10-Q 1 d330675d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31, 2012

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   (I.R.S. Employer
incorporation or organization)   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)

None

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

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

 

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

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

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

 

Class

 

Outstanding at April 30, 2012

Common Stock, $0.01 par value per share   7,671,224 shares

 

 

 


Table of Contents

INDEX

 

Item

   Page  
  PART I – FINANCIAL INFORMATION   

1.      

  Financial Statements      3   
  Consolidated Balance Sheets - March 31, 2012 and December 31, 2011      3   
  Statements of Consolidated Comprehensive Loss- Three Months Ended March 31, 2012 and 2011      4   
  Statements of Consolidated Cash Flows -Three Months Ended March 31, 2012 and 2011      5   
  Statement of Consolidated Shareholders’ Deficit - Three Months Ended March 31, 2012      6   
  Notes to Consolidated Financial Statements      7   

2.      

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

3.      

  Quantitative and Qualitative Disclosures About Market Risk      35   

4.      

  Controls and Procedures      35   
  PART II – OTHER INFORMATION   

1.      

  Legal Proceedings      36   

1A.   

  Risk Factors      36   

5.      

  Other Information   

6.      

  Exhibits      37   
  Signatures      38   

 

 

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Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

YRC Worldwide Inc. and Subsidiaries

(Amounts in thousands except per share data)

 

     March 31,
2012
    December 31,
2011
 
     (Unaudited)        

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 226,334      $ 200,521   

Restricted amounts held in escrow

     47,502        59,680   

Accounts receivable, net

     489,393        476,793   

Prepaid expenses and other

     119,595        100,965   
  

 

 

   

 

 

 

Total current assets

     882,824        837,959   
  

 

 

   

 

 

 

Property and Equipment:

    

Cost

     2,904,541        3,074,858   

Less – accumulated depreciation

     (1,615,614     (1,738,304
  

 

 

   

 

 

 

Net property and equipment

     1,288,927        1,336,554   
  

 

 

   

 

 

 

Intangibles, net

     113,147        117,492   

Restricted amounts held in escrow

     98,337        96,251   

Other assets

     98,235        97,584   
  

 

 

   

 

 

 

Total assets

   $ 2,481,470      $ 2,485,840   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Deficit

    

Current Liabilities:

    

Accounts payable

   $ 169,097      $ 151,922   

Wages, vacations and employees’ benefits

     214,768        210,409   

Other current and accrued liabilities

     296,056        303,946   

Current maturities of long-term debt

     9,970        9,459   
  

 

 

   

 

 

 

Total current liabilities

     689,891        675,736   
  

 

 

   

 

 

 

Other Liabilities:

    

Long-term debt, less current portion

     1,385,901        1,345,201   

Deferred income taxes, net

     31,770        31,687   

Pension and postretirement

     436,766        440,265   

Claims and other liabilities

     368,958        351,563   

Shareholders’ Deficit:

    

Preferred stock, $1 par value per share

     —          —     

Common stock, $0.01 par value per share

     69        68   

Capital surplus

     1,904,961        1,902,957   

Accumulated deficit

     (2,015,684     (1,930,202

Accumulated other comprehensive loss

     (228,425     (234,100

Treasury stock, at cost (410 shares)

     (92,737     (92,737
  

 

 

   

 

 

 

Total YRC Worldwide Inc. shareholders’ deficit

     (431,816     (354,014

Non-controlling interest

     —          (4,598
  

 

 

   

 

 

 

Total shareholders’ deficit

     (431,816     (358,612
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 2,481,470      $ 2,485,840   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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STATEMENTS OF CONSOLIDATED COMPREHENSIVE LOSS

YRC Worldwide Inc. and Subsidiaries

For the Three Months Ended March 31

(Amounts in thousands except per share data)

(Unaudited)

 

     2012     2011  

Operating Revenue

   $ 1,194,255      $ 1,122,886   
  

 

 

   

 

 

 

Operating Expenses:

    

Salaries, wages and employees’ benefits

     703,826        680,818   

Equity based compensation (benefit) expense

     1,053        (1,053

Operating expenses and supplies

     293,235        277,183   

Purchased transportation

     119,635        119,662   

Depreciation and amortization

     49,028        49,810   

Other operating expenses

     67,917        67,900   

(Gains) losses on property disposals, net

     8,361        (3,046
  

 

 

   

 

 

 

Total operating expenses

     1,243,055        1,191,274   
  

 

 

   

 

 

 

Operating Loss

     (48,800     (68,388
  

 

 

   

 

 

 

Nonoperating Expenses:

    

Interest expense

     36,405        38,803   

Other, net

     (455     43   
  

 

 

   

 

 

 

Nonoperating expenses, net

     35,950        38,846   
  

 

 

   

 

 

 

Loss Before Income Taxes

     (84,750     (107,234

Income tax benefit

     (3,161     (4,551
  

 

 

   

 

 

 

Net Loss

     (81,589     (102,683

Less: Net Income (Loss) Attributable to Non-Controlling Interest

     3,893        (489
  

 

 

   

 

 

 

Net Loss Attributable to YRC Worldwide Inc.

     (85,482     (102,194

Other comprehensive income, net of tax

     5,675        3,639   
  

 

 

   

 

 

 

Comprehensive loss attributable to YRC Worldwide Inc. Shareholders

   $ (79,807   $ (98,555
  

 

 

   

 

 

 

Average Common Shares Outstanding – Basic

     6,893        159   

Average Common Shares Outstanding – Diluted

     6,893        159   

Basic and Diluted Loss Per Share

    

Net Loss Per Share – Basic

   $ (12.40   $ (643.56

Net Loss Per Share – Diluted

   $ (12.40   $ (643.56

The accompanying notes are an integral part of these statements.

 

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STATEMENTS OF CONSOLIDATED CASH FLOWS

YRC Worldwide Inc. and Subsidiaries

For the Three Months Ended March 31

(Amounts in thousands)

(Unaudited)

 

     2012     2011  

Operating Activities:

    

Net loss

   $ (81,589   $ (102,683

Noncash items included in net loss:

    

Depreciation and amortization

     49,028        49,810   

Paid-in-kind interest on Series A Notes and Series B Notes

     6,262        —     

Amortization of deferred debt costs

     1,057        9,481   

Equity based compensation (benefit) expense

     1,053        (1,053

Deferred income tax benefit

     —          (329

(Gains) losses on property disposals, net

     8,361        (3,046

Other noncash items

     (2,017     1,799   

Changes in assets and liabilities, net:

    

Accounts receivable

     (16,379     (55,415

Accounts payable

     22,207        18,988   

Other operating assets

     (19,234     (21,936

Other operating liabilities

     14,158        58,130   
  

 

 

   

 

 

 

Net cash used in operating activities

     (17,093     (46,254
  

 

 

   

 

 

 

Investing Activities:

    

Acquisition of property and equipment

     (15,115     (10,062

Proceeds from disposal of property and equipment

     9,981        11,577   

Receipts from restricted escrow, net

     10,092        —     

Other, net

     —          (161
  

 

 

   

 

 

 

Net cash provided by investing activities

     4,958        1,354   
  

 

 

   

 

 

 

Financing Activities:

    

Asset backed securitization borrowings, net

     —          24,449   

Issuance of long-term debt

     45,000        52,775   

Repayment of long-term debt

     (5,951     (15,130

Debt issuance costs

     (1,101     (3,526
  

 

 

   

 

 

 

Net cash provided by financing activities

     37,948        58,568   
  

 

 

   

 

 

 

Net Increase In Cash and Cash Equivalents

     25,813        13,668   

Cash and Cash Equivalents, Beginning of Period

     200,521        143,017   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 226,334      $ 156,685   
  

 

 

   

 

 

 

Supplemental Cash Flow Information:

    

Interest paid

   $ (31,530   $ (10,514

Income tax refund, net

     7,821        10,573   

Lease financing transactions

     —          8,985   

Debt redeemed for equity consideration

     1,124        —     

The accompanying notes are an integral part of these statements.

 

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STATEMENT OF CONSOLIDATED SHAREHOLDERS’ DEFICIT

YRC Worldwide Inc. and Subsidiaries

For the Three Months Ended March 31, 2012

(Amounts in thousands)

(Unaudited)

 

Common Stock

  

Beginning balance

   $ 68   

Issuance of equity upon conversion of Series B Notes

     1   
  

 

 

 

Ending balance

   $ 69   
  

 

 

 

Capital Surplus

  

Beginning balance

   $ 1,902,957   

Share-based compensation

     865   

Issuance of equity upon conversion of Series B Notes

     1,139   
  

 

 

 

Ending balance

   $ 1,904,961   
  

 

 

 

Accumulated Deficit

  

Beginning balance

   $ (1,930,202

Net loss attributable to YRC Worldwide Inc.

     (85,482
  

 

 

 

Ending balance

   $ (2,015,684
  

 

 

 

Accumulated Other Comprehensive Loss

  

Beginning balance

   $ (234,100

Pension, net of tax:

  

Reclassification of net actuarial gains to net loss

     2,918   

Foreign currency translation adjustments

     2,757   
  

 

 

 

Ending balance

   $ (228,425
  

 

 

 

Treasury Stock, At Cost

  

Beginning and ending balance

   $ 92,737   

Noncontrolling Interest

  

Beginning balance

   $ (4,598

Net income attributable to the noncontrolling interest

     3,893   

Foreign currency translation adjustments

     (43

Divestiture of subsidiary

     748   
  

 

 

 

Ending Balance

   $ —     
  

 

 

 

Total Shareholders’ Deficit

   $ (431,816
  

 

 

 

The accompanying notes are an integral part of these statements.

