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
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
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.
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 July 30, 2020 | |
Common Stock, $0.01 par value per share | 53,283,698 shares |
INDEX
Item | Page | |
1 | ||
2 | ||
3 | ||
4 | ||
1 | ||
1A | ||
2 | Not Applicable | |
3 | Not Applicable | |
4 | Not Applicable | |
5 | ||
6 | ||
PART I—FINANCIAL INFORMATION
Item 1.
Financial StatementsCONSOLIDATED BALANCE SHEETS
YRC Worldwide Inc. and Subsidiaries
(Amounts in millions except share and per share data)
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
| (Unaudited) |
|
|
|
|
| |
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 264.2 |
|
| $ | 109.2 |
|
Restricted amounts held in escrow |
|
| 56.0 |
|
|
| — |
|
Accounts receivable, net |
|
| 496.2 |
|
|
| 464.4 |
|
Prepaid expenses and other |
|
| 42.9 |
|
|
| 44.6 |
|
Total current assets |
|
| 859.3 |
|
|
| 618.2 |
|
Property and Equipment: |
|
|
|
|
|
|
|
|
Cost |
|
| 2,716.0 |
|
|
| 2,761.6 |
|
Less – accumulated depreciation |
|
| (2,002.3 | ) |
|
| (1,991.3 | ) |
Net property and equipment |
|
| 713.7 |
|
|
| 770.3 |
|
Deferred income taxes, net |
|
| 0.5 |
|
|
| 0.6 |
|
Operating lease right-of-use assets |
|
| 319.2 |
|
|
| 386.0 |
|
Other assets |
|
| 43.9 |
|
|
| 56.5 |
|
Total Assets |
| $ | 1,936.6 |
|
| $ | 1,831.6 |
|
Liabilities and Shareholders’ Deficit |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 195.7 |
|
| $ | 163.7 |
|
Wages, vacations and employee benefits |
|
| 333.2 |
|
|
| 195.9 |
|
Current operating lease liabilities |
|
| 114.0 |
|
|
| 120.8 |
|
Claims and insurance accruals |
|
| 111.0 |
|
|
| 120.4 |
|
Other accrued taxes |
|
| 25.6 |
|
|
| 25.8 |
|
Other current and accrued liabilities |
|
| 19.2 |
|
|
| 21.3 |
|
Current maturities of long-term debt |
|
| 3.6 |
|
|
| 4.1 |
|
Total current liabilities |
|
| 802.3 |
|
|
| 652.0 |
|
Other Liabilities: |
|
|
|
|
|
|
|
|
Long-term debt and financing, less current portion |
|
| 871.1 |
|
|
| 858.1 |
|
Pension and postretirement |
|
| 225.9 |
|
|
| 236.5 |
|
Operating lease liabilities |
|
| 214.0 |
|
|
| 246.3 |
|
Claims and other liabilities |
|
| 290.2 |
|
|
| 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 |
|
| 2,335.5 |
|
|
| 2,332.9 |
|
Accumulated deficit |
|
| (2,345.2 | ) |
|
| (2,312.4 | ) |
Accumulated other comprehensive loss |
|
| (364.8 | ) |
|
| (369.3 | ) |
Treasury stock, at cost (410 shares) |
|
| (92.7 | ) |
|
| (92.7 | ) |
Total shareholders’ deficit |
|
| (466.9 | ) |
|
| (441.2 | ) |
Total Liabilities and Shareholders’ Deficit |
| $ | 1,936.6 |
|
| $ | 1,831.6 |
|
September 30, 2019 | December 31, 2018 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 121.3 | $ | 227.6 | |||
Restricted amounts held in escrow | — | — | |||||
Accounts receivable, net | 514.3 | 470.3 | |||||
Prepaid expenses and other | 44.3 | 58.7 | |||||
Total current assets | 679.9 | 756.6 | |||||
Property and Equipment: | |||||||
Cost | 2,769.9 | 2,765.9 | |||||
Less – accumulated depreciation | (1,987.5 | ) | (1,969.8 | ) | |||
Net property and equipment | 782.4 | 796.1 | |||||
Operating lease right-of-use assets | 400.4 | — | |||||
Other assets | 54.4 | 64.4 | |||||
Total Assets | $ | 1,917.1 | $ | 1,617.1 | |||
Liabilities and Shareholders’ Deficit | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 176.5 | $ | 178.0 | |||
Wages, vacations and employee benefits | 230.0 | 223.6 | |||||
Current operating lease liabilities | 116.1 | — | |||||
Claims and insurance accruals | 118.4 | 112.8 | |||||
Other accrued taxes | 27.9 | 24.7 | |||||
Other current and accrued liabilities | 26.7 | 32.6 | |||||
Current maturities of long-term debt | 4.3 | 20.7 | |||||
Total current liabilities | 699.9 | 592.4 | |||||
Other Liabilities: | |||||||
Long-term debt, less current portion | 860.7 | 854.2 | |||||
Deferred income taxes, net | 0.2 | 1.8 | |||||
Pension and postretirement | 189.2 | 202.9 | |||||
Operating lease liabilities | 267.1 | — | |||||
Claims and other liabilities | 280.7 | 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 | 2,332.0 | 2,327.6 | |||||
Accumulated deficit | (2,297.1 | ) | (2,208.4 | ) | |||
Accumulated other comprehensive loss | (323.2 | ) | (332.3 | ) | |||
Treasury stock, at cost (410 shares) | (92.7 | ) | (92.7 | ) | |||
Total shareholders’ deficit | (380.7 | ) | (305.5 | ) | |||
Total Liabilities and Shareholders’ Deficit | $ | 1,917.1 | $ | 1,617.1 |
The accompanying notes are an integral part of these statements.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
YRC Worldwide Inc. and Subsidiaries
For the Three and NineSix Months Ended SeptemberJune 30
(Amounts in millions except per share data, shares in thousands)
(Unaudited)
|
| Three Months |
|
| Six Months |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating Revenue |
| $ | 1,015.4 |
|
| $ | 1,272.6 |
|
| $ | 2,165.8 |
|
| $ | 2,454.9 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
|
| 647.9 |
|
|
| 782.3 |
|
|
| 1,368.1 |
|
|
| 1,500.5 |
|
Fuel, operating expenses and supplies |
|
| 162.7 |
|
|
| 228.3 |
|
|
| 370.7 |
|
|
| 464.2 |
|
Purchased transportation |
|
| 126.0 |
|
|
| 158.0 |
|
|
| 262.2 |
|
|
| 304.3 |
|
Depreciation and amortization |
|
| 34.2 |
|
|
| 38.5 |
|
|
| 69.9 |
|
|
| 78.5 |
|
Other operating expenses |
|
| 55.2 |
|
|
| 57.4 |
|
|
| 116.8 |
|
|
| 121.2 |
|
Gains on property disposals, net |
|
| (6.0 | ) |
|
| (6.2 | ) |
|
| (45.3 | ) |
|
| (4.6 | ) |
Impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.2 |
|
Total operating expenses |
|
| 1,020.0 |
|
|
| 1,258.3 |
|
|
| 2,142.4 |
|
|
| 2,472.3 |
|
Operating Income (Loss) |
|
| (4.6 | ) |
|
| 14.3 |
|
|
| 23.4 |
|
|
| (17.4 | ) |
Nonoperating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 40.2 |
|
|
| 28.2 |
|
|
| 68.5 |
|
|
| 55.2 |
|
Non-union pension and postretirement benefits |
|
| (1.6 | ) |
|
| 0.5 |
|
|
| (3.2 | ) |
|
| 0.8 |
|
Other, net |
|
| 1.4 |
|
|
| 0.1 |
|
|
| (1.2 | ) |
|
| (0.1 | ) |
Nonoperating expenses, net |
|
| 40.0 |
|
|
| 28.8 |
|
|
| 64.1 |
|
|
| 55.9 |
|
Loss before income taxes |
|
| (44.6 | ) |
|
| (14.5 | ) |
|
| (40.7 | ) |
|
| (73.3 | ) |
Income tax expense (benefit) |
|
| (7.5 | ) |
|
| 9.1 |
|
|
| (7.9 | ) |
|
| (0.6 | ) |
Net loss |
|
| (37.1 | ) |
|
| (23.6 | ) |
|
| (32.8 | ) |
|
| (72.7 | ) |
Other comprehensive income, net of tax |
|
| 3.2 |
|
|
| 2.0 |
|
|
| 4.5 |
|
|
| 5.5 |
|
Comprehensive Loss |
| $ | (33.9 | ) |
| $ | (21.6 | ) |
| $ | (28.3 | ) |
| $ | (67.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding - Basic |
|
| 34,021 |
|
|
| 33,247 |
|
|
| 33,906 |
|
|
| 33,199 |
|
Average Common Shares Outstanding - Diluted |
|
| 34,021 |
|
|
| 33,247 |
|
|
| 33,906 |
|
|
| 33,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Per Share - Basic |
| $ | (1.09 | ) |
| $ | (0.71 | ) |
| $ | (0.97 | ) |
| $ | (2.19 | ) |
Loss Per Share - Diluted |
| $ | (1.09 | ) |
| $ | (0.71 | ) |
| $ | (0.97 | ) |
| $ | (2.19 | ) |
Three Months | Nine Months | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating Revenue | $ | 1,256.8 | $ | 1,303.6 | $ | 3,711.7 | $ | 3,844.6 | |||||||
Operating Expenses: | |||||||||||||||
Salaries, wages and employee benefits | 756.2 | 743.0 | 2,256.7 | 2,228.7 | |||||||||||
Fuel, operating expenses and supplies | 218.9 | 233.6 | 683.1 | 705.8 | |||||||||||
Purchased transportation | 160.7 | 183.4 | 465.0 | 516.0 | |||||||||||
Depreciation and amortization | 37.2 | 34.9 | 115.7 | 110.2 | |||||||||||
Other operating expenses | 59.0 | 65.6 | 180.2 | 188.8 | |||||||||||
(Gains) losses on property disposals, net | 1.0 | 1.9 | (3.6 | ) | 7.3 | ||||||||||
Impairment charges | — | — | 8.2 | — | |||||||||||
Total operating expenses | 1,233.0 | 1,262.4 | 3,705.3 | 3,756.8 | |||||||||||
Operating Income | 23.8 | 41.2 | 6.4 | 87.8 | |||||||||||
Nonoperating Expenses: | |||||||||||||||
Interest expense | 27.9 | 26.6 | 83.1 | 77.7 | |||||||||||
Loss on extinguishment of debt | 11.2 | — | 11.2 | — | |||||||||||
Non-union pension and postretirement benefits | 2.0 | 6.9 | 2.8 | 6.0 | |||||||||||
Other, net | (0.8 | ) | 0.1 | (0.9 | ) | (0.8 | ) | ||||||||
Nonoperating expenses, net | 40.3 | 33.6 | 96.2 | 82.9 | |||||||||||
Income (loss) before income taxes | (16.5 | ) | 7.6 | (89.8 | ) | 4.9 | |||||||||
Income tax expense (benefit) | (0.5 | ) | 4.7 | (1.1 | ) | 2.2 | |||||||||
Net income (loss) | (16.0 | ) | 2.9 | (88.7 | ) | 2.7 | |||||||||
Other comprehensive income, net of tax | 3.6 | 12.2 | 9.1 | 18.5 | |||||||||||
Comprehensive Income (Loss) | $ | (12.4 | ) | $ | 15.1 | $ | (79.6 | ) | $ | 21.2 | |||||
Average Common Shares Outstanding – Basic | 33,259 | 33,051 | 33,098 | 32,827 | |||||||||||
Average Common Shares Outstanding – Diluted | 33,259 | 33,995 | 33,098 | 33,755 | |||||||||||
Earnings (Loss) Per Share – Basic | $ | (0.48 | ) | $ | 0.09 | $ | (2.68 | ) | $ | 0.08 | |||||
Earnings (Loss) Per Share – Diluted | $ | (0.48 | ) | $ | 0.09 | $ | (2.68 | ) | $ | 0.08 |
The accompanying notes are an integral part of these statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
YRC Worldwide Inc. and Subsidiaries
For the NineSix Months Ended SeptemberJune 30
(Amounts in millions)
(Unaudited)
|
| 2020 |
|
| 2019 |
| ||
Operating Activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (32.8 | ) |
| $ | (72.7 | ) |
Adjustments to reconcile net loss to cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 69.9 |
|
|
| 78.5 |
|
Lease amortization and accretion expense |
|
| 83.5 |
|
|
| 82.3 |
|
Lease payments |
|
| (55.7 | ) |
|
| (75.4 | ) |
Paid-in-kind interest |
|
| 38.8 |
|
|
| — |
|
Equity-based compensation and employee benefits expense |
|
| 10.5 |
|
|
| 9.5 |
|
Gains losses on property disposals, net |
|
| (45.3 | ) |
|
| (4.6 | ) |
Impairment charges |
|
| — |
|
|
| 8.2 |
|
Deferred income tax benefit, net |
|
| 0.1 |
|
|
| (1.6 | ) |
Other noncash items, net |
|
| 4.8 |
|
|
| 2.1 |
|
Changes in assets and liabilities, net: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (31.9 | ) |
|
| (67.2 | ) |
Accounts payable |
|
| 22.0 |
|
|
| 5.3 |
|
Other operating assets |
|
| 8.6 |
|
|
| (4.5 | ) |
Other operating liabilities |
|
| 141.1 |
|
|
| 10.6 |
|
Net cash provided by (used in) operating activities |
|
| 213.6 |
|
|
| (29.5 | ) |
Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
| (24.1 | ) |
|
| (70.6 | ) |
Proceeds from disposal of property and equipment |
|
| 54.1 |
|
|
| 8.3 |
|
Net cash provided by (used in) investing activities |
|
| 30.0 |
|
|
| (62.3 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
| (28.2 | ) |
|
| (17.5 | ) |
Debt issuance costs |
|
| (3.8 | ) |
|
| — |
|
Payments for tax withheld on equity-based compensation |
|
| (0.6 | ) |
|
| (0.8 | ) |
Net cash used in financing activities |
|
| (32.6 | ) |
|
| (18.3 | ) |
Net Increase (Decrease) In Cash and Cash Equivalents and Restricted Amounts Held in Escrow |
|
| 211.0 |
|
|
| (110.1 | ) |
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 |
| $ | 320.2 |
|
| $ | 117.5 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest paid |
| $ | (22.1 | ) |
| $ | (50.6 | ) |
Income tax payment |
|
| (0.6 | ) |
|
| (2.5 | ) |
2019 | 2018 | ||||||
Operating Activities: | |||||||
Net income (loss) | $ | (88.7 | ) | $ | 2.7 | ||
Adjustments to reconcile net income (loss) to cash flows from operating activities: | |||||||
Depreciation and amortization | 115.7 | 110.2 | |||||
Lease amortization and accretion expense | 124.7 | — | |||||
Lease payments | (113.4 | ) | — | ||||
Equity-based compensation and employee benefits expense | 14.4 | 16.2 | |||||
(Gains) losses on property disposals, net | (3.6 | ) | 7.3 | ||||
Impairment charges | 8.2 | — | |||||
Deferred income tax benefit, net | (2.3 | ) | — | ||||
Non-union pension settlement charge | 1.7 | 7.2 | |||||
Loss on extinguishment of debt | 11.2 | — | |||||
Other non-cash items, net | 4.1 | 4.9 | |||||
Changes in assets and liabilities, net: | |||||||
Accounts receivable | (42.8 | ) | (58.9 | ) | |||
Accounts payable | (3.1 | ) | 32.9 | ||||
Other operating assets | 0.6 | 3.1 | |||||
Other operating liabilities | (13.3 | ) | 32.3 | ||||
Net cash provided by operating activities | 13.4 | 157.9 | |||||
Investing Activities: | |||||||
Acquisition of property and equipment | (111.5 | ) | (92.4 | ) | |||
Proceeds from disposal of property and equipment | 9.9 | 4.9 | |||||
Net cash used in investing activities | (101.6 | ) | (87.5 | ) | |||
Financing Activities: | |||||||
Issuance of long-term debt, net of discounts | 570.0 | — | |||||
Repayments of long-term debt | (576.2 | ) | (20.9 | ) | |||
Debt issuance costs | (11.1 | ) | — | ||||
Payments for tax withheld on equity-based compensation | (0.8 | ) | (2.0 | ) | |||
Net cash used in financing activities | (18.1 | ) | (22.9 | ) | |||
Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Amounts Held in Escrow | (106.3 | ) | 47.5 | ||||
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 | $ | 121.3 | $ | 193.2 | |||
Supplemental Cash Flow Information: | |||||||
Interest paid | $ | (77.8 | ) | $ | (71.3 | ) | |
Income tax payment, net | (2.6 | ) | (3.7 | ) |
The accompanying notes are an integral part of these statements.
