(b) | — | 0.4 | — | 0.4 | 29.3 | 0.4 | |||||||||||||||||
Impairment charges | — | — | 8.2 | — | 8.2 | — | |||||||||||||||||
Letter of credit expense | 1.6 | 1.7 | 3.2 | 3.4 | 6.4 | 6.8 | |||||||||||||||||
Restructuring charges | 0.5 | 0.6 | 0.5 | 1.2 | 1.6 | 2.1 | |||||||||||||||||
Transaction costs related to issuances of debt | — | — | — | — | — | 8.1 | |||||||||||||||||
Nonrecurring consulting fees | 1.9 | 1.7 | 4.3 | 3.2 | 8.8 | 3.2 | |||||||||||||||||
Permitted dispositions and other | — | 0.2 | (1.1 | ) | 0.7 | (1.5 | ) | 1.1 | |||||||||||||||
Equity-based compensation expense | 1.1 | 3.2 | 3.4 | 4.8 | 4.9 | 7.3 | |||||||||||||||||
Union vacation charge | 4.2 | — | 4.2 | — | 4.2 | — | |||||||||||||||||
Non-union pension settlement charge | — | — | — | — | 10.9 | 7.6 | |||||||||||||||||
Nonrecurring item (vendor bankruptcy) | — | — | 3.7 | — | 8.0 | — | |||||||||||||||||
Other, net(c) | 2.7 | 2.9 | 6.4 | 3.8 | 9.3 | 9.4 | |||||||||||||||||
Adjusted EBITDA | $ | 57.6 | $ | 100.8 | $ | 87.7 | $ | 146.5 | $ | 278.7 | $ | 286.4 |
(a) | |
Certain reclassifications have been made to prior year to conform to current year presentation. |
(b) | Non-cash reserve changes reflect the net non-cash reserve charge for union and non-union vacation, with such non-cash reserve adjustment to be reduced by cash charges in a future period when paid. |
(c) | Pursuant to the New Term Loan Agreement, |
Second Quarter | First Half | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Adjusted EBITDA by segment: | |||||||||||||||
YRC Freight | $ | 39.5 | $ | 54.5 | $ | 57.8 | $ | 76.6 | |||||||
Regional Transportation | 19.1 | 46.8 | 30.4 | 69.4 | |||||||||||
Corporate and other | (1.0 | ) | (0.5 | ) | (0.5 | ) | 0.5 | ||||||||
Adjusted EBITDA | $ | 57.6 | $ | 100.8 | $ | 87.7 | $ | 146.5 |
Second Quarter | First Half | ||||||||||||||
YRC Freight segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reconciliation of operating income (loss) to Adjusted EBITDA(a): | |||||||||||||||
Operating income (loss) | $ | 16.0 | $ | 26.8 | $ | (5.1 | ) | $ | 19.9 | ||||||
Depreciation and amortization | 21.6 | 21.5 | 44.5 | 43.1 | |||||||||||
(Gains) losses on property disposals, net | (3.2 | ) | 1.7 | (2.1 | ) | 4.5 | |||||||||
Property gains on certain disposals(b) | — | 0.4 | — | 0.4 | |||||||||||
Impairment charges | — | — | 8.2 | — | |||||||||||
Letter of credit expense | 1.0 | 1.1 | 2.0 | 2.1 | |||||||||||
Restructuring charges | — | — | — | 0.1 | |||||||||||
Non-union pension and postretirement benefits | (0.3 | ) | 0.6 | (0.4 | ) | 1.1 | |||||||||
Nonrecurring consulting fees | 1.7 | 1.6 | 3.8 | 3.1 | |||||||||||
Union vacation charge | 2.6 | — | 2.6 | — | |||||||||||
Nonrecurring item (vendor bankruptcy) | — | — | 3.7 | — | |||||||||||
Other, net(c) | 0.1 | 0.8 | 0.6 | 2.3 | |||||||||||
Adjusted EBITDA | $ | 39.5 | $ | 54.5 | $ | 57.8 | $ | 76.6 |
Second Quarter | First Half | ||||||||||||||
Regional Transportation segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reconciliation of operating income (loss) to Adjusted EBITDA: | |||||||||||||||
Operating income (loss) | $ | 2.6 | $ | 29.2 | $ | (4.4 | ) | $ | 34.4 | ||||||
Depreciation and amortization | 16.7 | 16.1 | 33.5 | 32.2 | |||||||||||
(Gains) losses on property disposals, net | (3.0 | ) | 0.4 | (2.5 | ) | 0.8 | |||||||||
Letter of credit expense | 0.6 | 0.5 | 1.1 | 1.1 | |||||||||||
Nonrecurring consulting fees | 0.2 | — | 0.5 | — | |||||||||||
Union vacation charge | 1.6 | — | 1.6 | — | |||||||||||
Other, net(c) | 0.4 | 0.6 | 0.6 | 0.9 | |||||||||||
