NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YRC Worldwide Inc. and Subsidiaries
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 interest in a Chinese joint venture 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 reporting segments include the following:
|
|
•
|
YRC Freight is the reporting segment for our transportation service providers focused on business opportunities in national, regional and international markets. 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 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.
|
In
2011
we reported a Truckload reporting segment, which consisted of USF Glen Moore, Inc. ("Glen Moore"), a former domestic truckload carrier. On December 15, 2011, we sold the majority of Glen Moore's assets to a third party and concluded its operations.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of YRC Worldwide and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We report on a calendar year basis. The quarters of the Regional Transportation companies (with the exception of New Penn) consist of thirteen weeks that end on a Saturday either before or after the end of March, June and September, whereas all other operating segment quarters end on the natural calendar quarter end. Our investment in the non-majority owned affiliate 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 is accounted for on the equity method. Other comprehensive loss attributable to our noncontrolling interest was not significant for any period presented. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates.
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.
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 are reported as a component of operating cash flows for accounts payable as they do not represent bank overdrafts.
Concentration of Credit Risks and Other
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, 2013
, approximately
78%
of our labor force is subject to collective bargaining agreements. As part of the 2014 Financing Transactions (which is described more fully in the "2014 Financing Transaction" footnote to our consolidated financial statements), the primary labor agreement was modified to, among other things, extend the expiration date of our previous agreement from March 31, 2015 to March 31, 2019. This extension also extended the contribution rates under our multi-employer pension plan. The modification provided for lump sum payments in lieu of wage increases in 2014 and 2015, but provided for wage increases in 2016 through 2019. We will amortize these lump sum payments over the period in which the wages will not be increased beginning on April 1, 2014. Finally, the modification provided for certain changes to work rules and our use of purchased transportation in certain situations.
Revenue Recognition
For shipments in transit, we record revenue based on the percentage of service completed as of the period end and accrue 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. Standard transit days are defined as our published service days between origin zip code and destination zip code. Based on historical cost and engineering studies, certain percentages of revenue are determined to be earned during each stage of the shipment cycle, such as initial pick up, long distance transportation, intermediate transfer and customer delivery. Using standard transit times, we analyze each shipment in transit at a particular period end to determine what stage the shipment is in. We apply that stage's percentage of revenue earned factor to the rated revenue for that shipment to determine the revenue dollars earned by that shipment in the current period. The total revenue earned is accumulated for all shipments in transit at a particular period end and recorded as operating revenue.
In addition, we recognize revenue on a gross basis because we are the primary obligors even when we use other transportation service providers who act on our behalf. We remain responsible to our customers for complete and proper shipment, including the risk of physical loss or damage of the goods and cargo claims issues. We assign pricing to bills of lading at the time of shipment based primarily on the weight, general classification of the product, the shipping destination and individual customer discounts. This process is referred to as rating. At various points throughout our process, incorrect ratings could be identified based on many factors, including weight verifications or updated customer discounts. Although the majority of rerating occurs in the same month as the original rating, a portion occurs during the following periods. We accrue a reserve for rerating based on historical trends.
At December 31, 2013 and 2012
, our financial statements included a rerate reserve as a reduction to “Accounts Receivable” of
$9.6
million and
$11.9
million, respectively.
Uncollectible Accounts
We record an allowance for doubtful accounts primarily based on historical uncollectible amounts. We also take into account known factors surrounding specific customers and overall collection trends. Our process involves performing ongoing credit evaluations of customers, including the market in which they operate and the overall economic conditions. We continually review historical trends and make adjustments to the allowance for doubtful accounts as appropriate. Our allowance for doubtful accounts totaled
$9.3 million
and
$9.8 million
as of
December 31, 2013
and
2012
, respectively.
Foreign Currency
Our functional currency is the U.S. dollar, whereas, our foreign operations utilize the local currency as their functional currency. Accordingly, for purposes of translating foreign subsidiary financial statements to the U.S. dollar reporting currency, assets and liabilities of our foreign operations are translated at the fiscal year end exchange rates and income and expenses are translated monthly, at the average exchange rates for each respective month, with changes recognized in other comprehensive loss. Foreign currency gains and losses resulting from foreign currency transactions resulted in a
$3.7
million net gain,
$2.0
million net gain and a
$5.2
million net gain during
2013
,
2012
and
2011
, respectively, and are included in “Other nonoperating (income) expense” in the accompanying statements of consolidated operations.
Claims and Insurance Accruals
Claims and insurance accruals, both current and long-term, reflect the estimated settlement cost of claims for workers' compensation, cargo loss and damage, and property damage and liability that insurance does not cover. We establish and modify reserve estimates for workers' compensation and property damage and liability claims primarily 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%
,
0.4%
and
0.8%
for workers' compensation claims incurred as of
December 31, 2013
,
2012
and
2011
, respectively. The rate was
0.3%
,
0.3%
and
0.5%
for property damage and liability claims incurred as of
December 31, 2013
,
2012
and
2011
, 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.
As of December 31, 2013 and 2012
, we had
$400.4
million and
$437.3
million, respectively, accrued for claims and insurance.
Expected aggregate undiscounted amounts and material changes to these amounts as of
December 31
are presented below:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Workers'
Compensation
|
Property Damage and Liability Claims
|
Total
|
Undiscounted amount at December 31, 2011
|
$
|
449.6
|
|
$
|
79.9
|
|
$
|
529.5
|
|
Estimated settlement cost for 2012 claims
|
100.4
|
|
27.4
|
|
127.8
|
|
Claim payments, net of recoveries
|
(140.9
|
)
|
(43.7
|
)
|
(184.6
|
)
|
Change in estimated settlement cost for older claim years
|
(19.0
|
)
|
1.5
|
|
(17.5
|
)
|
Undiscounted amount at December 31, 2012
|
$
|
390.1
|
|
$
|
65.1
|
|
$
|
455.2
|
|
Estimated settlement cost for 2013 claims
|
89.2
|
|
36.7
|
|
125.9
|
|
Claim payments, net of recoveries
|
(115.6
|
)
|
(24.3
|
)
|
(139.9
|
)
|
Change in estimated settlement cost for older claim years
|
(16.7
|
)
|
(8.7
|
)
|
(25.4
|
)
|
Undiscounted settlement cost estimate at December 31, 2013
|
$
|
347.0
|
|
$
|
68.8
|
|
$
|
415.8
|
|
Discounted settlement cost estimate at December 31, 2013
|
$
|
316.6
|
|
$
|
68.2
|
|
$
|
384.8
|
|
In addition to the amounts above, settlement cost amounts for cargo claims and other insurance related amounts, none of which are discounted, totaled
$15.6
million and
$21.0
million
at December 31, 2013 and 2012
, respectively.
Estimated cash payments to settle claims which were incurred on or before
December 31, 2013
, for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Workers'
Compensation
|
Property Damage and Liability Claims
|
Total
|
2014
|
$
|
84.3
|
|
$
|
23.2
|
|
$
|
107.5
|
|
2015
|
59.0
|
|
18.6
|
|
77.6
|
|
2016
|
41.5
|
|
13.7
|
|
55.2
|
|
2017
|
30.2
|
|
6.9
|
|
37.1
|
|
2018
|
22.8
|
|
3.9
|
|
26.7
|
|
Thereafter
|
109.2
|
|
2.5
|
|
111.7
|
|
Total
|
$
|
347.0
|
|
$
|
68.8
|
|
$
|
415.8
|
|
Stock Compensation Plans
We have various stock-based employee compensation plans, which are described more fully in the "Stock Compensation Plans" footnote to our consolidated financial statements. We recognize compensation costs for non-vested shares and compensation cost for all share-based payments (
i.e.,
options) based on the grant date fair value. Additionally, we recognize compensation cost for all share-based payments granted on a straight-line basis over the requisite service period (generally three to four years) based on the grant-date fair value.
Property and Equipment
The following is a summary of the components of our property and equipment at cost as of
December 31
:
|
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
|
2012
|
Land
|
$
|
267.8
|
|
|
$
|
269.6
|
|
Structures
|
810.4
|
|
|
825.8
|
|
Revenue equipment
|
1,438.3
|
|
|
1,442.8
|
|
Technology equipment and software
|
133.9
|
|
|
127.0
|
|
Other
|
193.8
|
|
|
203.8
|
|
Total cost
|
$
|
2,844.2
|
|
|
$
|
2,869.0
|
|
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
|
We charge maintenance and repairs to expense as incurred and betterments are capitalized. Leasehold improvements are capitalized and amortized over the remaining lease term.
Our investment in technology equipment and software consists primarily of customer service and freight management equipment and related software.
For the
years ended December 31, 2013, 2012 and 2011
, depreciation expense was
$153.8
million,
$165.2
million, and
$173.8
million, respectively.
The cost of replacement tires are expensed at the time those tires are placed into service, as is the case with other repair 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.
Impairment of Long-Lived Assets
If facts and circumstances indicate that the carrying amount of held-and-used identifiable amortizable intangibles and property, plant and equipment may be impaired, we perform an evaluation of recoverability in accordance with FASB ASC Topic 360. Our evaluation compares the estimated future undiscounted cash flows associated with the asset or asset group to its carrying amount to determine if a reduction to the carrying amount is required. The carrying amount of an impaired asset would be reduced to fair value if the estimated undiscounted cash flows are insufficient to recover the carrying value of the asset group. We performed impairment reviews for held-and-used long-lived assets during the
years ended December 31, 2013, 2012 and 2011
in connection with an update of our internal business forecasts that considered current economic conditions and results of operations.
Impairment of Equity Method Investments
During the year ended December 31, 2012, we determined that the estimated fair value of JHJ International Transportation Company, Ltd ("JHJ"), a
50%
owned equity investment, did not exceed its carrying amount and resulted in an impairment charge of
$30.8 million
. This determination was based upon market information we obtained in the fourth quarter of 2012 (a Level 3 fair value measurement). This impairment charge was recorded in equity investment impairment in the "Corporate and Other" segment in the accompanying statements of consolidated operations.
During the year ended December 31, 2011, we determined the estimated fair value of Jiayu, a
65%
owned equity investment at the time, did not exceed its carrying amount and resulted in an impairment charge of
$1.3 million
on the property, plant and equipment, primarily based on the used revenue equipment market in China (a Level 3 fair value measurement), and
$2.7 million
on the intangibles. These impairment charges were recorded in depreciation and amortization in the "Corporate and Other" segment in the accompanying statements of consolidated operations for the year ended December 31, 2011.
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 3 inputs to determine the fair value of each property that is considered as held for sale.
At
December 31, 2013
and
December 31, 2012
, the net book value of assets held for sale was approximately
$17.2 million
and
$7.3 million
, respectively. This amount is included in “Property and Equipment” in the accompanying consolidated balance sheets. We recorded charges of
$3.9 million
,
$13.2 million
and
$17.9 million
for the
years ended December 31, 2013, 2012 and 2011
, respectively, to reduce properties held for sale to estimated fair value, less cost to sell. These charges are included in “Gains on property disposals, net” in the accompanying statements of consolidated operations.
Earnings from Equity Method Investments
We account for the ownership of our joint venture under the equity method and accordingly, recognize our share of the respective joint ventures earnings in “Other nonoperating (income) expense” in the accompanying statements of operations.
The following reflects the components of these results for the years ended
December 31
:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
2012
|
2011
|
Our share of joint venture earnings
|
$
|
(2.1
|
)
|
$
|
(1.9
|
)
|
$
|
(2.7
|
)
|
Impairment charge
|
—
|
|
30.8
|
|
—
|
|
Net equity method (earnings) losses
|
$
|
(2.1
|
)
|
$
|
28.9
|
|
$
|
(2.7
|
)
|
Fair Value of Financial Instruments
We determined fair value measurements used in our consolidated financial statements based upon 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 fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
•
|
Level 1:
Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
|
|
|
•
|
Level 2:
Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
|
|
|
•
|
Level 3:
Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The asset's or liability's fair value measurement level with the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. We believe that our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial assets could result
in a different fair value measurement at the reporting date. There have been no changes in the methodologies used
at December 31, 2013 and 2012
.
The following tables summarize the fair value hierarchy of our financial assets held at fair value on a recurring basis, which consists of our restricted cash held in escrow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2013
|
(in millions)
|
Total Carrying
Value
|
|
Quoted prices
in active market
(Level 1)
|
|
Significant
other
observable
inputs (Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Restricted amounts held in escrow-current
|
$
|
90.1
|
|
|
$
|
90.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted amounts held in escrow-long term
|
0.6
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
90.7
|
|
|
$
|
90.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2012
|
(in millions)
|
Total Carrying
Value
|
|
Quoted prices
in active market
(Level 1)
|
|
Significant
other
observable
inputs (Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
Restricted amounts held in escrow-current
|
$
|
20.0
|
|
|
$
|
20.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted amounts held in escrow-long term
|
102.5
|
|
|
102.5
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
122.5
|
|
|
$
|
122.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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.