STATEMENT OF CONSOLIDATED SHAREHOLDERS’ DEFICIT
YRC Worldwide Inc. and Subsidiaries
For the Three and NineSix Months Ended SeptemberJune 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 | ) |
Equity-based compensation |
|
| — |
|
| — |
|
| 0.8 |
|
| — |
|
| — |
|
| — |
|
| 0.8 |
|
Net loss |
|
| — |
|
| — |
|
| — |
|
| (37.1 | ) |
| — |
|
| — |
|
| (37.1 | ) |
Pension, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior net losses |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2.4 |
|
| — |
|
| 2.4 |
|
Amortization of prior service credit |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (0.1 | ) |
| — |
|
| (0.1 | ) |
Foreign currency translation adjustments |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 0.9 |
|
| — |
|
| 0.9 |
|
Balances at June 30, 2020 |
| $ | — |
| $ | 0.3 |
| $ | 2,335.5 |
| $ | (2,345.2 | ) | $ | (364.8 | ) | $ | (92.7 | ) | $ | (466.9 | ) |
|
| 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, 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 | ) | |||
Equity-based compensation | — | — | 1.8 | — | — | — | 1.8 | ||||||||||||||
Net loss | — | — | — | (16.0 | ) | — | — | (16.0 | ) | ||||||||||||
Pension, net of tax: | — | ||||||||||||||||||||
Amortization of prior net losses | — | — | — | — | 2.5 | — | 2.5 | ||||||||||||||
Amortization of prior service credit | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||
Settlement adjustment | — | — | — | — | 1.7 | — | 1.7 | ||||||||||||||
Net actuarial gain | — | — | — | — | 0.3 | — | 0.3 | ||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (0.8 | ) | — | (0.8 | ) | ||||||||||||
Balances at September 30, 2019 | $ | — | $ | 0.3 | $ | 2,332.0 | $ | (2,297.1 | ) | $ | (323.2 | ) | $ | (92.7 | ) | $ | (380.7 | ) |
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 | ) | |||
Equity-based compensation | — | — | 0.2 | — | — | — | 0.2 | ||||||||||||||
Net income | — | — | — | 2.9 | — | — | 2.9 | ||||||||||||||
Pension, net of tax: | |||||||||||||||||||||
Amortization of prior net losses | — | — | — | — | 3.5 | — | 3.5 | ||||||||||||||
Amortization of prior service credit | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||
Settlement adjustment | — | — | — | — | 7.2 | — | 7.2 | ||||||||||||||
Net actuarial gain | — | — | — | — | 0.7 | — | 0.7 | ||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 0.9 | — | 0.9 | ||||||||||||||
Balances at September 30, 2018 | $ | — | $ | 0.3 | $ | 2,326.8 | $ | (2,225.9 | ) | $ | (337.3 | ) | $ | (92.7 | ) | $ | (328.8 | ) |
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YRC Worldwide Inc. and Subsidiaries
(Unaudited)
1. Description of Business
YRC Worldwide Inc. (also referred to as “YRC Worldwide,” the “Company,” “we,” “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 SeptemberJune 30, 2019,2020, approximately 79%80% 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 of reference, the calendar quarter end dates are used herein.
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 |
|
| Six Months |
| ||||||||||
Disaggregated Revenue (in millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
LTL revenue |
| $ | 920.5 |
|
| $ | 1,176.1 |
|
|
| 1,971.2 |
|
| $ | 2,265.9 |
|
Other revenue |
|
| 94.9 |
|
|
| 96.5 |
|
|
| 194.6 |
|
|
| 189.0 |
|
Total revenue |
| $ | 1,015.4 |
|
| $ | 1,272.6 |
|
| $ | 2,165.8 |
|
| $ | 2,454.9 |
|
Fair Value of Financial Instruments
The following table summarizes the Company disaggregated revenue for reportingfair value hierarchy of key operating metrics, including volumeour financial assets and yield metrics,liabilities carried at fair value on a recurring basis as of June 30, 2020:
|
|
|
|
|
| Fair Value Measurement at June 30, 2020 |
| |||||||||
(in millions) |
| Total Carrying Value |
|
| Quoted prices in active market (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| ||||
Restricted amounts held in escrow-current |
| $ | 56.0 |
|
| $ | 56.0 |
|
| $ | — |
|
| $ | — |
|
Total assets at fair value |
| $ | 56.0 |
|
| $ | 56.0 |
|
| $ | — |
|
| $ | — |
|
Restricted amounts held in escrow are invested in money market accounts and are recorded at fair value based on quoted market prices. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the impacts from shipments over 10,000 pounds.
Three Months | Nine Months | ||||||||||||||
YRC Freight segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
LTL revenue | $ | 739.4 | $ | 756.1 | $ | 2,162.0 | $ | 2,212.8 | |||||||
Other revenue | 63.8 | 66.0 | 185.8 | 188.2 | |||||||||||
Total revenue | $ | 803.2 | $ | 822.1 | $ | 2,347.8 | $ | 2,401.0 |
Three Months | Nine Months | ||||||||||||||
Regional Transportation segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
LTL revenue | $ | 421.6 | $ | 443.7 | $ | 1,264.8 | $ | 1,326.3 | |||||||
Other revenue | 32.0 | 37.8 | 99.2 | 117.5 | |||||||||||
Total revenue | $ | 453.6 | $ | 481.5 | $ | 1,364.0 | $ | 1,443.8 |
Three Months | Nine Months | ||||||||||||||
Consolidated (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
LTL revenue | $ | 1,161.0 | $ | 1,199.8 | $ | 3,426.8 | $ | 3,539.1 | |||||||
Other revenue | 95.8 | 103.8 | 284.9 | 305.5 | |||||||||||
Total revenue | $ | 1,256.8 | $ | 1,303.6 | $ | 3,711.7 | $ | 3,844.6 |
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 June 30, 2020 (in millions) |
| Par Value |
|
| Discount |
|
| Debt Issuance Costs |
|
| Book Value |
|
| Effective Interest Rate |
| |||||
New Term Loan |
| $ | 613.5 |
|
| $ | (23.9 | ) |
| $ | (10.7 | ) |
| $ | 578.9 |
| (a) |
| 15.1 | % |
ABL Facility |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
Secured Second A&R CDA |
|
| 24.8 |
|
|
| — |
|
|
| (0.1 | ) |
|
| 24.7 |
|
|
| 7.8 | % |
Unsecured Second A&R CDA |
|
| 45.2 |
|
|
| — |
|
|
| (0.1 | ) |
|
| 45.1 |
|
|
| 7.8 | % |
Lease financing obligations |
|
| 226.3 |
|
|
| — |
|
|
| (0.3 | ) |
|
| 226.0 |
|
|
| 16.6 | % |
Total debt |
| $ | 909.8 |
|
| $ | (23.9 | ) |
| $ | (11.2 | ) |
| $ | 874.7 |
|
|
|
|
|
Current maturities of Unsecured Second A&R CDA |
|
| (1.4 | ) |
| $ | — |
|
| $ | — |
|
|
| (1.4 | ) |
|
|
|
|
Current maturities of lease financing obligations |
|
| (2.2 | ) |
| $ | — |
|
| $ | — |
|
|
| (2.2 | ) |
|
|
|
|
Long-term debt |
| $ | 906.2 |
|
| $ | (23.9 | ) |
| $ | (11.2 | ) |
| $ | 871.1 |
|
|
|
|
|
As of September 30, 2019 (in millions) | Par Value | Discount | Debt Issuance Costs | Book Value | Average Effective Interest Rate | |||||||||||||
Term Loan | $ | 600.0 | $ | (29.7 | ) | $ | (11.0 | ) | $ | 559.3 | 10.7 | % | (a) | |||||
ABL Facility | — | — | — | — | N/A | |||||||||||||
Secured Second A&R CDA | 26.8 | — | (0.1 | ) | 26.7 | 7.9 | % | |||||||||||
Unsecured Second A&R CDA | 46.7 | — | (0.2 | ) | 46.5 | 7.9 | % | |||||||||||
Lease financing obligations | 232.8 | — | (0.3 | ) | 232.5 | 16.4 | % | (b) | ||||||||||
Total debt | $ | 906.3 | $ | (29.7 | ) | $ | (11.6 | ) | $ | 865.0 | ||||||||
Current maturities of Term Loan | — | — | — | — | ||||||||||||||
Current maturities of lease financing obligations | (2.8 | ) | — | — | (2.8 | ) | ||||||||||||
Current maturities of Unsecured Second A&R CDA | (1.5 | ) | — | — | (1.5 | ) | ||||||||||||
Long-term debt | $ | 902.0 | $ | (29.7 | ) | $ | (11.6 | ) | $ | 860.7 |
(a) | |
Effective rate noted is as of June 30, 2020. Due to the Second New Term Loan Amendment, the rate effective for the third quarter will be a variable interest rate of 1, 3 or 6-month LIBOR, with a floor of 1.0%, plus a fixed margin of 7.5%. |
US Treasury Loan
On July 7, 2020, the Company and certain of its subsidiaries, as guarantors (the “Term Guarantors”), entered into the UST Tranche A Term Loan Credit Agreement (the “Tranche A UST Credit Agreement”) with The Bank of New York Mellon, as administrative agent and collateral agent and the UST Tranche B Term Loan Credit Agreement (the “Tranche B UST Credit Agreement” and together with the Tranche A UST Credit Agreement, the “UST Credit Agreements”) with The Bank of New York Mellon, as administrative agent and collateral agent, pursuant to which the United State Treasury (“UST”) will lend an aggregate of $700.0 million to the Company pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The obligations of the Company under the UST Credit Agreements are unconditionally guaranteed by the Term Guarantors.
The UST Credit Agreements have maturity dates of September 30, 2024, with a single payment at maturity of the outstanding balance. The Tranche A UST Credit Agreement consists of a $300.0 million term loan and bears interest at a rate for lease financing obligations is derivedof Eurodollar rate plus a margin of 3.5% per annum, consisting of 1.50% in cash and the remainder paid-in-kind. Proceeds from the difference between total rent paymentTranche A UST Credit Agreement will primarily be used to meet the Company’s contractual obligations and maintain working capital. The Tranche B UST Credit Agreement consists of a $400.0 million term loan and bears interest at a rate of Eurodollar rate plus a margin of 3.5% per annum, paid in cash. Proceeds from the Tranche B UST Credit Agreement will be used predominantly for the acquisition of tractors and trailers. Each agreement requires that the Company must maintain minimum “Liquidity” (defined in the UST Credit Agreements to indicate that such amount is calculated principal amortizationas the Company’s unrestricted cash on hand plus the amount of “Availability” (as defined in the loan agreement for the ABL Facility) to the extent such Availability could be borrowed under the ABL Facility) of $125.0 million and a minimum Adjusted EBITDA commencing with the fiscal quarter ending December 31, 2021, to be not less than $100.0 million for the four quarters ending December 31, 2021, $150.0 million for the four quarters ending March 31, 2022, and $200.0 million thereafter. Obligations under the UST Credit Agreements are secured by a perfected first priority security interest in the escrow or controlled account and a perfected junior priority security interest (subject to permitted liens) in substantially all assets of the Company and the Term Guarantors, subject to certain exceptions. The Company issued 15,943,753 shares of common stock as consideration related to the UST Credit Agreements as described in Item 2.