Adjusted EBITDA | $ | 19.1 | $ | 46.8 | $ | 30.4 | $ | 69.4 |
Second Quarter | First Half | ||||||||||||||
Corporate and other (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reconciliation of operating loss to Adjusted EBITDA: | |||||||||||||||
Operating loss | $ | (4.3 | ) | $ | (5.1 | ) | $ | (7.9 | ) | $ | (7.7 | ) | |||
Depreciation and amortization | 0.2 | 0.1 | 0.5 | 0.1 | |||||||||||
Losses on property disposals, net | — | 0.1 | — | 0.1 | |||||||||||
Letter of credit expense | — | — | 0.1 | 0.1 | |||||||||||
Restructuring charges | 0.5 | 0.6 | 0.5 | 1.1 | |||||||||||
Permitted dispositions and other | — | 0.2 | (1.1 | ) | 0.7 | ||||||||||
Non-union pension and postretirement benefits | (0.2 | ) | (0.2 | ) | (0.4 | ) | (0.2 | ) | |||||||
Equity-based compensation expense | 1.1 | 3.2 | 3.4 | 4.8 | |||||||||||
Other, net(c) | 1.7 | 0.6 | 4.4 | 1.5 | |||||||||||
Adjusted EBITDA | $ | (1.0 | ) | $ | (0.5 | ) | $ | (0.5 | ) | $ | 0.5 |
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents, available borrowings under our asset-based loan facility and any prospective net cash flow from operations. As of June 30, 2019,March 31, 2020, our maximum availability under our ABL Facility was $81.6$59.2 million, and our managed accessibility was $19.1 million. Maximum availability is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our $341.3 million of outstanding letters of credit. Our Managed Accessibility was $39.3of $19.1 million which represents the maximum amount we would access on the ABL Facility and is adjusted for eligible receivables plus eligible borrowing base cash measured at June 30, 2019. OurMarch 31, 2020. The credit agreement governing the ABL Facility permits adjustments from eligible borrowing base cash to restricted cash prior to the compliance measurement date of April 15, 2020. As of April 15, 2020, we moved $5.0 million of cash into restricted cash, as permitted under the ABL Facility, which effectively put our cash and cash equivalents and Managed Accessibility were $156.8 million.
For the December 31, 20182019 borrowing base certificate, which was filed in January of 2019,2020, we transferred $25.0$29.0 million of cash into restricted cash to maintain the 10% threshold, as permitted under the ABL Facility, which transfer effectively put our cash and cash equivalents and Managed Accessibility to $203.8$80.4 million.
The table below summarizes cash and cash equivalents and Managed Accessibility as of June 30, 2019March 31, 2020 and December 31, 2018:2019:
(in millions) |
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
| $ | 103.9 |
|
| $ | 109.2 |
|
Less: amounts placed into restricted cash subsequent to period end |
|
| (5.0 | ) |
|
| (29.0 | ) |
Managed Accessibility |
|
| 19.1 |
|
|
| 0.2 |
|
Total cash and cash equivalents and Managed Accessibility |
| $ | 118.0 |
|
| $ | 80.4 |
|
(in millions) | June 30, 2019 | December 31, 2018 | |||||
Cash and cash equivalents | $ | 117.5 | $ | 227.6 | |||
Changes to restricted cash | — | (25.0 | ) | ||||
Managed Accessibility | 39.3 | 1.2 | |||||
Total cash and cash equivalents and Managed Accessibility | $ | 156.8 | $ | 203.8 |
Outside of funding normal operations, our principal uses of cash include making contributions to various multi-employer pension funds and our single-employernon-union pension plans, and meeting our other cash obligations including, but not limited to, paying principal and interest on our funded debt, making payments on our equipment leases, and funding capital expenditures.