Reclassifications Out of Accumulated Other Comprehensive Loss
For the
years ended December 31, 2013 and 2012
, we reclassified the amortization of our net pension gain (loss) totaling
$9.6 million
and
$9.0 million
, respectively, from accumulated other comprehensive loss to net loss. This reclassification is a component of net periodic pension cost and is discussed in the "Employee Benefits" footnote.
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 managing the 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’ reporting 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 transaction closed during the fourth 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 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
and wrote off a
$12.0 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 during 2012. Additionally, the noncontrolling interest was allocated a
$4.2 million
gain on this transaction.
4. Intangibles
Definite Life Intangibles
The components of amortizable intangible assets are as follows at
December 31
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Weighted
|
Gross
|
|
|
Gross
|
|
|
Average
|
Carrying
|
Accumulated
|
|
Carrying
|
Accumulated
|
(in millions)
|
Life (years)
|
Amount
|
Amortization
|
|
Amount
|
Amortization
|
Customer related
|
12
|
$
|
197.9
|
|
$
|
(147.4
|
)
|
|
$
|
198.2
|
|
$
|
(129.1
|
)
|
Marketing related
|
0
|
2.4
|
|
(2.4
|
)
|
|
2.4
|
|
(2.4
|
)
|
Technology based
|
0
|
24.2
|
|
(24.2
|
)
|
|
24.2
|
|
(24.2
|
)
|
Intangible assets
|
|
$
|
224.5
|
|
$
|
(174.0
|
)
|
|
$
|
224.8
|
|
$
|
(155.7
|
)
|
Amortization expense for intangible assets recognized on a straight line basis was
$18.5 million
,
$18.6 million
and
$21.9 million
for the
years ended December 31, 2013, 2012 and 2011
, respectively. Estimated amortization expense for the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2014
|
2015
|
2016
|
2017
|
2018
|
Estimated amortization expense
|
$
|
18.6
|
|
$
|
18.3
|
|
$
|
13.6
|
|
$
|
—
|
|
$
|
—
|
|
Indefinite Life Intangibles
The following table shows the changes in the carrying amount of our indefinite lived tradenames attributable to each applicable segment:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
YRC Freight
|
Regional Transportation
|
Total
|
Balances at December 31, 2010
|
$
|
11.4
|
|
$
|
18.7
|
|
$
|
30.1
|
|
Change in foreign currency exchange rates
|
(0.2
|
)
|
—
|
|
(0.2
|
)
|
Balances at December 31, 2011
|
11.2
|
|
18.7
|
|
29.9
|
|
Change in foreign currency exchange rates
|
0.2
|
|
—
|
|
0.2
|
|
Balances at December 31, 2012
|
11.4
|
|
18.7
|
|
30.1
|
|
Change in foreign currency exchange rates
|
(0.8
|
)
|
—
|
|
(0.8
|
)
|
Balances at December 31, 2013
|
$
|
10.6
|
|
$
|
18.7
|
|
$
|
29.3
|
|
Intangible assets with indefinite lives, which consist of our tradenames, are not subject to amortization, but are subjected to an impairment test at least annually and as triggering events may occur. The impairment test for tradenames consists of a comparison of the fair value of the tradename with its carrying amount. An impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset. In making this assessment, we utilized the relief from royalty method, an income approach (a level 3 fair value measurement), which includes assumptions as to future revenue, applicable royalty rate and cost of capital, among others.
5. Network Optimization
In the second quarter of 2013, our YRC Freight reporting segment implemented its plan to optimize its freight network. This optimization reduced the number of handling and relay locations. Costs associated with this plan, which consist of employee separation costs and contract termination, asset impairments and other costs, are recorded at either their contractual amounts or their fair value. During the year ended December 31, 2013, we recorded
$7.8 million
related to these costs in the YRC Freight reporting segment.
Charges for the network optimization are included in "Salaries, wages and employees' benefits" as it relates to employee separation costs and "Operating expenses and supplies" as is relates to contract termination and other costs in the accompanying statements of consolidated operations. In addition to the charges detailed below, we have recorded impairment charges on facilities that are part of the network optimization totaling
$1.5 million
during the year ended December 31, 2013. These charges are included in "(Gains) losses on property disposals, net" in the accompanying statements of consolidated operations.
A rollforward of our restructuring accrual (which includes both our 2013 Network Optimization and our 2010 restructuring) is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Employee
Separation
|
Contract Termination and Other Costs
|
Total
|
Balance at December 31, 2010
|
$
|
2.6
|
|
$
|
10.9
|
|
$
|
13.5
|
|
Payments
|
(2.6
|
)
|
(6.5
|
)
|
(9.1
|
)
|
Balance at December 31, 2011
|
$
|
—
|
|
$
|
4.4
|
|
$
|
4.4
|
|
Payments
|
—
|
|
(3.9
|
)
|
(3.9
|
)
|
Balance at December 31, 2012
|
$
|
—
|
|
$
|
0.5
|
|
$
|
0.5
|
|
Network optimization charges
|
1.3
|
|
5.0
|
|
6.3
|
|
Payments
|
(1.1
|
)
|
(4.9
|
)
|
(6.0
|
)
|
Balance at December 31, 2013
|
$
|
0.2
|
|
$
|
0.6
|
|
$
|
0.8
|
|
6. Other Assets
The primary components of other assets at
December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2013
|
|
2012
|
Equity method investment for JHJ International Transportation Co., Ltd.
|
|
$
|
23.4
|
|
|
$
|
22.3
|
|
Deferred debt costs
|
|
18.5
|
|
|
14.5
|
|
Other
|
|
36.6
|
|
|
21.5
|
|
Total
|
|
$
|
78.5
|
|
|
$
|
58.3
|
|
During the
years ended December 31, 2013 and 2012
, we received dividends in the amount of
$1.8 million
and
$2.4 million
, respectively, from our China joint venture, JHJ International Transportation Co., Ltd. (“JHJ”).
As of December 31, 2013 and 2012
, the excess of our investment over our interest in JHJ's equity is
$4.8 million
and
$4.6 million
, respectively.
7. Employee Benefits
Qualified and Nonqualified Defined Benefit Pension Plans
With the exception of Regional Transportation, YRC Reimer and certain of our other foreign subsidiaries, YRC Worldwide and its operating subsidiaries sponsor qualified and nonqualified defined benefit pension plans for certain employees not covered by collective bargaining agreements (approximately
14,000
current, former and retired employees). Qualified and nonqualified pension benefits are based on years of service and the employees' covered earnings. Employees covered by collective bargaining agreements participate in various multi-employer pension plans to which YRC Worldwide contributes, as discussed below. Regional Transportation does not offer a defined benefit pension plan and instead offers retirement benefits through either contributory 401(k) savings plans or profit sharing plans, as discussed below. The existing YRC Worldwide defined benefit pension plans closed to new participants effective January 1, 2004 and the benefit accrual for active employees was frozen effective July 1, 2008. Our actuarial valuation measurement date for our pension plans is December 31.
Funded Status
The reconciliation of the beginning and ending balances of the projected benefit obligation and the fair value of plan assets for the
years ended December 31, 2013 and 2012
, and the funded status
at December 31, 2013 and 2012
, is as follows:
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
2012
|
Change in benefit obligation:
|
|
|
Benefit obligation at beginning of year
|
$
|
1,345.7
|
|
$
|
1,166.2
|
|
Service cost
|
4.3
|
|
3.9
|
|
Interest cost
|
56.2
|
|
59.3
|
|
Benefits paid
|
(76.5
|
)
|
(63.1
|
)
|
Actuarial (gain) loss
|
(131.6
|
)
|
192.1
|
|
Expenses paid from assets
|
(9.6
|
)
|
(12.7
|
)
|
Other
|
0.3
|
|
—
|
|
Benefit obligation at year end
|
$
|
1,188.8
|
|
$
|
1,345.7
|
|
Change in plan assets:
|
|
|
Fair value of plan assets at prior year end
|
$
|
799.4
|
|
$
|
727.7
|
|
Actual return on plan assets
|
31.9
|
|
72.2
|
|
Employer contributions
|
62.9
|
|
75.3
|
|
Benefits paid
|
(76.5
|
)
|
(63.1
|
)
|
Expenses paid from assets
|
(9.6
|
)
|
(12.7
|
)
|
Other
|
0.3
|
|
—
|
|
Fair value of plan assets at year end
|
$
|
808.4
|
|
$
|
799.4
|
|
Funded status at year end
|
$
|
(380.4
|
)
|
$
|
(546.3
|
)
|
The underfunded status of the plans of
$380.4 million
and
$546.3 million
at December 31, 2013 and 2012
, respectively, is recognized in the accompanying consolidated balance sheets as shown in the table below. No plan assets are expected to be returned to the Company during the year ending December 31,
2014
.
Benefit Plan Obligations
Amounts recognized in the consolidated balance sheets for pension benefits at
December 31
are as follows:
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
2012
|
Noncurrent assets
|
$
|
1.7
|
|
$
|
—
|
|
Current liabilities
|
0.6
|
|
0.6
|
|
Noncurrent liabilities
|
381.5
|
|
545.7
|
|
Amounts recognized in accumulated other comprehensive loss at December 31 consist of:
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
2012
|
Net actuarial loss
|
$
|
389.2
|
|
$
|
511.8
|
|
As shown above, included in accumulated other comprehensive loss at
December 31, 2013
, are unrecognized actuarial losses of
$389.2 million
(
$338.4 million
, net of tax). The actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic cost during the year ending December 31,
2014
, is
$12.6 million
.
The total accumulated benefit obligation for all plans was
$1,188.8 million
and
$1,345.7 million
at December 31, 2013 and 2012
, respectively.
As of
December 31, 2012
, all of our pension plans accumulated benefit obligation (“ABO”) equal projected benefit obligation and exceed their plan assets. Information for pension plans with an ABO in excess of plan assets at
December 31, 2013
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
ABO Exceeds Assets
|
Assets Exceed ABO
|
Total
|
Projected benefit obligation
|
|
$
|
1,182.1
|
|
$
|
5.3
|
|
$
|
1,187.4
|
|
Accumulated benefit obligation
|
|
1,182.1
|
|
6.7
|
|
1,188.8
|
|
Fair value of plan assets
|
|
799.9
|
|
8.5
|
|
808.4
|
|
Assumptions
Weighted average actuarial assumptions used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
2013
|
2012
|
Discount rate
|
5.23
|
%
|
4.28
|
%
|
Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:
|
|
|
|
|
|
|
|
|
2013
|
2012
|
2011
|
Discount rate
|
4.28
|
%
|
5.23
|
%
|
5.79
|
%
|
Expected rate of return on assets
|
7.0
|
%
|
7.0
|
%
|
7.0
|
%
|
Mortality table
|
RP-2000
Projected to 2013
|
|
RP-2000
Projected to 2012
|
|
RP-2000 Projected to 2011
|
|
The discount rate refers to the interest rate used to discount the estimated future benefit payments to their present value, also referred to as the benefit obligation. The discount rate allows us to estimate what it would cost to settle the pension obligations as of the measurement date,
December 31
, and is used as the interest rate factor in the following year's pension cost. We determine the discount rate by selecting a portfolio of high quality noncallable bonds such that the coupons and maturities exceed our expected benefit payments.
In determining the expected rate of return on assets, we consider our historical experience in the plans' investment portfolio, historical market data and long-term historical relationships as well as a review of other objective indices including current market factors such as inflation and interest rates. Although plan investments are subject to short-term market volatility, we believe they are well diversified and closely managed. Our asset allocation as of
December 31, 2013
, consisted of
35%
equities,
34%
in debt securities and
31%
in absolute return investments and as of
December 31, 2012
consisted of
27%
equities,
50%
in debt securities and
23%
in absolute return investments. The
2013
allocations are consistent with the targeted long-term asset allocation for the plans which is
33%
equities,
35%
debt securities and
32%
absolute return investments. Based on various market factors, we selected an expected rate of return on assets of
7.0%
effective for the
2013
and 2012 valuations. We will continue to review our expected long-term rate of return on an annual basis and revise appropriately. The pension trust holds no YRC Worldwide securities.
Future Contributions and Benefit Payments
We expect to contribute approximately
$79.9 million
to our single employer pension plans in 2014.
