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Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The accompanying consolidated financial statements include the accounts of Yellow Corporation and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We report on a calendar year basis.

Use of Estimates

Management makes estimates and assumptions when preparing the financial statements in conformity with U.S. generally accepted accounting principles which affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Segments and Disaggregation of Revenue

The Company provides LTL services through a single integrated organization based upon the joining of our national and regional operations during the enterprise transformation. The Company’s revenue is primarily derived from transporting LTL shipments in North America and specifically in the United States, but we also offer other services such as truckload services, customer specific logistics solutions, and other services (collectively "Other revenue" in table below).

The Company has determined it has one reporting segment and the composition of our revenue is summarized below with LTL shipments defined as shipments less than 10,000 pounds that move in our network.


(in millions)	Year Ended December 31, 2022		Year Ended December 31, 2021		Year Ended December 31, 2020
LTL revenue	$	4,719.3	$	4,605.9	$	4,093.3
Other revenue(a)		525.4		515.9		420.4
Total revenue	$	5,244.7	$	5,121.8	$	4,513.7

(a)

Other revenue is primarily comprised of truckload shipments.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and highly liquid investments purchased with maturities of three months or less. Under the Company’s cash management system, checks issued but not presented to banks frequently result in book overdraft balances for accounting purposes which are classified within accounts payable in the accompanying consolidated balance sheets. The change in book overdrafts is reported as a component of operating cash flows for accounts payable as they do not represent bank overdrafts.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:

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Level 1 — Quoted prices for identical instruments in active markets;

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Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and

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Level 3 — Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

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.

The fair value of our long-term debt is included in Note 5 to the Consolidated Financial Statements.

The fair value of our pension plan assets is included in Note 4 to the Consolidated Financial Statements.

Restricted cash amounts held in escrow are either cash or, at times, invested in money market accounts and are recorded at fair value based on quoted market prices and have typically been level 1 fair value assets. As of December 31, 2022 and 2021 we had $3.9 million and $4.1 million restricted amounts held in escrow, respectively.

Credit and Other Concentration Risks

We provide services and extend credit based on an evaluation of the customer’s financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. We monitor our exposure for credit losses and maintain allowances for anticipated losses.

At December 31, 2022, approximately 82% of our labor force was subject to collective bargaining agreements. In 2019, we agreed to a new labor agreement that, among other things, extended the expiration date of our primary labor agreement from March 31, 2019 to March 31, 2024. The agreement also updated the contribution rates under the multi-employer pension plans to which we contribute as discussed in Note 4 to the consolidated financial statements. The current agreement provides for wage and benefits increases through the term of the agreement. Finally, the agreement provides for certain changes to work rules and our use of purchased transportation.

Revenue Recognition

The Company’s revenues are primarily derived from the transportation services we provide through the delivery of goods over the duration of a shipment. The bill of lading is a legally enforceable agreement between two parties, and where collectability is probable this document serves as the contract as our basis to recognized revenue under ASC 606- Revenue Recognition. The Company has elected to expense initial direct costs as incurred because the average shipment cycle is less than one week. The Company recognizes revenue and substantially all the purchased transportation expenses on a gross basis as we control the service provided to our customer. We direct the use of the transportation service provided and remain responsible for the complete and proper shipment. We recognize revenue for our performance obligations under our customer contracts over time, as our customers receive the benefits of our services in accordance with ASC 606- Revenue Recognition.

Inherent within our revenue recognition practices are estimates for revenue associated with shipments in transit. For shipments in transit, we record revenue based on the percentage of service completed as of the period end and recognize delivery costs as incurred. The percentage of service completed for each shipment is based on how far along in the shipment cycle each shipment is in relation to standard transit days. The estimated portion of revenue for all shipments in transit is accumulated at period end and recognized as operating revenue. The significance of in transit shipments to the consolidated financial statements is limited due to the short duration, generally less than one week, of the average shipment cycle. At December 31, 2022 and 2021, our consolidated financial statements included reductions to operating revenue and accounts receivable to reflect in transit shipments of $32.3 million and $41.3 million, respectively.

Revenue related Reserves

Revenue-related Reserves

Given the nature of our transportation services, adjustments may arise which create variability when establishing the transaction price used to recognize revenue. We have a high volume of performance obligations with similar characteristics; therefore we primarily use historical trends to arrive at estimated reserves. Rerate reserves, which are common for LTL carriers, are established during a process to capture initial ratings that may require adjustment and may be identified based on many factors, including subsequent weight and commodity verifications. Although the majority of rerating occurs in the same month as the original rating, a portion occurs during subsequent periods. At December 31, 2022 and 2021, our consolidated financial statements included a rerate reserve as a reduction to revenue and accounts receivable of $22.5 million and $14.1 million, respectively.