As of June 30, 2019,March 31, 2020, we had $865.0$879.9 million in aggregate par value of outstanding indebtedness, the majority of which matures in approximately three to five years. We also have future funding obligations for our various multi-employer health, welfare and pension funds and single-employernon-union pension plans. We expect our funding obligations for the remainder of 2019 for our multi-employer pension funds and single-employer pension plans will be $62.5 million and $5.7 million, respectively. In addition, we have, and will continue to have, operating lease obligations. As of June 30, 2019,March 31, 2020, our operating lease payment obligations through 2030 totaled $426.6 million and are expected to increase as we lease additional revenue equipment.$411.4 million. For the first halfquarter of 2019,2020, we entered into new operating leases for revenue equipment totaling $64.0$0.5 million in future lease payments, payable over an average lease term of four years.
Our capital expenditures for the first halfquarter of 2020 and 2019 and 2018 were $70.6$12.4 million and $46.5$32.6 million, respectively. These amounts were principally used to fund the purchase of new and used tractors and trailers,revenue equipment, for capitalized costs to improve our technology infrastructure and to refurbish engines for our revenue fleet. For the six monthsquarter ended June 30, 2019March 31,2020, we entered into new operating lease commitments for revenue equipment with a capital equivalent value of $77.9$0.7 million.
In response to the uncertainty related to cash flows associated with COVID-19, the Company began taking liquidity preservation efforts late in the first quarter of 2020. These measures include the reduction of capital expenditures, temporary deferrals of operating lease payments, union health & welfare payments, contributions to our non-union and multi-employer pension plans, among other items. The funding to various pension funds is dependent on the economic environment, and as such, we are unable to determine the amount of contributions that will be made during 2020 at this time.
As of June 30, 2019,March 31, 2020, our Standard & Poor’s Corporate Family Rating was “B-” with a stable outlook. As of July 25, 2019, ourand Moody’s Investor Service Corporate Family Rating was “B2”“Caa1.” On April 6, 2020 Standard & Poor’s lowered our rating to “CCC+.”
Covenants
The New Term Loan Agreement includes a financial covenant requirement for the Company to maintain a minimum of $200.0 million trailing-twelve-month Adjusted EBITDA, measured quarterly. Consolidated Adjusted EBITDA, defined in our New Term Loan Agreement as “Consolidated EBITDA,” is a measure that reflects our earnings before interest, taxes, depreciation, and amortization expense, and is further adjusted for, among other things, letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, restructuring charges, transaction costs related to issuances of debt, non-recurring consulting fees, non-cash impairment charges and the gains or losses from permitted dispositions, discontinued operations, and certain non-cash expenses, charges and losses (provided that if any of such non-cash expenses, charges or losses represents an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period will be subtracted from Consolidated EBITDA in such future period to the extent paid). The definition was further modified under the New Term Loan Agreement such that certain expenses that qualify as adjustments are capped at 10.0% of the trailing-twelve-month Adjusted EBITDA, in aggregate. Adjustments subject to the 10.0% cap include, but are not limited to, restructuring charges, integration costs, severance, and non-recurring charges. Additionally, all net gains from the disposition of properties are excluded from the definition of Adjusted EBITDA, therefore any gains previously recognized in Adjusted EBITDA, as that term was previously defined in our SEC filings, in accordance with its definition in the Prior Term Loan Agreement, will not be included in the calculation of Adjusted EBITDA under the New Term Loan Agreement.
In April 2020, we amended the New Term Loan Agreement. The Amendment provides for a stable outlook.
$200.0 million to the extent the condition to make voluntary prepayments of term loans under the ABL Facility is satisfied, which prepayments could adversely affect our cash balances.