Expected benefit payments from our qualified and non-qualified defined benefit pension plans for each of the next five years and the total payments for the following five years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019-2023
|
|
Expected benefit payments
|
$
|
70.5
|
|
$
|
71.7
|
|
$
|
71.7
|
|
$
|
72.0
|
|
$
|
74.0
|
|
$
|
384.6
|
|
Pension and Other Post-retirement Costs
The components of our net periodic pension cost, other post-retirement costs and other amounts recognized in other comprehensive loss for the years ended December 31,
2013
,
2012
and
2011
were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
2012
|
2011
|
Net periodic benefit cost:
|
|
|
|
Service cost
|
$
|
4.3
|
|
$
|
3.9
|
|
$
|
3.6
|
|
Interest cost
|
56.2
|
|
59.3
|
|
61.2
|
|
Expected return on plan assets
|
(55.6
|
)
|
(51.1
|
)
|
(43.0
|
)
|
Amortization of prior net loss
|
14.8
|
|
9.0
|
|
9.6
|
|
Net periodic pension cost
|
$
|
19.7
|
|
$
|
21.1
|
|
$
|
31.4
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive loss:
|
|
|
|
Net actuarial loss (gain) and other adjustments
|
$
|
(107.7
|
)
|
$
|
170.4
|
|
$
|
3.6
|
|
Less amortization of prior losses
|
(14.8
|
)
|
(9.0
|
)
|
(9.6
|
)
|
Total recognized in other comprehensive loss (income)
|
(122.5
|
)
|
161.4
|
|
(6.0
|
)
|
Total recognized in net periodic benefit cost and other comprehensive (income) loss
|
$
|
(102.8
|
)
|
$
|
182.5
|
|
$
|
25.4
|
|
During the year ended December 31, 2013 and 2012, the income tax provision (benefit) related to amounts in other comprehensive income was
$42.7 million
and
$(1.3) million
. There was
no
corresponding amount in 2011.
Fair Value Measurement
Our pension assets are stated at fair value. Fair value is 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 majority of our assets are invested in Level 2 assets of fixed income funds and absolute return investments. These funds are valued at quoted redemption values that represent the net asset values of units held at year-end which we have determined approximates fair value.
Investments in private equities and absolute return funds do not have readily available market values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material. Investments in hedge funds that do not have an established market are valued at net asset values as determined by the investment managers, which we have determined approximates fair value.
The table below details by level, within the fair value hierarchy, the pension assets at fair value as of
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Assets at Fair Value as of December 31, 2013
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Equities
|
$
|
113.3
|
|
$
|
106.4
|
|
$
|
—
|
|
$
|
219.7
|
|
Private equities
|
—
|
|
—
|
|
60.3
|
|
60.3
|
|
Fixed income:
|
|
|
|
|
Corporate
|
4.3
|
|
106.5
|
|
38.6
|
|
149.4
|
|
Government
|
98.0
|
|
102.8
|
|
—
|
|
200.8
|
|
Other
|
10.1
|
|
—
|
|
—
|
|
10.1
|
|
Absolute return
|
6.2
|
|
138.6
|
|
—
|
|
144.8
|
|
Interest bearing
|
23.3
|
|
—
|
|
—
|
|
23.3
|
|
Total investments
|
$
|
255.2
|
|
$
|
454.3
|
|
$
|
98.9
|
|
$
|
808.4
|
|
Other assets, net
|
|
|
|
—
|
|
Total plan assets
|
$
|
255.2
|
|
$
|
454.3
|
|
$
|
98.9
|
|
$
|
808.4
|
|
The table below details by level, within the fair value hierarchy, the pension assets at fair value as of
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Assets at Fair Value as of December 31, 2012
|
(in millions)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Equities
|
$
|
79.9
|
|
$
|
92.5
|
|
—
|
|
$
|
172.4
|
|
Private equities
|
—
|
|
—
|
|
38.8
|
|
38.8
|
|
Fixed income:
|
|
|
|
|
Corporate
|
15.3
|
|
89.9
|
|
35.5
|
|
140.7
|
|
Government
|
109.1
|
|
145.2
|
|
—
|
|
254.3
|
|
Absolute return
|
0.6
|
|
157.1
|
|
—
|
|
157.7
|
|
Interest bearing
|
34.0
|
|
—
|
|
—
|
|
34.0
|
|
Total investments
|
$
|
238.9
|
|
$
|
484.7
|
|
$
|
74.3
|
|
$
|
797.9
|
|
Other assets, net
|
|
|
|
1.5
|
|
Total plan assets
|
$
|
238.9
|
|
$
|
484.7
|
|
$
|
74.3
|
|
$
|
799.4
|
|
The table below presents the activity of our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Private
Equities
|
Fixed income
|
Total Level 3
|
Balance at December 31, 2011
|
$
|
29.0
|
|
$
|
14.6
|
|
$
|
43.6
|
|
Purchases
|
8.4
|
|
25.6
|
|
34.0
|
|
Sales
|
(2.0
|
)
|
(5.2
|
)
|
(7.2
|
)
|
Unrealized gain (loss)
|
3.4
|
|
0.5
|
|
3.9
|
|
Balance at December 31, 2012
|
$
|
38.8
|
|
$
|
35.5
|
|
$
|
74.3
|
|
Purchases
|
6.4
|
|
9.6
|
|
16.0
|
|
Sales
|
(6.4
|
)
|
(5.3
|
)
|
(11.7
|
)
|
Unrealized gain (loss)
|
21.5
|
|
(1.2
|
)
|
20.3
|
|
Balance at December 31, 2013
|
$
|
60.3
|
|
$
|
38.6
|
|
$
|
98.9
|
|
The following table sets forth a summary of the Level 3 assets for which the fair value is not readily determinable but a reported NAV is used to estimate the fair value as of
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
Fair value estimated using Net Asset Value per Share
|
(in millions)
|
Fair Value
|
Unfunded Commitments
|
Redemption Frequency
|
Redemption Notice Period
|
Private equities
(a)
|
$
|
60.3
|
|
$
|
18.0
|
|
Redemptions not permitted
|
Fixed income
(b)
|
38.6
|
|
16.0
|
|
Redemptions not permitted
|
Total
|
$
|
98.9
|
|
|
|
|
|
|
(a)
|
Consists of
five
private equity funds investing in renewable solar energy, acquisition of pharmaceutical company interests, Chinese technology and healthcare companies.
|
|
|
(b)
|
Consists of
three
fixed income funds which invest in debt securities secured by royalty payments from marketers of pharmaceutical products.
|
The following table sets forth a summary of the Level 3 assets for which the fair value is not readily determinable but a reported NAV is used to estimate the fair value as of
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
Fair value estimated using Net Asset Value per Share
|
(in millions)
|
Fair Value
|
Unfunded Commitments
|
Redemption Frequency
|
Redemption Notice Period
|
Private equities
(a)
|
$
|
38.8
|
|
$
|
14.2
|
|
Redemptions not permitted
|
Fixed income
(b)
|
35.5
|
|
3.0
|
|
Varies (c)
|
Total
|
$
|
74.3
|
|
|
|
|
|
|
(a)
|
Consists of
four
private equity funds investing in renewable solar energy, acquisition of pharmaceutical company interests and Chinese technology and healthcare companies.
|
|
|
(b)
|
Consists of
three
fixed income funds,
two
of which invest in debt securities secured by royalty payments from top-tier marketers of pharmaceutical products, and
one
which invests in Indian mezzanine debt.
|
|
|
(c)
|
Redemptions are not permitted for
two
of the Level 3 fixed income funds. The third fund has redemption terms of quarterly after the second anniversary and a 90 day redemption notice period.
|
The assets presented in the
December 31, 2013
and
2012
fair value hierarchy tables classified as Level 1 and Level 2, which fair value is estimated using NAV per share, have redemption frequencies ranging from daily to annually, have redemption notice periods from approximately
1
day to
90
days and have no unfunded commitments. These assets consist of equity, fixed income, and absolute return funds. Generally, the investment strategies of the fixed income and equity funds is based on fundamental and quantitative analysis and consists of long and hedged strategies. The general strategy of the absolute return funds consists of alternative investment techniques, including derivative instruments and other unconventional assets, to achieve a stated return rate.
Multi-Employer Pension Plans
YRC Freight, New Penn, Holland and Reddaway contribute to various separate multi-employer health, welfare and pension plans for employees that are covered by our collective bargaining agreements (approximately
78%
of total YRC Worldwide employees). The collective bargaining agreements determine the amounts of these contributions. The health and welfare plans provide medical related benefits to active employees and retirees. The pension plans provide defined benefits to retired participants. We recognize as net pension cost within 'salaries, wages and employee benefits' the contractually required contributions for the period and recognize as a liability any contributions due and unpaid at period end. We do not directly manage multi-employer plans. The trusts covering these plans are generally managed by trustees, half of whom the unions appoint and half of whom various contributing employers appoint.
We expensed the following amounts related to these plans for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
2012
|
2011
|
Health and welfare
|
$
|
399.5
|
|
$
|
387.5
|
|
$
|
378.2
|
|
Pension
|
89.1
|
|
85.6
|
|
48.7
|
|
Total
|
$
|
488.6
|
|
$
|
473.1
|
|
$
|
426.9
|
|
Pension
Through the third quarter of 2009, we deferred payment of certain of our contributions to multi-employer pension funds. These deferred payments have been recognized as an operating expense and the liability was recorded as deferred contribution obligations. Beginning in the third quarter of 2009 through May 2011, most of our collective bargaining agreements provided for a temporary cessation of pension contributions so no expense or liability was required to be recognized for that period. In accordance with modifications to our collective bargaining agreements, we agreed to resume making pension contributions effective June 1, 2011 at
25.0%
of the contribution rate in effect as of July 1, 2009.
The following table provides additional information related to our participation in individually significant multi-employer pension plans for the year ended
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
Pension Protection Zone Status
(b)
|
Funding Improvement or
Rehabilitation Plan
|
Employer Surcharge Imposed
|
Expiration Date of Collective-Bargaining Agreement
|
Pension Fund
(a)
|
EIN Number
|
2013
|
2012
|
Central States, Southwest and Southwest Areas Pension Fund
|
36-6044243
|
Red
|
Red
|
Yes
|
No
|
3/31/2019
|
Teamsters National 401K Savings Plan
(c)
|
52-1967784
|
N/A
|
N/A
|
N/A
|
No
|
3/31/2019
|
I.B. of T. Union Local No 710 Pension Fund
|
36-2377656
|
Green
|
Green
|
No
|
No
|
3/31/2019
|
Central Pennsylvania Teamsters Defined Benefit Plan
|
23-6262789
|
Yellow
|
Green
|
Yes
|
No
|
3/31/2019
|
Road Carriers Local 707 Pension Fund
|
51-6106510
|
Not Available
|
Red
|
Yes
|
No
|
3/31/2019
|
Teamsters Local 641 Pension Fund
|
22-6220288
|
Red
|
Red
|
Yes
|
No
|
3/31/2019
|
(a)
The determination of individually significant multi-employer plans is based on the relative contributions to the plans over the periods presented as well as other factors.
(b)
The Pension Protection Zone Status is based on information that the Company obtained from the plans' Forms 5500. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available for 2013 and 2012 is for the plan's year-end during calendar years 2012 and 2011, respectively. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded.
(c)
The policies of the Western Conference of Teamsters Pension Trust precluded the Company from reentering the plan on June 1, 2011. The plan did not assess a withdrawal liability and has not done so since June 1, 2011. Contributions related to the employees previously covered by this plan are now being made to the Teamsters National 401(k) Plan.
YRC Worldwide was listed in the Central States, Southwest and Southwest Areas Pension Plan, Road Carriers Local 707 Pension Fund and Teamsters Local 641 Pension Fund's Forms 5500 as providing more than 5 percent of the total contributions for 2012 and 2011.
We contributed a total of
$88.7 million
,
$84.9 million
and
$45.6 million
to the multi-employer pension funds for the
years ended December 31, 2013, 2012 and 2011
. The following table provides the pension amounts contributed by fund for those funds that are considered to be individually significant:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2013
|
2012
|
2011
|
Central States, Southeast and Southwest Areas Pension Plan
|
$
|
52.1
|
|
$
|
51.9
|
|
$
|
27.6
|
|
Teamsters National 401K Savings Plan
|
11.2
|
|
11.0
|
|
5.8
|
|
I.B. of T. Union Local No 710 Pension Fund
|
4.4
|
|
4.1
|
|
2.2
|
|
Central Pennsylvania Teamsters Defined Benefit Plan
|
4.5
|
|
4.5
|
|
2.3
|
|
Road Carriers Local 707 Pension Fund
|
2.3
|
|
2.5
|
|
1.2
|
|
Teamsters Local 641 Pension Fund
|
1.6
|
|
1.6
|
|
0.8
|
|
The comparability of annual contributions for 2011 through 2013 is primarily impacted by the temporary cessation of contributions for the period from the third quarter of 2009 through May 2011.