 

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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”), one of the largest transportation service providers in the world, is a holding company that through wholly owned operating subsidiaries and its interests in certain joint ventures offers its customers a wide range of transportation services. YRC Worldwide has one of the largest, most comprehensive less-than-truckload (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 heavyweight shipments and flexible supply chain solutions, ensuring customers can ship industrial, commercial and retail goods with confidence. Our operating segments include the following:

 

   

YRC Freight is the reporting segment for our transportation service providers focused on business opportunities in national, regional and international services. YRC Freight provides for the movement of industrial, commercial and retail goods, primarily through centralized management and customer facing organizations. This unit includes our LTL subsidiary YRC Inc. (“YRC Freight”) and Reimer Express (“YRC Reimer”), a subsidiary located in Canada that specializes in shipments into, across and out of Canada. In addition to the United States (“U.S.”) and Canada, YRC Freight also serves parts of Mexico, Puerto Rico and Guam.

 

   

Regional Transportation is the reporting segment for our transportation service providers focused on business opportunities in the regional and next-day delivery markets. Regional Transportation is comprised of USF Holland Inc. (“Holland”), New Penn Motor Express (“New Penn”) and USF Reddaway Inc. (“Reddaway”). These companies each provide regional, next-day ground services in their respective regions through a network of facilities located across the United States; Canada; Mexico and Puerto Rico.

At March 31, 2012, approximately 80% of our labor force is subject to collective bargaining agreements, which predominantly expire in March 2015.

2. Principles of Consolidation

The accompanying consolidated financial statements include the accounts of YRC Worldwide and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in non-majority owned affiliates or those in which we do not have control where the entity is either not a variable interest entity or YRC Worldwide is not the primary beneficiary, are accounted for on the equity method.

Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates. We have prepared the consolidated financial statements, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods included in these financial statements herein have been made. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to SEC rules and regulations. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The board of directors approved a reverse stock split effective December 1, 2011 at a ratio of 1:300. The reverse stock split was effective on NASDAQ on December 2, 2011. All share numbers and per share amounts in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements have been retroactively adjusted to give effect to the reverse stock split.

Assets Held for Sale

When we plan to dispose of property or equipment by sale, the asset is carried in the financial statements at the lower of the carrying amount or estimated fair value, less cost to sell, and is reclassified to assets held for sale. Additionally, after such reclassification, there is no further depreciation taken on the asset. For an asset to be classified as held for sale, management must approve and commit to a formal plan, the sale should be anticipated during the ensuing year and the asset must be actively marketed, be available for immediate sale, and meet certain other specified criteria. We use level 2 and level 3 inputs to determine the fair value of each property that is considered as held for sale.

 

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At March 31, 2012 and December 31, 2011, the net book value of assets held for sale was approximately $30.5 million and $39.1 million, respectively. This amount is included in “Property and Equipment” in the accompanying consolidated balance sheets. We recorded charges of $10.5 million and $1.9 million for the three months ended March 31, 2012 and 2011, respectively, to reduce properties held for sale to estimated fair value, less cost to sell. These charges are included in “(Gains) losses on property disposals, net” in the accompanying statements of consolidated operations. Of the $10.5 million of charges recorded in the first quarter of 2012, $4.5 million relates to certain held for sale surplus properties that we placed into a real estate auction.

Property and Equipment

During the fourth quarter of 2011 we changed our accounting for tires in our YRC Freight segment. Prior to the change, the cost of original and replacement tires mounted on new and existing equipment was capitalized as a revenue equipment asset and amortized to operating expense based on estimated mileage-based usage. Under the new policy, the cost of replacement tires are expensed at the time those tires are placed into service, as is the case with other repairs and maintenance costs. The cost of tires on newly acquired revenue equipment is capitalized and depreciated over the estimated useful life of the related equipment. We believe that this new policy is preferable under the circumstances because it provides a more precise and less subjective method for recognizing expense related to tires that is consistent with industry practice.

Under ASC Topic 250, “Accounting Changes and Error Corrections,” we are required to report a change in accounting policy by retrospectively applying the new policy to all prior periods presented, unless it is impractical to determine the prior-period effect. Accordingly, we have adjusted our previously reported financial information for all periods presented. The effect of this accounting policy change increased net loss by $0.4 million for the three months ended March 31, 2011. The accounting policy change also affected our consolidated balance sheets in the periods presented by increasing amounts previously reported for revenue equipment and increasing the amount of accumulated deficit.

Fair Value of Financial Instruments

The following table summarizes the fair value hierarchy of the Company’s financial assets and liabilities carried at fair value on a recurring basis as of March 31, 2012:

 

            Fair Value Measurements at March 31, 2012  
     Total Carrying
Value at March
31, 2012
     Quoted prices
in active market

(Level 1)
     Significant
other
observable
inputs (Level 2)
     Significant
unobservable
inputs

(Level 3)
 

Restricted amounts held in escrow-current

   $ 47.5       $ 47.5       $ —         $ —     

Restricted amounts held in escrow-long term

     98.3         98.3         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 145.8       $ 145.8       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Restricted amounts held in escrow are invested in money market accounts and are recorded at fair value on quoted market prices. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their fair value due to the short-term nature of these instruments.

 

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3. Investment

Shanghai Jiayu Logistics Co., Ltd.

On August 19, 2008, we completed the purchase of a 65% equity interest in Shanghai Jiayu Logistics Co., Ltd. (“Jiayu”), a Shanghai, China ground transportation company with a purchase price of $59.4 million. Through March 31, 2010, we accounted for our 65% ownership interest in Jiayu as an equity method investment as the rights of the minority shareholder were considered extensive and allowed for his ability to veto many business decisions. These rights were primarily provided as a part of the General Manager role held by the minority shareholder. Effective April, 1, 2010, the minority shareholder no longer had a role in the management operations of the business which changed the conclusions from an accounting perspective regarding the relationship of this joint venture and required that we consolidate Jiayu in our financial statements effective April 1, 2010. The results of operations for Jiayu were included in our ‘Corporate and other’ segment from April 1, 2010 to February 29, 2012. In an effort to focus on our core operations, we entered into an agreement in March 2012 to sell our 65% equity interest in Jiayu to the minority shareholder. The completion of the transaction is subject to Chinese regulatory approval and expected to close in the second quarter of 2012. At the time the agreement was entered into, management control was passed to the minority shareholder and, as a result, we deconsolidated our interest in Jiayu during March of 2012 and returned to accounting for our ownership interest as an equity method investment. Based on the March 2012 agreement, we recorded our equity method investment at its estimated fair value of $0. The agreement also provided for the write down of a $12 million note receivable from Jiayu; after consideration of the non-controlling interest and other factors we recognized a loss of $4.2 million upon the deconsolidation of our investment. Additionally, the noncontrolling interest was allocated a $4.2 million gain on this transaction.

4. Liquidity

Credit Facility Amendments

On April 27, 2012, YRC Worldwide entered into an amendment to its amended and restated credit agreement, which reset the covenants regarding minimum Consolidated EBITDA, maximum Total Leverage Ratio and minimum Interest Coverage Ratio (as such terms are defined in the amended and restated credit agreement) for each of the remaining test periods as follows:

 

Four Consecutive Fiscal Quarters Ending

  

Minimum Consolidated

EBITDA

  

Maximum Total

Leverage Ratio

  

Minimum Interest

Coverage Ratio

March 31, 2012

   $160,000,000    9.0 to 1.00    1.00 to 1.00

June 30, 2012

   $145,000,000    10.0 to 1.00    1.00 to 1.00

September 30, 2012

   $155,000,000    9.6 to 1.00    0.95 to 1.00

December 31, 2012

   $170,000,000    8.6 to 1.00    1.05 to 1.00

March 31, 2013

   $200,000,000    7.4 to 1.00    1.20 to 1.00

June 30, 2013

   $235,000,000    6.5 to 1.00    1.45 to 1.00

September 30, 2013

   $260,000,000    6.0 to 1.00    1.60 to 1.00

December 31, 2013

   $275,000,000    5.7 to 1.00    1.65 to 1.00

March 31, 2014

   $300,000,000    5.1 to 1.00    1.80 to 1.00

June 30, 2014

   $325,000,000    4.8 to 1.00    1.90 to 1.00

September 30, 2014

   $355,000,000    4.6 to 1.00    2.10 to 1.00

December 31, 2014

   $365,000,000    4.4 to 1.00    2.15 to 1.00

The amendment also, among other things, (i) permits the sale of certain specified parcels of real estate without counting such asset sales against the annual $25.0 million limit on asset sales and permits the Company to retain the net cash proceeds from such asset sales for the payment or settlement of workers’ compensation and bodily injury and property damage claims and (ii) allows the Company to addback to Consolidated EBITDA for purposes of the applicable financial covenants the fees, costs and expenses incurred in connection with the amendment, the ABL facility amendment (as described below) and the Company’s contribution deferral agreement.

On April 27, 2012, YRCW Receivables LLC, a wholly-owned subsidiary of the Company, entered into an amendment to the ABL facility, which reset the Company’s minimum Consolidated EBITDA (as such term is defined in the ABL facility) for each of the remaining test periods in a manner identical to the proposed amendment of minimum Consolidated EBITDA in the amended and restated credit agreement (including the addback for the fees, costs and expenses described above).

 

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Risk and Uncertainties regarding Future Liquidity

Our principal sources of liquidity are cash and cash equivalents and available borrowings under our $400 million ABL facility and any prospective net operating cash flows resulting from improvements in operations. In addition, we have generated liquidity through the sale and leaseback of assets and the disposal of property, assets and lines of business. As previously discussed, we can retain 100% of the proceeds from the sale of certain real estate for the payment or settlement of workers’ compensation and bodily injury and property damage claims. As of March 31, 2012, we had cash and cash equivalents and availability under the ABL facility of approximately $240.7 million and the borrowing base under our ABL facility was approximately $343.3 million.

