Accounting policies refer to specific accounting principles and the methods of applying those principles to fairly present our financial position and results of operations in accordance with generally accepted accounting principles. The policies discussed below include those that management has determined to be the most appropriate in preparing our financial statements.

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. The quarters of Holland and Reddaway consist of thirteen weeks that end on a Saturday either before or after the end of March, June and September, whereas all other operating company quarters end on the natural calendar quarter end.

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.

Certain reclassifications have been made to prior year’s balances to conform with current year presentation.

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 the United States and we also offer other services such as truckload services, customer specific logistics solutions, as discussed above, and other services. The Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer who manages the business, regularly reviews financial information and allocates resources. Our CODM began evaluating performance and business results, as well as making resource and operating decisions under the single segment view as a result of the business transformation that began during 2019.

As such, 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.

Consolidated (in millions)	2020		2019		2018
LTL revenue	$	4,093.3	$	4,494.0	$	4,690.6
Other revenue		420.4		377.2		401.4
Total revenue	$	4,513.7	$	4,871.2	$	5,092.0

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 are reported as a component of operating cash flows for accounts payable as they do not represent bank overdrafts.

From time to time, we hold financial assets held at fair value, which consists of restricted cash held in escrow. Restricted 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. Assets are considered level 1 if their valuations are based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. As of December 31, 2020 and 2019 we had $38.7 million and no restricted amounts held in escrow, respectively. 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.

We sell 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, 2020, approximately 79% of our labor force was subject to collective bargaining agreements. In 2019, we agreed to a new labor agreement that, among other things, extend the expiration date of our primary labor agreement from March 31, 2019 to March 31, 2024. This also updated the contribution rates under the multi-employer pension plan to which we contribute. The new agreement provided for wage and benefits increases through the term of the agreement. Finally, the new agreement provided for certain changes to work rules and our use of purchased transportation.

The Company’s revenues are primarily derived from the transportation services we provide through the delivery of goods over the duration of a shipment. Upon receipt of the bill of lading, the contract existence criteria is met as evidenced by a legally enforceable agreement between two parties where collectability is probable, thus creating the distinct performance obligation. 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 because we direct the use of the transportation service provided and remain responsible for the complete and proper shipment.

Inherent within our revenue recognition practices are estimates for revenue associated with shipments in transit and future adjustments to revenue and accounts receivable for collectability and billing adjustments, which are included in our consolidated balance sheets as a reduction to “Accounts receivable”.

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 total revenue earned is accumulated for all shipments in transit at a particular period end and recorded as operating revenue. The magnitude of the impacts of in transit adjustment estimates to the consolidated financial statements are limited due to the short duration, generally less than one week, of the average shipment cycle.

The Company’s revenue-related reserves will primarily consist of an allowance for doubtful accounts and rerate reserves. We record an allowance for doubtful accounts 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. Given the nature of our transportation services, future adjustments may arise which creates variability when establishing the transaction price used to recognize revenue. Rerate reserves, which are common for LTL carriers, are established during a robust process to capture incorrect ratings that require adjustment and could be identified based on many factors, including weight and commodity verifications. Our allowance for doubtful accounts totaled $13.8 million and $11.4 million as of December 31, 2020 and 2019, respectively.

Given the nature of our transportation services, future adjustments may arise which creates 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. Although the majority of rerating occurs in the same month as the original rating, a portion occurs during subsequent periods. At December 31, 2020 and 2019, our consolidated financial statements included a rerate reserve as a reduction to “Accounts Receivable” of $12.6 million and $7.9 million, respectively.

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. At December 31, 2020 and 2019, our consolidated financial statements included deferred revenue as a reduction to “Accounts Receivable” of $31.9 million and $25.2 million, respectively.

Beginning January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers using a modified retrospective approach. There was no cumulative effect adjustment recorded.