The UST Credit Agreements will be funded through a series of draws made over time as the lifeproceeds are utilized for the purposes outlined by the agreements. As of lease agreements.
Adjusted EBITDA, defined in our UST Credit Agreements and the New Term Loan
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, 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). 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 UST Credit Agreements.
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 bearsinitially bore 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”).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 “First New Term Loan eliminatedAmendment”) to the total maximum leverage ratio covenant that the Company was subject to under the PriorNew Term Loan Agreement as a result of expected future covenant and introduced a new covenant that requiresliquidity tightening due to unprecedented economic deterioration. Beginning the Company maintain a minimum trailing-twelve-month Adjusted EBITDAlast two weeks of $200.0 million, measured quarterly.March, our industry and the economy at-large experienced an unexpected and significant decline in economic activity due to the impact of the 2019 novel coronavirus disease (“COVID-19”) and the resulting business shutdown and shelter-in-place orders made across North America by various governmental entities and private enterprises. The First New Term Loan is subjectAmendment principally provided additional liquidity allowing the Company to repaymentdefer 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 First New Term Loan Amendment also provided 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 was retroactively reset to a fixed 14% during the first six months of 2020.
On July 7, 2020, the Company and the Term Guarantors entered into Amendment No. 2 (the “Second New Term Loan Amendment”) to the New Term Loan Agreement. The material terms of the Second New Term Loan Amendment include, among other things, 100.0%a consent to the refinancing and conforming changes to the description of collateral set forth in the net cash proceeds from the disposition of assets outside the ordinary course of business, except that the Company is permitted to keep the first $40.0 million in trucking terminal property sales over the term of the loan to reinvest in operations or other strategic initiatives, where applicable.
$450 Million ABL Facility
On February 13, 2014, we entered into our $450 million ABL Facility from a syndicate of banks arranged by Citizens Bank N.A. (formerly known as RBS Citizens, N.A.) (the “ABL Agent”), Merrill Lynch, Pierce, Fenner & Smith and CIT Finance LLC. YRC Worldwide and our subsidiaries, YRC Freight, Reddaway, Holland and New Penn are borrowers under the ABL Facility, and certain of the Company’s domestic subsidiaries are guarantors thereunder.
Availability under the ABL Facility is derived by reducing the amount that may be voluntarily prepaid, provided however,advanced against eligible receivables plus eligible borrowing base cash by certain reserves imposed by the ABL Agent and our outstanding letters of credit and revolving
loans. Eligible borrowing base cash is cash that any such prepaymentis deposited from time to time into a segregated restricted account and is included in “Restricted amounts held in escrow” in the accompanying consolidated balance sheet.
At our option, borrowings under the ABL Facility bear interest at either: (i) the applicable LIBOR rate plus 2.25%, as amended, or mandatory prepayment (other(ii) the base rate (as defined in the ABL Facility) plus 1.25%, as amended.
Letter of credit fees equal to the applicable LIBOR margin in effect, 2.25% as amended, are charged quarterly in arrears on the average daily stated amount of all letters of credit outstanding during the quarter. Unused line fees are charged quarterly in arrears (such unused line fee percentage is equal to 0.375% per annum if the average revolver usage is less than with respect50% or 0.25% per annum if the average revolver usage is greater than 50%.)
The ABL Facility is secured by a perfected first priority security interest (subject to permitted liens) in accounts receivable, cash, deposit accounts and other assets related to accounts receivable of the Company and the other loan parties and an additional second priority security interest (subject to permitted liens) in substantially all remaining assets of the borrowers and the guarantors other than the CDA Collateral.
The ABL Facility contains conditions, representations and warranties, events of default and indemnification provisions that are customary for financings of this type, including, but not limited to, a prepaymentspringing minimum fixed charge coverage ratio covenant, borrowing base reporting, limitations on incurrence of debt, investments, liens on assets, certain sale and leaseback transactions, transactions with excess cash flow) will be subject to a 3.0% premium until the first anniversary date, a 2.0% premium from the first anniversary date until the second anniversary date,affiliates, mergers, consolidations, purchases and a 1.0% premium from the second anniversary date until the third anniversary date,sales of assets, and 0.0% thereafter.
On July 7, 2020, the prior term loan. The original issuance discountCompany and transaction fees relatingcertain of its subsidiaries entered into Amendment No. 6 (the “ABL Treasury Amendment”) in which the maturity date of the ABL was extended to January 9, 2024 and it included a consent to the New Term Loan were capitalizedrefinancing and will be amortized through interest expense overconforming changes to the lifedescription of collateral set forth in the New Term Loan.
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 SeptemberJune 30, 20192020 and December 31, 2018:2019:
(in millions) |
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
| $ | 264.2 |
|
| $ | 109.2 |
|
Amounts placed (into)/out of restricted cash subsequent to period end |
|
| 18.0 |
|
|
| (29.0 | ) |
Managed Accessibility |
|
| 20.4 |
|
|
| 0.2 |
|
Total cash and cash equivalents and Managed Accessibility |
| $ | 302.6 |
|
| $ | 80.4 |
|
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Cash and cash equivalents | $ | 121.3 | $ | 227.6 | |||
Changes to restricted cash | — | (25.0 | ) | ||||
Managed Accessibility | 28.8 | 1.2 | |||||
Total cash and cash equivalents and Managed Accessibility | $ | 150.1 | $ | 203.8 |
Covenants
The UST Credit Agreements and the New Term Loan Agreement includesinclude a financial covenant requirement for the Company to maintain a minimum Liquidity of $125.0 million until the first date on which Consolidated EBITDA on the last day of a fiscal quarter is greater than $200.0 million trailing-twelve-month Adjusted EBITDA, measured quarterly. Consolidated Adjusted EBITDA, defined in our New Term Loan Agreement as “Consolidated EBITDA,” isand a measurerequirement 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, 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 fromminimum Consolidated EBITDA in such future periodcommencing with the fiscal quarter ending December 31, 2021, to be not less than $100.0 million for the extent paid). The definition was further modified underfour quarters ending December 31, 2021, $150.0 million for 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,four quarters ending March 31, 2022 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.
Risks and Uncertainties Regarding Liquidity and Compliance with Credit Facility Financial Covenants
Based on the close of operations will allow us to comply withUST Credit Agreements and the minimum Adjusted EBITDA covenant in theSecond New Term Loan AgreementAmendment, the only applicable financial covenant until December 31, 2021 is the Liquidity requirement of $125.0 million. With Liquidity as of June 30, 2020 of $302.6 million, proceeds from the UST Credit Agreements to be received in the third quarter 2020, and forecasted operating results, management concludes it probable the Company will meet covenant requirements for at least the next twelve months, subject to specific actions and cost savings initiatives we are taking in the fourth quarter of 2019 andmonths. Substantial doubt raised during the first quarter 2020 under the accounting requirements of 2020 to provide additional Adjusted EBITDA. These actions 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 a reduction in discretionary spend. We are taking these actions because we have notASC 205-40, Going Concern, has been able to fully realize operational efficiencies arising from our new five-year national master contract (“New NMFA”) due to depressed volume levels. Our ability to satisfy our liquidity needs and meet our minimum Adjusted EBITDA requirement during the next twelve months and thereafter is dependent upon our ability to achieve operating results that reflect improvement over our first half 2019, which were negatively impacted by the process to obtain our five-year labor agreement scheduled to expire on March 31, 2019 and successfully ratified on May 14, 2019. Significant adverse conditions, which may result from changes in global trade policies or increased contraction in the general economy, may impact our ability to achieve a minimum Adjusted EBITDA above $200.0 million on a trailing-twelve-month basis. Means for improving our profitability include accelerated
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:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||
(in millions) |
| Book Value |
|
| Fair Value |
|
| Book Value |
|
| Fair Value |
| ||||
New Term Loan |
| $ | 578.9 |
|
| $ | 576.7 |
|
| $ | 559.9 |
|
| $ | 559.3 |
|
ABL Facility |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Lease financing obligations |
|
| 226.0 |
|
|
| 222.9 |
|
|
| 231.3 |
|
|
| 233.7 |
|
Second A&R CDA |
|
| 69.8 |
|
|
| 65.7 |
|
|
| 71.0 |
|
|
| 71.7 |
|
Total debt |
| $ | 874.7 |
|
| $ | 865.3 |
|
| $ | 862.2 |
|
| $ | 864.7 |
|
September 30, 2019 | December 31, 2018 | ||||||||||||||
(in millions) | Book Value | Fair value | Book Value | Fair value | |||||||||||
Prior Term Loan | $ | — | $ | — | $ | 559.4 | $ | 546.0 | |||||||
New Term Loan | 559.3 | 559.3 | — | — | |||||||||||
Lease financing obligations | 232.5 | 234.7 | 242.2 | 234.7 | |||||||||||
Second A&R CDA | 73.2 | 74.1 | 73.3 | 70.0 | |||||||||||
Total debt | $ | 865.0 | $ | 868.1 | $ | 874.9 | $ | 850.7 |
The fair valuevalues of the New Term Loan was determined to be equivalent to the book value based on the closing date’s proximity to the balance sheet date. The fair values of theand Second Amended and Restated Contribution Deferral Agreement (the “Second A&R CDA”) andwere estimated based on observable prices (level two inputs for fair value measurements). The fair value of the lease financing obligations are estimated using a publicly-tradedpublicly traded secured loan with similar characteristics (level three input for fair value measurement).