Our principal uses of cash are to fund our operations, including making contributions to our single employer pension plans and the multiemployer pension funds and to meet our other cash obligations, including paying cash interest and principal for our funded debt, letter of credit fees under our credit facilities and funding capital expenditures. For the three months ended March 31, 2012, our cash flow from operating activities used net cash of $17.1 million, and we reported net losses of $85.5 million. In the first quarter of 2012, our operating revenues increased by $71.4 million as compared to the same period in 2011 and our operating loss decreased to $48.8 million in the first quarter of 2012 from $68.4 million in the same period in 2011.

Following completion of the July 2011 restructuring, we continue to have a considerable amount of indebtedness, a substantial portion of which will mature in late 2014 or early 2015, and considerable future funding obligations for our single employer pension plans and the multiemployer pension funds. As of March 31, 2012, we had approximately $1.4 billion in aggregate principal amount of outstanding indebtedness, which amount will increase over time as we continue to accrue paid-in-kind interest on a portion of such indebtedness. Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to service such indebtedness or pay principal when due in respect of such indebtedness. We expect our funding obligations for the period April 2012 to December 2012 for our single employer pension plans and multi-employer pension funds will be approximately $56 million and $57 million, respectively. In addition, we also have, and will continue to have, substantial operating lease obligations. As of March 31, 2012, our minimum rental expense under operating leases for the remainder of 2012 was $40.8 million. As of March 31, 2012, our operating lease obligations through 2025 totaled $172.4 million.

Our capital expenditures for the three months ended March 31, 2012 and 2011 were $15.1 million and $10.1 million, respectively. These amounts were principally used to fund replacement engines and trailer refurbishments for our revenue fleet, capitalized maintenance costs for our network facilities and technology infrastructure. Additionally, during the three months ended March 31, 2012, we entered into new operating lease commitments for revenue equipment of approximately $49.1 million, with such payment to be made over the average lease term of 3 years. In light of our recent operating results and liquidity needs, we have deferred the majority of capital expenditures and expect to continue to do so for the foreseeable future, including the remainder of 2012. As a result, the average age of our fleet has increased and we will need to update our fleet periodically.

The credit facilities require us to comply with certain financial covenants, including maintenance of a maximum total leverage ratio, minimum interest coverage ratio, minimum adjusted EBITDA and maximum capital expenditures. Adjusted EBITDA, as defined in our credit facilities, is a measure that reflects the Company’s earnings before interest, taxes, depreciation, and amortization expense, and further adjusted for letter of credit fees, equity-based compensation expense, net gains or losses on property disposals and certain other items, including restructuring professional fees and results of permitted dispositions and discontinued operations. We were in compliance with each of these covenants as of and for the four quarters ended March 31, 2012. As previously discussed, the financial covenants under the credit facilities were amended in April 2012 to modify these financial covenants for the remaining term of the credit facilities.

We expect that our cash and cash equivalents, improvements in operating results, retention of cash proceeds from asset sales and availability under our credit facilities will be sufficient to allow us to comply with the amended financial covenants in our credit facilities, fund our operations, increase working capital as necessary to support our planned revenue growth and fund planned capital expenditures for the foreseeable future, including the next twelve months. Our ability to satisfy our liquidity needs over the next twelve months is dependent on a number of factors, many of which are outside of our control. These factors include:

 

   

our operating results, pricing and shipping volumes must continue to improve at a rate significantly better than what we have achieved in our recent financial results;

 

   

we must continue to comply with covenants and other terms of our credit facilities so as to have access to the borrowings available to us under such credit facilities;

 

   

our anticipated cost savings under our labor agreements, including wage reductions and savings due to work rule changes, must continue;

 

   

we must complete real estate sale transactions as anticipated;

 

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we must continue to defer purchases of replacement revenue equipment or secure suitable operating leases for such replacement revenue equipment;

 

   

we must continue to implement and realize substantial cost savings measures to match our costs with business levels and to continue to become more efficient;

 

   

we must continue to carefully manage receipts and disbursements, including amounts and timing, focusing on reducing days sales outstanding for trade receivables and managing days outstanding for trade payables; and

 

   

we must be able to generate operating cash flows that are sufficient to provide for additional cash requirements for pension contributions to single-employer pension plans and multiemployer pension funds, cash interest on debt and for capital expenditures or additional lease payments for new revenue equipment.

There can be no assurance that management will be successful or that such plans will be achieved. We expect to continue to monitor our liquidity, work to alleviate these uncertainties and address our cash needs through a combination of one or more of the following actions:

 

   

we will continue to aggressively seek additional and return business from customers;

 

   

we will continue to attempt to reduce our escrow deposits and letter of credit collateral requirements related to our self-insurance programs;

 

   

if appropriate, we may sell additional equity or pursue other capital market transactions; and

 

   

we may consider selling additional assets or business lines, which would require lenders’ consent in most cases.

The Company has experienced recurring net losses from continuing operations and operating cash flow deficits. Our ability to continue as a going concern is dependent on many factors, including among others, improvements in our operating results necessary to comply with the modified covenants. These conditions raise significant uncertainty about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the foregoing uncertainties.

5. Debt and Financing

Total debt consisted of the following:

 

As of March 31, 2012

(in millions)

   Par Value     Premium/
(Discount)
    Book
Value
    Stated
Interest Rate
     Effective
Interest Rate
 

Restructured term loan

   $ 301.6      $ 90.9      $ 392.5        10.0%         0.0%   

ABL facility – Term A (capacity $175, borrowing base $119.4, availability $14.4)

     105.0        (6.9     98.1        8.5%         51.5%   

ABL facility – Term B

     223.9        (11.5     212.4        11.25%         14.7%   

Series A Notes

     149.8        (33.4     116.4        10.0%         18.3%   

Series B Notes

     99.6        (35.4     64.2        10.0%         25.6%   

6% convertible senior notes

     69.4        (9.4     60.0        6.0%         15.5%   

Pension contribution deferral obligations

     136.1        (0.5     135.6        3.0-18.0%         7.1%   

Lease financing obligations

     314.8        —          314.8        10.0-18.2%         11.9%   

5.0% and 3.375% contingent convertible senior notes

     1.9        —          1.9       
 
5.0% and
3.375%
  
  
    
 
5.0% and
3.375%
  
  
  

 

 

   

 

 

   

 

 

      

Total debt

   $ 1,402.1      $ (6.2   $ 1,395.9        
  

 

 

   

 

 

   

 

 

      

Current maturities of ABL facility – Term B

     (2.3     —          (2.3     

Current maturities of 5.0% and 3.375% contingent convertible senior notes and other

     (1.9     —          (1.9     

Current maturities of lease financing obligations

     (5.8     —          (5.8     
  

 

 

   

 

 

   

 

 

      

Long-term debt

   $ 1,392.1      $ —        $ 1,385.9        
  

 

 

   

 

 

   

 

 

      

 

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As of December 31, 2011

(in millions)

   Par Value     Premium/
(Discount)
    Book
Value
    Stated
Interest Rate
     Effective
Interest Rate
 

Restructured term loan

   $ 303.1      $ 98.9      $ 402.0        10.0%         0.0%   

ABL facility – Term A (capacity $175, borrowing base $136.1, availability $76.1)

     60.0        (7.6     52.4        8.5%         51.5%   

ABL facility – Term B

     224.4        (12.4     212.0        11.25%         14.7%   

Series A Notes

     146.3        (35.0     111.3        10.0%         18.3%   

Series B Notes

     98.0        (37.1     60.9        10.0%         25.6%   

6% convertible senior notes

     69.4        (10.3     59.1        6.0%         15.5%   

Pension contribution deferral obligations

     140.2        (0.6     139.6        3.0-18.0%         5.2%   

Lease financing obligations

     315.2        —          315.2        10.0-18.2%         11.9%   

5.0% and 3.375% contingent convertible senior notes

     1.9        —          1.9       
 
5.0% and
3.375%
  
  
    
 
5.0% and
3.375%
  
  

Other

     0.3        —          0.3        
  

 

 

   

 

 

   

 

 

      

Total debt

   $ 1,358.8      $ (4.1   $ 1,354.7        
  

 

 

   

 

 

   

 

 

      

Current maturities of ABL facility – Term B

     (2.3     —          (2.3     

Current maturities of 5.0% and 3.375% contingent convertible senior notes and other

     (2.2     —          (2.2     

Current maturities of lease financing obligations

     (5.0     —          (5.0     
  

 

 

   

 

 

   

 

 

      

Long-term debt

   $ 1,349.3      $ (4.1   $ 1,345.2        
  

 

 

   

 

 

   

 

 

      

Fair Value Measurement

The carrying amounts and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:

 

     March 31, 2012      December 31, 2011  

(in millions)

   Carrying amount      Fair Value      Carrying amount      Fair Value  

Restructured term loan

   $ 392.5       $ 213.2       $ 402.0       $ 216.5   

ABL facility

     310.5         325.8         264.4         268.8   

Series A Notes and Series B Notes

     180.6         154.6         172.2         168.7   

Lease financing obligations

     314.8         314.8         315.2         315.2   

Other

     197.5         132.0         200.9         139.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt

   $ 1,395.9       $ 1,140.4       $ 1,354.7       $ 1,109.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

The fair values of the restructured term loan, ABL facility, Series A and Series B Notes, the 6% convertible senior notes (included in “Other” above) and pension contribution deferral obligations (included in “Other” above) were estimated based on observable prices (level two inputs for fair value measurements). The carrying amount of the lease financing obligations approximates fair value.