In 2006, the Pension Protection Act became law and modified both the Internal Revenue Code (as amended, the “Code”) as it applies to multi-employer pension plans and the Employment Retirement Income Security Act of 1974 (as amended, “ERISA”). The Code and ERISA (in each case, as so modified) and related regulations establish minimum funding requirements for multi-employer pension plans.
If any of our multi-employer pension plans fails to meet minimum funding requirements, meet a required funding improvement or rehabilitation plan that the Pension Protection Act may require for certain of our underfunded plans, obtain from the IRS certain changes to or a waiver of the requirements in how the applicable plan calculates its funding levels, or reduce pension benefits to a level where the requirements are met then we could be required to make additional contributions to the pension plan. If any of our multi-employer pension plans enters critical status and our contributions are not sufficient to satisfy any rehabilitation plan schedule, the Pension Protection Act could require us to make additional surcharge contributions to the multi-employer pension
plan in the amount of five to ten percent of the existing contributions required by our labor agreement for the remaining term of the labor agreement.
If we fail to make our required contributions to a multi-employer plan under a funding improvement or rehabilitation plan or if the benchmarks that an applicable funding improvement plan provides are not met by the end of a prescribed period, the IRS could impose an excise tax on us with respect to the plan. Such an excise tax would then be assessed to the plan's contributing employers, including the Company. These excise taxes are not contributed to the deficient funds, but rather are deposited in the United States general treasury funds. The Company does not believe that the temporary cessation of certain of its contributions to applicable multi-employer pension funds beginning in the third quarter of 2009 and continuing through May 2011 will give rise to these excise taxes as the underlying employer contributions were not required for that period.
A requirement to materially increase contributions beyond our contractually agreed rate or the imposition of an excise tax on us could have a material adverse impact on the financial results and liquidity of YRC Worldwide.
401(k) Savings Plans
We sponsor the YRC Worldwide Inc. 401(k) Plan, which is a defined contribution plan primarily for employees that our collective bargaining agreements do not cover. The plan permits participants to make contributions to the plan and permits the employer of participants to make contributions on behalf of the participants. There were no employer contributions in
2013
,
2012
or
2011
. Our employees covered under collective bargaining agreements may also participate in union-sponsored 401(k) plans.
Performance Incentive Awards
YRC Worldwide and its operating subsidiaries each provide annual performance incentive awards and more frequent sales incentive awards to certain non-union employees, which are based primarily on actual operating results achieved compared to targeted operating results or sales targets and are paid in cash. Operating (loss) income in
2013
,
2012
, and
2011
included performance and sales incentive expense for non-union employees of
$14.5 million
,
$12.3 million
, and
$13.9 million
, respectively. We generally pay annual performance incentive awards in the first quarter of the following year and sales performance incentive awards on a monthly basis.
Other
We provide a performance based incentive plan to key management personnel that provides the opportunity annually to earn cash and equity awards to further compensate certain levels of management. The equity awards are more fully described in the "Stock Compensation Plans" footnote to our consolidated financial statements. During the years ended
December 31, 2013
,
2012
and
2011
, compensation expense related to these awards was
$5.8 million
,
$3.8 million
and
$0.6 million
, respectively.
8. 2014 Financing Transactions
On January 31, 2014, we issued
14,333,334
shares of our Common Stock and
583,334
shares of our Convertible Preferred Stock pursuant to certain stock purchase agreements, dated as of December 22, 2013 (the “Stock Purchase Agreements”), for an aggregate
$250.0 million
in cash. We used the proceeds from these transactions to, among other things, (i) deposit with the trustee funds sufficient to repay our
6%
Convertible Senior Notes ("
6%
Notes") at their maturity on February 15, 2014 and (ii) repurchase approximately
$90.9 million
of our Series A Convertible Senior Secured Notes ("Series A Notes"). The Company will redeem the remaining Series A Notes on August 5, 2014. In February 2014, the Company deposited approximately
$89.6 million
with the trustee in order to fund the redemption (including accrued interest), and thereby discharged the indenture governing the Series A Notes.
Also on January 31, 2014, certain holders of our 10% Series B Convertible Senior Secured Notes ("Series B Notes") exchanged their outstanding balances (including the make-whole premium and additional accrued interest through January 15, 2014) at a conversion price of
$15.00
per share, while certain other holders converted their Series B Notes in accordance with their terms. We also amended the indenture governing our Series B Notes to eliminate substantially all of the restrictive covenants, certain events of default and other related provisions contained in the indenture and to release and discharge the liens on the collateral securing the Series B Notes.
Effective January 31, 2014, certain of our subsidiaries, various pension funds party thereto, and Wilmington Trust Company, as agent for such pension funds, entered into the Second Amended and Restated Contribution Deferral Agreement ("Second A&R CDA"), which, among other things (i) amended and restated the Amended and Restated Contribution Deferral Agreement ("A&R
CDA") (which agreement is discussed in our "Debt and Financing footnote"), (ii) released the agent’s security interest in third priority collateral on the Collateral Release Date (as defined therein), (iii) limited the value of obligations secured by the collateral to the Secured Obligations (as defined therein) and (iv) extended the maturity of deferred pension payments and deferred interest from March 31, 2015 to December 31, 2019.
On February 13, 2014, we replaced our existing credit facilities (as discussed in our "Debt and Financing" footnote) with a new
$450 million
New ABL Facility (the "New ABL Facility") and a new
$700 million
term loan facility ("New Term Loan"). The New ABL Facility will be used to support our
$364.6 million
of outstanding letters of credit commitments as of December 31, 2013.
We refer to transactions described above collectively as the "2014 Financing Transactions." The table below summarizes the cash flow activity for the 2014 Financing Transactions:
|
|
|
|
|
|
|
|
|
|
Cash Sources (in millions)
|
|
|
Cash Uses (in millions)
|
|
New Term Loan
|
$
|
700.0
|
|
|
Extinguish Prior ABL Facility (includes accrued interest)
|
$
|
326.0
|
|
Proceeds from sale of common stock
|
215.0
|
|
|
Extinguish Prior Term Loan (includes accrued interest)
|
299.7
|
|
Proceeds from sale of preferred stock
|
35.0
|
|
|
Retire 6% Notes
|
71.5
|
|
Cash proceeds from restricted amounts held in escrow - existing ABL facility
|
90.0
|
|
|
Repurchase Series A Notes (upon transaction closing and includes accrued interest)
|
93.9
|
|
New ABL Facility
|
—
|
|
|
Redeem Series A Notes (on August 5, 2014 and includes accrued interest)
|
89.6
|
|
|
|
|
Fees, Expenses and Original Issuance Discount
|
49.0
|
|
|
|
|
Restricted Cash to Balance Sheet
(a)
|
90.0
|
|
|
|
|
Cash to Balance Sheet
|
20.3
|
|
Total sources
|
$
|
1,040.0
|
|
|
Total uses
|
$
|
1,040.0
|
|
|
|
(a)
|
Under the terms of the New ABL facility, a portion of the Cash to Balance sheet will be classified as "restricted cash" in the consolidated balance sheet.
|
The table below summarizes the non-cash activity for the 2014 Financing Transactions:
|
|
|
|
|
|
|
|
|
|
Non-Cash Sources (in millions)
|
|
|
Non-Cash Uses (in millions)
|
|
Secured Second A&R CDA
|
$
|
51.0
|
|
|
A&R CDA
|
$
|
124.0
|
|
Unsecured Second A&R CDA
|
73.0
|
|
|
Exchange/conversion of Series B Notes to common stock
|
50.6
|
|
Exchange/conversion of Series B Notes to common stock
|
50.6
|
|
|
|
|
Total sources
|
$
|
174.6
|
|
|
Total uses
|
$
|
174.6
|
|
In 2014, we will account for the A&R CDA maturity extension as a debt modification and the remaining transactions as extinguishment of debt and issuance of new debt. We anticipate recording a gain on extinguishment of debt of approximately
$15 million
associated with this transaction in the first quarter of 2014. We paid approximately
$40 million
of fees associated with these transactions of which approximately
$25 million
will be recorded as unamortized deferred debt costs in “Other assets” in the consolidated balance sheet in the first quarter of 2014 and will be recognized as interest expense over the term of the New Term Loan and New ABL Facility and approximately
$15 million
will offset the equity proceeds of our stock purchase agreements.
$700 Million First Lien Term Loan
-
Overview
: On February 13, 2014, we borrowed in full
$700 million
, and received in cash less a 1% discount, from a syndicate of banks and other financial institutions arranged by Credit Suisse Securities (USA) and RBS Citizens, N.A. No amounts under this New Term Loan, once repaid, may be reborrowed. Certain material provisions of the New Term Loan are summarized below:
-
Maturity and Amortization
: The New Term Loan matures on February 13, 2019. The New Term Loan will amortize in equal quarterly installments in an aggregate annual amount equal to 1% of the original principal amount of the New Term Loan commencing on the last day of the first full fiscal quarter ending after the closing date.
-
Incremental
: Subject to finding current or new lenders willing to provide such commitments, the Company has the right to incur one or more increases to the New Term Loan and/or one or more new tranches of term loans (which may be unsecured or secured on a junior basis) to be made available under the New Term Loan credit agreement which shall not exceed (i)
$250 million
so long as the senior secured leverage ratio on a pro forma basis does not exceed
3.25
to
1.0
, plus (ii) all voluntary prepayments of the New Term Loan.
-
Interest and Fees
: The New Term Loan bears interest, at the election of the borrower, at either the applicable London interbank offer rate ("LIBOR") (subject to a floor of
1.00%
) plus a margin of
7.00%
per annum, or a rate determined by reference to the alternate base rate (the greater of the prime rate established by the administrative agent, the federal fund rate plus
0.50%
and one month, LIBOR plus
1.00%
) plus a margin of
6.00%
.
-
Guarantors
: The obligations of the borrower under the New Term Loan are unconditionally guaranteed by certain wholly owned domestic restricted subsidiaries of the Company (the “Term Guarantors”).
-
Collateral
: The New Term Loan is secured by a perfected first priority security interest in (subject to permitted liens) substantially all assets of the Company and the guarantors under the New Term Loan (the “Term Guarantors”), except that accounts receivable, cash, deposit accounts and other assets related to accounts receivable are subject to a second priority interest (subject to permitted liens) and certain owned real property securing the obligations under the Second A&R CDA filed January 31, 2014, do not secure the obligations under the New Term Loan credit agreement (the “CDA Collateral”).
-
Mandatory Prepayments
: The New Term Loan includes the following mandatory prepayments:
|
|
•
|
50%
of excess cash flow (paid if permitted under the New ABL Facility), subject to step downs to (x)
25%
if the total leverage ratio is less than or equal to
3.50
to
1.00
but greater than
3.00
to
1.00
and (y)
0%
if the total leverage ratio is less than or equal to 3.00 to 1.00.
|
|
|
•
|
100%
of the net cash proceeds of all asset sales or similar dispositions outside of the ordinary course of business and casualty events (subject to materiality thresholds and customary reinvestment rights)
|
|
|
•
|
100%
of cash proceeds from debt issuances that are not permitted by the New Term Loan documentation.
|
-
Events of Default
: The New Term Loan documentation contains certain customary events of default, including but not limited to the failure to make payments due under the New Term Loan, breach of and failure to cure the breach of certain covenants, the entry of a final unpaid judgment against any of the Term Guarantors in excess of
$30 million
, the commencement of certain insolvency proceedings, liquidations or dissolutions, a cross-default to certain other indebtedness with an outstanding aggregate principal balance of at least
$30 million
(other than the New ABL Facility), and cross-acceleration to the New ABL Facility.
-
Covenants
: The New Term Loan contains certain customary affirmative and negative covenants, including, among others, covenants restricting the incurrences of debt, liens, the making of investments and repurchases, transactions with affiliates, fundamental changes and asset sales, and prepayments of junior debt. In addition, refer to the "Liquidity" footnote for financial covenants for each of the remaining test periods.
$450 Million ABL Facility
-
Overview
: On February 13, 2014, we entered into the New ABL Facility which is an asset-based
$450 million
loan facility from a syndicate of banks arranged by RBS Citizens, N.A., Merrill Lynch, Pierce, Fenner & Smith and CIT Finance LLC. The New ABL Facility terminates on February 13, 2019 (the “Termination Date”). The Company, YRC Inc., USF Reddaway Inc., USF Holland Inc. and New Penn Motor Express, Inc. are borrowers under the New ABL Facility, and certain of the Company’s domestic subsidiaries are guarantors thereunder. Certain material provisions of the New ABL Facility are summarized below:
-
Availability
: The aggregate amount available under the New ABL Facility is subject to a borrowing base equal to the sum of (a)
85%
of the sum of (i) eligible accounts minus without duplication (ii) the dilution reserve, plus (b)
100%
of eligible borrowing base cash (which constitutes cash that has been deposited from time to time in a restricted account with the agent), minus (c) the deferred revenue reserve (which constitutes
85%
of the “deferred revenue liability” as reflected on the balance sheet of the Company and its restricted subsidiaries as of the last day of the most recently completed fiscal month), minus (d) the availability reserve imposed by the agent in its permitted discretion (made in good-faith and using reasonable business judgment). Upon entering the New ABL Facility on February 13, 2014, based upon the availability calculation, the New ABL Facility did not have any borrowing capacity.