4. Leases
Leases (in millions) |
| Classification |
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
| Operating lease right-of-use assets |
| $ | 319.2 |
|
| $ | 386.0 |
|
Finance lease assets |
| Net property and equipment |
|
| 2.4 |
|
|
| 2.6 |
|
Total leased assets |
|
|
| $ | 321.6 |
|
| $ | 388.6 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Operating |
| Current operating lease liabilities |
| $ | 114.0 |
|
| $ | 120.8 |
|
Finance |
| Other current and accrued liabilities |
|
| 0.9 |
|
|
| 0.2 |
|
Noncurrent |
|
|
|
|
|
|
|
|
|
|
Operating |
| Operating lease liabilities |
|
| 214.0 |
|
|
| 246.3 |
|
Finance |
| Claims and other liabilities |
|
| 3.2 |
|
|
| 3.3 |
|
Total lease liabilities |
|
|
| $ | 332.1 |
|
| $ | 370.6 |
|
|
|
|
| Three Months |
|
| Six Months |
| ||||||||||
Lease Cost (in millions) |
| Classification |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating lease cost(a) |
| Purchased transportation; Fuel, operating expenses and supplies |
| $ | 40.4 |
|
| $ | 41.1 |
|
| $ | 83.5 |
|
| $ | 82.3 |
|
Short-term cost |
| Purchased transportation; Fuel, operating expenses and supplies |
|
| 2.1 |
|
| 3.4 |
|
|
| 4.1 |
|
| 6.9 |
| ||
Variable lease cost |
| Purchased transportation; Fuel, operating expenses and supplies |
| 1.8 |
|
| 1.8 |
|
| 4.2 |
|
| 3.3 |
| ||||
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
| Depreciation and amortization |
|
| 0.0 |
|
| 0.1 |
|
| 0.1 |
|
| 0.3 |
| |||
Interest on lease liabilities |
| Interest expense |
| 0.1 |
|
| 0.1 |
|
| 0.2 |
|
| 0.2 |
| ||||
Total lease cost |
|
|
| $ | 44.4 |
|
| $ | 46.5 |
|
| $ | 92.1 |
|
| $ | 93.0 |
|
Leases (in millions) | Classification | September 30, 2019 | |||
Assets | |||||
Operating lease assets | Operating lease right-of-use assets | $ | 400.4 | ||
Finance lease assets | Net property and equipment | 2.6 | |||
Total leased assets | $ | 403.0 | |||
Liabilities | |||||
Current | |||||
Operating | Current operating lease liabilities | $ | 116.1 | ||
Finance | Other current and accrued liabilities | 0.2 | |||
Noncurrent | |||||
Operating | Operating lease liabilities | 267.1 | |||
Finance | Claims and other liabilities | 3.4 | |||
Total lease liabilities | $ | 386.8 |
Lease Cost (in millions) | Classification | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||||
Operating lease cost(a) | Purchased transportation; Fuel, operating expenses and supplies | $ | 42.3 | $ | 124.7 | ||||
Short-term cost | Purchased transportation; Fuel, operating expenses and supplies | 4.5 | 11.4 | ||||||
Variable lease cost | Purchased transportation; Fuel, operating expenses and supplies | 1.9 | 5.2 | ||||||
Finance lease cost | |||||||||
Amortization of leased assets | Depreciation and amortization | 0.1 | 0.3 | ||||||
Interest on lease liabilities | Interest expense | 0.1 | 0.3 | ||||||
Total lease cost | $ | 48.9 | $ | 141.9 |
(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 | |||||||||
(in millions) | ||||||||||||
2019 | $ | 40.8 | $ | 0.2 | $ | 41.0 | ||||||
2020 | 147.8 | 0.6 | 148.4 | |||||||||
2021 | 123.9 | 0.6 | 124.5 | |||||||||
2022 | 72.8 | 0.6 | 73.4 | |||||||||
2023 | 37.0 | 0.6 | 37.6 | |||||||||
After 2023 | 47.9 | 4.2 | 52.1 | |||||||||
Total lease payments | $ | 470.2 | $ | 6.8 | $ | 477.0 | ||||||
Less: Imputed interest | 87.0 | 3.2 | 90.2 | |||||||||
Present value of lease liabilities | $ | 383.2 | $ | 3.6 | $ | 386.8 |
Remaining Maturities of Lease Liabilities |
| Operating Leases |
|
| Finance Leases |
|
| Total |
| |||
2020 |
| $ | 76.6 |
|
| $ | 0.7 |
|
| $ | 77.3 |
|
2021 |
|
| 138.9 |
|
|
| 1.0 |
|
|
| 139.9 |
|
2022 |
|
| 90.2 |
|
|
| 0.6 |
|
|
| 90.8 |
|
2023 |
|
| 49.5 |
|
|
| 0.6 |
|
|
| 50.1 |
|
2024 |
|
| 18.2 |
|
|
| 0.7 |
|
|
| 18.9 |
|
After 2024 |
|
| 32.6 |
|
|
| 3.4 |
|
|
| 36.0 |
|
Total lease payments |
| $ | 406.0 |
|
| $ | 7.0 |
|
| $ | 413.0 |
|
Less: Imputed Interest |
|
| 78.0 |
|
|
| 2.9 |
|
|
| 80.9 |
|
Present value of lease liabilities |
| $ | 328.0 |
|
| $ | 4.1 |
|
| $ | 332.1 |
|
Lease Term and Discount Rate (years and percent) |
| Weighted-Average Remaining Lease Term |
|
| Weighted-Average Discount Rate |
| |
Operating leases |
|
| 3.5 |
|
| 12.7% (a) |
|
Finance leases |
|
| 8.0 |
|
| 10.3% |
|
Lease Term and Discount Rate | Weighted-Average Remaining Lease Term | Weighted-Average Discount Rate | |
(years and percent) | |||
Operating leases | 3.8 | 11.0% | |
Finance leases | 10.0 | 11.2% |
Other Information | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
(in millions) | |||||||||
Cash paid for amounts included in the measurement of lease liabilities | |||||||||
Operating cash flows from operating leases (a) | $ | 37.9 | $ | 113.1 | |||||
Operating cash flows from finance leases | 0.1 | 0.3 | |||||||
Financing cash flows from finance leases | 0.1 | 0.3 | |||||||
Leased assets obtained in exchange for new operating lease liabilities | $ | 57.6 | $ | 111.4 |
(a) | In an effort to preserve liquidity, certain equipment leases were modified during the second quarter to reduce short-term cash payments, resulting in an increase in payments in future periods. ROU assets and related liabilities were calculated using increased incremental borrowing rates as compared to prior periods due to a series of credit ratings downgrades. The increased incremental borrowing rates caused the ROU assets and lease liabilities to decrease, but this decrease was offset by an increase in future payment levels as a result of deferral agreements. |
| Three Months |
|
| Six Months |
| ||||||||
Other Information (in millions) | 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases(a) | $ | 17.5 |
| $ | 38.9 |
|
| $ | 55.5 |
| $ | 75.2 |
|
Operating cash flows from finance leases | 0.1 |
| 0.1 |
|
| 0.2 |
| 0.2 |
| ||||
Financing cash flows from finance leases | 0.1 |
| 0.1 |
|
| 0.2 |
| 0.2 |
| ||||
Leased assets obtained in exchange for new operating lease liabilities | $ | 6.3 |
| $ | 34.7 |
|
| $ | 10.0 |
| $ | 53.8 |
|
(a) | Payments arising from operating leases are reported in operating activities on the statements of consolidated cash flows. |
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 ninesix months ended SeptemberJune 30:
|
| Three Months |
|
| Six Months |
| ||||||||||
(in millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Interest cost |
| $ | 9.6 |
|
| $ | 11.4 |
|
| $ | 19.2 |
|
| $ | 22.8 |
|
Expected return on plan assets |
|
| (14.9 | ) |
|
| (14.3 | ) |
|
| (29.9 | ) |
|
| (28.6 | ) |
Amortization of prior service credit |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| (0.2 | ) |
|
| (0.2 | ) |
Amortization of prior net pension loss |
|
| 3.7 |
|
|
| 3.2 |
|
|
| 7.5 |
|
|
| 6.4 |
|
Total net periodic pension cost |
| $ | (1.7 | ) |
| $ | 0.2 |
|
| $ | (3.4 | ) |
| $ | 0.4 |
|
Three Months | Nine Months | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Service cost | $ | — | $ | 0.1 | $ | — | $ | 0.3 | |||||||
Interest cost | 11.4 | 11.1 | 34.2 | 32.9 | |||||||||||
Expected return on plan assets | (14.3 | ) | (15.0 | ) | (42.9 | ) | (45.2 | ) | |||||||
Amortization of prior service credit | (0.1 | ) | (0.1 | ) | (0.3 | ) | (0.3 | ) | |||||||
Amortization of prior net pension loss | 3.2 | 3.5 | 9.6 | 10.9 | |||||||||||
Settlement adjustment | 1.7 | 7.2 | 1.7 | 7.2 | |||||||||||
Total net periodic pension cost | $ | 1.9 | $ | 6.8 | $ | 2.3 | $ | 5.8 |
We expect to contribute $9.9have contributed $2.1 million to our Company-sponsored pension plans through June 30, 2020. Under the CARES Act, we are not required to make the remaining $29.3 million of contributions in
6. Income Taxes
Our effective tax rate for the three and ninesix months ended SeptemberJune 30, 20192020 was 3.0%16.8% and 1.2%19.4%, respectively, compared to 61.8%(62.8%) and 44.9%0.8%, respectively, for the three and ninesix months ended SeptemberJune 30, 2018.2019. The significant items impacting the 20192020 rates includea benefit from the reversal of liability for an uncertain tax position resulting from statute expiration, a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes, 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 rates 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, foreign withholding taxes related to dividends from a foreign subsidiary, 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,
7. Earnings (Loss)Loss Per Share
Given our net earnings (loss) available to common shareholders by our weighted-average shares outstanding at the endloss position for each 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 ninesix months ended SeptemberJune 30, 2020 and June 30, 2019, we do not report dilutive securities for these periods. At June 30, 2020 and 2018 are as follows:
Three Months | Nine 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 | $ | (16.0 | ) | $ | 2.9 | $ | (88.7 | ) | $ | 2.7 | |||||
Basic weighted average shares outstanding | 33,259 | 33,051 | 33,098 | 32,827 | |||||||||||
Effect of dilutive securities: | |||||||||||||||
Unvested shares and stock units(a) | — | 944 | — | 928 | |||||||||||
Dilutive weighted average shares outstanding | 33,259 | 33,995 | 33,098 | 33,755 | |||||||||||
Basic earnings (loss) per share(b) | $ | (0.48 | ) | $ | 0.09 | $ | (2.68 | ) | $ | 0.08 | |||||
Diluted earnings (loss) per share(b) | $ | (0.48 | ) | $ | 0.09 | $ | (2.68 | ) | $ | 0.08 |
8. Business Segments
(in millions) | YRC Freight | Regional Transportation | Corporate/ Eliminations | Consolidated | |||||||||||
As of September 30, 2019 | |||||||||||||||
Identifiable assets | $ | 1,276.1 | $ | 740.8 | $ | (99.8 | ) | $ | 1,917.1 | ||||||
As of December 31, 2018 | |||||||||||||||
Identifiable assets | $ | 973.6 | $ | 626.4 | $ | 17.1 | $ | 1,617.1 | |||||||
Three Months Ended September 30, 2019 | |||||||||||||||
Operating revenue | $ | 803.2 | $ | 453.6 | $ | — | $ | 1,256.8 | |||||||
Operating income (loss) | $ | 31.6 | $ | (4.1 | ) | $ | (3.7 | ) | $ | 23.8 | |||||
Nine Months Ended September 30, 2019 | |||||||||||||||
External revenue | $ | 2,347.8 | $ | 1,364.0 | $ | (0.1 | ) | $ | 3,711.7 | ||||||
Operating income (loss) | $ | 26.5 | $ | (8.5 | ) | $ | (11.6 | ) | $ | 6.4 | |||||
Three Months Ended September 30, 2018 | |||||||||||||||
Operating revenue | $ | 822.1 | $ | 481.5 | $ | — | $ | 1,303.6 | |||||||
Operating income (loss) | $ | 24.7 | $ | 18.4 | $ | (1.9 | ) | $ | 41.2 | ||||||
Nine Months Ended September 30, 2018 | |||||||||||||||
External revenue | $ | 2,401.0 | $ | 1,443.8 | $ | (0.2 | ) | $ | 3,844.6 | ||||||
Operating income (loss) | $ | 44.6 | $ | 52.8 | $ | (9.6 | ) | $ | 87.8 |
Department of Defense Complaints
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 court heard oral arguments on the motion on August 12, 2019. On July 17, 2020, the court granted the Company’s motion to dismiss in part with respect to one claim and denied it in all other respects. Management believes the Company has meritorious defenses against the remaining counts and intends to vigorously defend this action. We are unable to estimate the possible loss, or range of possible loss, associated with these claims at this time.Class 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 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 case. The case is captioned Broughton v. Hawkins, et al. Case No. 1:19-cv-01958-UNA, and makes claims similar to those made in 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.
9. Subsequent Events
The Company has evaluated all events that occur after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Company determined that there were no reportable subsequent events to be disclosed other than the UST Credit Agreements discussed in Debt and Financing.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCautionary 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):
• | 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; |
• | 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; |
• | 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 three andCertain Non-GAAP Financial Measures
— presentation and an analysis of selected non-GAAP financial measures for the three andFinancial 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. |
• | 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. |
o | Adjusted EBITDA: a non-GAAP measure that reflects EBITDA, and further adjusts for 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). All references to “Adjusted EBITDA” throughout this section and the rest of this report refer to “Adjusted EBITDA” calculated under our New Term Loan Agreement (defined therein as “Consolidated EBITDA”) unless otherwise specified. Consolidated EBITDA is also a defined term in our ABL Agreement and the definition there aligns with the prior definition of Consolidated EBITDA under the Prior Term Loan Agreement. Adjusted EBITDA is used for internal management purposes as a financial measure that reflects our core operating performance, to measure compliance with financial covenants in our credit facilities and to determine certain management and employee bonus compensation. |
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 covenant in our term loan credit agreementagreements as this measure is calculated as defined in our term loan credit agreement and serves as a driving component of our key financial covenant.
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 fees, restructuring charges, transaction costs related to the issuance of debt, non-cash expenses, charges or losses, or nonrecurring consulting fees, among other items; |
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 has significantly impacted the first half of 2020 results and may continue to do so throughout the year. 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 a significant negative impact to the demand for transportation services.
Our shipping volumes began to decline in late March and have remained depressed compared to prior year. However, volumes improved throughout the second quarter. 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. Additionally, the demand for crude oil has seen a 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 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 |
In 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. The New NMFA is a critical element to the comprehensive strategic plan as it 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 per labor hour. For example, prior to the New NMFA, we were unable to fill part-time positions in many key markets across our footprint due to a non-competitive wage package for part-time employees. With the New NMFA, we are now expanding our part-time work force which allows us to reposition our commercial driver’s license (“CDL”) drivers to freight delivery and to deploy part-time employees to dock positions, resulting in lower employee compensation expense and improved productivity. The expansion of purchased transportation that is permitted under the New NMFA provides us opportunities to plan and source our operations using more cost-effective resources and to expand our capacity consistent with our customer growth and engagement initiatives. The New NMFA also allows us to introduce new equipment, referred to as box trucks, into our LTL freight operations, which, along with new non-CDL driver classifications, permits us to provide a lower cost solution to local cartage or short-term rentals. Further, on September 27, 2019, the Company ratified a new two-year collective bargaining agreement for the employees of Reddaway, who were previously party to multiple bargaining agreements, have been combined into one collective agreement.