Expected Credit Losses

We record an allowance for expected credit losses based on expected future losses. When estimating the expected future losses, we consider historical uncollectible amounts, known factors surrounding specific customers, as well as overall collection trends. Our allowance for expected credit losses totaled $23.7 million and $13.2 million as of December 31, 2022 and 2021, respectively.

Self-Insurance Accruals for Claims

Claims and insurance accruals, both current and long-term, primarily reflect the estimated settlement cost of claims for workers’ compensation and property damage and liability claims (also referred to as third-party liability claims), and include cargo loss and damage not covered by insurance. We establish and modify reserve estimates for workers’ compensation and third-party liability claims primarily based upon actuarial analyses prepared by independent actuaries. These reserves are discounted to present value using a risk-free rate based on the year of occurrence. The risk-free rate is the U.S. Treasury rate for maturities that match the expected payout of such claims and was 2.8%, 0.4% and 0.5% for workers’ compensation claims incurred as of December 31, 2022, 2021 and 2020, respectively. The rate was 2.7%, 0.2% and 0.5% for third-party liability claims incurred as of December 31, 2022, 2021 and 2020, respectively. The process of determining reserve requirements utilizes historical loss development factors and involves an evaluation of accident frequency and severity, claims management, changes in health care costs and certain future administrative costs. The effect of future inflation for costs is considered in the actuarial analysis. Adjustments to previously established reserves are included in operating results in the year of adjustment.

Expected aggregate undiscounted amounts and material changes to these amounts related to workers’ compensation and third-party liability claims, as of December 31 are presented below:


(in millions)	Workers’ Compensation			Third-Party Liability Claims			Total
Undiscounted settlement cost estimate at December 31, 2020	$	275.2		$	70.0			345.2
Estimated settlement cost for 2021 claims		92.4			38.1			130.5
Claim payments, net of recoveries		(94.8	)		(41.0	)		(135.8	)
Change in estimated settlement cost for prior claim years		(5.5	)		38.6			33.1
Undiscounted settlement cost estimate at December 31, 2021	$	267.3		$	105.7		$	373.0
Estimated settlement cost for 2022 claims		84.3			36.6			120.9
Claim payments, net of recoveries		(86.5	)		(76.8	)		(163.3	)
Change in estimated settlement cost for prior claim years		(20.4	)		36.9			16.5
Undiscounted settlement cost estimate at December 31, 2022	$	244.7		$	102.4		$	347.1
Discounted settlement cost estimate at December 31, 2022	$	225.7		$	99.5		$	325.2

In addition to the amounts above, accrued settlement cost amounts for cargo claims and other insurance related amounts, none of which are discounted, totaled $16.4 million and $17.1 million at December 31, 2022 and 2021, respectively.

Estimated cash payments to settle claims, exclusive of cargo claims, which were incurred on or before December 31, 2022, for the next five years and thereafter are as follows:


(in millions)	Workers’ Compensation		Third-Party Liability Claims		Total
2023	$	70.0	$	36.2	$	106.2
2024		43.3		27.7		71.0
2025		28.1		18.0		46.1
2026		18.2		10.8		29.0
2027		13.2		5.5		18.7
Thereafter		71.9		4.2		76.1
Total	$	244.7	$	102.4	$	347.1

Equity-Based Compensation

We have various equity-based employee compensation plans, which are described more fully in Note 7 to our consolidated financial statements. We recognize compensation costs for non-vested shares based on the grant date fair value. For our equity grants, with no performance requirement, we recognize compensation cost on a straight-line basis over the requisite service period based on the grant-date fair value. For our performance-based awards, the Company expenses the grant date fair value of the awards which are probable of being earned in the performance period over the respective service period.

Property and Equipment

The following is a summary of the components of our property and equipment at cost at December 31:


(in millions)	2022		2021
Land	$	230.7	$	235.4
Structures		782.8		798.0
Revenue equipment		1,455.2		1,537.1
Technology equipment and software		412.9		372.3
Other, including miscellaneous field operations equipment		227.4		221.8
Total property and equipment, at cost	$	3,109.0	$	3,164.6

We carry property and equipment at cost less accumulated depreciation. We compute depreciation using the straight-line method based on the following service lives:


		Years
Structures		10 - 30
Revenue equipment		10 - 20
Technology equipment and software		3 - 7
Other		3 - 10

For the years ended December 31, 2022, 2021 and 2020, depreciation expense was $136.9 million, $137.1 million and $133.0 million, respectively.

We charge maintenance and repairs to expense as incurred and betterments are capitalized. The cost of replacement tires is expensed at the time those tires are placed into service, as is the case with other repair and maintenance costs. Leasehold improvements are capitalized and amortized over the shorter of their useful lives or the remaining lease term.