Risks and Uncertainties Regarding Liquidity and Compliance with Credit Facility Financial Covenants
During 2019, the freight industry experienced a recession. This recession appeared to have stabilized in the first quarter of 2020. However, beginning the last two weeks of March our industry and the economy at-large experienced a precipitous and significant decline in economic activity due to the impact that COVID-19. The COVID-19 pandemic and related economic repercussions have created significant uncertainty and has resulted in a significant decrease in the volume that was expected during 2020 by both the Company and the industry as a whole. As COVID-19 is expected to negatively impact our liquidity levels, in order to maintain adequate liquidity to fund our operations the Company began taking liquidity preservation actions in late March and early April including layoffs, furloughs, further eliminations of short-term incentive compensation and reductions in capital expenditures, and we have sought deferment of payments to various parties. As discussed further in Note 3, we also amended our New Term Loan Agreement to eliminate the vast majority of interest owed in cash for the first half of 2020. Further, we benefited from the support afforded to us under the CARES Act which has provided temporary relief related to the payment of employer payroll taxes and non-union pension payments. Further actions are currently being pursued to preserve liquidity as necessary over the duration of the current economic downturn. Not all of these actions are within our control. Given the significant uncertainty arising from the COVID-19 pandemic and the related economic repercussions, there can be no assurance that our efforts to maintain adequate liquidity will be achieved.
Under the New Term Loan, we are required to maintain at least $200.0 million in Adjusted EBITDA on a TTM basis measured each quarter until maturity. For the TTM period ended March 31, 2020, we achieved Adjusted EBITDA of $214.6 million. In April 2020, we amended the New Term Loan to waive the Adjusted EBITDA covenant for every quarter of the year through and including December 31, 2020. While we obtained relief from this covenant for the duration of 2020, based on current projections and primarily as a result that COVID-19 had on our business, we do not believe that our results of operations will be sufficient to allow us to comply with the covenantsminimum Adjusted EBITDA covenant at March 31, 2021, which is within twelve months of the issuance date of the financial statements included in this report. We intend to amend the New Term Loan Agreement for at least the next twelve months. Our ability to satisfy our liquidity needs and meet our future covenants during the next twelve months and thereafteragain; however, obtaining an amendment is dependent upon our ability to achieve operating results that reflect improvement over our first half 2019 results. Although we are currently in compliance with the maximum total leverage ratio covenant under our Term Loan Agreement, the covenant levels tighten in the coming quarters. Means for improving our profitability include the successful implementation of network optimization, and the realization of pricing, productivity and efficiency initiatives, as well as increased volume, all of which may not be within our control. If we are unable to achievecomply with our covenants, the improved results requiredNew Term Loan lenders may exercise their rights available to them under the New Term Loan credit agreement. As such, absent governmental assistance or a meaningful stabilization of the economy in the near term, our ability to comply with this covenantour debt covenants for a period of one year from the date these financial statements have been issued, and our ability to generate sufficient cash flows and liquidity to fund operations raises substantial doubt about our ability to continue as a going concern, as defined in one or more quarters over the next twelve months,ASC 205-40, Going Concern.
We also cannot provide assurances that we will need to take more specific actions as described below.
Cash Flows
Operating Cash Flow
Cash used in operating activities was $29.5$15.6 million during the first halfquarter of 2019,2020, compared to $71.5$41.7 million of cash providedused during the first halfquarter of 2018.2019. The increasedecrease in cash used was primarily attributable to a $72.5 million increase in net loss, and the remaining difference is primarily related to timing differences in working capital accounts.
Investing Cash Flow
Cash used inprovided by investing activities was $62.3$32.6 million during the first halfquarter of 20192020 compared to $42.3$31.8 million used during the first halfquarter of 2018, the2019. The increase of $20.0$62.3 million was largely driven by higher revenue equipment acquisitions partially offset by higher cash proceeds from the sale of real property.
Financing Cash Flow
Cash used in financing activities for the first halfquarter of 2020 and 2019 and 2018 was $18.3$20.3 million and $16.2$2.5 million, respectively, which consistrespectively. The use of cash is primarily ofrelated to repayments on our long-term debt.
Contractual Obligations and Other Commercial Commitments
The following sections provide aggregated information regarding our contractual cash obligations and other commercial commitments as of June 30, 2019.