Capital Investment
Consolidated Results of Operations
The table below provides summary consolidated financial information for the thirdsecond quarter and first three quartershalf 2020 and 2019:
|
| Second Quarter |
|
| First Half |
|
| Percentage Change in Dollar Amounts |
| |||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Second Quarter |
|
| First Half |
| ||||||||||||||||||||||
(Amounts in millions) |
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| % |
|
| % |
| ||||||||||
Operating Revenue |
| $ | 1,015.4 |
|
|
| 100.0 |
|
| $ | 1,272.6 |
|
|
| 100.0 |
|
| $ | 2,165.8 |
|
|
| 100.0 |
|
| $ | 2,454.9 |
|
|
| 100.0 |
|
|
| (20.2 | ) |
|
| (11.8 | ) |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
|
| 647.9 |
|
|
| 63.8 |
|
|
| 782.3 |
|
|
| 61.5 |
|
|
| 1,368.1 |
|
|
| 63.2 |
|
|
| 1,500.5 |
|
|
| 61.1 |
|
|
| (17.2 | ) |
|
| (8.8 | ) |
Fuel, operating expenses and supplies |
|
| 162.7 |
|
|
| 16.0 |
|
|
| 228.3 |
|
|
| 17.9 |
|
|
| 370.7 |
|
|
| 17.1 |
|
|
| 464.2 |
|
|
| 18.9 |
|
|
| (28.7 | ) |
|
| (20.1 | ) |
Purchased transportation |
|
| 126.0 |
|
|
| 12.4 |
|
|
| 158.0 |
|
|
| 12.4 |
|
|
| 262.2 |
|
|
| 12.1 |
|
|
| 304.3 |
|
|
| 12.4 |
|
|
| (20.3 | ) |
|
| (13.8 | ) |
Depreciation and amortization |
|
| 34.2 |
|
|
| 3.4 |
|
|
| 38.5 |
|
|
| 3.0 |
|
|
| 69.9 |
|
|
| 3.2 |
|
|
| 78.5 |
|
|
| 3.2 |
|
|
| (11.2 | ) |
|
| (11.0 | ) |
Other operating expenses |
|
| 55.2 |
|
|
| 5.4 |
|
|
| 57.4 |
|
|
| 4.5 |
|
|
| 116.8 |
|
|
| 5.4 |
|
|
| 121.2 |
|
|
| 4.9 |
|
|
| (3.8 | ) |
|
| (3.6 | ) |
Gains on property disposals, net |
|
| (6.0 | ) |
|
| (0.6 | ) |
|
| (6.2 | ) |
|
| (0.5 | ) |
|
| (45.3 | ) |
|
| (2.1 | ) |
|
| (4.6 | ) |
|
| (0.2 | ) |
|
| (3.2 | ) |
| NM* |
| |
Impairment charges |
|
| — |
|
|
| - |
|
|
| — |
|
|
| - |
|
|
| — |
|
|
| - |
|
|
| 8.2 |
|
|
| 0.3 |
|
|
| - |
|
|
| (100.0 | ) |
Total operating expenses |
|
| 1,020.0 |
|
|
| 100.5 |
|
|
| 1,258.3 |
|
|
| 98.9 |
|
|
| 2,142.4 |
|
|
| 98.9 |
|
|
| 2,472.3 |
|
|
| 100.7 |
|
|
| (18.9 | ) |
|
| (13.3 | ) |
Operating Income (Loss) |
|
| (4.6 | ) |
|
| (0.5 | ) |
|
| 14.3 |
|
|
| 1.1 |
|
|
| 23.4 |
|
|
| 1.1 |
|
|
| (17.4 | ) |
|
| (0.7 | ) |
|
| (132.2 | ) |
|
| 234.5 |
|
Nonoperating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating expenses, net |
|
| 40.0 |
|
|
| 3.9 |
|
|
| 28.8 |
|
|
| 2.3 |
|
|
| 64.1 |
|
|
| 3.0 |
|
|
| 55.9 |
|
|
| 2.3 |
|
|
| 38.9 |
|
|
| 14.7 |
|
Loss before income taxes |
|
| (44.6 | ) |
|
| (4.4 | ) |
|
| (14.5 | ) |
|
| (1.1 | ) |
|
| (40.7 | ) |
|
| (1.9 | ) |
|
| (73.3 | ) |
|
| (3.0 | ) |
|
| (207.6 | ) |
|
| 44.5 |
|
Income tax expense (benefit) |
|
| (7.5 | ) |
|
| (0.7 | ) |
|
| 9.1 |
|
|
| 0.7 |
|
|
| (7.9 | ) |
|
| (0.4 | ) |
|
| (0.6 | ) |
|
| (0.0 | ) |
|
| 182.4 |
|
| NM* |
| |
Net Loss |
| $ | (37.1 | ) |
|
| (3.7 | ) |
| $ | (23.6 | ) |
|
| (1.9 | ) |
| $ | (32.8 | ) |
|
| (1.5 | ) |
| $ | (72.7 | ) |
|
| (3.0 | ) |
|
| (57.2 | ) |
|
| 54.9 |
|
*Not meaningful
Second quarter of 2019 and 2018:
Third Quarter | First Three Quarters | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Percent Change | 2019 | 2018 | Percent Change | |||||||||||||||
Operating revenue | $ | 1,256.8 | $ | 1,303.6 | (3.6 | )% | $ | 3,711.7 | $ | 3,844.6 | (3.5 | )% | |||||||||
Operating income | 23.8 | 41.2 | (42.2 | )% | 6.4 | 87.8 | (92.7 | )% | |||||||||||||
Nonoperating expenses, net | 40.3 | 33.6 | 19.9 | % | 96.2 | 82.9 | 16.0 | % | |||||||||||||
Net income (loss) | (16.0 | ) | 2.9 | NM* | (88.7 | ) | 2.7 | NM* |
Results of operations in the second quarter of 2020 were impacted by the outbreak of COVID-19 as shipping volumes decreased significantly from typical levels and negatively impacted the pricing environment. Downward pressure on diesel prices reduced the amount of fuel surcharge revenues the Company was able to price in our services. As such, our consolidated operating revenue decreased $46.8$257.2 million, or 3.6%,20.2% during the third quarter of
With the same perioddownturn in
Total operating expenses decreased $238.3 million, or 1.8%18.9%, primarily due to a $10.5 million increase in benefits costs and a $7.2 million increase in wage expense, as a result of higher contractual rates due to the New NMFA, which were partially offset by a $6.3 million decreasedecreases in short-term incentive compensation.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies decreasedOur effective tax rate for the thirdsecond quarter of 2020 and 2019 was 16.8% and 2018 was 3.0% and 61.8%(62.8)%, respectively. The significant items impacting the 20192020 rate includea benefit from the reversal of liability for an uncertain tax position resulting from statute expiration, a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for a net state and foreign taxes, 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 benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes, foreign withholding taxes related to a dividend from a foreign subsidiary, 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 SeptemberJune 30, 20192020 and December 31, 2018,2019, substantially all of our net deferred tax assets were subject to a valuation allowance.
The table below summarizes the key revenue metrics for the second quarter of 2020 compared to the second quarter of 2019:
|
| Second Quarter |
|
|
|
|
| |||||
|
| 2020 |
|
| 2019 |
|
| Percent Change(a) |
| |||
Workdays |
|
| 63.0 |
|
|
| 63.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions) |
| $ | 929.8 |
|
| $ | 1,167.2 |
|
|
| (20.3 | )% |
LTL tonnage (in thousands) |
|
| 2,283 |
|
|
| 2,702 |
|
|
| (15.5 | )% |
LTL tonnage per workday (in thousands) |
|
| 36.24 |
|
|
| 42.54 |
|
|
| (14.8 | )% |
LTL shipments (in thousands) |
|
| 4,003 |
|
|
| 4,803 |
|
|
| (16.7 | )% |
LTL shipments per workday (in thousands) |
|
| 63.53 |
|
|
| 75.64 |
|
|
| (16.0 | )% |
LTL picked up revenue per hundred weight |
| $ | 20.36 |
|
| $ | 21.60 |
|
|
| (5.7 | )% |
LTL picked up revenue per hundred weight (excluding fuel surcharge) |
| $ | 18.48 |
|
| $ | 18.98 |
|
|
| (2.6 | )% |
LTL picked up revenue per shipment |
| $ | 232 |
|
| $ | 243 |
|
|
| (4.4 | )% |
LTL picked up revenue per shipment (excluding fuel surcharge) |
| $ | 211 |
|
| $ | 214 |
|
|
| (1.2 | )% |
LTL weight per shipment (in pounds) |
|
| 1,141 |
|
|
| 1,125 |
|
|
| 1.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)(b) |
| $ | 1,018.4 |
|
| $ | 1,264.0 |
|
|
| (19.4 | )% |
Total tonnage (in thousands) |
|
| 2,926 |
|
|
| 3,375 |
|
|
| (13.3 | )% |
Total tonnage per workday (in thousands) |
|
| 46.44 |
|
|
| 53.16 |
|
|
| (12.6 | )% |
Total shipments (in thousands) |
|
| 4,122 |
|
|
| 4,912 |
|
|
| (16.1 | )% |
Total shipments per workday (in thousands) |
|
| 65.44 |
|
|
| 77.35 |
|
|
| (15.4 | )% |
Total picked up revenue per hundred weight |
| $ | 17.40 |
|
| $ | 18.72 |
|
|
| (7.0 | )% |
Total picked up revenue per hundred weight (excluding fuel surcharge) |
| $ | 15.85 |
|
| $ | 16.51 |
|
|
| (4.0 | )% |
Total picked up revenue per shipment |
| $ | 247 |
|
| $ | 257 |
|
|
| (4.0 | )% |
Total picked up revenue per shipment (excluding fuel surcharge) |
| $ | 225 |
|
| $ | 227 |
|
|
| (0.8 | )% |
Total weight per shipment (in pounds) |
|
| 1,419 |
|
|
| 1,374 |
|
|
| 3.3 | % |
(in millions) |
| 2020 |
|
| 2019 |
| ||
(b) Reconciliation of operating revenue to total picked up revenue: |
|
|
|
|
|
|
|
|
Operating revenue |
| $ | 1,015.4 |
|
| $ | 1,272.6 |
|
Change in revenue deferral and other |
|
| 3.0 |
|
|
| (8.6 | ) |
Total picked up revenue |
| $ | 1,018.4 |
|
| $ | 1,264.0 |
|
(a) | Percent change based on unrounded figures and not the rounded figures presented |
(b) | Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact of other revenue |
First Three QuartersHalf of 20192020 Compared to the First Three QuartersHalf of 2018
Results of operations in the first half of 2020 were impacted by the outbreak of COVID-19 as described in the discussion of second quarter results. As such, our consolidated operating revenue decreased $132.9$289.1 million, or 3.5%11.8%, during the first three quartershalf of 20192020 compared to the same period in 2018. The decrease2019 due to decreased shipping volumes.
With the downturn in revenue is primarily attributed to a decrease in tonnagevolume the Company reduced variable expenses including labor through furloughs and reduced headcount, fuel, surcharge revenue, while partially offset bymaintenance, and purchased transportation, among others. Offsetting these variable expense decreases was an increase in base yield excluding fuel surcharge.
Total operating expenses decreased $51.5$329.9 million, or 1.4%13.3%, for the first three quartershalf of 20192020 compared to the first three quartershalf of 2018, and consisted2019 primarily as a result of lower purchased transportation expense as well as lower fuel, operating expenses and supplies, partially offset by increased salaries, wages and employee benefits.
Fuel, operating expenses and supplies.
Fuel, operating expenses and supplies decreasedGains on property disposals
. Net gains on disposals of property wereImpairment charges
. During the first quarter of 2019, we recorded an $8.2 million impairment chargeOur effective tax rate for the first three quartershalf of 2020 and 2019 was 19.4% and 2018 was 1.2% and 44.9%0.8%, respectively. The significant items impacting the 20192020 rate includea benefit from the reversal of liability for an uncertain tax position resulting from statute expiration, a benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes, 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 benefit recognized due to application of the exception to the rules regarding intraperiod tax allocation, a provision for net state and foreign taxes, foreign withholding taxes related to dividends from a foreign subsidiary, 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.
The Company uses key operating metricsCARES Act contained certain income tax provisions intended to provide a comparison with industry peers. Two primary components include volume (commonly evaluated using tonnage, tonnage per day, total shipments, shipments per dayrelief to taxpayers, but it will not have any significant impact on our tax rate, current or weight per shipment) and yielddeferred tax provision, or price (commonly evaluated as picked up revenue, revenue per hundredweight, or revenue per shipment). With the enhanced focus of service and product expansion and the launch of HNRY Logistics in late 2018, our increase in shipments over 10,000 pounds is growing, impacting the year-over-year revenue per hundredweight metrics that we have historically presented for YRC Freight, which includes the results of operations for HNRY Logistics.cash taxes.