 

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6. Employee Benefits

Components of Net Periodic Pension Costs

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

 

     Pension Costs  

(in millions)

   2012     2011  

Service cost

   $ 1.0      $ 0.9   

Interest cost

     14.8        15.2   

Expected return on plan assets

     (11.6     (10.7

Amortization of net loss

     2.9        2.4   
  

 

 

   

 

 

 

Total periodic pension cost

   $ 7.1      $ 7.8   
  

 

 

   

 

 

 

We expect to contribute $76.6 million to our company-sponsored pension plans in 2012 of which we have contributed $20.8 million through April 30, 2012.

7. Income Taxes

Effective Tax Rate

Our effective tax rate for the three months ended March 31, 2012 and 2011 was 3.7% and 4.2%, respectively. Significant items impacting the 2012 rate include a net state tax provision, certain permanent items and an increase in the valuation allowance established for the net deferred tax asset balance projected for December 31, 2012. 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-back and 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 March 31, 2012 and December 31, 2011, substantially all of our net deferred tax assets are subject to a valuation allowance.

Uncertain Tax Positions

During the three months ended March 31, 2012, in anticipation of the pending disposition of our interest in Shanghai Jiayu Logistics Co., Ltd, we added approximately $2 million to our reserve for uncertain tax positions relative to potential foreign taxes resulting from particular intercompany transactions among multiple foreign subsidiaries.

8. Shareholders’ Deficit

The following reflects the activity in the shares of our common stock for the three months ended March 31:

 

(in thousands)

   2012  

Beginning balance

     6,847   

Issuance of equity awards, net

     1   

Issuance of equity upon conversion of Series B Notes

     61   
  

 

 

 

Ending balance

     6,909   
  

 

 

 

9. Loss Per Share

Given our net loss position for the three months ended March 31, 2012 and 2011, there are no dilutive securities for these periods.

Antidilutive options and share units were 781,149 and 37,309 for the three months ended March 31, 2012 and 2011, respectively. Antidilutive 6% convertible senior note conversion shares, including the make whole premium, were convertible into 17,616 common shares at March 31, 2012 and 2011. Antidilutive Series A convertible note conversion shares were 5,904,000 as of March 31, 2012 with no corresponding amount at March 31, 2011. Antidilutive Series B convertible note conversion shares, including the make whole premiums, were 7,199,000 as of March 31, 2012 with no corresponding amount at March 31, 2011.

 

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10. Business Segments

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

We have the following reportable segments, which are strategic business units that offer complementary transportation services to their customers. YRC Freight includes carriers that provide comprehensive national, regional and international services. Regional Transportation is comprised of carriers that focus primarily on business opportunities in the next-day and regional delivery markets. Additionally, during 2011 we reported Truckload as a separate segment, which consisted entirely of Glen Moore, a former domestic truckload carrier. On December 15, 2011, we sold a majority of the assets of Glen Moore to a third party for $18.5 million and ceased the operations.

The accounting policies of the segments are the same as those described in the Summary of Accounting Policies note in our Annual Report on Form 10-K for the year ended December 31, 2011. We charge management fees and other corporate services to our segments based on the direct benefits received or as a percentage of revenue. Corporate and other operating losses represent residual operating expenses of the holding company, including compensation and benefits and professional services for all periods presented. Corporate identifiable assets primarily refer to cash, cash equivalents, investments in equity method affiliates and deferred debt issuance costs. Intersegment revenue primarily relates to transportation services between our segments.

The following table summarizes our operations by business segment:

 

(in millions)

   YRC Freight     Regional
Transportation
    Truckload     Corporate/
Eliminations
    Consolidated  

As of March 31, 2012

          

Identifiable assets

   $ 1,458.2      $ 850.7        n/a      $ 172.6      $ 2,481.5   

As of December 31, 2011

          

Identifiable assets

     1,410.0        843.6        2.7        229.5        2,485.8   

Three months ended March 31, 2012

          

External revenue

     789.1        402.0        n/a        3.2        1,194.3   

Intersegment revenue

     —          0.1        n/a        (0.1     —     

Operating income (loss)

     (56.1     11.4        n/a        (4.1     (48.8

Three months ended March 31, 2011

          

External revenue

     730.0        365.7        21.8        5.4        1,122.9   

Intersegment revenue

     —          0.4        3.4        (3.8     —     

Operating income(loss)

     (51.7     (1.2     (3.9     (11.6     (68.4

11. Commitments, Contingencies, and Uncertainties

401(k) Class Action Suit

Four class action complaints were filed in the U.S. District Court for the District of Kansas against the Company and certain of its current and former officers and former directors, alleging violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), based on similar allegations and causes of action. On November 17, 2009, Eva L. Hanna and Shelley F. Whitson, former participants in the Yellow Roadway Corporation Retirement Savings Plan, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from April 6, 2009 to the present; on December 7, 2009, Daniel J. Cambra, a participant in the Yellow Roadway Corporation Retirement Savings Plan, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from October 25, 2007 to the present; on January 15, 2010, Patrick M. Couch, a participant in one of the merged 401(k) plans, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from March 23, 2006 to the present; and on April 21, 2010, Tawana Franklin, a participant in the YRC Worldwide 401(k) Plan, filed a class action complaint on behalf of certain persons participating in the plan (or plans that merged with the plan) from October 25, 2007 to the present.

In general, the complaints alleged that the defendants breached their fiduciary duties under ERISA by providing participants Company common stock as part of their matching contributions and by not removing the stock fund as an investment option in the plans in light of the Company’s financial condition. Although some Company matching contributions were made in Company common stock, participants were not permitted to invest their own contributions in the Company stock fund. The complaints alleged that the defendants failed to prudently and loyally manage the plans and assets of the plans; imprudently invested in

 

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Company common stock; failed to monitor fiduciaries and provide them with accurate information; breached the duty to properly appoint, monitor, and inform the Benefits Administrative Committee; misrepresented and failed to disclose adverse financial information; breached the duty to avoid conflict of interest; and are subject to co-fiduciary liability. Each of the complaints sought, among other things, an order compelling defendants to make good to the plan all losses resulting from the alleged breaches of fiduciary duty, attorneys’ fees, and other injunctive and equitable relief.

On March 3, 2010, the Court entered an order consolidating three of the four cases and, on April 1, 2010, the plaintiffs filed a consolidated complaint. The consolidated complaint asserted the same claims as the previously-filed complaints but named as defendants certain former officers of the Company in addition to those current and former officers and former directors that had already been named. The fourth case (Franklin) was consolidated with the first three cases on May 12, 2010. On April 6, 2011, the court certified a class consisting of all 401(k) Plan participants or beneficiaries who held YRCW stock in their accounts between October 25, 2007 and the present.

On October 31, 2011, the parties entered into a settlement agreement with respect to 401(k) Plan participants and beneficiaries who held YRCW stock in their accounts between October 25, 2007 and June 8, 2011. On March 6, 2012, the Court approved the settlement, which is binding on all class members and provides a complete release of claims as to all of the named defendants. The named defendants and their immediate family members are excluded from the class and will not share in the settlement. The agreed to settlement amount of $6.5 million was paid entirely by our insurer.

ABF Lawsuit

On November 1, 2010, ABF Freight System, Inc. (“ABF”) filed a complaint in the U.S. District Court for the Western District of Arkansas against several parties, including YRC Inc., New Penn Motor Express, Inc. and USF Holland Inc. (each a subsidiary of the Company) and the International Brotherhood of Teamsters and the local Teamster unions party to the National Master Freight Agreement (“NMFA”) alleging violation of the NMFA due to modifications to the NMFA that have provided relief to the Company’s subsidiaries that are party to the NMFA without providing the same relief to ABF. The complaint seeks to have the modifications to the NMFA declared null and void and seeks damages of $750 million from the named defendants. The Company believes the allegations are without merit and intends to vigorously defend the claims.

On December 17, 2010, the U.S. District Court for the Western District of Arkansas dismissed the complaint. ABF appealed the dismissal on January 18, 2011 to the U.S. Court of Appeals for the 8th Circuit. On July 6, 2011, the Court of Appeals vacated the U.S. District Court’s dismissal of the litigation on jurisdictional grounds and remanded the case back to the U.S. District Court for further proceedings. ABF filed an amended complaint on October 12, 2011, which contains allegations consistent with the original complaint. The Company’s subsidiaries have filed a motion to dismiss the amended complaint, which is pending before the Court. The ultimate outcome of this case is not determinable. Therefore, we have not recorded any liability for this matter.

Securities Class Action Suit

On February 7, 2011, a putative class action was filed by Bryant Holdings LLC in the United States District Court for the District of Kansas on behalf of purchasers of the Company’s securities between April 24, 2008 and November 2, 2009, inclusive (the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934, as amended. The complaint alleges that, throughout the Class Period, the Company and certain of its current and former officers failed to disclose material adverse facts about the Company’s true financial condition, business and prospects. Specifically, the complaint alleges that defendants’ statements were materially false and misleading because they misrepresented and overstated the financial condition of the Company and caused shares of the Company’s common stock to trade at artificially inflated levels throughout the Class Period. Bryant Holdings LLC seeks to recover damages on behalf of all purchasers of the Company’s securities during the Class Period. The Company believes the allegations are without merit and intends to vigorously defend the claims.

On April 8, 2011, an individual (Stan Better) and a group of investors (including Bryant Holdings LLC) filed competing motions seeking to be named the lead plaintiff in the lawsuit. The Court appointed them as co-lead plaintiffs in the lawsuit on August 22, 2011. Plaintiffs filed their amended complaint on October 21, 2011, which contains allegations consistent with the original complaint. The Company has filed a motion to dismiss the amended complaint, which is pending before the Court. The ultimate outcome of this case is not determinable. Therefore, we have not recorded any liability for this matter.