The following table reflects our cash outflows that we are contractually obligated to make as of June 30, 2019:March 31, 2020:
|
| Payments Due by Period |
| |||||||||||||||||
(in millions) |
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| After 5 years |
| |||||
ABL Facility(a) |
| $ | 10.3 |
|
| $ | 6.9 |
|
| $ | 3.4 |
|
| $ | — |
|
| $ | — |
|
Term Loan(b) |
|
| 818.9 |
|
|
| 66.9 |
|
|
| 105.4 |
|
|
| 646.6 |
|
|
| — |
|
Lease financing obligations(c) |
|
| 350.3 |
|
|
| 41.0 |
|
|
| 79.5 |
|
|
| 76.2 |
|
|
| 153.6 |
|
Pension deferral obligations(d) |
|
| 86.3 |
|
|
| 6.9 |
|
|
| 79.4 |
|
|
| — |
|
|
| — |
|
Workers’ compensation and third-party liability claims obligations(e) |
|
| 349.5 |
|
|
| 101.9 |
|
|
| 112.7 |
|
|
| 46.8 |
|
|
| 88.1 |
|
Operating leases(f) |
|
| 411.4 |
|
|
| 148.7 |
|
|
| 185.7 |
|
|
| 46.5 |
|
|
| 30.5 |
|
Other contractual obligations(g) |
|
| 23.0 |
|
|
| 19.5 |
|
|
| 3.2 |
|
|
| 0.3 |
|
|
| — |
|
Capital expenditure obligations(h) |
|
| 2.0 |
|
|
| 2.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual obligations |
| $ | 2,051.7 |
|
| $ | 393.8 |
|
| $ | 569.3 |
|
| $ | 816.4 |
|
| $ | 272.2 |
|
Payments Due by Period | |||||||||||||||||||
(in millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||
ABL Facility(a) | $ | 15.4 | $ | 6.9 | $ | 8.5 | $ | — | $ | — | |||||||||
Term Loan(b) | 741.5 | 76.0 | 146.9 | 518.6 | — | ||||||||||||||
Lease financing obligations(c) | 386.3 | 42.1 | 81.1 | 79.8 | 183.3 | ||||||||||||||
Pension deferral obligations(d) | 93.5 | 7.3 | 14.0 | 72.2 | — | ||||||||||||||
Workers’ compensation, property damage and liability claims obligations(e) | 358.0 | 100.6 | 115.4 | 50.0 | 92.0 | ||||||||||||||
Operating leases(f) | 426.6 | 145.3 | 209.8 | 60.0 | 11.5 | ||||||||||||||
Other contractual obligations(g) | 19.1 | 13.9 | 5.1 | 0.1 | — | ||||||||||||||
Capital expenditures and other (h) | 35.1 | 35.1 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 2,075.5 | $ | 427.2 | $ | 580.8 | $ | 780.7 | $ | 286.8 |
(a) | |
The ABL Facility includes future payments for the letter of credit and unused line fees and are not included on the Company’s consolidated balance sheets. |
(b) | |
The Term Loan includes principal and interest payments but excludes unamortized discounts. |
(c) | |
The lease financing obligations include interest payments of |
(d) | |
Pension deferral obligations includes principal and interest payments on the Second A&R CDA. |
(e) | |
The workers’ compensation, property damage and liability claims obligations represent our estimate of future payments for these obligations, not all of which are contractually required. |
(f) | |
Operating leases represent future payments under contractual lease arrangements primarily for revenue equipment. |
(g) | |
Other contractual obligations include future service agreements and certain maintenance agreements and are not included on the Company’s consolidated balance sheets. |
(h) | |
Capital |
Other Commercial Commitments
The following table reflects other commercial commitments or potential cash outflows that may result from a contingent event.