|
| First Half |
|
|
|
|
| |||||
|
| 2020 |
|
| 2019 |
|
| Percent Change(a) |
| |||
Workdays |
|
| 128.5 |
|
|
| 126.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL picked up revenue (in millions) |
| $ | 1,979.3 |
|
| $ | 2,253.5 |
|
|
| (12.2 | )% |
LTL tonnage (in thousands) |
|
| 4,827 |
|
|
| 5,226 |
|
|
| (7.6 | )% |
LTL tonnage per workday (in thousands) |
|
| 37.57 |
|
|
| 41.31 |
|
|
| (9.1 | )% |
LTL shipments (in thousands) |
|
| 8,325 |
|
|
| 9,259 |
|
|
| (10.1 | )% |
LTL shipments per workday (in thousands) |
|
| 64.79 |
|
|
| 73.19 |
|
|
| (11.5 | )% |
LTL picked up revenue per hundred weight |
| $ | 20.50 |
|
| $ | 21.56 |
|
|
| (4.9 | )% |
LTL picked up revenue per hundred weight (excluding fuel surcharge) |
| $ | 18.37 |
|
| $ | 19.00 |
|
|
| (3.3 | )% |
LTL picked up revenue per shipment |
| $ | 238 |
|
| $ | 243 |
|
|
| (2.3 | )% |
LTL picked up revenue per shipment (excluding fuel surcharge) |
| $ | 213 |
|
| $ | 214 |
|
|
| (0.7 | )% |
LTL weight per shipment (in pounds) |
|
| 1,160 |
|
|
| 1,129 |
|
|
| 2.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total picked up revenue (in millions)(b) |
| $ | 2,159.8 |
|
| $ | 2,440.4 |
|
|
| (11.5 | )% |
Total tonnage (in thousands) |
|
| 6,159 |
|
|
| 6,530 |
|
|
| (5.7 | )% |
Total tonnage per workday (in thousands) |
|
| 47.93 |
|
|
| 51.62 |
|
|
| (7.1 | )% |
Total shipments (in thousands) |
|
| 8,548 |
|
|
| 9,461 |
|
|
| (9.6 | )% |
Total shipments per workday (in thousands) |
|
| 66.52 |
|
|
| 74.79 |
|
|
| (11.0 | )% |
Total picked up revenue per hundred weight |
| $ | 17.53 |
|
| $ | 18.69 |
|
|
| (6.2 | )% |
Total picked up revenue per hundred weight (excluding fuel surcharge) |
| $ | 15.77 |
|
| $ | 16.52 |
|
|
| (4.5 | )% |
Total picked up revenue per shipment |
| $ | 253 |
|
| $ | 258 |
|
|
| (2.1 | )% |
Total picked up revenue per shipment (excluding fuel surcharge) |
| $ | 227 |
|
| $ | 228 |
|
|
| (0.3 | )% |
Total weight per shipment (in pounds) |
|
| 1,441 |
|
|
| 1,380 |
|
|
| 4.4 | % |
(in millions) |
| 2020 |
|
| 2019 |
| ||
(b)Reconciliation of operating revenue to total picked up revenue: |
|
|
|
|
|
|
|
|
Operating revenue |
| $ | 2,165.8 |
|
| $ | 2,454.9 |
|
Change in revenue deferral and other |
|
| (6.0 | ) |
|
| (14.5 | ) |
Total picked up revenue |
| $ | 2,159.8 |
|
| $ | 2,440.4 |
|
Third Quarter | First Three Quarters | ||||||||||||||||||
(in millions) | 2019 | 2018 | Percent Change | 2019 | 2018 | Percent Change | |||||||||||||
Operating revenue | $ | 803.2 | $ | 822.1 | (2.3)% | $ | 2,347.8 | $ | 2,401.0 | (2.2)% | |||||||||
Operating income | 31.6 | 24.7 | 27.9% | 26.5 | 44.6 | (40.6)% | |||||||||||||
Operating ratio(a) | 96.1 | % | 97.0 | % | 0.9 pp | 98.9 | % | 98.1 | % | (0.8) pp |
(a) | |
Percent change based on unrounded figures and not the |
Third Quarter | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 63.5 | 63.0 | ||||||||
LTL picked up revenue (in millions) | $ | 740.2 | $ | 752.2 | (1.6 | )% | ||||
LTL tonnage (in thousands) | 1,230 | 1,270 | (3.2 | )% | ||||||
LTL tonnage per day (in thousands) | 19.36 | 20.17 | (4.0 | )% | ||||||
LTL shipments (in thousands) | 2,444 | 2,513 | (2.7 | )% | ||||||
LTL shipments per day (in thousands) | 38.49 | 39.88 | (3.5 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 30.10 | $ | 29.61 | 1.7 | % | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 26.59 | $ | 25.87 | 2.8 | % | ||||
LTL picked up revenue per shipment | $ | 303 | $ | 299 | 1.2 | % | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 268 | $ | 262 | 2.3 | % | ||||
LTL weight per shipment (in pounds) | 1,006 | 1,011 | (0.5 | )% | ||||||
Total picked up revenue (in millions)(a) | $ | 794.7 | $ | 805.0 | (1.3 | )% | ||||
Total tonnage (in thousands) | 1,571 | 1,541 | 2.0 | % | ||||||
Total tonnage per day (in thousands) | 24.75 | 24.46 | 1.2 | % | ||||||
Total shipments (in thousands) | 2,483 | 2,547 | (2.5 | )% | ||||||
Total shipments per day (in thousands) | 39.10 | 40.43 | (3.3 | )% | ||||||
Total picked up revenue per hundred weight | $ | 25.29 | $ | 26.11 | (3.2 | )% | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 22.41 | $ | 22.85 | (1.9 | )% | ||||
Total picked up revenue per shipment | $ | 320 | $ | 316 | 1.3 | % | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 284 | $ | 277 | 2.6 | % | ||||
Total weight per shipment (in pounds) | 1,266 | 1,210 | 4.6 | % |
Third Quarter | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 803.2 | $ | 822.1 | |||
Change in revenue deferral and other | (8.5 | ) | (17.1 | ) | |||
Total picked up revenue | $ | 794.7 | $ | 805.0 |
(b) | |
Does not equal financial statement revenue due to revenue recognition adjustments between accounting periods and the impact of other revenue |
First Three Quarters | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 190.0 | 190.5 | ||||||||
LTL picked up revenue (in millions) | $ | 2,167.2 | $ | 2,216.4 | (2.2 | )% | ||||
LTL tonnage (in thousands) | 3,612 | 3,833 | (5.8 | )% | ||||||
LTL tonnage per day (in thousands) | 19.01 | 20.12 | (5.5 | )% | ||||||
LTL shipments (in thousands) | 7,216 | 7,558 | (4.5 | )% | ||||||
LTL shipments per day (in thousands) | 37.98 | 39.67 | (4.3 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 30.00 | $ | 28.91 | 3.8 | % | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 26.46 | $ | 25.34 | 4.4 | % | ||||
LTL picked up revenue per shipment | $ | 300 | $ | 293 | 2.4 | % | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 265 | $ | 257 | 3.1 | % | ||||
LTL weight per shipment (in pounds) | 1,001 | 1,014 | (1.3 | )% | ||||||
Total picked up revenue (in millions)(a) | $ | 2,324.2 | $ | 2,373.6 | (2.1 | )% | ||||
Total tonnage (in thousands) | 4,567 | 4,663 | (2.0 | )% | ||||||
Total tonnage per day (in thousands) | 24.04 | 24.48 | (1.8 | )% | ||||||
Total shipments (in thousands) | 7,325 | 7,664 | (4.4 | )% | ||||||
Total shipments per day (in thousands) | 38.55 | 40.23 | (4.2 | )% | ||||||
Total picked up revenue per hundred weight | $ | 25.44 | $ | 25.45 | — | % | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 22.50 | $ | 22.33 | 0.8 | % | ||||
Total picked up revenue per shipment | $ | 317 | $ | 310 | 2.5 | % | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 281 | $ | 272 | 3.3 | % | ||||
Total weight per shipment (in pounds) | 1,247 | 1,217 | 2.5 | % |
First Three Quarters | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 2,347.8 | $ | 2,401.0 | |||
Change in revenue deferral and other | (23.6 | ) | (27.4 | ) | |||
Total picked up revenue | $ | 2,324.2 | $ | 2,373.6 |
Third Quarter | First Three Quarters | ||||||||||||||||||
(in millions) | 2019 | 2018 | Percent Change | 2019 | 2018 | Percent Change | |||||||||||||
Operating revenue | $ | 453.6 | $ | 481.5 | (5.8) % | $ | 1,364.0 | $ | 1,443.8 | (5.5)% | |||||||||
Operating income (loss) | (4.1 | ) | 18.4 | (122.3) % | (8.5 | ) | 52.8 | (116.1)% | |||||||||||
Operating ratio(a) | 100.9 | % | 96.2 | % | (4.7) pp | 100.6 | % | 96.3 | % | (4.3) pp |
Third Quarter | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 62.5 | 63.0 | ||||||||
LTL picked up revenue (in millions) | $ | 420.9 | $ | 443.5 | (5.1 | )% | ||||
LTL tonnage (in thousands) | 1,445 | 1,511 | (4.4 | )% | ||||||
LTL tonnage per day (in thousands) | 23.12 | 23.98 | (3.6 | )% | ||||||
LTL shipments (in thousands) | 2,304 | 2,417 | (4.7 | )% | ||||||
LTL shipments per day (in thousands) | 36.86 | 38.36 | (3.9 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 14.57 | $ | 14.68 | (0.8 | )% | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 12.89 | $ | 12.89 | — | % | ||||
LTL picked up revenue per shipment | $ | 183 | $ | 184 | (0.4 | )% | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 162 | $ | 161 | 0.3 | % | ||||
LTL weight per shipment (in pounds) | 1,254 | 1,250 | 0.3 | % | ||||||
Total picked up revenue (in millions)(a) | $ | 453.0 | $ | 481.3 | (5.9 | )% | ||||
Total tonnage (in thousands) | 1,769 | 1,891 | (6.5 | )% | ||||||
Total tonnage per day (in thousands) | 28.30 | 30.01 | (5.7 | )% | ||||||
Total shipments (in thousands) | 2,350 | 2,471 | (4.9 | )% | ||||||
Total shipments per day (in thousands) | 37.61 | 39.22 | (4.1 | )% | ||||||
Total picked up revenue per hundred weight | $ | 12.81 | $ | 12.73 | 0.6 | % | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 11.34 | $ | 11.19 | 1.4 | % | ||||
Total picked up revenue per shipment | $ | 193 | $ | 195 | (1.0 | )% | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 171 | $ | 171 | (0.3 | )% | ||||
Total weight per shipment (in pounds) | 1,505 | 1,530 | (1.7 | )% |
Third Quarter | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 453.6 | $ | 481.5 | |||
Change in revenue deferral and other | (0.6 | ) | (0.2 | ) | |||
Total picked up revenue | $ | 453.0 | $ | 481.3 |
First Three Quarters | ||||||||||
2019 | 2018 | Percent Change(b) | ||||||||
Workdays | 189.0 | 190.5 | ||||||||
LTL picked up revenue (in millions) | $ | 1,264.0 | $ | 1,327.5 | (4.7 | )% | ||||
LTL tonnage (in thousands) | 4,332 | 4,612 | (6.1 | )% | ||||||
LTL tonnage per day (in thousands) | 22.92 | 24.21 | (5.3 | )% | ||||||
LTL shipments (in thousands) | 6,879 | 7,335 | (6.2 | )% | ||||||
LTL shipments per day (in thousands) | 36.40 | 38.50 | (5.5 | )% | ||||||
LTL picked up revenue per hundred weight | $ | 14.60 | $ | 14.39 | 1.4 | % | ||||
LTL picked up revenue per hundred weight (excluding fuel surcharge) | $ | 12.91 | $ | 12.66 | 1.9 | % | ||||
LTL picked up revenue per shipment | $ | 184 | $ | 181 | 1.6 | % | ||||
LTL picked up revenue per shipment (excluding fuel surcharge) | $ | 163 | $ | 159 | 2.1 | % | ||||
LTL weight per shipment (in pounds) | 1,259 | 1,258 | 0.1 | % | ||||||
Total picked up revenue (in millions)(a) | $ | 1,364.0 | $ | 1,445.1 | (5.6 | )% | ||||
Total tonnage (in thousands) | 5,332 | 5,806 | (8.2 | )% | ||||||
Total tonnage per day (in thousands) | 28.21 | 30.48 | (7.4 | )% | ||||||
Total shipments (in thousands) | 7,024 | 7,505 | (6.4 | )% | ||||||
Total shipments per day (in thousands) | 37.16 | 39.40 | (5.7 | )% | ||||||
Total picked up revenue per hundred weight | $ | 12.79 | $ | 12.44 | 2.8 | % | ||||
Total picked up revenue per hundred weight (excluding fuel surcharge) | $ | 11.31 | $ | 10.96 | 3.3 | % | ||||
Total picked up revenue per shipment | $ | 194 | $ | 193 | 0.9 | % | ||||
Total picked up revenue per shipment (excluding fuel surcharge) | $ | 172 | $ | 170 | 1.3 | % | ||||
Total weight per shipment (in pounds) | 1,518 | 1,547 | (1.9 | )% |
First Three Quarters | |||||||
(in millions) | 2019 | 2018 | |||||
(a) Reconciliation of operating revenue to total picked up revenue: | |||||||
Operating revenue | $ | 1,364.0 | $ | 1,443.8 | |||
Change in revenue deferral and other | — | 1.3 | |||||
Total picked up revenue | $ | 1,364.0 | $ | 1,445.1 |
Certain Non-GAAP Financial Measures
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)loss to EBITDA and EBITDA to Adjusted EBITDA (defined in our New Term Loan Agreement as “Consolidated EBITDA”) for the
|
| Second Quarter |
|
| First Half |
|
| Trailing Twelve Months Ended |
| |||||||||||||||
(in millions) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||
Reconciliation of net loss to Adjusted EBITDA(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (37.1 | ) |
| $ | (23.6 | ) |
| $ | (32.8 | ) |
| $ | (72.7 | ) |
| $ | (64.1 | ) |
| $ | (52.3 | ) |
Interest expense, net |
|
| 40.2 |
|
|
| 27.8 |
|
|
| 68.4 |
|
|
| 54.3 |
|
|
| 124.0 |
|
|
| 107.8 |
|
Income tax expense (benefit) |
|
| (7.5 | ) |
|
| 9.1 |
|
|
| (7.9 | ) |
|
| (0.6 | ) |
|
| (11.6 | ) |
|
| 13.0 |
|
Depreciation and amortization |
|
| 34.2 |
|
|
| 38.5 |
|
|
| 69.9 |
|
|
| 78.5 |
|
|
| 143.8 |
|
|
| 150.9 |
|
EBITDA |
|
| 29.8 |
|
|
| 51.8 |
|
|
| 97.6 |
|
|
| 59.5 |
|
|
| 192.1 |
|
|
| 219.4 |
|
Adjustments for New Term Loan Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on property disposals, net |
|
| (6.0 | ) |
|
| (6.2 | ) |
|
| (45.3 | ) |
|