 

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Other Legal Matters

We are involved in other litigation or proceedings that arise in ordinary business activities. We insure against these risks to the extent deemed prudent by our management, but no assurance can be given that the nature and 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 financial statements, we believe that our financial statements include adequate provisions for estimated costs and losses that may be incurred with regard to the litigation and proceedings to which we are a party.

 

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12. Condensed Consolidating Financial Statements

Guarantees of the 6% Convertible Senior Notes Due 2014

On February 23, 2010, and August 3, 2010, we issued $70 million in aggregate principal amount of our 6% convertible senior notes due 2014 (the “6% Notes”). In connection with the 6% Notes, the following 100% owned subsidiaries of YRC Worldwide have issued guarantees in favor of the holders of the notes: YRC Inc., YRC Enterprise Services, Inc., Roadway LLC, Roadway Next Day Corporation, YRC Regional Transportation, Inc., USF Holland Inc., USF Reddaway Inc., USF Glen Moore Inc. and YRC Logistics Services, Inc. Each of the guarantees is full and unconditional and joint and several, subject to customary release provisions. Effective December 31, 2011, USF Sales Corporation and IMUA Handling Corporation were released as guarantors in connection with their merger with and into YRC Regional Transportation, Inc.

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

The following represents condensed consolidating financial information as of March 31, 2012 and 2011, with respect to the financial position and for the three months ended March 31, 2012 and 2011, for results of operations and cash flows of YRC Worldwide and its subsidiaries. The Parent column presents the financial information of YRC Worldwide, the primary obligor of the convertible senior notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the convertible senior notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and YRCW Receivables LLC, the special-purpose entity that is associated with our ABL facility.

Condensed Consolidating Balance Sheets

 

March 31, 2012

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 170      $ 15      $ 41      $ —        $ 226   

Intercompany advances receivable

     —          (46     46        —          —     

Accounts receivable, net

     3        (7     493        —          489   

Prepaid expenses and other

     71        104        (7     —          168   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     244        66        573        —          883   

Property and equipment

     1        2,719        185        —          2,905   

Less – accumulated depreciation

     —          (1,518     (98     —          (1,616
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property and equipment

     1        1,201        87        —          1,289   

Investment in subsidiaries

     2,369        170        (31     (2,508     —     

Receivable from affiliate

     (1,229     712        517        —          —     

Intangibles and other assets

     389        214        57        (350     310   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,774      $ 2,363      $ 1,203      $ (2,858   $ 2,482   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intercompany advances payable

   $ (2   $ (222   $ 424      $ (200   $ —     

Accounts payable

     49        106        14        —          169   

Wages, vacations and employees’ benefits

     13        189        13        —          215   

Other current and accrued liabilities

     99        173        24        —          296   

Current maturities of long-term debt

     8        —          2        —          10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     167        246        477        (200     690   

Payable to affiliate

     —          —          150        (150     —     

Long-term debt, less current portion

     1,078        —          308        —          1,386   

Deferred income taxes, net

     171        (144     5        —          32   

Pension and postretirement

     437        —          —          —          437   

Claims and other liabilities

     364        5        —          —          369   

Commitments and contingencies

          

Shareholders’ equity (deficit)

     (443     2,256        263        (2,508     (432
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   $ 1,774      $ 2,363      $ 1,203      $ (2,858   $ 2,482   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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December 31, 2011

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 142      $ 20      $ 39      $ —        $ 201   

Intercompany advances receivable

     —          (46     46        —          —     

Accounts receivable, net

     5        9        463        —          477   

Prepaid expenses and other

     92        78        (10     —          160   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     239        61        538        —          838   

Property and equipment

     —          2,887        188        —          3,075   

Less – accumulated depreciation

     —          (1,639     (99     —          (1,738
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property and equipment

     —          1,248        89        —          1,337   

Investment in subsidiaries

     2,228        127        (13     (2,342     —     

Receivable from affiliate

     (1,123     645        478        —          —     

Intangibles and other assets

     387        216        58        (350     311   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,731      $ 2,297      $ 1,150      $ (2,692   $ 2,486   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intercompany advances payable

   $ (1   $ (218   $ 419      $ (200   $ —     

Accounts payable

     31        103        17        1        152   

Wages, vacations and employees’ benefits

     24        173        13        —          210   

Claims and insurance accruals

     158        15        5        —          178   

Other current and accrued liabilities

     (38     144        20        —          126   

Current maturities of long-term debt

     7        —          3        —          10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     181        217        477        (199     676   

Payable to affiliate

     —          —          150        (150     —     

Long-term debt, less current portion

     1,083        —          262        —          1,345   

Deferred income taxes, net

     176        (149     5        —          32   

Pension and postretirement

     440        —          —          —          440   

Claims and other liabilities

     347        5        —          —          352   

Commitments and contingencies

          

YRC Worldwide Inc. Shareholders’ equity (deficit)

     (496     2,224        260        (2,343     (355

Non-controlling interest

     —          —          (4     —          (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Shareholders’ equity (deficit)

     (496     2,224        256        (2,343     (359
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   $ 1,731      $ 2,297      $ 1,150      $ (2,692   $ 2,486   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)

 

For the three months ended March 31, 2012 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating revenue

   $ —        $ 1,089      $ 105      $ —         $ 1,194   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating expenses:

           

Salaries, wages and employees’ benefits

     10        647        48        —           705   

Operating expenses and supplies

     (10     280        23        —           293   

Purchased transportation

     —          99        21        —           120   

Depreciation and amortization

     —          45        4        —           49   

Other operating expenses

     1        62        5        —           68   

Gains on property disposals, net

     —          8        —          —           8   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     1        1,141        101        —           1,243   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating income (loss)

     (1     (52     4        —           (49
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses:

           

Interest expense

     25        —          11        —           36   

Other, net

     74        (46     (28     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses, net

     99        (46     (17     —           36   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     (100     (6     21        —           (85

Income tax benefit

     (2     —          (1     —           (3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

     (98     (6     22        —           (82

Less: Net income attributable to non-controlling interest

     —          —          4        —           4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to YRC Worldwide Inc.

     (98     (6     18        —           (86

Other comprehensive income, net of tax

     1        3        2        —           6   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to YRC Worldwide Inc. Shareholders

   $ (97   $ (3   $ 20      $ —         $ (80
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

For the three months ended March 31, 2011 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating revenue

   $ —        $ 1,022      $ 101      $ —         $ 1,123   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating expenses:

           

Salaries, wages and employees’ benefits

     —          627        53        —           680   

Operating expenses and supplies

     6        248        23        —           277   

Purchased transportation

     —          101        19        —           120   

Depreciation and amortization

     —          45        4        —           49   

Other operating expenses

     2        62        4        —           68   

Gains on property disposals, net

     —          (3     —          —           (3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     8        1,080        103        —           1,191   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating loss

     (8     (58     (2     —           (68
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses:

           

Interest expense

     32        1        6        —           39   

Other, net

     68        (47     (21     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses, net

     100        (46     (15     —           39   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     (108     (12     13        —           (107

Income tax benefit

     (5     —          —          —           (5
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

     (103     (12     13        —           (102

Other comprehensive income, net of tax

     —          2        2        —           4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to YRC Worldwide Inc. Shareholders

   $ (103   $ (10   $ 15      $ —         $ (98
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

 

19


Table of Contents

Condensed Consolidating Statements of Cash Flows

 

For the three months ended March 31, 2012 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (87   $ 76      $ (6   $ —         $ (17
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities:

           

Acquisition of property and equipment

     —          (15     —          —           (15

Proceeds from disposal of property and equipment

     —          10        —          —           10   

Restricted amounts held in escrow

     10        —          —          —           10   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided (used in) by investing activities

     10        (5     —          —           5   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

           

Issuance (repayment) of long-term debt, net

     (5     —          44        —           39   

Debt issuance cost

     —          —          (2     —           (2

Intercompany advances / repayments

     110        (76     (34     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     105        (76     8        —           37   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     28        (5     2        —           25   

Cash and cash equivalents, beginning of period

     142        20        39        —           201   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 170      $ 15      $ 41      $ —         $ 226   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

For the three months ended March 31, 2011 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (52   $ 46      $ (40   $ —         $ (46
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities:

           

Acquisition of property and equipment

     —          (10     —          —           (10

Proceeds from disposal of property and equipment

     —          11        —          —           11   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by investing activities

     —          1        —          —           1   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

           

Asset backed securitization borrowings , net

     —          —          25        —           25   

Issuance of long-term debt, net

     38        —          —          —           38   

Debt issuance cost

     (4     —          —          —           (4

Intercompany advances / repayments

     16        (45     29        —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     50        (45     54        —           59   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (2     2        14        —           14   

Cash and cash equivalents, beginning of period

     120        10        13        —           143   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 118      $ 12      $ 27      $ —         $ 157   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

20


Table of Contents

Guarantees of the 10% Series A Convertible Senior Secured Notes and the 10% Series B Convertible Senior Secured Notes

On July 22, 2011, we issued $140 million in aggregate principal amount of new 10% series A convertible senior secured notes and $100 million in aggregate principal amount of new 10% series B convertible senior secured notes both due 2015 (collectively, the “New Convertible Secured Notes”). In connection with the New Convertible Secured Notes, the following 100% owned subsidiaries of YRC Worldwide issued guarantees in favor of the holders of the New Convertible Secured Notes: YRC Inc., YRC Enterprise Services, Inc., Roadway LLC, Roadway Reverse Logistics, Inc., Roadway Express International, Inc., Roadway Next Day Corporation, New Penn Motor Express Inc., YRC Regional Transportation, Inc., USF Holland Inc., USF Reddaway Inc., USF Glen Moore Inc., YRC Logistics Services, Inc., USF Bestway Inc., USF Dugan Inc., USF RedStar LLC, YRC Mortgages, LLC, YRC Association Solutions Inc., YRC International Investments Inc., and Express Lane Services Inc. Each of the guarantees is full and unconditional and joint and several, subject to customary release provisions. Effective December 31, 2011, USF Technology Services Inc. was released as a guarantor in connection with its merger with and into USF Canada, Inc. Effective December 31, 2011, USF Sales Corporation, USF Canada Inc., USF Mexico Inc,. USFreightways and IMUA Handling Corporation were released as guarantors in connection with their merger with and into YRC Regional Transportation, Inc.