Our capital expenditures focus primarily on the replacement of revenue equipment, investments in information technology and improvements to land and structures. In addition to purchasing new revenue equipment, we also rebuild the engines of our tractors (at certain time or mile intervals). Because rebuilding an engine increases its useful life, we capitalize these costs and depreciate over the remaining useful life of the unit. The cost of engines on newly acquired revenue equipment is capitalized and depreciated over the estimated useful life of the related equipment.

Our investment in technology equipment and software consists primarily of freight movement, automation, administrative, and related software. The Company capitalizes certain costs associated with developing or obtaining internal-use software. Capitalizable costs include external direct costs of materials and services utilized in developing or obtaining the software and payroll and payroll-related costs for employees directly associated with the development of the project.

Long-lived assets, which include property and equipment, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows expected to be generated by that asset group are less than the carrying value of the long-lived assets, the carrying value would be reduced to the estimated fair value.

In connection with its network optimization, without sacrificing geographical service coverage or anticipated impact to customers, Yellow plans to close and sell excess owned facilities that have overlapping service territories. In the fourth quarter of 2022, the Company closed on the sale of one of these terminals for a price of approximately $31.0 million and a resulting gain of approximately $28.1 million. The net proceeds were used to pay down a portion of the term loan. As a part of our ongoing enterprise transformation, the Company exited certain properties during the second half of 2022. Based on market conditions, certain owned properties which were exited are being actively marketed for sale to third parties. Of these properties, those which are actively marketed but not yet sold have immaterial net book value, but are accounted for as held-for-sale and presented within property and equipment at December 31, 2022.

Leases

The Company determines if a contractual agreement is a lease or contains a lease at inception. The Company leases certain revenue equipment and real estate, predominantly through operating leases, and we have an immaterial number of leases in which we are a lessor. Operating leases are expensed on a straight-line basis over the life of the lease beginning on the lease commencement date. The Company determines the lease term by assuming the exercise of renewal options that are reasonably certain. The lease term is used to determine whether a lease is finance or operating and is used to calculate rent expense. Additionally, the depreciable life of leased assets and leasehold improvements is limited by the expected lease term. Operating lease balances are classified as operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities on our consolidated balance sheet. The Company elected the short-term lease recognition exemption and short-term leases, which have an initial term of 12 months or less, are not included in our ROU assets, or corresponding lease liabilities. Lastly, the Company has an immaterial amount of finance leases.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, we use our incremental borrowing rate adjusted for duration and other factors to represent the rate we would have to pay to borrow on a collateralized basis based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease and we will adjust the life of the lease when it is reasonably certain that we will exercise these options.

Key assumptions include discount rate, the impact of purchase options and renewal options on our lease term, as well as the assessment of residual value guarantees. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. We have variable lease components, including lease payments with payment escalation based on the Consumer Price Index, and other variable items, such as common area maintenance and taxes.

The Company’s revenue equipment leases generally have purchase options. However, in most circumstances we are not typically certain of exercising the purchase option as we may sign a new lease, return the equipment to the lessor, or exercise the option as circumstances dictate. At the time we determine to exercise such purchase options, we remeasure the lease liability inclusive of the updated lease terms. Our revenue equipment leases often contain residual value guarantees, but they are not reflected in our lease liabilities as our lease rates are such that residual value guarantees are not expected to be owed at the end of our leases. Wrecked units are expensed in full upon damage and paid out to the lessor.

The Company’s real estate leases will often have an option to extend the lease, but we are typically not reasonably certain of exercising options to extend as we have the ability to move to more advantageous locations over time, relocate to other leased and owned locations, or discontinue service from particular locations over time as customer demand changes. At the time we determine to exercise such renewal, we remeasure the lease liability inclusive of the updated lease terms.

Income Taxes

The Company uses the asset and liability method to reflect income taxes on these consolidated financial statements, which results in the recognition of deferred tax assets and liabilities by applying enacted tax rates to the differences between the carrying value of existing assets and liabilities and their respective tax basis and to loss carryforwards. Tax credit carryforwards are recorded as deferred tax assets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the change occurs. The Company assesses the recoverability of deferred tax assets, operating losses and tax credit

carryforwards and provides valuation allowances when it determines it is more likely than not that such assets, operating losses or credits will not be realized. We have not recognized deferred taxes relative to foreign subsidiaries’ earnings that are deemed to be permanently reinvested. Any related income tax associated with such earnings are not material. We account for residual income tax effects in accumulated other comprehensive income using the portfolio method and will release the residual tax effect when the entire portfolio of defined benefit pension plans is terminated.

Newly Adopted Accounting Standards

None of the recently issued accounting standards are expected to have a material impact on our consolidated financial statements and accompanying notes.