| (4.6 | ) |
|
| (54.4 | ) |
|
| (30.8 | ) |
Non-cash reserve changes(b) |
|
| 2.7 |
|
|
| 16.0 |
|
|
| 3.0 |
|
|
| 16.0 |
|
|
| 3.1 |
|
|
| 16.0 |
|
Impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.2 |
|
|
| — |
|
|
| 8.2 |
|
Letter of credit expense |
|
| 1.6 |
|
|
| 1.6 |
|
|
| 3.2 |
|
|
| 3.2 |
|
|
| 6.5 |
|
|
| 6.4 |
|
Permitted dispositions and other |
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| (1.1 | ) |
|
| 0.4 |
|
|
| (1.5 | ) |
Equity-based compensation expense |
|
| 1.2 |
|
|
| 1.1 |
|
|
| 3.2 |
|
|
| 3.4 |
|
|
| 6.1 |
|
|
| 4.9 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11.2 |
|
|
| — |
|
Non-union pension settlement charge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.8 |
|
|
| 10.9 |
|
Other, net |
|
| 2.1 |
|
|
| 1.0 |
|
|
| 0.5 |
|
|
| 2.1 |
|
|
| 1.3 |
|
|
| 1.9 |
|
Expense amounts subject to 10% threshold(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COVID-19 |
|
| 3.7 |
|
|
| — |
|
|
| 3.9 |
|
|
| — |
|
|
| 3.9 |
|
|
| — |
|
Other, net |
|
| 2.8 |
|
|
| 4.1 |
|
|
| 5.7 |
|
|
| 12.8 |
|
|
| 11.1 |
|
|
| 25.8 |
|
Adjusted EBITDA prior to 10% threshold |
|
| 37.9 |
|
|
| 69.4 |
|
|
| 72.0 |
|
|
| 99.5 |
|
|
| 183.1 |
|
|
| 261.2 |
|
Adjustments pursuant to TTM calculation(c) |
|
| — |
|
|
| (2.1 | ) |
|
| — |
|
|
| (2.1 | ) |
|
| — |
|
|
| (2.1 | ) |
Adjusted EBITDA |
| $ | 37.9 |
|
| $ | 67.3 |
|
| $ | 72.0 |
|
| $ | 97.4 |
|
| $ | 183.1 |
|
| $ | 259.1 |
|
Third Quarter | First Three Quarters | Trailing Twelve Months Ended | |||||||||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||||||
Reconciliation of net income (loss) to Adjusted EBITDA(a): | |||||||||||||||||||||||
Net income (loss) | $ | (16.0 | ) | $ | 2.9 | $ | (88.7 | ) | $ | 2.7 | $ | (71.2 | ) | $ | (4.8 | ) | |||||||
Interest expense, net | 27.7 | 26.2 | 82.0 | 77.2 | 109.3 | 102.9 | |||||||||||||||||
Income tax expense (benefit) | (0.5 | ) | 4.7 | (1.1 | ) | 2.2 | 7.8 | (5.5 | ) | ||||||||||||||
Depreciation and amortization | 37.2 | 34.9 | 115.7 | 110.2 | 153.2 | 146.9 | |||||||||||||||||
EBITDA | 48.4 | 68.7 | 107.9 | 192.3 | 199.1 | 239.5 | |||||||||||||||||
Adjustments for Term Loan Agreement: | |||||||||||||||||||||||
(Gains) losses on property disposals, net | 1.0 | 1.9 | (3.6 | ) | 7.3 | (31.7 | ) | 3.7 | |||||||||||||||
Property gains on certain disposals(b) | — | — | — | 0.4 | 29.3 | 0.4 | |||||||||||||||||
Non-cash reserve changes(c) | (2.0 | ) | — | 14.0 | — | 14.0 | — | ||||||||||||||||
Impairment charges | — | — | 8.2 | — | 8.2 | — | |||||||||||||||||
Letter of credit expense | 1.6 | 1.6 | 4.8 | 5.0 | 6.4 | 6.7 | |||||||||||||||||
Transaction costs related to issuances of debt | — | — | — | — | — | 1.4 | |||||||||||||||||
Permitted dispositions and other | 0.1 | (0.4 | ) | (1.0 | ) | 0.3 | (1.0 | ) | 0.4 | ||||||||||||||
Equity-based compensation expense | 1.8 | 0.7 | 5.2 | 5.5 | 6.0 | 6.7 | |||||||||||||||||
Loss on extinguishment of debt | 11.2 | — | 11.2 | — | 11.2 | — | |||||||||||||||||
Non-union pension settlement charge | 1.7 | 7.2 | 1.7 | 7.2 | 5.4 | 14.8 | |||||||||||||||||
Other, net(d) | 0.2 | 0.9 | 2.3 | 1.2 | 1.2 | 0.8 | |||||||||||||||||
Amounts subject to 10% threshold(e): | |||||||||||||||||||||||
Nonrecurring consulting fees | 1.9 | 2.0 | 6.2 | 5.2 | 8.7 | 5.2 | |||||||||||||||||
Restructuring charges | (0.2 | ) | 0.5 | 0.3 | 1.7 | 0.9 | 2.3 | ||||||||||||||||
Nonrecurring item (vendor bankruptcy) | (2.5 | ) | — | 1.2 | — | 5.5 | — | ||||||||||||||||
Other, net(d) | 2.1 | 1.1 | 6.4 | 4.6 | 8.4 | 7.3 | |||||||||||||||||
Adjusted EBITDA pursuant to Prior Term Loan Agreement | 65.3 | 84.2 | 164.8 | 230.7 | 271.6 | 289.2 | |||||||||||||||||
Less: | |||||||||||||||||||||||
Property gains on certain disposals(b) | — | — | — | (0.4 | ) | (29.3 | ) | (0.4 | ) | ||||||||||||||
Adjustments in excess of 10% threshold(e) | 0.6 | — | (1.5 | ) | — | (1.5 | ) | — | |||||||||||||||
Adjusted EBITDA pursuant to New Term Loan Agreement | $ | 65.9 | $ | 84.2 | $ | 163.3 | $ | 230.3 | $ | 240.8 | $ | 288.8 |
(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 |
(c) | |
Pursuant to the New Term Loan Agreement, Adjusted EBITDA limits certain adjustments in aggregate to 10% of the trailing-twelve-month (“TTM”) consolidated Adjusted EBITDA, prior to the inclusion of amounts subject to the 10% threshold, for each period ending. Such adjustments include, but are not limited to, restructuring charges, integration costs, severance, and non-recurring charges. |
Third Quarter | First Three Quarters | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Adjusted EBITDA by segment: | |||||||||||||||
YRC Freight | $ | 52.8 | $ | 48.6 | $ | 116.8 | $ | 124.8 | |||||||
Regional Transportation | 13.3 | 35.7 | 47.4 | 105.1 | |||||||||||
Corporate and other | (0.2 | ) | (0.1 | ) | (0.9 | ) | 0.4 | ||||||||
Adjusted EBITDA | $ | 65.9 | $ | 84.2 | $ | 163.3 | $ | 230.3 |
Third Quarter | First Three Quarters | ||||||||||||||
YRC Freight segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reconciliation of operating income to Adjusted EBITDA(a): | |||||||||||||||
Operating income | $ | 31.6 | $ | 24.7 | $ | 26.5 | $ | 44.6 | |||||||
Depreciation and amortization | 21.0 | 18.4 | 65.5 | 61.5 | |||||||||||
(Gains) losses on property disposals, net | 0.1 | 1.6 | (2.0 | ) | 6.1 | ||||||||||
Property gains on certain disposals(b) | — | — | — | 0.4 | |||||||||||
Non-cash reserve changes(c) | (1.1 | ) | — | 9.2 | — | ||||||||||
Impairment charges | — | — | 8.2 | — | |||||||||||
Letter of credit expense | 1.0 | 1.0 | 3.0 | 3.1 | |||||||||||
Non-union pension and postretirement benefits | (0.1 | ) | 0.4 | (0.5 | ) | 1.5 | |||||||||
Other, net(d) | 0.4 | — | 0.2 | 0.1 | |||||||||||
Amounts subject to 10% threshold(e): | |||||||||||||||
Nonrecurring consulting fees | 1.6 | 1.9 | 5.4 | 5.0 | |||||||||||
Restructuring charges | — | — | — | 0.1 | |||||||||||
Nonrecurring item (vendor bankruptcy) | (2.5 | ) | — | 1.2 | — | ||||||||||
Other, net(d) | 0.3 | 0.6 | 1.1 | 2.8 | |||||||||||
Adjusted EBITDA pursuant to Prior Term Loan Agreement | 52.3 | 48.6 | 117.8 | 125.2 | |||||||||||
Less: | |||||||||||||||
Property gains on certain disposals(b) | — | — | — | (0.4 | ) | ||||||||||
Adjustments in excess of 10% threshold(e) | 0.5 | — | (1.0 | ) | — | ||||||||||
Adjusted EBITDA pursuant to New Term Loan Agreement | $ | 52.8 | $ | 48.6 | $ | 116.8 | $ | 124.8 |
Third Quarter | First Three Quarters | ||||||||||||||
Regional Transportation segment (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reconciliation of operating income (loss) to Adjusted EBITDA(a): | |||||||||||||||
Operating income (loss) | $ | (4.1 | ) | $ | 18.4 | $ | (8.5 | ) | $ | 52.8 | |||||
Depreciation and amortization | 15.8 | 16.2 | 49.3 | 48.4 | |||||||||||
(Gains) losses on property disposals, net | 0.9 | 0.3 | (1.6 | ) | 1.1 | ||||||||||
Non-cash reserve changes(c) | (1.1 | ) | — | 4.4 | — | ||||||||||
Letter of credit expense | 0.5 | 0.6 | 1.6 | 1.7 | |||||||||||
Other, net(d) | (0.2 | ) | — | (0.1 | ) | 0.1 | |||||||||
Amounts subject to 10% threshold(e): | |||||||||||||||
Nonrecurring consulting fees | 0.3 | — | 0.8 | — | |||||||||||
Other, net(d) | 1.2 | 0.2 | 1.7 | 1.0 | |||||||||||
Adjusted EBITDA pursuant to Prior Term Loan Agreement | 13.3 | 35.7 | 47.6 | 105.1 | |||||||||||
Less: | |||||||||||||||
Adjustments in excess of 10% threshold(e) | — | — | (0.2 | ) | — | ||||||||||
Adjusted EBITDA pursuant to New Term Loan Agreement | $ | 13.3 | $ | 35.7 | $ | 47.4 | $ | 105.1 |
Third Quarter | First Three Quarters | ||||||||||||||
Corporate and other (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reconciliation of operating loss to Adjusted EBITDA: | |||||||||||||||
Operating loss | $ | (3.7 | ) | $ | (1.9 | ) | $ | (11.6 | ) | $ | (9.6 | ) | |||
Depreciation and amortization | 0.4 | 0.2 | 0.9 | 0.3 | |||||||||||
Losses on property disposals, net | — | — | — | 0.1 | |||||||||||
Non-cash reserve changes(c) | 0.2 | — | 0.4 | — | |||||||||||
Letter of credit expense | 0.1 | 0.1 | 0.2 | 0.2 | |||||||||||
Permitted dispositions and other | 0.1 | (0.4 | ) | (1.0 | ) | 0.3 | |||||||||
Non-union pension and postretirement benefits | (0.2 | ) | (0.1 | ) | (0.6 | ) | (0.3 | ) | |||||||
Equity-based compensation expense | 1.8 | 0.7 | 5.2 | 5.5 | |||||||||||
Other, net(d) | 0.6 | 0.5 | 2.0 | 1.5 | |||||||||||
Amounts subject to 10% threshold(e): | |||||||||||||||
Restructuring charges | (0.2 | ) | 0.5 | 0.3 | 1.6 | ||||||||||
Other, net(d) | 0.6 | 0.3 | 3.6 | 0.8 | |||||||||||
Adjusted EBITDA pursuant to Prior Term Loan Agreement | (0.3 | ) | (0.1 | ) | (0.6 | ) | 0.4 | ||||||||
Less: | |||||||||||||||
Adjustments in excess of 10% threshold(e) | 0.1 | — | (0.3 | ) | — | ||||||||||
Adjusted EBITDA pursuant to New Term Loan Agreement | $ | (0.2 | ) | $ | (0.1 | ) | $ | (0.9 | ) | $ | 0.4 |
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 SeptemberJune 30, 2019,2020, our maximum availability under our ABL Facility was $69.5$61.3 million, and our managed accessibility was $20.4 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 $347.9 million of outstanding letters of credit. Our Managed Accessibility was $28.8of $20.4 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 SeptemberJune 30, 2019.2020. The credit agreement governing the ABL Facility permits adjustments from eligible borrowing
base cash to restricted cash prior to the compliance measurement date of July 15, 2020. As of September 30, 2019,July 15, 2020, we moved $18.0 million of cash out of restricted cash, as permitted under the ABL Facility, which effectively put our cash and cash equivalents and Managed Accessibility were $150.1 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 SeptemberJune 30, 20192020 and December 31, 2018:2019:
(in millions) |
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
| $ | 264.2 |
|
| $ | 109.2 |
|
Amounts placed (into)/out of restricted cash subsequent to period end |
|
| 18.0 |
|
|
| (29.0 | ) |
Managed Accessibility |
|
| 20.4 |
|
|
| 0.2 |
|
Total cash and cash equivalents and Managed Accessibility |
| $ | 302.6 |
|
| $ | 80.4 |
|
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Cash and cash equivalents | $ | 121.3 | $ | 227.6 | |||
Changes to restricted cash | — | (25.0 | ) | ||||
Managed Accessibility | 28.8 | 1.2 | |||||
Total cash and cash equivalents and Managed Accessibility | $ | 150.1 | $ | 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 SeptemberJune 30, 2019,2020, we had $906.3$909.8 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 $34.7 million and $2.2 million, respectively. In addition, we have, and will continue to have, operating lease obligations. As of SeptemberJune 30, 2019,2020, our operating lease payment obligations through 2030 totaled $470.2 million and are expected to increase as we lease additional revenue equipment. For the first three quarters of 2019, we entered into new operating leases for revenue equipment totaling $94.6 million in future lease payments, payable over an average lease term of four years.
Our capital expenditures for the first three quartershalf of 2020 and 2019 and 2018 were $111.5$24.1 million and $92.4$70.6 million, respectively. These amounts were principally used to fund the purchase of new and used revenue equipment, for capitalized costs to improve our technology infrastructure and to refurbish engines for our revenue fleet. For the ninesix months ended SeptemberJune 30, 20192020, we entered into new operating lease commitments for revenue equipment with a capital equivalent value of $113.3$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 included 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. Health & welfare payments deferred in the second quarter of 2020 were paid in full in July 2020.
As of SeptemberJune 30, 2019,2020, our Standard & Poor’s Corporate Family Rating was “B-” with a stable outlook“CCC” and Moody’s Investor Service Corporate Family Rating was “B2” with a stable outlook.