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

The following represents condensed consolidating financial information as of March 31, 2012 and 2011, with respect to the financial position and for the three months ended March 31, 2012 and 2011, for results of operations and the statement of cash flows of YRC Worldwide and its subsidiaries. The Parent column presents the financial information of YRC Worldwide, the primary obligor of the New Convertible Secured Notes. The Guarantor Subsidiaries column presents the financial information of all guarantor subsidiaries of the New Convertible Secured Notes. The Non-Guarantor Subsidiaries column presents the financial information of all non-guarantor subsidiaries, including those subsidiaries that are governed by foreign laws and YRCW Receivables LLC, the special-purpose entity that is associated with our ABL facility.

Condensed Consolidating Balance Sheets

 

March 31, 2012

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 170      $ 16      $ 40      $ —        $ 226   

Intercompany advances receivable

     —          (46     46        —          —     

Accounts receivable, net

     3        23        463        —          489   

Prepaid expenses and other

     71        112        (15     —          168   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     244        105        534        —          883   

Property and equipment

     1        2,851        53        —          2,905   

Less – accumulated depreciation

     —          (1,578     (38     —          (1,616
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property and equipment

     1        1,273        15        —          1,289   

Investment in subsidiaries

     2,369        156        (17     (2,508     —     

Receivable from affiliate

     (1,229     829        400        —          —     

Intangibles and other assets

     389        251        20        (350     310   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,774      $ 2,614      $ 952      $ (2,858   $ 2,482   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intercompany advances payable

   $ (2   $ (222   $ 424      $ (200   $ —     

Accounts payable

     49        111        9        —          169   

Wages, vacations and employees’ benefits

     13        199        3        —          215   

Other current and accrued liabilities

     99        181        16        —          296   

Current maturities of long-term debt

     8        —          2        —          10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     167        269        454        (200     690   

Payable to affiliate

     —          150        —          (150     —     

Long-term debt, less current portion

     1,078        —          308        —          1,386   

Deferred income taxes, net

     171        (144     5        —          32   

Pension and postretirement

     437        —          —          —          437   

Claims and other liabilities

     364        5        —          —          369   

Commitments and contingencies

          

Shareholders’ equity (deficit)

     (443     2,334        185        (2,508     (432
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   $ 1,774      $ 2,614      $ 952      $ (2,858   $ 2,482   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

December 31, 2011

(in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $ 142      $ 21      $ 38      $ —        $ 201   

Intercompany advances receivable

     —          (46     46        —          —     

Accounts receivable, net

     5        37        435        —          477   

Prepaid expenses and other

     92        85        (17     —          160   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     239        97        502        —          838   

Property and equipment

     —          3,020        55        —          3,075   

Less – accumulated depreciation

     —          (1,699     (39     —          (1,738
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net property and equipment

     —          1,321        16        —          1,337   

Investment in subsidiaries

     2,228        121        (7     (2,342     —     

Receivable from affiliate

     (1,123     755        368        —          —     

Intangibles and other assets

     387        254        19        (349     311   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,731      $ 2,548      $ 898      $ (2,691   $ 2,486   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intercompany advances payable

   $ (1   $ (218   $ 419      $ (200   $ —     

Accounts payable

     31        107        13        1        152   

Wages, vacations and employees’ benefits

     24        182        4        —          210   

Claims and insurance accruals

     158        16        4        —          178   

Other current and accrued liabilities

     (38     152        12        —          126   

Current maturities of long-term debt

     7        —          3        —          10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     181        239        455        (199     676   

Payable to affiliate

     —          150        —          (150     —     

Long-term debt, less current portion

     1,083        —          262        —          1,345   

Deferred income taxes, net

     176        (149     5        —          32   

Pension and postretirement

     440        —          —          —          440   

Claims and other liabilities

     347        5        —          —          352   

Commitments and contingencies

          

YRC Worldwide Inc. Shareholders’ equity (deficit)

     (496     2,303        180        (2,342     (355

Non-controlling interest

     —          —          (4     —          (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Shareholders’ equity (deficit)

     (496     2,303        176        (2,342     (359
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   $ 1,731      $ 2,548      $ 898      $ (2,691   $ 2,486   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)

 

For the three months ended March 31, 2012 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating revenue

   $ —        $ 1,152      $ 42      $ —         $ 1,194   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating expenses:

           

Salaries, wages and employees’ benefits

     10        679        16        —           705   

Operating expenses and supplies

     (10     293        10        —           293   

Purchased transportation

     —          105        15        —           120   

Depreciation and amortization

     —          48        1        —           49   

Other operating expenses

     1        66        1        —           68   

Gains on property disposals, net

     —          8        —          —           8   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     1        1,199        43        —           1,243   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating loss

     (1     (47     (1     —           (49
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses:

           

Interest expense

     25        —          11        —           36   

Other, net

     74        (47     (27     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses, net

     99        (47     (16     —           36   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     (100     —          15        —           (85

Income tax benefit

     (2     —          (1     —           (3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

     (98     —          16        —           (82

Less: Net income attributable to non-controlling interest

     —          —          4        —           4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to YRC Worldwide Inc.

     (98     —          12        —           (86

Other comprehensive income, net of tax

     1        3        2        —           6   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to YRC Worldwide Inc. Shareholders

   $ (97   $ 3      $ 14      $ —         $ (80
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

For the three months ended March 31, 2011 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating revenue

   $ —        $ 1,080      $ 43      $ —         $ 1,123   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating expenses:

           

Salaries, wages and employees’ benefits

     —          663        17        —           680   

Operating expenses and supplies

     6        260        11        —           277   

Purchased transportation

     —          106        14        —           120   

Depreciation and amortization

     —          48        1        —           49   

Other operating expenses

     2        64        2        —           68   

Gains on property disposals, net

     —          (3     —          —           (3
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     8        1,138        45        —           1,191   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating loss

     (8     (58     (2     —           (68
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses:

           

Interest expense

     32        1        6        —           39   

Other, net

     68        (53     (15     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Nonoperating (income) expenses, net

     100        (52     (9     —           39   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     (108     (6     7        —           (107

Income tax benefit

     (5     —          —          —           (5
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

     (103     (6     7        —           (102

Other comprehensive income, net of tax

     —          2        2        —           4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to YRC Worldwide Shareholders

   $ (103   $ (4   $ 9      $ —         $ (98
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Cash Flows

 

For the three months ended March 31, 2012 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (87   $ 83      $ (13   $ —         $ (17
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities:

           

Acquisition of property and equipment

     —          (15     —          —           (15

Proceeds from disposal of property and equipment

     —          10        —          —           10   

Restricted amounts held in escrow

     10        —          —          —           10   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     10        (5     —          —           5   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

           

Issuance (repayment) of long-term debt, net

     (5     —          44        —           39   

Debt issuance cost

     —          —          (2     —           (2

Intercompany advances / repayments

     110        (83     (27     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     105        (83     15        —           37   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     28        (5     2        —           25   

Cash and cash equivalents, beginning of period

     142        21        38        —           201   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 170      $ 16      $ 40      $ —         $ 226   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

For the three months ended March 31, 2011 (in millions)

   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (52   $ 56      $ (50   $ —         $ (46
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities:

           

Acquisition of property and equipment

     —          (10     —          —           (10

Proceeds from disposal of property

And equipment

     —          11        —          —           11   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by investing activities

     —          1        —          —           1   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

           

Asset backed securitization borrowings , net

     —          —          25        —           25   

Issuance of long-term debt, net

     38        —          —          —           38   

Debt issuance cost

     (4     —          —          —           (4

Intercompany advances / repayments

     16        (52     36        —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     50        (52     61        —           59   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (2     5        11        —           14   

Cash and cash equivalents, beginning of period

     120        9        14        —           143   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 118      $ 14      $ 25      $ —         $ 157   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

 

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Table of Contents

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements of YRC Worldwide Inc. (also referred to as “YRC Worldwide”, the “Company”, “we” or “our”). MD&A 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 (each a “forward-looking statement”). Forward-looking statements include those preceded by, followed by or include the words “will,” “expect,” “intend,” “anticipate,” “believe,” “project,” “forecast,” “propose,” “plan,” “designed,” “enable” and similar expressions. Forward-looking statements are inherently uncertain 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. Our future financial condition and results could differ materially from those predicted in such forward-looking statements because of a number of factors, including (without limitation) our ability to generate sufficient cash flows and liquidity to fund operations and satisfy our obligations related to our substantial indebtedness and lease and pension funding requirements; our ability to finance the maintenance, acquisition and replacement of revenue equipment and finance other necessary capital expenditures; changes in equity and debt markets; general or regional economic activity, including (without limitation) customer demand in the retail and manufacturing sectors; the success of our management team in implementing its strategic plan and operational and productivity improvements, including (without limitation) our continued ability to meet high on-time and quality delivery performance standards, and the impact of those improvements on our future liquidity and profitability; inclement weather; price and availability of fuel; sudden 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 increases; competition and competitive pressure on service and pricing; expense volatility, including (without limitation) expense volatility due to changes in rail service or pricing for rail service; ; our ability to comply and the cost of compliance with federal, state, local and foreign laws and regulations, including (without limitation) laws and regulations for the protection of employee safety and health and the environment; terrorist attack; labor relations, including (without limitation) the continued support of our union employees with respect to our strategic plan, the impact of work rules, work stoppages, strikes or other disruptions, our obligations to multi-employer health, welfare and pension plans, wage requirements and employee satisfaction; the impact of claims and litigation to which we are or may become exposed; and other risks and contingencies, including (without limitation) the risk factors that are included in our reports filed with the Securities and Exchange Commission, including those described under “Risk Factors” in our annual report on Form 10-K and quarterly reports on Form 10-Q.