- Interest and Fees: Revolving loans made under the New ABL Facility bear interest, at the Company’s election, of either the applicable LIBOR rate plus
2.5%
or the base rate (the greater of the prime rate established by the agent, the federal funds effective rate plus
0.50%
and one month LIBOR plus
1.00%
) plus
1.5%
from the closing date through March 31, 2014. Thereafter, the interest rates will be subject to the following price grid based on the average quarterly excess availability under the revolver:
|
|
|
|
|
|
Average Quarterly
|
Base Rate
|
LIBOR
|
Level
|
Excess Capacity
|
Plus
|
Plus
|
I
|
>
$140,000,000
|
1.00%
|
2.00%
|
II
|
>
$70,000,000
|
1.25%
|
2.25%
|
< $140,000,000
|
III
|
< $70,000,000
|
1.50%
|
2.50%
|
The rates set forth above are subject to a
0.25%
reduction during any fiscal quarter for which the Company has a total leverage ratio of less than
2.50
to
1.00
.
-
Fees
: Fees in respect of the New ABL Facility include: (i) an unused line fee payable quarterly in arrears calculated by multiplying the amount by which the commitments exceed the loans and letters of credit for any calendar quarter by the unused line fee percentage (such unused line fee percentage initially to
0.250%
per annum through March 31, 2014, and thereafter
0.375%
per annum if the average revolver usage is less than
50%
or
0.250%
per annum if the average revolver usage is greater than
50%
); (ii) fees for the letter of credit facility payable quarterly in arrears which are comprised of the applicable margin in effect for LIBOR loans multiplied by the average daily stated amount of letters of credit; (iii) fronting fees for letters of credit payable quarterly in arrears equal to
0.125%
of the stated amount of the letters of credit; (vi) fees to issuing banks to compensate for customary charges related to the issuance and administration of letters of credit; and (v) such fees as set forth in the fee letter arrangement dated as of February 13, 2014 by and between the agent and the Company
-
Collateral
: The obligations under the New ABL Facility are secured by a perfected first priority security interest in (subject to permitted liens) all accounts receivable, cash, deposit accounts and other assets related to accounts receivable of the Company and the other loan parties and an additional second priority security interest in (subject to permitted liens) substantially all remaining assets of the borrowers and the guarantors other than CDA Collateral.
-
Incremental
: The New ABL Facility provides for a
$100 million
uncommitted accordion to increase the revolving commitment in the future to support borrowing base growth.
-
Events of Default
: The New ABL Facility contains certain customary events of default, including but not limited to the failure to make payments due under the New ABL Facility, breach of and failure to cure the breach of certain covenants, the entry of a final unpaid judgment against any of the New ABL Facility loan parties in excess of
$30 million
, the commencement of any insolvency proceeding, liquidation or dissolution, and a cross-default to certain other indebtedness with an outstanding aggregate principal balance of at least
$30 million
(including the New Term Loan).
-
Covenants
: The New ABL Facility contains certain customary affirmative and negative covenants (including certain customary provisions regarding borrowing base reporting, and including, among others, covenants restricting the incurrences of debt, liens, the making of investments and repurchases, transactions with affiliates, fundamental changes and asset sales, and prepayments of junior debt). Certain of the covenants relating to investments, restricted payments and capital expenditures are relaxed upon meeting specified payment conditions or debt repayment conditions, as applicable. Payment conditions include (i) the absence of an event of default arising from such transaction, (ii) liquidity of at least
$100 million
or availability of at least
$67.5 million
and (iii) the Consolidated Fixed Charge Coverage Ratio for the most recent term period on a pro forma basis is equal to or greater than
1.10
to
1.00
). Debt repayment conditions include (i) the absence of an event of default from repaying such debt and (ii) availability on the date of repayment is not less than
$67.5 million
. During any period commencing when the New ABL Facility borrowers fail to maintain availability in an amount at least equal to
10%
of the collateral line cap and until the borrowers have maintained availability of at least
10%
of the collateral line cap for
30
consecutive calendar days, the New ABL Facility loan parties are required to maintain a Consolidated Fixed Charge Coverage Ratio of at least
1.10
to
1.00
. The “Consolidated Fixed Charge Coverage Ratio” is defined as (a) (i) consolidated adjusted EBITDA for such period, minus (ii) capital expenditures made during such period, minus (iii) the aggregate amount of net cash taxes paid in cash during such period, minus (iv) the amount, if any, by which the cash pension contribution for such period exceeds the pension expense for such period, and plus (v) the amount, if any, by which the pension expense for such period exceeds the cash pension contribution for such period, divided by (b) the consolidated fixed charges for such period. In addition, refer to the "Liquidity" footnote for covenants for each of the remaining test periods.
9. Debt and Financing
As of
December 31, 2013
we had two primary credit facilities that we utilized to support our liquidity needs: the amended and restated credit agreement and an asset-based lending facility (the "Prior ABL Facility," collectively referred to as our “Prior Credit Facilities”) and were also party to a number of other financing arrangements. On February 13, 2014, we completed our 2014 Financing Transactions which substantially changed the makeup of our outstanding debt. Refer to the "2014 Financing Transactions" footnote for further details. We have set forth a brief description of our two primary credit facilities and our other financing arrangements in place at
December 31, 2013
below.
Amended and Restated Credit Agreement
-
Overview
: Our amended and restated credit agreement provided for a term loan in an aggregate principal amount of
$307.4 million
("Prior Term Loan") and a letter of credit facility of up to
$437.0 million
. As of
December 31, 2013
, we had repaid
$9.3 million
in aggregate principal on the Prior Term Loan. Certain material provisions of the amended and restated credit agreement are summarized below:
-
Maturity and Amortization
: The Prior Term Loan and, subject to the ability to replace or substitute letters of credit, the letters of credit, would mature on March 31, 2015. The Prior Term Loan did not amortize.
-
Interest and Fees
: After giving effect to the Credit Agreement Amendment (defined below) on November 12, 2013, the Prior Term Loan, at our option, bore interest at either (x)
6.00%
in excess of the
alternate base rate
(
i.e.
, the greater of the prime rate and the federal funds effective rate in effect on such day plus 1/2 of
1%
) in effect from time to time, or (y)
7.00%
in excess of the London interbank offer rate (adjusted for maximum reserves). The London interbank offer rate was subject to a floor of
3.50%
and the alternate base rate was subject to a floor of the then-applicable London interbank offer rate plus
1.0%
. The stated interest rate floor of
10.0%
was in effect since issuance.
Issued but undrawn letters of credit were subject to a participation fee equal to
8.00%
of the average daily amount of letter of credit exposure. Any commitment available to be used to issue letters of credit was subject to a commitment fee of
8.00%
of the average daily unused commitment. Letters of credit were subject to a
1%
fronting fee or as mutually agreed between the Company and the applicable issuing bank.
-
Collateral
: The collateral securing the obligations under the credit agreement and guarantees entered into pursuant thereto included, subject to certain customary exceptions, all shares of capital stock of (or other ownership equity interests in) and intercompany debt owned by the Company and each present and future Guarantor and substantially all present and future property and assets of the Company or each Guarantor, except to the extent a security interest resulted in a breach, termination or default by the terms of the collateral being granted.
Pursuant to the terms under the amended and restated credit agreement, we were required to deposit an amount into escrow accounts to secure our obligations under the credit agreement. This amount totaled
$0.6 million
and
$12.4 million
as of December 31, 2013 and 2012 and is included in "Restricted amounts held in escrow," a non-current asset on the Consolidated Balance Sheet. The majority of the 2012 balance was returned as part of the November 2013 amendment discussed below. The liens on the collateral securing the obligations under the amended and restated credit agreement and guarantees entered into pursuant thereto were junior to the liens securing the obligations under the amended and restated contribution deferral agreement solely with respect to certain parcels of owned real property on which the pension funds have a senior lien and certain other customary permitted liens.
-
Amendment
: On November 12, 2013, YRC Worldwide entered into an amendment to its amended and restated credit agreement (the "Credit Agreement Amendment"), which, among other things, reset future covenants regarding minimum Consolidated EBITDA, maximum Total Leverage Ratio and minimum Interest Coverage Ratio (as defined in the Credit Agreement Amendments, if applicable) until December 31, 2014 and reset the minimum cash balance requirement. Further, the Credit Agreement Amendment, among other things, (i) included a new definition of Pro Forma Consolidated EBITDA added for the purposes of the minimum available cash requirement as described above to be calculated by adding to Consolidated EBITDA, subject to certain limitations, the amount of cost savings, operating expense reductions, other operating improvements and initiatives and synergies associated with any restructuring transactions (and implementation thereof) (but not to exceed the actual amount deducted from revenues in determining Consolidated Net Income for any such costs and expenses), in the case of each such restructuring transaction (and implementation thereof), occurring on or after November 12, 2013, and projected by us in good faith to be reasonably anticipated to be realizable within ninety (
90
) days of the date thereof; (ii) increased the interest rate and commitment fee payable under our credit agreement by
50
basis points (to the interest rate commitment fee set forth in "Interest and Fees" above); (iii) waived the requirement to continue to cash collateralize letters of credit with existing net cash proceeds received from asset sales up to
$12.5 million
(including release of such cash proceeds); (iv) required payment of an amendment fee to each consenting
lender of
1.0%
of their outstanding exposure; and (v) added a new “Event of Default” that required the 6% Convertible Senior Notes to be repaid, refinanced, replaced, restructured or extended on or prior to February 1, 2014 using either cash generated from the sale of qualified equity by the Borrower, certain qualified equity issuances by the Borrower or certain permitted indebtedness. Refer to the "Liquidity" footnote of our consolidated financial statements for covenants for each of the remaining test periods. On January 30, 2014, YRC Worldwide entered into a subsequent amendment to its amended and restated credit agreement, which, among other things, (i) extended the date in the “Event of Default” requirement for the repayment of the 6% Convertible Senior Notes from February 1, 2014 to February 13, 2014, (ii) eased the available cash conditions through February 13, 2014 and (iii) made certain other changes to effectuate the 2014 Financing Transactions.
Prior ABL Facility
-
Overview
: Our Prior ABL Facility provided for a
$175.0 million
ABL first-out delayed draw term loan facility (the “Term A Facility”) and a
$225.0 million
ABL last-out term loan facility (the “Term B Facility”). We collectively refer to these term loan facilities as our “Prior ABL Facility.” The Prior ABL Facility was to terminate on September 30, 2014 (the “Termination Date”). Pursuant to the terms of the Prior ABL Facility, YRC Freight, Holland and Reddaway (each, one of our subsidiaries and each, an “Originator”) would each sell, on an ongoing basis, all accounts receivable originated by that Originator to YRCW Receivables LLC, a bankruptcy remote, wholly owned subsidiary of the Company, which we refer to herein as the “Prior ABL Borrower."
-
Availability
: The aggregate amount available under the Prior ABL Facility was subject to a borrowing base equal to
85%
of Net Eligible Receivables, plus
100%
of the portion of the Prior ABL Facility that was cash collateralized, minus reserves established by the Agent in its permitted discretion.
-
Interest and Fees
: After giving effect to the ABL Credit Agreement Amendment on November 12, 2013 (described below), interest on outstanding borrowings was payable at a rate per annum equal to the reserve adjusted LIBOR rate (which is the greater of the adjusted
LIBOR
rate and
1.50%
) or the “
ABR Rate
” (which was the greatest of the applicable
prime rate
, the
federal funds rate
plus
0.5%
, and the LIBOR rate plus
1.0%
) plus an applicable margin, which, for loans under the Term A Facility were equal to
7.50%
for LIBOR rate advances and
6.50%
for ABR Rate advances, and for loans under the Term B Facility are equal to
10.25%
for LIBOR rate advances and
9.25%
for ABR Rate advances. We were required to pay a commitment fee equal to
7.50%
per annum on the average daily unused portion of the commitment in respect of the Term A Facility.
-
Collateral
: The ABL Facility was secured by a perfected first priority security interest in and lien (subject to permitted liens) upon all accounts receivable (and the related rights) of the ABL Borrower, together with deposit accounts into which the proceeds from such accounts receivable were remitted (collectively, the “ABL Collateral”).