Covenants
The UST Credit Agreements and the New Term Loan Agreement includesinclude a financial covenant requirement for the Company to maintain a minimum Liquidity of $125.0 million until the first date on which Consolidated EBITDA on the last day of a fiscal quarter is greater than $200.0 million trailing-twelve-month Adjusted EBITDA, measured quarterly. Consolidated Adjusted EBITDA, defined in our New Term Loan Agreement as “Consolidated EBITDA,” isand a measurerequirement 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 fromminimum Consolidated EBITDA in such future periodcommencing with the fiscal quarter ending December 31, 2021, to be not less than $100.0 million for the extent paid). The definition was further modified underfour quarters ending December 31, 2021, $150.0 million for 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,four quarters ending March 31, 2022 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.
Risks and Uncertainties Regarding Liquidity and Compliance with Credit Facility Financial Covenants
Based on the close of operations will allow us to comply withUST Credit Agreements and the minimum Adjusted EBITDA covenant in theSecond New Term Loan AgreementAmendment, the only applicable financial covenant until December 31, 2021 is the Liquidity requirement of $125.0 million. With Liquidity as of June 30, 2020 of $302.6 million, proceeds from the UST Credit Agreements to be received in the third quarter 2020, and forecasted operating results, management concludes it probable the Company will meet covenant requirements for at least the next twelve months, subject to specific actions and cost savings initiatives we are taking in the fourth quarter of 2019 and the first quarter of 2020 to provide additional Adjusted EBITDA. These actions 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 a reduction in discretionary spend. We are taking these actions because we have not been able to fully realize operational efficiencies arising from our New NMFA due to depressed volume levels. Our ability to satisfy our liquidity needs and meet our minimum Adjusted EBITDA requirement during the next twelve months and thereafter is dependent upon our ability to achieve operating results that reflect improvement over our first half 2019, which were negatively impacted by the process to obtain our five-year labor agreement scheduled to expire on March 31, 2019 and successfully ratified on May 14, 2019. Significant adverse conditions, which may result from changes in global trade policies or increased contraction in the general economy, may impact our ability to achieve a minimum Adjusted EBITDA above $200.0 million on a trailing-twelve-month basis. Means for improving our profitability include accelerated implementation of network optimization, specific initiatives in the areas of pricing and customer engagement, and other operational actions to improve productivity and efficiency, as well as increased volume, all of which may not be within our control. If we are unable to achieve the improved results required
Cash Flows
Operating Cash Flow
Cash provided by operating activities was $13.4$213.6 million during the first three quartershalf of 2019,2020, compared to $157.9$29.5 million of cash providedused during the first three quartershalf of 2018.2019. The decreaseincrease in cash provided was primarily attributable to a $91.4 million decrease in income, and the remaining difference is primarilydeferrals of various payments recorded as other operating liabilities related to timing differenceswages, vacations, and employee benefits. Other operating liabilities increased
$141.1 million, of which $129.0 million related to deferred health, welfare and pension payments which were paid in working capital accounts.
Investing Cash Flow
Cash provided by investing activities was $101.6$30.0 million during the first three quartershalf of 20192020 compared to $87.5$62.3 million used during the first three quartershalf of 2018.2019. The increase of $14.1$92.3 million in cash provided 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 three quartershalf of 2020 and 2019 and 2018 was $18.1$32.6 million and $22.9$18.3 million, respectively. The paymentuse of $11.1 million in deferred debt issuance costs and the favorable impactcash is primarily related to cash of obtaining our New Term Loan reduced our cash used when compared to 2018, which consisted primarily of repayments on our long-term debt under our Prior Term Loan.
Contractual Obligations and Other Commercial Commitments
The following sections provide aggregated information regarding our contractual cash obligations and other commercial commitments as of SeptemberJune 30, 2019.
Contractual Cash Obligations
The following table reflects our cash outflows that we are contractually obligated to make as of SeptemberJune 30, 2019:2020:
|
| Payments Due by Period |
| |||||||||||||||||
(in millions) |
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| After 5 years |
| |||||
ABL Facility(a) |
| $ | 8.8 |
|
| $ | 8.8 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Term Loan(b) |
|
| 825.1 |
|
|
| 52.9 |
|
|
| 105.7 |
|
|
| 666.5 |
|
|
| — |
|
Lease financing obligations(c) |
|
| 343.6 |
|
|
| 40.5 |
|
|
| 79.7 |
|
|
| 77.0 |
|
|
| 146.4 |
|
Pension deferral obligations(d) |
|
| 83.3 |
|
|
| 6.7 |
|
|
| 76.6 |
|
|
| — |
|
|
| — |
|
Workers’ compensation and third-party liability claims obligations(e) |
|
| 355.1 |
|
|
| 107.5 |
|
|
| 112.7 |
|
|
| 46.8 |
|
|
| 88.1 |
|
Operating leases(f) |
|
| 406.0 |
|
|
| 149.5 |
|
|
| 183.8 |
|
|
| 44.2 |
|
|
| 28.5 |
|
Other contractual obligations(g) |
|
| 25.2 |
|
|
| 20.2 |
|
|
| 4.3 |
|
|
| 0.7 |
|
|
| — |
|
Capital expenditure obligations(h) |
|
| 1.7 |
|
|
| 1.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual obligations |
| $ | 2,048.8 |
|
| $ | 387.8 |
|
| $ | 562.8 |
|
| $ | 835.2 |
|
| $ | 263.0 |
|
Payments Due by Period | |||||||||||||||||||
(in millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||
ABL Facility(a) | $ | 13.6 | $ | 6.8 | $ | 6.8 | $ | — | $ | — | |||||||||
Term Loan(b) | 877.8 | 58.6 | 116.9 | 702.3 | — | ||||||||||||||
Lease financing obligations(c) | 375.8 | 42.3 | 80.6 | 79.1 | 173.8 | ||||||||||||||
Pension deferral obligations(d) | 91.9 | 7.2 | 14.0 | 70.7 | — | ||||||||||||||
Workers’ compensation, property damage and liability claims obligations(e) | 362.6 | 105.2 | 115.4 | 50.0 | 92.0 | ||||||||||||||
Operating leases(f) | 470.2 | 153.6 | 216.9 | 64.6 | 35.1 | ||||||||||||||
Other contractual obligations(g) | 51.5 | 31.4 | 17.6 | 2.5 | — | ||||||||||||||
Capital expenditures and other (h) | 15.4 | 15.4 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 2,258.8 | $ | 420.5 | $ | 568.2 | $ | 969.2 | $ | 300.9 |
(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 |
(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 expenditures and other obligations primarily include noncancelable orders for revenue equipment the Company will either purchase or lease. If leased, the cash obligations will be scheduled over the multi-year term of the lease and ROU assets and liabilities will be recorded upon lease execution. |
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) |
| $ | 61.3 |
|
| $ | 61.3 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Letters of credit(b) |
|
| 347.9 |
|
|
| 347.9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Surety bonds(c) |
|
| 109.5 |
|
|
| 109.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total commercial commitments |
| $ | 518.7 |
|
| $ | 518.7 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
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) | $ | 69.5 | $ | — | $ | 69.5 | $ | — | $ | — | |||||||||
Letters of credit(b) | 337.6 | — | 337.6 | — | — | ||||||||||||||
Surety bonds(c) | 120.8 | 112.4 | 8.4 | — | — | ||||||||||||||
Total commercial commitments | $ | 527.9 | $ | 112.4 | $ | 415.5 | $ | — | $ | — |
(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. On July 7,2020, the ABL agreement was extended to January 9, 2024. |
(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. On July 7,2020, the ABL agreement was extended to January 9, 2024. |
(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.
Item 3.
Quantitative and Qualitative Disclosures About Market RiskWe 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.
Item 4.
Controls and ProceduresAs 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 SeptemberJune 30, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1.
Legal ProceedingsWe 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.
Item 1A.
Risk FactorsIn 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.
Specifically, the global outbreak of COVID-19 has had a significant negative impact on our first half of 2020 results that is likely to continue throughout the remainder of the year. Our shipping volumes began to decline in late March and have remained depressed compared to the prior year. Given the amount of economic uncertainty, including uncertainty about how and when federal, state and local governments will lift business and travel restrictions or put new restrictions in place, it is difficult to predict how long we may experience negative year-over-year trends. The continuing 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.
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 New Term Loan Agreementexisting and future indebtedness could materially adversely affect outour 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, ourJuly 2020, we entered into the UST Credit Agreements and amended the New Term Loan Agreement contains a financial covenant that requires us to maintain minimum trailing-twelve-month Adjusted EBITDA of $200.0 million. For additional information, see the “DebtAgreement. The UST Credit Agreements and Financing” footnote to the consolidated financial statements.
commencing with the fiscal quarter ending December 31, 2021, to not be less than $100.0 million for the four quarters ending December 31, 2021, $150.0 million for the four quarters ending March 31, 2022 and $200.0 million thereafter. The UST Credit Agreements also require us and our affiliates to comply with certain requirements in connection with the CARES Act, including (i) until one year from the initial funding under the UST Tranche B Term Loan Credit Agreement we must maintain our employment levels as of March 24, 2020, to provide additional Adjusted EBITDA. These actions include headcount reductions commensurate withthe extent practicable, and in any case we may not reduce our current volumeemployment levels a hiring freezeby more than 10% from the levels on new and replacement positions, temporary elimination of short-term incentiveMarch 24, 2020, (ii) limitations on executive compensation and (iii) until 12 months following the repayment of the Tranche A Term Loan, we may not pay any dividends or make any other capital distributions with respect to our common stock.
In the near term, our ability to meet the minimum Liquidity requirement while it is applicable is dependent on no further unexpected material decline in our operating results as a reductionresult of an overall decrease in discretionary spend. We are taking these actions becauseeconomic activity from the continuing impact of COVID-19 or for some other unforeseen reason. Over the longer term, our ability to meet the minimum Adjusted EBITDA requirement after December 31, 2021 is dependent on an improvement in our operating results from continued improvements of the national economy restoring economic activity consistent with levels experienced before the outbreak of COVID-19 and operating improvements we have not been ablemay continue to fully realize operational efficiencies arising from our New NMFA due to depressed volume levels.implement. Our ability to satisfy our liquidity needs and meet our minimum Adjusted EBITDA requirement during the next twelve months and thereafter is dependent upon our ability to achieve operating results that reflect improvement over our first half 2019, which were negativelythese financial covenants could be impacted by the process to obtain our five-year labor agreement scheduled to expire on March 31, 2019 and successfully ratified on May 14, 2019. Significantsignificant adverse conditions beyond our control, which maycould result from unanticipated effects from the COVID-19 pandemic, changes in global trade policies or increased contraction in the general economy, may impact our abilityeconomy. If we are unable to achieve a minimum Adjusted EBITDA above $200.0 million on a trailing-twelve-month basis. Means for improving our profitabilitythe results required to comply with the applicable financial covenants, we may include successful implementation of network optimization,be required to take specific actions to reduce operating costs, as well as specific initiatives in the areas of pricing and customer engagement, and other operational actions to improve productivity and efficiency, as well as increased volume, all of which may not be within our control.volume. If we are unable to achieve the improved results,satisfy our financial covenants or obtain a waiver or an amendment from our lenders, or take other remedial measures, we may face challenges to comply with this covenantwill be in one or more quarters over the next twelve months and, we may be required to pursue certain actions in addition to the ones described above for the fourth quarter of 2019 and the first quarter of 2020, including but not limited to, additional headcount reductions, targeted procurement initiatives to reduce operating costs and/or seeking other cost reductions. Some of those actions might adversely affectdefault under our operations and financial performance over the long-term.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Treasury Equity Issuance
On June 30, 2020, the Company entered into a Share Issuance Agreement (the “Share Issuance Agreement”) with our employeesthe United States Department of the Treasury (the “UST”), pursuant to which the Company agreed to issue 15,943,753 shares of common stock (the “Treasury Equity”) to the UST (such issuance, the “Treasury Equity Issuance”). The Treasury Equity was issued to UST in consideration for entry into (i) that certain UST Tranche A Term Loan Credit Agreement and unions were(ii) that certain UST Tranche B Term Loan Credit Agreement, the UST agreed to deteriorate, we may be faced with labor disruptions or stoppages or general uncertainty by our customers, which could have a material adverse effect on our business, financial conditionlend an aggregate of $700.0 million to the Company pursuant to the Coronavirus Aid, Relief, and results of operations, result in a loss of customers,Economic Security Act (the “CARES Act”). The Treasury Equity Issuance and place us at a disadvantage relative to non-union competitors.
The Treasury Equity was issued without stockholder approval in reliance on The Nasdaq Stock Market LLC Rule 5636T (the “Temporary COVID-19 Exception”). These employees comprised 79% of our workforce at September 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 employeesStockholder approval would ordinarily be required under the termsNasdaq rules but for the fact that the Company relied on this temporary exception to stockholder approval, which was approved by the Nasdaq Listing Qualifications Department prior to issuance. The Audit & Ethics Committee of the Board of Directors of the Company, which is comprised solely of independent, disinterested directors, expressly approved the Company’s reliance on the Temporary COVID-19 Exception and determined that the transaction was in the best interest of the Company’s stockholders.
The shares issued in the Treasury Equity Issuance are restricted securities, as defined in Rule 144, promulgated under the Securities Act of 1933, as amended, which were sold without registration thereunder in reliance on the exemption from registration afforded by Section 4(a)(2) thereof.
No underwriter participated in, nor did we pay any commissions or fees to any underwriter, in this transaction. The transaction did not involve a common, master collective bargaining agreementpublic offering. The UST represented that it had such knowledge and related supplemental agreements that remainexperience in effect through March 31, 2024,financial and Reddaway employs most of its unionized employees
Item 5. Other Information
None.
Item 6.
Exhibits10.4* |
10.8* | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
101.INS* | |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Interline XBRL document. |
101.SCH* | |
Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | |
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
__________________________
*Indicates documents filed herewith.
SIGNATURES
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 | ||
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