Results of Operations

This section focuses on the highlights and significant items that impacted our operating results during the first quarter of 2012. We have presented a discussion regarding the operating results of each of our operating segments: YRC Freight and Regional Transportation. In 2011, we reported Truckload as a separate segment, which consisted of Glen Moore, a former domestic truckload carrier and represented 2% of our consolidated revenue for the three months ended March 31, 2011. On December 15, 2011, we sold a majority of Glen Moore’s assets to a third party and concluded operations.

Consolidated Results

Our consolidated results for the three months ended March 31, 2012 and 2011 include the results of each of the operating segments discussed below and corporate charges. A more detailed discussion of the operating results of our segments is presented below.

The table below provides summary consolidated financial information for the three months ended March 31:

 

(in millions)

   2012     2011     Percent Change  

Operating revenue

   $ 1,194.3      $ 1,122.9        6.4

Operating loss

     (48.8     (68.4     28.7

Nonoperating expenses, net

     36.0        38.8        (7.2 %) 

Net loss

   $ (81.6   $ (102.7     20.5
  

 

 

   

 

 

   

 

 

 

Three months ended March 31, 2012 compared to three months ended March 31, 2011

Our consolidated operating revenue increased 6.4% during the three months ended March 31, 2012 versus the same period in 2011 due to both increases in volume over the comparable prior year quarter and increases in yield or pricing. Our volume increases are primarily attributed to a moderately improving economic environment. The improvement in yield is due to increased fuel surcharge revenue resulting from higher diesel fuel costs as well as a more disciplined industry pricing market.

 

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Table of Contents

Consolidated operating revenue includes fuel surcharge revenue. Fuel surcharges are common throughout our industry and represent an amount that we charge to customers that adjusts with changing fuel prices. We base our fuel surcharges on a published national 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 versus prior periods as there is a lag in our adjustment of base rates in response to changes in 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.

Operating expenses for the first quarter of 2012 increased $51.8 million or 4.3% as compared to the same period in 2011 primarily related to a $23.0 million increase in salaries, wages and benefits and a $16.1 million increase in operating expenses and supplies, which are attributable primarily to increasing volumes and higher fuel prices. Our consolidated operating loss during the first quarter of 2012 includes an $8.4 million net loss from fair value adjustments for property and equipment held for sale and the sale of property and equipment compared to a $3.0 million net gain for the same period in 2011.

The increase in salaries, wages and benefits in the first quarter of 2012 as compared to the same period in 2011 is largely due to an increase in benefits compared to the prior year resulting from the resumption of multi-employer pension contribution expense in June 2011 as well as higher shipment related wages in the current year as we reacted to greater volumes. The increase in operating expenses and supplies is a result of higher fuel expenses of $12.1 million or 8.9%, vehicle maintenance of $4.7 million or 11.6%, and increases to legal reserves related to the estimated losses for prior years’ legal claims of $6.8 million. The increases were offset by lower facility maintenance of $3.7 million or 18.1% and professional service fees of $5.4 million or 20.5%.

Nonoperating expenses decreased $2.9 million in the first quarter of 2012 compared to the same period in 2011. The reduction consisted primarily of reduced interest expense of $2.4 million as a result of various changes resulting from the Company’s July 22, 2011 restructuring. The first three months of 2012 included $8.4 million less in deferred debt cost amortization compared to the same period in 2011 as the deferred debt costs related to our prior credit agreement were included in the carryover basis of the new restructured term loan and the Series A Notes and the deferred debt costs related to our prior ABS facility were removed as part of the restructuring. Also, the first quarter of 2012 included $2.6 million of net amortization of the Series A Notes and Series B Notes discounts and term loan premium. Offsetting these reductions was a $5.3 million increase in interest expense incurred related to the Company’s ABL facility during the first three months of 2012 compared to our prior ABS facility in the same period in 2011.

Our effective tax rate for the three months ended March 31, 2012 and 2011 was 3.7% and 4.2%, respectively. Significant items impacting the 2012 rate include a net state tax provision, certain permanent items and an increase in the valuation allowance established for the net deferred tax asset balance projected for December 31, 2012. 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-back and 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 March 31, 2012 and December 31, 2011, substantially all of our net deferred tax assets are subject to a valuation allowance.

 

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Table of Contents

YRC Freight Results

YRC Freight represented approximately 66% and 65% of our consolidated revenue in the first quarter of 2012 and 2011, respectively. The table below provides summary financial information for YRC Freight for the three months ended March 31:

 

(in millions)

   2012     2011     Percent
Change
 

Operating revenue

   $ 789.1      $ 730.0        8.1

Operating loss

     (56.1     (51.7     (8.5 %) 

Operating ratio(a)

     107.1     107.1     —     

 

(a) Operating ratio is calculated as (i) 100 percent plus (ii) plus the result of dividing operating loss by operating revenue and expressed as a percentage.

Three months ended March 31, 2012 compared to three months ended March 31, 2011

YRC Freight reported operating revenue of $789.1 million in the first quarter of 2012, an increase of $59.1 million or 8.1% compared to the first quarter of 2011. The two primary components of operating revenue are volume, comprised of the number of shipments and weight per shipment, and price or yield, usually evaluated on a per hundredweight basis. The increase in operating revenue was largely driven by a 3.5% increase in total picked-up tonnage per day and a 3.3% increase in revenue per hundredweight resulting mostly from higher fuel surcharge revenue, which was driven by higher diesel prices in 2012 as compared to the same period in 2011 as well as a more disciplined industry pricing market. The increase in picked-up tonnage per day was primarily due to a 2.8% increase in total shipments per day and a 0.7% increase in weight per shipment. Our volume increases are primarily attributed to a moderately improving economic environment.

Operating loss for YRC Freight was $56.1 million in the first quarter of 2012 compared to operating loss of $51.7 million in the comparable prior year period. Revenue in the first quarter of 2012 was higher by $59.1 million while total costs, excluding losses on property disposals and impairments, increased by $55.9 million. The cost increases consisted primarily of higher salaries, wages and employees’ benefits of $22.3 million or 5.1% and higher other operating expenses of $4.3 million or 5.9%, higher operating expenses and supplies of $31.3 million or 18.8% offset by lower purchased transportation costs of $2.0 million or 2.0%.

The increase in salaries, wages and employees’ benefits (including workers’ compensation expense) of $22.3 million during the first quarter of 2012 is primarily the result of an increase in benefits of $21.5 million compared to the prior year resulting from the resumption of multi-employer pension contribution expense in June 2011 and higher costs associated with the contractual health and welfare benefit increase effective August 2011. In addition, the increase is due to higher shipment related wages due to increased business volumes and contractual wage increases offset by lower salaries and workers’ compensation expense.

Operating expenses and supplies were higher due mostly to increases in fuel costs associated with higher diesel prices and greater volumes in the first quarter of 2012 compared to the same period in 2011. Operating expenses and supplies were also impacted by increases to legal reserves related to estimated losses for prior years’ legal claims offset by a decrease in bad debt expense of $1.1 million in the first quarter of 2012 compared to the comparable prior year period reflective of improvements in our revenue management processes and fewer bankruptcies in our customer base.

The decrease in purchased transportation during the first quarter of 2011 versus the comparable prior year period resulted primarily from lower volumes moved on the rail in the first quarter of 2012 compared to the same period of 2011. Rail costs decreased 0.1% due to lower volume offset by higher fuel surcharges compared to the prior year period while other purchased transportation costs decreased 4.3%.

Other operating expenses were higher mostly due to a general liability claims expense increase of $1.6 million or 18.9% related to a more unfavorable development of claims in 2012 compared to the first quarter of 2011 and higher cargo claims expense of $2.7 million or 30.5% due to unfavorable development of claims and a higher rate for claims in the current year.

Losses on property disposals and impairments were $8.0 million in the first quarter of 2012 compared to $0.5 million in the first quarter of 2011.

 

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Table of Contents

Regional Transportation Results

Regional Transportation represented approximately 34% and 33% of our consolidated revenue in the first quarter of 2012 and 2011, respectively. The table below provides summary financial information for Regional Transportation for the three months ended March 31:

 

(in millions)

   2012     2011     Percent
Change
 

Operating revenue

   $ 402.0      $ 366.1        9.8

Operating income (loss)

     11.4        (1.2     n/m (b) 

Operating ratio (a)

     97.2     100.3     3.1pp (c) 

 

(a) Operating ratio is calculated as (i) 100 percent plus (ii) minus the result of dividing operating income by operating revenue or (iii) plus the result of dividing operating loss by operating revenue, and expressed as a percentage.
(b) Not meaningful
(c) Percentage points

Three months ended March 31, 2012 compared to three months ended March 31, 2011

Regional Transportation reported operating revenue of $402.0 million for the first quarter of 2012, representing an increase of $35.9 million, or 9.8% from the first quarter of 2011. Total weight per day was up 6.0%, representing a 4.3% increase in total shipments per day and a 1.6% higher total weight per shipment compared to 2011. Our volume increases are primarily attributed to a moderately improving economic environment.