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 property damage and 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 0.5%, 2.0% and 2.6% for workers’ compensation claims incurred as of December 31, 2020, 2019 and 2018, respectively. The rate was 0.5%, 2.1% and 2.5% for property damage and liability claims incurred as of December 31, 2020, 2019 and 2018, respectively. The process of determining reserve requirements utilizes historical trends 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 property damage and liability claims, or 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, 2018	$	287.8		$	73.6		$	361.4
Estimated settlement cost for 2019 claims		103.3			35.2			138.5
Claim payments, net of recoveries		(95.9	)		(36.1	)		(132.0	)
Change in estimated settlement cost for prior claim years		(9.6	)		1.1			(8.5	)
Undiscounted settlement cost estimate at December 31, 2019	$	285.6		$	73.8		$	359.4
Estimated settlement cost for 2020 claims		95.0			36.4			131.4
Claim payments, net of recoveries		(88.1	)		(53.6	)		(141.7	)
Change in estimated settlement cost for prior claim years		(17.3	)		13.4			(3.9	)
Undiscounted settlement cost estimate at December 31, 2020	$	275.2		$	70.0		$	345.2
Discounted settlement cost estimate at December 31, 2020	$	254.9		$	68.4		$	323.3

In addition to the amounts above, accrued settlement cost amounts for cargo claims and other insurance related amounts, none of which are discounted, totaled $11.1 million and $13.7 million at December 31, 2020 and 2019, respectively.

Estimated cash payments to settle claims which were incurred on or before December 31, 2020, for the next five years and thereafter are as follows:

(in millions)	Workers’ Compensation		Third-Party Liability Claims		Total
2021	$	78.1	$	24.9	$	103.0
2022		47.4		19.9		67.3
2023		31.3		12.3		43.6
2024		20.6		6.9		27.5
2025		14.9		3.0		17.9
Thereafter		82.9		3.0		85.9
Total	$	275.2	$	70.0	$	345.2

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.

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

(in millions)	2020		2019
Land	$	235.7	$	239.9
Structures		780.3		788.4
Revenue equipment		1,236.8		1,228.2
Technology equipment and software		321.5		291.7
Other, including miscellaneous field operations equipment		221.2		213.4
Total property and equipment, at cost	$	2,795.5	$	2,761.6

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

For the years ended December 31, 2020, 2019 and 2018, depreciation expense was $133.0 million, $150.5 million and $145.9 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 for the years ended December 31, 2020 and 2019 were $140.6 million and $143.2 million, respectively. These amounts were principally used to fund the purchase of used tractors and trailers, refurbish engines for our revenue fleet, acquire containers and improve our technology infrastructure.

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

The Company determines if a contractual agreement is a lease or contains a lease at inception. We lease 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. We determine 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. We have an immaterial amount of finance leases that are included in property and equipment, other current liabilities, and other long-term liabilities on our consolidated balance sheet.

ROU assets represent our 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 our 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. We have 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.

Our 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. 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.

Our 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.

Beginning January 1, 2019, the Company adopted ASU 2016-02, Leases using a modified retrospective approach. The adoption of this standard impacted our consolidated balance sheet through the recognition of $378.8 million in ROU assets and liabilities as of January 1, 2019. Lease deposits in the amount of $25.4 million were reclassified from “Other assets” to a reduction of “Operating lease liabilities” per the consolidated balance sheet upon adoption of the standard.

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 validity of deferred tax assets and loss and tax credit carryforwards and provides valuation allowances when it determines it is more likely than not that such assets, 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 taxes associated with such earnings are not material.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The standard amends Accounting Standards Codification 715 to modify the disclosure requirements for employers that sponsor defined benefit pension and other post-retirement plans. The new standard became effective for the Company with our annual period ended December 31, 2020. ASU 2018-14 was required to be applied on a retrospective basis to all periods presented. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements, but it resulted in revised disclosures related to our defined benefit plans.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. ASU 2019-12 also removes certain exceptions to the general principles in Topic 740 including elimination of an exception to the general intraperiod tax allocation principle, and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for public companies for annual periods beginning after December 15, 2020, including interim periods within those fiscal years. Adoption of this guidance will be prospectively applied and the impact on the Company’s consolidated financial statements and notes to the consolidated financial statements will depend upon facts and circumstances not currently known or able to be reasonably anticipated, including tax matters that may require the application of the intraperiod tax allocation rules. Refer to Note 8 for additional details. Application of the exception to the intraperiod tax allocation rules was a factor in 2020 and certain previous years. Beginning in 2021, it will no longer be a relevant factor.

While there are additional recently issued accounting standards that are applicable to the Company, none of these standards are expected to have a material impact on our consolidated financial statements and accompanying notes.