|
| Amount of Commitment Expiration Per Period |
| |||||||||||||||||
(in millions) |
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| After 5 years |
| |||||
ABL Facility availability(a) |
| $ | 59.2 |
|
| $ | — |
|
| $ | 59.2 |
|
| $ | — |
|
| $ | — |
|
Letters of credit(b) |
|
| 341.3 |
|
|
| — |
|
|
| 341.3 |
|
|
| — |
|
|
| — |
|
Surety bonds(c) |
|
| 119.3 |
|
|
| 96.3 |
|
|
| 23.0 |
|
|
| — |
|
|
| — |
|
Total commercial commitments |
| $ | 519.8 |
|
| $ | 96.3 |
|
| $ | 423.5 |
|
| $ | — |
|
| $ | — |
|
Amount of Commitment Expiration Per Period | |||||||||||||||||||
(in millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||
ABL Facility availability (a) | $ | 81.6 | $ | — | $ | 81.6 | $ | — | $ | — | |||||||||
Letters of credit(b) | 341.3 | — | 341.3 | — | — | ||||||||||||||
Surety bonds(c) | 122.6 | 112.4 | 10.2 | — | — | ||||||||||||||
Total commercial commitments | $ | 545.5 | $ | 112.4 | $ | 433.1 | $ | — | $ | — |
(a) | |
Availability under the ABL Facility is derived by reducing the amount that may be advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our outstanding letters of credit. |
(b) | |
Letters of credit outstanding are generally required as collateral to support self-insurance programs and do not represent additional liabilities as the underlying self-insurance accruals are already included in our consolidated balance sheets. |
(c) | |
Surety bonds are generally required for workers’ compensation to support self-insurance programs, which include certain bonds that do not have an expiration date but are redeemable on demand, and do not represent additional liabilities as the underlying self-insurance accruals are already included in our consolidated balance sheets. |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements except for other contractual obligations for service agreements and capital purchases, letters of credit and surety bonds, which are reflected in the above tables.
We are primarily exposed to the market risk associated with unfavorable movements in interest rates, foreign currencies, and fuel price volatility. The risk inherent in our market risk-sensitive instruments and positions is the potential loss or increased expense arising from adverse changes in those factors. There have been no material changes to our market risk policies or our market risk-sensitive instruments and positions as described in our annual report on Form 10-K for the year ended December 31, 2018.
As required by the Exchange Act, we maintain disclosure controls and procedures designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive and financial officers, has evaluated our disclosure controls and procedures as of
There were no other changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2019March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We discuss legal proceedings in the “Commitments, Contingencies and Uncertainties” note to our consolidated financial statements included with this quarterly report on Form 10-Q, and that discussion is incorporated by reference herein.
In addition to the other information set forth in this report, you should carefully consider the factors discussed below and as discussed in Part I, Item IA. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, which could materially affect our business, financial condition or future results. The risks described below and in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, financial condition and/or operating results.
Business Risks
The widespread outbreak of an illness or any other communicable disease, including the effects of pandemics, or any other public health crisis, as well as regulatory measures implemented in response to such events, could adversely affect our business, results of operations, financial condition and cash flows.
Our business could be negatively impacted by the widespread outbreak of an illness or any other communicable disease or other public health crisis. Measures intended to prevent the spread of a health epidemic could also have an adverse effect on our business.
The COVID-19 pandemic has, and is expected to continue to, adversely impact economic activity and conditions worldwide and created significant volatility and disruption to financial markets. Efforts to control the spread of COVID-19 have led governments and other authorities to impose restrictions such as travel bans and limits, quarantines, shelter-in-place orders, increased border and port controls and closures and shutdowns which have resulted in business closures and disrupted supply chains worldwide. The COVID-19 pandemic and measures taken to prevent its spread have negatively impacted demand for our services, and thus our shipment and tonnage levels, and has prevented us from delivering some freight in our network due to recipients that have closed their businesses to deliveries during the COVID-19 pandemic. There is considerable uncertainty regarding such measures and potential future measures, all of which could result in lower volume and negatively impact our operational results and our liquidity.
We are continuing to monitor developments involving our workforce, customers and third-party service providers. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and will depend on future developments, including the duration and severity of the pandemic and government restrictions imposed in response to the pandemic. An extended period of economic disruption and resulting declines in industrial production and manufacturing, consumer spending, and demand for our services, as well as the ability of our customers and other business partners to fulfill their obligations, could have a material adverse effect on our results of operations, financial condition and cash flows.
The U.S. government has announced several programs that are intended to assist businesses during the COVID-19 pandemic.