Pursuant to the terms of the Prior ABL Facility, we were required to deposit an aggregate amount equal to
$90.0 million
into escrow accounts to secure our obligations under the Prior ABL Facility, which amounts we expected to remain in escrow for the term of the Prior ABL Facility; this amount is included in “Restricted amounts held in escrow,” a current asset on the Consolidated Balance Sheet, which includes accrued interest. Pursuant to the terms of a standstill agreement, certain trucks, other vehicles, rolling stock, terminals, depots or other storage facilities, in each case, whether leased or owned, were subject to a standstill period in favor of the collateral agent, the administrative agent and the other secured parties under the Prior ABL Facility for a period of 10 business days (absent any exigent circumstances arising as a result of fraud, theft, concealment, destruction, waste or abscondment) with respect to the exercise of rights and remedies by the secured parties with respect to those assets under our other material debt agreements.
-
Amendment
: On November 12, 2013, YRCW Receivables, LLC, a wholly-owned subsidiary of the Company, entered into an amendment to the Prior ABL Facility (the "Prior ABL Credit Agreement Amendment"), which, among other things, reset the minimum Consolidated EBITDA covenant (as defined in the Prior ABL Facility) for each of the remaining test periods in a manner identical to the amendment of minimum Consolidated EBITDA in the Prior ABL Credit Agreement Amendment and increased the interest rate payable under the ABL Facility by
50
basis points. The Company agreed to pay all consenting lenders a fee equal to
1.0%
of their outstanding loans and unused commitments.
Series A Convertible Senior Secured Notes
On July 22, 2011, we issued
$140.0 million
in aggregate principal of our Series A Notes that bear interest at a stated rate of
10%
per year and mature on March 31, 2015. Interest is payable on a semiannual basis in arrears only in-kind through the issuance of additional Series A Notes. As of
December 31, 2013
and
2012
, there was
$177.8 million
and
$161.2 million
in aggregate principal amount of Series A Notes outstanding, after giving effect to the payment in-kind of interest on the Series A Notes. We could redeem the Series A Notes, in whole or in part, at any time at a redemption price equal to
100%
of the principal amount thereof plus accrued and unpaid interest to the redemption date. As discussed in the “2014 Refinancing” footnote, on February 13, 2014, the Company deposited approximately
$89.6 million
(including accrued interest) with the trustee in order to fund the redemption of the remaining Series A Notes on August 5, 2014, thereby discharging the indenture governing the Series A Notes.
The Series A Notes became convertible into our common stock beginning July 22, 2013. Subject to certain limitations on conversion and issuance of shares, holders can convert any outstanding Series A Notes into shares of our common stock at the conversion price per share of approximately
$34.0059
and a conversion rate of
29.4067
common shares per
$1,000
of the Series A Notes. See "Conversions" section below for additional details regarding conversions on our Series A Notes.
The holders of the Series A Notes are entitled to vote with our common stock on an as-converted-to-common-stock-basis, provided that, such number of votes shall be limited to
0.1089
votes for each such share of common stock on an as-converted-to-common stock-basis.
The indenture governing the Series A Notes contained covenants limiting, among other things, us and our restricted subsidiaries' ability to (i) create liens on assets and (ii) merge, consolidate or sell all or substantially all of our and our guarantors' assets.
The Series A Notes were guaranteed by all of our domestic subsidiaries that guarantee obligations under the amended and restated credit agreement. The Series A Notes and the guarantees of the Series A Notes were our and the guarantors' senior obligations and were secured by junior priority liens on substantially the same collateral securing the amended and restated credit agreement (other than any leasehold interests and equity interests of subsidiaries to the extent such pledge of equity interests would require increased financial statement reporting obligations pursuant to Rule 3-16 of Regulation S-X). As of December 31, 2012 and 2011, the common stock of our largest operating companies, such as YRC Inc., Holland, New Penn and Reddaway, would be excluded as collateral under these kick-out provisions.
Series B Convertible Senior Secured Notes
On July 22, 2011, we issued
$100.0 million
of our Series B Notes that bear interest at a stated rate of
10.0%
per year and mature on March 31, 2015. Interest is payable on a semiannual basis in arrears only in-kind through the issuance of additional Series B Notes. As of
December 31, 2013
and
2012
, there was
$69.2 million
and
$91.5 million
in aggregate principal amount of Series B Notes outstanding, after giving effect to the payment in-kind of interest on the Series B Notes offset by
$50.9 million
in aggregate principal amount of Series B Notes surrendered for conversion through December 31, 2013.
The Series B Notes are convertible into our common stock, at any time at the conversion price per share of approximately
$18.5334
and a conversion rate of
53.9567
common shares per
$1,000
of the Series B Notes (such conversion price and conversion rate applying also to the Series B Notes make whole premium). Upon conversion, holders of Series B Notes will not receive any cash payment representing accrued and unpaid interest; however, such holders will receive a make whole premium, equal to the total amount of interest received if the notes were held to their maturity, paid in shares of our common stock for the Series B Notes that were converted. See "Conversions" section below for additional details regarding conversions on our Series B Notes.
As of
December 31, 2013
, the effective conversion price and conversion rate for Series B Notes (after taking into account the make whole premium) was
$16.0056
and
62.4781
common shares per
$1,000
of Series B Notes, respectively.
The holders of the Series B Notes are entitled to vote with our common stock on an as-converted-to-common-stock-basis, provided that, such number of votes shall be limited to
0.0594
votes for each such share of common stock on an as-converted-to-common-stock-basis.
As discussed in the “2014 Refinancing” note, we amended the indenture governing our Series B Notes to eliminate substantially all of the restrictive covenants, certain events of default and other related provisions contained in the indenture and to release and discharge the liens on the collateral securing the Series B Notes. As of December 31, 2013, the Series B Notes indenture contained customary covenants limiting, among other things, our and our restricted subsidiaries' ability to:
|
|
•
|
pay dividends or make certain other restricted payments or investments;
|
|
|
•
|
incur additional indebtedness and issue disqualified stock or subsidiary preferred stock;
|
|
|
•
|
create liens on assets;
|
|
|
•
|
merge, consolidate, or sell all or substantially all of our or the guarantors' assets;
|
|
|
•
|
enter into certain transactions with affiliates; and
|
|
|
•
|
create restrictions on dividends or other payments by our restricted subsidiaries.
|
6% Convertible Senior Notes
On February 11, 2010, we entered into a note purchase agreement with certain investors pursuant to which such investors agreed, subject to the terms and conditions set forth therein, to purchase up to
$70 million
of our notes. The outstanding 6% notes were paid at maturity on February 15, 2014. These
6%
Notes bore interest at
6%
which was payable on February 15 and August 15 of each year. To the extent we were not permitted to pay interest in cash under our senior secured bank credit facilities or we reasonably determine that we had insufficient funds to pay interest in cash, we were permitted to pay interest through the issuance of additional shares of our common stock subject to certain conditions. Our amended and restated credit agreement did not restrict our ability to pay cash interest to holders of the
6%
Notes and we paid cash interest to holders of the
6%
Notes beginning with the August 15, 2011 interest payment date and continued to make interest payments in cash in lieu of paying interest with shares of common stock as of December 31, 2013.
Amended and Restated Contribution Deferral Agreement
-
Overview
: Certain of our subsidiaries are parties to the A&R CDA with certain multiemployer pension funds named therein (collectively, the “Funds”) pursuant to which we are permitted to continue to defer pension payments and deferred interest owed to such Funds as of July 22, 2011 (each, “Deferred Pension Payments” and “Deferred Interest”). The A&R CDA was scheduled to mature on March 31, 2015
t
hough the Company entered into the Second A&R CDA on January 31, 2014 which extended the maturity to December 31, 2019. There is no mandatory amortization prior to that time. The Deferred Pension Payments and Deferred Interest bears interest at a fixed rate, with respect to each Fund, per annum as set forth in its trust documentation as of February 28, 2011.
-
Application of Certain Payments
: Pursuant to the terms of the collective bargaining agreement with the IBT, the Company's subsidiaries began making contributions to the Funds for the month beginning June 1, 2011 at the rate of
25%
of the contribution rate in effect on July 1, 2009. However, legislative changes to current law or other satisfactory action or arrangements are required to enable certain of the Funds (based on their funded status) to accept contributions at a reduced rate.
In accordance with the re-entry arrangements between each Fund and the primary obligors, a Fund may require the primary obligors to make payments of obligations owed to such Fund under the A&R CDA in lieu of payments required pursuant to the collective bargaining agreement with the IBT or make payments into an escrow arrangement, in each case in an amount equal to such Fund's current monthly contribution amount.
-
Collateral
: Under the A&R CDA, the Funds maintain their first lien on existing first priority collateral. The Funds allowed the secured parties under the Series A Notes and Series B Notes (as each are defined and described above) a second lien behind the secured parties to the credit agreement on certain properties and the Funds had a third lien on such collateral. However, under the Second A&R CDA, such third lien on certain properties was released on the collateral release date upon the occurrence of events specified therein.
-
Most Favored Nations
: If any of the obligors entered into an amendment, modification, supplementation or alteration of the amended and restated credit agreement after July 22, 2011 that imposed any mandatory prepayment, cash collateralization, additional interest or fee or any other incremental payment to the lenders thereunder not required as of July 22, 2011, the primary obligors were required to pay the Funds 50% of a proportionate additional payment in respect of the Deferred Pension Payments and Deferred Interest, with certain exceptions. The Second A&R CDA removed this requirement.
-
Guarantors
: The A&R CDA was guaranteed by Glen Moore and Transcontinental Lease, S. de R.L. de C.V. The Second A&R CDA released Glen Moore from such guarantee.
Standby Letter of Credit Agreement
On July 22, 2011, we entered into a Standby Letter of Credit Agreement with Wells Fargo, National Association (“Wells Fargo”) pursuant to which Wells Fargo issued one replacement letter of credit and permitted an existing letter of credit to remain outstanding
and we pledged certain deposit accounts and securities accounts (collectively, the “Pledged Accounts”) to Wells Fargo to secure its obligations in respect of the letters of credit. As of
December 31, 2013
, we had no standby letters of credit under this agreement outstanding.
Total Debt Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013 (in millions)
|
Par Value
|
|
Premium/
(Discount)
|
|
Book
Value
|
|
Stated
Interest Rate
|
|
Effective
Interest Rate
|
Prior Term Loan
|
$
|
298.1
|
|
|
$
|
37.7
|
|
|
$
|
335.8
|
|
|
10.0
|
%
|
|
—
|
%
|
Term A Facility (capacity $175.0, borrowing base $156.5, availability $51.5)*
|
105.0
|
|
|
(2.1
|
)
|
|
102.9
|
|
|
8.5
|
%
|
|
15.8
|
%
|
Term B Facility (capacity $219.9, borrowing base $219.9, availability $0.0)
|
219.9
|
|
|
(3.9
|
)
|
|
216.0
|
|
|
11.25
|
%
|
|
15.0
|
%
|
Series A Notes
|
177.8
|
|
|
(17.8
|
)
|
|
160.0
|
|
|
10.0
|
%
|
|
18.3
|
%
|
Series B Notes
|
69.2
|
|
|
(10.5
|
)
|
|
58.7
|
|
|
10.0
|
%
|
|
25.6
|
%
|
6% Notes
|
69.4
|
|
|
(1.1
|
)
|
|
68.3
|
|
|
6.0
|
%
|
|
15.5
|
%
|
A&R CDA
|
124.2
|
|
|
(0.2
|
)
|
|
124.0
|
|
|
3.25-18.25%
|
|
|
7.3
|
%
|
Lease financing obligations
|
297.5
|
|
|
—
|
|
|
297.5
|
|
|
10.0-18.2%
|
|
|
11.9
|
%
|
Other
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
|
|
|
Total debt
|
$
|
1,361.3
|
|
|
$
|
2.1
|
|
|
$
|
1,363.4
|
|
|
|
|
|
Current maturities of lease financing obligations
|
(8.4
|
)
|
|
—
|
|
|
(8.4
|
)
|
|
|
|
|
Current maturities of other
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
|
|
|
Long-term debt
|
$
|
1,352.7
|
|
|
$
|
2.1
|
|
|
$
|
1,354.8
|
|
|
|
|
|
*The effective interest rate on the Term A Facility is calculated based upon the capacity of the facility and not the par value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012 (in millions)
|
Par Value
|
|
Premium/
(Discount)
|
|
Book
Value
|
|
Stated
Interest Rate
|
|
Effective
Interest Rate
|
Prior Term Loan
|
$
|
298.7
|
|
|
$
|
67.6
|
|
|
$
|
366.3
|
|
|
10.0
|
%
|
|
—
|
%
|
Term A Facility (capacity $175.0, borrowing base $147.6, availability $42.6)*
|
105.0
|
|
|
(4.8
|
)
|
|
100.2
|
|
|
8.5
|
%
|
|
15.8
|
%
|
Term B Facility (capacity $222.2, borrowing base $222.2, availability $0.0)
|
222.2
|
|
|
(8.5
|
)
|
|
213.7
|
|
|
11.25
|
%
|
|
15.0
|
%
|
Series A Notes
|
161.2
|
|
|
(27.8
|
)
|
|
133.4
|
|
|
10.0
|
%
|
|
18.3
|
%
|
Series B Notes
|
91.5
|
|
|
(25.4
|
)
|
|
66.1
|
|
|
10.0
|
%
|
|
25.6
|
%
|
6% Notes
|
69.4
|
|
|
(6.3
|
)
|
|
63.1
|
|
|
6.0
|
%
|
|
15.5
|
%
|
A&R CDA
|
125.8
|
|
|
(0.4
|
)
|
|
125.4
|
|
|
3.0-18.0%
|
|
|
7.1
|
%
|
Lease financing obligations
|
306.9
|
|
|
—
|
|
|
306.9
|
|
|
10.0-18.2%
|
|
|
11.9
|
%
|
Other
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
|
|
|
Total debt
|
$
|
1,381.0
|
|
|
$
|
(5.6
|
)
|
|
$
|
1,375.4
|
|
|
|
|
|
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
|
(6.5
|
)
|
|
—
|
|
|
(6.5
|
)
|
|
|
|
|
Current maturities of lease financing obligations
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
|
|
|
Long-term debt
|
$
|
1,371.9
|
|
|
$
|
(5.6
|
)
|
|
$
|
1,366.3
|
|
|
|
|
|
*The effective interest rate on the Term A Facility is calculated based upon the capacity of the facility and not the par value.