Total revenue per hundredweight increased 4.5% in the first quarter of 2012 as compared to the first quarter of 2011, due to higher fuel surcharge revenue associated with higher diesel fuel prices and a more disciplined industry pricing market.

Operating income for Regional Transportation was $11.4 million for the first quarter of 2012, an improvement of $12.6 million from the first quarter of 2011, consisting of a $35.9 million increase in revenue partially offset by increases in salaries, wages and employees’ benefits of $7.8 million or 3.5%, operating expenses and supplies of $9.7 million or 10.3%, and purchased transportation of $1.2 million or 6.8%.

Salaries, wages and employees’ benefits expense (including workers’ compensation expense) increased $7.8 million or 3.5% primarily the result of an increase in benefits compared to the prior year resulting from the resumption of multi-employer pension contribution expense in June 2011 and higher costs associated with the contractual health and welfare benefit increase effective August 2011. In addition, the increase is due to higher shipment related wages due to increased business volumes and contractual wage increases offset by lower salaries and workers’ compensation expense.

Operating expenses and supplies increased 10.3% reflecting a 12.9% increase in fuel costs (due to higher fuel prices and volumes) and a 7.2% increase in costs other than fuel. Costs were higher in the areas of equipment maintenance, travel, driver expenses, tolls and bad debt expense as a result of higher business volumes. Purchased transportation was 6.8% higher due mostly to greater business volumes and the impact of higher fuel prices.

There were no gains or losses on property disposals in the first quarter of 2012 compared to a gain of $3.4 million in the first quarter of 2011.

Certain Non-GAAP financial measures

Our adjusted EBITDA improved to $15.3 million for the three months ended March 31, 2012 from ($1.3) million for the same period in 2011. We have included the reconciliation of consolidated operating loss to consolidated adjusted EBITDA below and provided the adjusted EBITDA amounts by segment.

Adjusted operating income (loss) is a non-GAAP measure that reflects the Company’s operating income (loss) before letter of credit fees, equity-based compensation expense, net gains or losses on property disposals, and certain other items including restructuring professional fees and results of permitted dispositions. Adjusted EBITDA is a non-GAAP measure that reflects the Company’s earnings before interest, taxes, depreciation, and amortization expense, and further adjusted for letter of credit fees, equity-based compensation expense, net gains or losses on property disposals and certain other items, including restructuring professional fees and results of permitted dispositions and discontinued operations as defined in the Company’s credit facilities. Adjusted EBITDA and adjusted operating income (loss) are used for internal management purposes as a financial measure that reflects the Company’s core operating performance. In addition, management uses adjusted EBITDA to measure compliance with financial covenants in the

 

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Table of Contents

Company’s credit facilities. Free cash flow (deficit) and adjusted free cash flow (deficit) are non-GAAP measures that reflect the Company’s operating cash flow minus gross capital expenditures and operating cash flow minus gross capital expenditures, excluding the restructuring costs included in operating cash flow, respectively. However, these financial measures should not be construed as a better measurement than operating income, operating cash flow or earnings (loss) per share, as defined by generally accepted accounting principles.

Adjusted operating income (loss), adjusted EBITDA, free cash flow (deficit) and adjusted free cash flow (deficit) have the following limitations:

 

   

Adjusted operating income (loss) and adjusted EBITDA do not reflect the interest expense or the cash requirements necessary to fund restructuring professional fees, letter of credit fees, service interest or principal payments on our outstanding debt;

 

   

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;

 

   

Equity based compensation is an element of our long-term incentive compensation package, although adjusted operating income (loss) and adjusted EBITDA exclude either certain union employee equity-based compensation expense or all of it as an expense, respectively, when presenting our ongoing operating performance for a particular period;

 

   

Adjusted free cash flow (deficit) excludes the cash usage by the Company’s restructuring activities, debt issuance costs, equity issuance costs and principal payments on our outstanding debt and the resulting reduction in the Company’s liquidity position from those cash outflows; and

 

   

Other companies in our industry may calculate adjusted operating income (loss), adjusted EBITDA and adjusted free cash flow differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, adjusted operating income (loss), adjusted EBITDA, free cash flow (deficit) and adjusted free cash flow (deficit) 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 using adjusted operating income (loss), adjusted EBITDA, free cash flow (deficit) and adjusted free cash flow (deficit) as a secondary measure.

Our consolidated adjusted operating ratio of 102.8% for the three months ended March 31, 2012 improved 1.9 percentage points compared to the same period in 2011.

Adjusted operating ratio is calculated as (i) 100 percent (ii) minus the result of dividing adjusted operating income by operating revenue or (iii) plus the result of dividing adjusted operating loss by operating revenue, and expressed as a percentage.

Consolidated Adjusted EBITDA

The reconciliation of operating loss to adjusted operating loss and adjusted EBITDA, including adjusted operating ratio, for the three months ended March 31 is as follows:

 

(in millions)

   2012     2011  

Operating revenue

   $ 1,194.2      $ 1,122.9   

Adjusted operating ratio (a)

     102.8     104.7

Reconciliation of operating loss to adjusted EBITDA:

    

Operating loss

   $ (48.8   $ (68.4

(Gains) losses on property disposals, net

     8.3        (3.0

Letter of credit expense

     8.1        8.1   

Restructuring professional fees

     0.5        8.5   

Permitted dispositions and other

     (1.9     2.2   
  

 

 

   

 

 

 

Adjusted operating loss

     (33.8     (52.6

Depreciation and amortization

     49.0        49.8   

Equity based compensation (benefit) expense

     1.0        (1.0

Restructuring professional fees, included in nonoperating income

     —          0.5   

Other nonoperating, net

     (0.9     0.5   

Add: Truckload EBITDA loss (b)

     —          1.5   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 15.3      $ (1.3
  

 

 

   

 

 

 

 

(a) Adjusted operating ratio, is calculated as (i) 100 percent (ii) plus the result of dividing adjusted operating loss by operating revenue and expressed as a percentage.
(b) Due to the sale of the Glen Moore assets in December 2011, we modified our 2011 adjusted EBITDA by the amount of the Truckload EBITDA loss to be comparable to our 2012 calculation.

 

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Consolidated Adjusted Free Cash Flow (Deficit)

The reconciliation of adjusted EBITDA to adjusted free cash flow (deficit) for the three months ended March 31, including the reconciliation to Adjusted Free Cash Flow is as follows:

 

(in millions)

   2012     2011  

Adjusted EBITDA

   $ 15.3      $ (1.3

Total restructuring professional fees

     (0.5     (9.0

Cash paid for interest

     (31.5     (10.5

Cash paid for letter of credit fees

     (9.5     —     

Working Capital cash flows excluding income tax, net

     1.3        (36.0
  

 

 

   

 

 

 

Net cash used in operating activities before income taxes

     (24.9     (56.8

Cash received for income taxes, net

     7.8        10.6   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (17.1     (46.2

Acquisition of property and equipment

     (15.1     (10.1
  

 

 

   

 

 

 

Free cash flow (deficit)

     (32.2     (56.3

Total restructuring professional fees

     0.5        9.0   
  

 

 

   

 

 

 

Adjusted Free Cash Flow (Deficit)

   $ (31.7   $ (47.3
  

 

 

   

 

 

 

Segment Adjusted EBITDA

The following represents Adjusted EBITDA by segment for the three months ended March 31:

 

(in millions)

   2012     2011  

Adjusted EBITDA by segment:

    

YRC Freight Transportation

   $ (9.7   $ (16.0

Regional Transportation

     29.1        12.2   

Corporate and other

     (4.1     2.5   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 15.3      $ (1.3
  

 

 

   

 

 

 

The reconciliation of operating loss, by segment, to adjusted operating loss and adjusted EBITDA, including adjusted operating ratio for the three months ended March 31 is as follows:

 

 

YRC Freight segment

(in millions)

   2012     2011  

Operating revenue

   $ 789.1      $ 730.0   

Adjusted operating ratio (a)

     105.3     106.2

Reconciliation of operating loss to adjusted EBITDA:

    

Operating loss

   $ (56.1   $ (51.7

(Gains) losses on property disposals, net

     8.0        0.4   

Letter of credit expense

     6.6        6.4   
  

 

 

   

 

 

 

Adjusted operating loss

     (41.5     (44.9

Depreciation and amortization

     32.6        27.9   

Other nonoperating expenses (income), net

     (0.8     1.0   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ (9.7   $ (16.0
  

 

 

   

 

 

 

 

(a) Adjusted operating ratio, is calculated as (i) 100 percent (ii) plus the result of dividing adjusted operating loss by operating revenue and expressed as a percentage.

 

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Regional segment

(in millions)

   2012     2011  

Operating revenue

   $ 402.0      $ 366.1   

Adjusted operating ratio (a)

     96.7     100.8

Reconciliation of operating loss to adjusted EBITDA:

    

Operating income (loss)

   $ 11.4      $ (1.2

(Gains) losses on property disposals, net

     0.5        (3.4

Letter of credit expense

     1.4        1.6   
  

 

 

   

 

 

 

Adjusted operating income (loss)

     13.3        (3.0

Depreciation and amortization

     15.8        15.2   

Other nonoperating expenses (income), net

     —          —     
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 29.1      $ 12.2   
  

 

 

   

 

 

 

 

(a) Adjusted operating ratio, is calculated as (i) 100 percent (ii) minus the result of dividing adjusted operating income by operating revenue or (iii) plus the result of dividing adjusted operating loss by operating revenue and expressed as a percentage.

 

Corporate and other segment

(in millions)

   2012     2011  

Reconciliation of operating loss to adjusted EBITDA:

    

Operating loss

   $ (4.1   $ <