Certain programs are not fully developed or available at this time. Even if we were able to qualify for such assistance, we cannot predict the manner in which any assistance would be allocated or administered and we cannot assure you that we would be able to access such assistance in a timely manner or at all. Certain of the benefits under these U.S. governmental programs have not previously been administered on the present scale or at all. Government or third party program administrators may be unable to cope with the volume of applications in the near term and any benefits we may receive may not be as extensive as those for which we might apply, may impose additional conditions and restrictions on our operations or may otherwise provide less relief than we would contemplate. We cannot assure that any such government crisis relief assistance, if we were to choose to accept it, will not significantly limit our corporate activities or be on terms that are favorable to us. Such restrictions and terms could adversely impact our business and operations.
Our description of risks related to general economic factors, including national health epidemics, are also described under “Item 1A. Risk Factors” in our 2019 annual report on Form 10-K within the risk factor titled “We are subject to general economic factors that are largely out of our control, any of which could have a material adverse effect on our business, financial condition and results of operations.”
Financial and Liquidity Risks
Our failure to comply with the covenants in the documents governing our existing and future indebtedness could materially adversely affect our financial condition and liquidity.
The documents governing our indebtedness contain financial covenants, affirmative covenants requiring us to take certain actions and negative covenants restricting our ability to take certain actions. In particular, our amended New Term Loan Agreement for our $600 million term loan facilitycontains a financial covenant as described below. Our ABL Facility also contains certain financialaffirmative and negative covenants that, among other things, restrict certain capital expenditures and require us to not exceed a maximum total leverage ratio. For the four consecutive fiscal quarters ending June 30, 2019, our maximum total leverage ratio was 3.25 to 1.00,with which we must comply. Our trailing-twelve-months Adjusted EBITDA and our actual total leverage ratio during this period 3.12liquidity (as described below) as of March 31, 2020 was $214.6 million and $118.0 million, respectively.
On April 7, 2020, we entered into the Amendment to 1.00. The maximum total leverage ratio under theour New Term Loan steps down to 3.00Agreement that provides for a waiver of the minimum Consolidated EBITDA financial covenant for the four consecutivetesting periods ending on each fiscal quartersquarter in the fiscal year ending December 31, 2019, then to 2.752020. The Amendment, however, requires that for the four consecutiveperiod commencing on the effective date of the Amendment and through the first fiscal quartersquarter reporting period after January 1, 2021 in which Consolidated EBITDA for the TTM period ending September 30, 2020. For additional information, seeas of the “Debtlast day of such fiscal quarter is greater than $200.0 million, also referred to as the “Specified Period”, the Company maintain $55.0 million of “Liquidity” (such amount being calculated as the Company’s and Financing” footnoteNew Term Loan’s guarantors’ unrestricted cash on hand plus the amount of “Availability” (as defined in the loan agreement for the “ABL Facility”) to the consolidated financial statements.
While we obtained relief from the minimum Consolidated EBITDA covenant for the duration of 2020 as a result of the Amendment, we do not believe that our results of operations will be sufficient to allow us to comply with the covenants in the Term Loan Agreement forthis covenant at least the next twelve months. Our ability to satisfy our liquidity needs and meet our future covenants duringMarch 31, 2021, which is inside the next twelve months beyond the issuance date of the financial statements included in this report. We also cannot provide assurances that we will be able to comply with the Liquidity financial covenant during the Specified Period provided for in the Amendment. Therefore, we have substantial doubt about our ability to continue as a going concern as defined by Accounting Standards Codification (“ASC”) 205-40, Going Concern.