Conversions
During the year ended
December 31, 2013
,
$29.1 million
of aggregate principal amount of Series B Notes converted into
1.9 million
shares of our common stock. Upon conversion, during the year ended
December 31, 2013
, we recorded
$15.2 million
of additional interest expense representing the
$6.6 million
make whole premium and
$8.6 million
of accelerated amortization of the discount on Series B Notes converted. As of
December 31, 2013
, the effective conversion price and conversion rate for Series B
Notes (after taking into account the make whole premium) was
$16.0056
and
62.4781
common shares per
$1,000
of Series B Notes, respectively.
As of
December 31, 2013
, there was
$177.8 million
in aggregate principal amount of Series A Notes outstanding that was convertible into approximately
5.6 million
shares of our common stock at the maturity date. As discussed in the "2014 Financing Transactions" footnote, on January 31, 2014, we repurchased approximately
$90.9 million
of our Series A Notes. The Company will redeem the remaining Series A Notes on August 5, 2014. In February 2014, the Company deposited approximately
$89.6 million
with the trustee in order to fund the redemption. There
were no c
onversions of our Series A Notes as of
December 31, 2013
and from
December 31, 2013
through
March 4, 2014
.
As of
December 31, 2013
, there was
$69.2 million
in aggregate principal amount of Series B Notes outstanding that was convertible into approximately
4.2 million
shares of our common stock (after taking into account the make whole premium). As discussed in the "2014 Financing Transactions" footnote, on January 31, 2014, certain holders of our Series B Notes exchanged their outstanding balances as part of an exchange agreement. Outside of these exchange agreements, from
December 31, 2013
through
March 4, 2014
,
$1.2 million
aggregate principal amount of Series B Notes converted into
75,900
shares o
f common stock.
As of
December 31, 2013
, a maximum of
17,600
shares of our common stock were available for future issuances in respect of the
6%
Notes. As discussed in the "2014 Financing Transactions" footnote we repaid our
6%
Notes on February 15, 2014.
Maturities
The principal maturities over the next five years and thereafter of total debt as of December 31, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Prior Term
Loan
|
Prior ABL Facility
(c)
|
Series A and B Notes
(b)
|
6%
Notes
(c)
|
Lease Financing Obligation
(a)
|
A&R CDA
|
Other
|
Total
|
2014
|
$
|
—
|
|
$
|
324.9
|
|
$
|
—
|
|
$
|
69.4
|
|
$
|
8.4
|
|
$
|
—
|
|
$
|
0.2
|
|
$
|
402.9
|
|
2015
|
298.1
|
|
—
|
|
247.0
|
|
—
|
|
7.7
|
|
124.2
|
|
—
|
|
677.0
|
|
2016
|
—
|
|
—
|
|
—
|
|
—
|
|
9.5
|
|
—
|
|
—
|
|
9.5
|
|
2017
|
—
|
|
—
|
|
—
|
|
—
|
|
11.4
|
|
—
|
|
—
|
|
11.4
|
|
2018
|
—
|
|
—
|
|
—
|
|
—
|
|
13.6
|
|
—
|
|
—
|
|
13.6
|
|
Thereafter
|
—
|
|
—
|
|
—
|
|
—
|
|
246.9
|
|
—
|
|
—
|
|
246.9
|
|
Total
|
$
|
298.1
|
|
$
|
324.9
|
|
$
|
247.0
|
|
$
|
69.4
|
|
$
|
297.5
|
|
$
|
124.2
|
|
$
|
0.2
|
|
$
|
1,361.3
|
|
|
|
(a)
|
Lease financing obligations subsequent to 2018 of
$246.9 million
represent principal cash obligations of
$23.8 million
and the estimated net book value of the underlying assets at the expiration of their associated lease agreements of
$223.1 million
.
|
|
|
(b)
|
The Series A Notes exclude
$13.4 million
and the Series B Notes exclude
$9.0 million
of in-kind interest payments that will be due and payable if the notes are held to maturity.
|
|
|
(c)
|
The Prior ABL Facility and 6% Notes were included in long-term liabilities on the Consolidated Balance Sheet as they were repaid with long-term financing as part of the 2014 Financing Transactions.
|
On February 13, 2014, we completed the 2014 Financing Transactions which will change our maturity of certain portions of our outstanding debt. Please refer to the "2014 Financing Transactions" footnote for more details.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
December 31, 2012
|
(in millions)
|
Carrying amount
|
|
Fair Value
|
|
Carrying amount
|
|
Fair Value
|
Prior Term Loan
|
$
|
335.8
|
|
|
$
|
289.2
|
|
|
$
|
366.3
|
|
|
$
|
197.5
|
|
Prior ABL Facility
|
318.9
|
|
|
326.1
|
|
|
313.9
|
|
|
325.8
|
|
Series A Notes and Series B Notes
|
218.7
|
|
|
225.8
|
|
|
199.5
|
|
|
81.5
|
|
Lease financing obligations
|
297.5
|
|
|
297.5
|
|
|
306.9
|
|
|
306.9
|
|
Other
|
192.5
|
|
|
179.8
|
|
|
188.8
|
|
|
99.5
|
|
Total debt
|
$
|
1,363.4
|
|
|
$
|
1,318.4
|
|
|
$
|
1,375.4
|
|
|
$
|
1,011.2
|
|
The fair values of the Prior Term Loan, Prior ABL Facility, Series A and Series B Notes,
6%
Notes (included in “Other” above) and A&R CDA (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.
10. Liquidity
For a description of our outstanding debt as of December 31, 2013, please refer the "Debt and Financing" footnote to our consolidated financial statements.
Credit Facility Covenants
On November 12, 2013, YRC Worldwide entered into amendments to its amended and restated credit agreement (the "Credit Agreement Amendment") and its then-existing ABL facility (together the "Amendments"), which, among other things, reset future covenants regarding minimum Consolidated EBITDA, maximum Total Leverage Ratio and minimum Interest Coverage Ratio (as defined in Amendments, if applicable) until December 31, 2014 and resets the minimum cash balance requirement. We were in compliance with all of our covenants as of
December 31, 2013
.
Consolidated Adjusted EBITDA, as defined in our New Term Loan credit agreement, was a measure that reflects our earnings before interest, taxes, depreciation, and amortization expense, and is further adjusted for, among other things, letter of credit fees, equity-based compensation expense, net gains or losses on property disposals and certain other items, including restructuring professional fees, expenses associated with certain lump sum payments to our IBT employees and the results of permitted dispositions and discontinued operations.
On February 13, 2014, we completed our 2014 Financing Transactions and refinanced the debt associated with our prior credit facilities. We entered into a New Term Loan credit agreement with new financial covenants that, among other things, restricts certain capital expenditures and requires us to maintain a maximum total leverage ratio (defined as consolidated total debt divided by consolidated adjusted EBITDA) for future test periods as follows:
|
|
|
|
|
|
Four Consecutive Fiscal Quarters Ending
|
Maximum Total
Leverage Ratio
|
|
Four Consecutive Fiscal Quarters Ending
|
Maximum Total
Leverage Ratio
|
June 30, 2014
|
6.00 to 1.00
|
|
June 30, 2016
|
3.50 to 1.00
|
September 30, 2014
|
5.00 to 1.00
|
|
September 30, 2016
|
3.50 to 1.00
|
December 31, 2014
|
4.50 to 1.00
|
|
December 31, 2016
|
3.25 to 1.00
|
March 31, 2015
|
4.00 to 1.00
|
|
March 31, 2017
|
3.25 to 1.00
|
June 30, 2015
|
3.75 to 1.00
|
|
June 30, 2017
|
3.25 to 1.00
|
September 30, 2015
|
3.75 to 1.00
|
|
September 30, 2017
|
3.25 to 1.00
|
December 31, 2015
|
3.75 to 1.00
|
|
December 31, 2017 and thereafter
|
3.00 to 1.00
|
March 31, 2016
|
3.50 to 1.00
|
|
|
|
In addition, we entered into the New ABL Facility credit agreement which, among other things, restricts certain capital expenditures and requires that the Company, in effect, maintain availability of at least 10% of the lesser of the aggregate amount of commitments from all lenders or the borrowing base. Upon entering the New ABL Facility on February 13, 2014, based upon the availability calculation, the New ABL Facility did not have any borrowing capacity.
We believe that our results of operations will be sufficient to allow us to comply with the covenants in our new credit agreement, fund our operations, increase working capital as necessary to support our planned revenue growth and fund capital expenditures for the foreseeable future, including the next twelve months.
In the event that we fail to comply with any New Term Loan covenant or any New ABL Facility covenant, we would be considered in default, which would enable applicable lenders to accelerate the repayment of amounts outstanding, require the cash collateralization of letters of credit (in the case of the New ABL Facility) and exercise remedies with respect to collateral and we would need to seek an amendment or waiver from the applicable lender groups. In the event that our lenders under our New Term Loan or New ABL Facility demand payment or cash collateralization (in the case of the New ABL Facility), we will not have sufficient cash to repay such indebtedness. In addition, a default under our New Term Loan or New ABL Facility or the applicable
lenders exercising their remedies thereunder would trigger cross-default provisions in our other indebtedness and certain other operating agreements. Our ability to amend our New Term Loan or our New ABL Facility or otherwise obtain waivers from the applicable lenders depends on matters that are outside of our control and there can be no assurance that we will be successful in that regard.
Risk and Uncertainties Regarding Future Liquidity
Our principal sources of liquidity are cash and cash equivalents, any prospective cash flow from operations and, as of December 31, 2013, available borrowings under our
$400 million
Prior ABL Facility. As of
December 31, 2013
, we had cash and cash equivalents and availability under the Prior ABL Facility of
$227.8 million
and the borrowing base under our Prior ABL Facility was
$376.4 million
. As part of our 2014 Financing Transactions, we replaced our Prior ABL facility with a
$450 million
New ABL Facility. Refer to the "2014 Financing Transactions" footnote for more details.
Our principal uses of cash are to fund our operations, including making contributions to our single-employer pension plans and our multi-employer pension funds, and to meet our other cash obligations, including but not limited to paying cash interest and principal on our funded debt, letter of credit fees under our credit facilities and funding capital expenditures and lease payments for operating equipment. For the
year ended December 31, 2013
, our cash flow from operating activities
provided
net cash of
$12.1 million
.
We have a considerable amount of indebtedness. As of
December 31, 2013
, we had
$1,363.4 million
in aggregate principal amount of outstanding indebtedness. Our 2014 Financing Transactions reduced our outstanding indebtedness and extended the maturities for a substantial portion of our debt to 2019. Refer to the "2014 Financing Transactions" footnote for more details.
We also have a considerable amount of future funding obligations for our single-employer pension plans and the multi-employer pension funds. We expect our funding obligations for
2014
for our single-employer pension plans and multi-employer pension funds will be
$79.9 million
and
$88.7 million
, respectively. In addition, we also have, and will continue to have, substantial operating lease obligations. As of
December 31, 2013
, our operating lease obligations for
2014
are
$56.1 million
.