Adjusted EBITDA (defined in our New Term Loan Agreement as “Consolidated EBITDA”) is a measure that reflects our earnings before interest, taxes, depreciation, and thereafteramortization expense, and is further adjusted for, among other things, letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, restructuring charges, transaction costs related to issuances of debt, non-recurring consulting fees, non-cash impairment charges, integration costs, severance, non-recurring charges and the gains or losses from permitted dispositions, discontinued operations, and certain non-cash expenses, charges and losses (provided that if any of such non-cash expenses, charges or losses represents an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period will be subtracted from Adjusted EBITDA in such future period to the extent paid). As compared to the definition of Adjusted EBITDA in our Prior Term Loan Agreement, certain expenses that qualify as adjustments are capped at 10.0% of the TTM Adjusted EBITDA. Adjustments subject to the 10.0% cap include, but are not limited to, restructuring charges, integration costs, severance, and non-recurring charges. Additionally, all net gains from the disposition of properties are excluded from the definition of Adjusted EBITDA, therefore any gains previously recognized in Adjusted EBITDA, as that term was previously defined in our SEC filings prior to our Quarterly Report on Form 10-Q for the quarter ended September 30 2019 in accordance with its definition in the Prior Term Loan Agreement, will not be included in the calculation of Adjusted EBITDA under the New Term Loan Agreement.
Our ability to meet the minimum Liquidity requirement while it is applicable and our minimum TTM Adjusted EBITDA requirement when that covenant holiday passes (collectively, the “Financial Covenants”) is dependent upon governmental assistance or substantial improvements of the national economy restoring economic activity consistent with levels experienced before the outbreak of COVID-19. We will need to further reduce costs if we have lower shipping volumes in order to offset the contractual wage and benefit increases under the New NMFA. As necessary, we will extend and supplement the actions we have taken that impact our forecasted performance.
In addition to our cash interest savings on the first two quarterly interest payments of 2020, by paying almost all of such interest in-kind, provided under the Amendment, we have taken actions to protect liquidity that include headcount reductions commensurate with our current volume levels, a hiring freeze on new and replacement positions, temporary elimination of short-term incentive compensation, and significant reductions in discretionary spend. Significant adverse conditions, which may result from the effects of COVID-19, changes in global trade policies or increased contraction in the general economy, may impact our
ability to achieve operating results that reflect improvement over our first half 2019 results. Means for improving our profitability may include successful implementation of network optimization, andsatisfy the realization of pricing, productivity and efficiency initiatives, as well as increased volume, all of which may not be within our control.Financial Covenants. If we are unable to achieve the improved results we could failrequired to comply with this covenantthe applicable Financial Covenants in one or more quarters over the next twelve months, absent one or more specific actions as described below.
Item 5. These employees comprised 79% of our workforce at June 30, 2019. Salaries, wages and employee benefits for both union and non-union employees compose over half of our operating costs. Each of our YRC Freight, New Penn, and Holland subsidiaries employ most of their unionized employees under the terms of a common, master collective bargaining agreement and related areas supplemental agreements that remain in effect through March 31, 2024. Our USF Reddaway subsidiary (“Reddaway”) currently is in the process of renegotiating collective bargaining agreements covering approximately 1,500 IBT-represented employees. Those contracts, which initially were due to expire on March 31, 2019, have been extended through August 16, 2019 to enable the parties to continue the negotiations process while the contracts remain in effect. If we are unable to reach a final, ratified agreement with our unionized IBT employees at Reddaway, we may be subject to threatened or actual work interruptions and/or stoppages. Any work stoppage could immediately and adversely affect Reddaway’s ability to operate its freight transportation services, and could directly or indirectly have an adverse impact on operations at our other subsidiaries. This could have a material adverse effect on our financial condition, results of operations and the price of our common stock. Among other consequences, such a work stoppage could cause potential disruption in service or uneasiness for our customers, who may seek other transportation service alternatives. Moreover, there is a general risk of deterioration in customer accounts during the negotiation process due to uncertainty or potential negative publicity, which may adversely impact our ability to meet volume and revenue expectations.
None.
10.1* | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
101.INS* | |
XBRL Instance Document |
101.SCH* | |
XBRL Taxonomy Extension Schema |
101.CAL* | |
XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* | |
XBRL Taxonomy Extension Definition Linkbase |
101.LAB* | |
XBRL Taxonomy Extension Label Linkbase |
101.PRE* | |
XBRL Taxonomy Extension Presentation Linkbase |
__________________________
* | Indicates documents filed herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
YRC WORLDWIDE INC. | ||
Date: | /s/ Darren D. Hawkins | |
Darren D. Hawkins | ||
Chief Executive Officer | ||
Date: | /s/ | |
Jamie G. Pierson | ||
Chief Financial Officer | ||
29