Our capital expenditures for the years ended
December 31, 2013
and
2012
were
$66.9 million
and
$66.4 million
, respectively. These amounts were principally used to fund replacement engines and trailer refurbishments for our revenue fleet, capitalized costs for our network facilities and technology infrastructure. Additionally, for the
year ended December 31, 2013
, we entered into new operating lease commitments for revenue equipment totaling
$67.1 million
, with such payments to be made over the average lease term of
6 years
. In light of our operating results over the past few years and our liquidity needs, we have deferred certain capital expenditures and may continue to do so in the future. As a result, the average age of our fleet has increased and we will need to update our fleet periodically.
We believe that our results of operations will provide sufficient liquidity to fund our operations and meet the covenants under our New Term Loan for the foreseeable future, including the next twelve months.
Our ability to satisfy our liquidity needs and meet future stepped-up covenants beyond 2014 is dependent on a number of factors, some of which are outside of our control. These factors include:
|
|
•
|
we must achieve improvements in our operating results primarily at our YRC Freight operating segment which rely upon pricing and shipping volumes and network efficiencies;
|
|
|
•
|
we must continue to implement and realize cost saving measures to match our costs with business levels and in a manner that does not harm operations and our productivity and efficiency initiatives must be successful; and
|
|
|
•
|
we must be able to generate operating cash flows that are sufficient to meet the cash requirements for pension contributions to our single and multi-employer pension funds, cash interest and principal payments on our funded debt, payments on our equipment leases, and for capital expenditures or additional lease payments for new revenue equipment
|
In the event our operating results indicate we will not meet our maximum total leverage ratio, we will take action to improve our maximum total leverage ratio which will include paying down our outstanding indebtedness with either cash on hand or from cash proceeds from equity issuances. The issuance of equity is outside of our control and there can be no assurance that we will be able to issue additional equity at terms that are agreeable to us.
11. 2011 Financial Restructuring
On July 22, 2011, we completed our financial restructuring that included the following transactions (collectively referred to herein as the “restructuring”):
|
|
•
|
an exchange offer, whereby we issued to our lenders under our then-existing credit agreement an aggregate of
3.7 million
shares of our new Series B Convertible Preferred Stock, which were converted into
4.6 million
shares of common stock on a post split basis, and
$140.0 million
in aggregate principal amount of our Series A Notes in exchange for a
$305.0 million
reduction of our credit agreement obligations;
|
|
|
•
|
the issuance and sale for cash to such lenders of
$100.0 million
in aggregate principal amount of our Series B Notes;
|
|
|
•
|
the execution of the Amended and Restated Credit Agreement, the Prior ABL Facility and an A&R CDA with certain multi-employer pension funds;
|
|
|
•
|
the issuance of
1.3 million
shares of our Series B Preferred Stock to the Teamster-National 401(k) Savings Plan for the benefit of the Company's IBT employees, which were converted into
1.6 million
shares of common stock on a post split basis;
|
|
|
•
|
the issuance of
one
share of our new Series A Voting Preferred Stock to the IBT to confer certain board representation rights;
|
|
|
•
|
the repayment in full and termination of our then-outstanding ABS Facility and collateralizing a portion of our outstanding letters of credit with cash; and
|
|
|
•
|
the Teamsters National Freight Industry Negotiating Committee (“TNFINC”) of the IBT waived its right to terminate, and agreed not to further modify, the Agreement for the Restructuring of the YRC Worldwide Inc. Operating Companies, dated as of September 24, 2010 (as amended, the “2010 MOU”) such that the collective bargaining agreement will be fully binding until its specified term of March 31, 2015.
|
The table below summarizes the cash flow activity as it related to the restructuring as of July 22, 2011:
|
|
|
|
|
|
|
|
|
|
Sources of Funds (in millions)
|
|
|
Uses of Funds (in millions)
|
|
Issuance of Series B Notes
|
$
|
100.0
|
|
|
Retirement of ABS facility borrowings
|
$
|
164.2
|
|
Borrowings on the Prior ABL Facility
|
255.0
|
|
|
Restricted amounts held in escrow - Standby Letter of Credit Agreement
|
64.7
|
|
Additional borrowings under the revolving credit facility
|
18.5
|
|
|
Fees, expenses and original issue discount of restructuring
|
57.0
|
|
Company cash
|
2.4
|
|
|
Restricted amounts held in escrow - Prior ABL Facility
|
90.0
|
|
Total sources of funds
|
$
|
375.9
|
|
|
Total uses of funds
|
$
|
375.9
|
|
Following the restructuring, we amended and restated our certificate of incorporation on September 16, 2011 such that, among other things, all of our outstanding Series B Preferred Stock issued in the restructuring automatically converted into shares of our common stock and effected a
one-for 300
reverse stock split on December 1, 2011.
Restructured Credit Agreement Claims
In connection with the restructuring, we exchanged
$305.0 million
of amounts due under our prior credit agreement for an aggregate of
3.7 million
shares of Series B Preferred Stock and
$140.0 million
in aggregate principal amount of our Series A Notes. We estimated the fair value of the Series B Preferred Stock to be
$43.2 million
. We also converted the remaining prior credit agreement borrowings from the revolving credit facility to the restructured term loan, eliminated the unused revolving credit facility capacity and extended the prior credit agreement maturity date to March 31, 2015 for the
$307.4 million
aggregate principal amount restructured term loan and the
$437.0 million
letter of credit facility.
In accordance with FASB ASC 470-60, we accounted for this element of the restructuring as a troubled debt restructuring as the Company had been experiencing financial difficulty and the lenders granted a concession to the Company. We assessed the total future cash flows of the restructured debt as compared to the carrying amount of the original debt and determined the total future cash flows to be greater than the carrying amount at the date of the restructuring. As such, the carrying amount was not adjusted and no gain was recorded, consistent with troubled debt restructuring accounting.
The prior credit agreement's carryover basis was allocated to the Prior Term Loan and Series A Notes on a relative fair value basis, after taking into account the Series B Preferred Stock and the conversion feature in the Series A Notes. The difference in the effective interest rates as compared to the stated interest rates for the restructured term loan and Series A Notes is a function of the underlying fair values of the respective instruments, due to the allocation of carryover basis on a relative fair value basis. Fair values of the respective instruments were based on a contemporaneous valuation using an option pricing model, a Level 3 fair value measurement.
The fair value of the Series B Preferred Stock was based on a contemporaneous valuation, whereas an estimated enterprise value was first calculated using assumptions related to market multiples of earnings, a market approach which is a Level 3 fair value measurement. The estimated enterprise value was then reduced by the fair value of our debt instruments post-restructuring, with the residual allocated to our Series B Preferred Stock and common stock. See further discussion regarding our Series B Preferred Stock in our "Shareholders' Deficit" footnote to our consolidated financial statements.
The conversion feature embedded in the Series A Notes was required to be bifurcated on the restructuring closing date and separately measured as a derivative liability, as the Company did not have enough authorized and unissued common shares to satisfy conversion of the Series A Notes. We estimated the fair value of the conversion feature based on a contemporaneous valuation using an option pricing model, a Level 3 fair value measurement, and determined the fair value to be
$12.4 million
.
On September 16, 2011, the Company held a special meeting of shareholders at which the Company's amended and restated certificate of incorporation was approved and the number of authorized common shares increased to allow for the conversions. This increase provided sufficient authorized common shares to satisfy the conversion feature in the Series A Notes, and thus the conversion feature in the Series A Notes was no longer required to be bifurcated and presented as a derivative liability. The conversion feature was adjusted to a fair value of
$26.5 million
on September 16, 2011, with the change of
$14.1 million
recorded as 'Fair value adjustment on derivative liabilities' in the accompanying statements of consolidated operations. The fair value of the conversion feature was then reclassified as an equity-classified derivative within 'Capital surplus' in the accompanying consolidated balance sheet.
We allocated
$15.6 million
of professional fees to this element of the restructuring, of which
$14.0 million
are related to the issuance of the Series A Notes and modifications to the prior credit agreement. Such amount has been recognized as 'Nonoperating restructuring transaction costs' in the accompanying statements of consolidated operations, consistent with troubled debt restructuring accounting. The remaining
$1.6 million
of professional fees are allocated to the issuance of the Series B Preferred Stock and have been recorded as a reduction to 'Capital surplus' in the accompanying consolidated balance sheet.
Prior ABL Facility and Refinancing of ABS Facility
In connection with the restructuring, the Company entered into the Prior ABL Facility, of which the Term A Facility was funded by lenders that did not participate in the ABS Facility and the Term B Facility was funded by one of the ABS Facility lenders. This element of the restructuring was accounted for as an extinguishment of debt and issuance of new debt, for the portion of Prior ABL Facility debt attributed to lenders that did not participate in the ABS Facility. For the portion of the Prior ABL Facility debt attributed to the lender that participated in the ABS Facility, this element of the transaction was being accounted for as an exchange of line-of-credit or revolving-debt arrangements.
As a part of refinancing the ABS Facility, the lenders agreed to forgive accrued interest of
$11.3 million
and deferred commitment fees of
$15.0 million
. The forgiveness of the interest and fees along with the write-off of
$1.2 million
of unamortized deferred debt costs associated with the ABS Facility resulted in the recognition of a gain on the extinguishment of debt of
$25.1 million
. Such amount has been recognized as '(Gain) loss on extinguishment of debt' in the accompanying statements of consolidated operations.
We allocated
$5.2 million
of professional fees to this element of the restructuring. Such costs have been recorded as unamortized deferred debt costs in “Other assets” in the accompanying consolidated balance sheet and were recognized as interest expense over the term of the Prior ABL Facility.
Restructured Contribution Deferral Agreement
In connection with the restructuring, we entered into the A&R CDA with certain multi-employer pension funds to which we contribute. Such amendment, among other things, revised the final maturity date from December 31, 2012 to March 31, 2015 for amounts outstanding at the date of the restructuring, converted accrued interest of
$4.5 million
at the time of the restructuring to principal, and increased the interest rate for the Central States Pension Fund, which represents
64.3%
of the total amount outstanding under the CDA, to
7.5%
. The impact of this element of the restructuring on our accompanying consolidated balance sheet was
primarily limited to the reclassification of current obligations to non-current liabilities, due to the change in maturity date for all principal to March 31, 2015.
We allocated
$3.8 million
of professional fees to this element of the restructuring. Such amount has been recognized as 'Nonoperating restructuring transaction costs' in the accompanying statements of consolidated operations.
Series B Notes
The conversion feature embedded in the Series B Notes was required to be bifurcated on the restructuring date and separately measured as a derivative liability, as the Company did not have enough authorized and unissued common shares to satisfy conversion of the Series B Notes. We estimated the fair value of the conversion feature based on a contemporaneous valuation using an option pricing model, a Level 3 fair value measurement, and determined the fair value to be
$41.7 million
.
On September 16, 2011, the Company held a special meeting of shareholders at which the Company's amended and restated certificate of incorporation was approved and the number of authorized common shares to allow for the conversions. This increase provided sufficient authorized common shares to satisfy the conversion feature in the Series B Notes, and thus the conversion feature in the Series B Notes was no longer required to be bifurcated and presented as a derivative liability. The conversion feature was adjusted to a fair value of
$106.8 million
on September 16, 2011, with the change of
$65.1 million
recorded as 'Fair value adjustment on derivative liabilities' in the accompanying statements of consolidated operations. The
$106.8 million
fair value of the conversion feature was then reclassified as an equity-classified derivative within 'Capital surplus' in the accompanying consolidated balance sheet.
We allocated
$2.1 million
of professional fees to this element of the restructuring. Such costs have been recorded as unamortized deferred debt costs in “Other assets” in the accompanying consolidated balance sheet and will be recognized as interest expense over the term of the Series B Notes.
12. Stock Compensation Plans
We have reserved
2.0 million
shares for issuance to key management personnel and directors under the 2011 long-term incentive and equity award plan. As of
December 31, 2013
,
1.1 million
shares remain available for issuance under this plan. The plan permits the issuance of restricted stock and share units, as well as options, stock appreciation rights, and performance stock and performance stock unit awards. Awards under the plan can be satisfied in cash or shares at the discretion of the Board of Directors. According to the plan provisions, the share units provide the holders the right to receive one share of our common stock upon vesting of one share unit. The plan requires the exercise price of any option equal to the closing market price of our common stock on the date of grant.
Stock Options
On March 1, 2010, we formalized the Second Union Employee Option Plan that provided for a grant of up to
31,000
options, including the effect of the reverse stock split, to purchase our common stock at an exercise price equal to
$3,600.00
per share, of which all have been granted. As a part of the union wage reduction, we agreed to award a certain equity interest to all effected union employees. These options vested immediately, will expire
10
years from the grant date, and were exercisable upon shareholder approval, which was received on June 29, 2010, at our annual shareholder meeting. There has been no activity in these stock options for the
years ended December 31, 2013, 2012 and 2011
.
The following table summarizes information about stock options outstanding as of
December 31, 2013
: